SAP: Strong Q4 2018 earnings, restructuring on the horizon

SAP is keen to emphasize the shake-up is for growth rather than cost-cutting.

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SAP has revealed as part of the firm's 2018 financial results that it will take a charge of 950 million euros ($1 billion) with restructuring on the horizon due to early retirement and staff shifts to shore up slowing business units.

SAP's Q4 2018 earnings (statement) reveal revenues of €7.43bn IFRS or €7.34 billion non-IFRS, up nine percent year-over-year with basic earnings per share of €1.41, a drop of eight percent IFRS or 15 percent non-IFRS.

In comparison, in Q3 2018, SAP reported revenues of €6.02 billion IFRS or €6.031 billion non-IFRS.

Operating profit increased by 22 percent year-over-year to €2.4 billion IFRS.

New cloud bookings were up 25 percent -- 23 percent at constant currencies -- to €736 million, while cloud subscriptions and support revenue grew 41 percent year-over-year to €1.41 billion IFRS.

Software revenue grew only one percent year-over-year to €2.09 billion IFRS, or up eight percent at constant currencies.

Cloud and software revenue combined grew nine percent to €6.32 billion IFRS.

The three main business segments SAP reports on, "Applications, Technology & Services," "Customer Experience" and "SAP Business Network" did well over the fourth quarter.

Applications, Technology & Services grew by six percent to €6.26 billion year-over-year, up 10 percent at constant currencies, with SAP S/4HANA contributing to revenue through increased adoption rates of 33 percent. SAP S/4HANA now accounts for roughly 10,500 customers.

In the Customer Experience category, SAP reports revenue of €349 million, an increase of 52 percent year-over-year. The SAP Business Network reported Q4 earnings of €721 million, a rise of 26 percent year-over-year or 24 percent at constant currencies.

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The cloud services provider also released full financial results for 2018. SAP says it met or exceeded all of its expectations for the year in question, of which revenues were reported as €24.71 billion IFRS or €25.96 billion non-IFRS at constant currencies.

This exceeded SAP's outlook of €25.2 billion to €25.5 billion non-IFRS at constant currencies. Operating profit reached €5.71 billion IFRS or €7.48 billion non-IFRS at constant currencies.

Over 2018, new cloud bookings were €1.81 billion, up 25 percent, while cloud subscriptions and support revenue were reported as €4.99 billion IFRS or €5.21 billion non-IFRS.

Software revenue, however, revealed a chink in the armor -- falling by 5 percent year-over-year to €4.65 billion IFRS and remaining flat non-IFRS at constant currencies. Combined cloud and software revenue was €20.62 billion IFRS.

Overall net liquidity stands at -€2.49 billion.

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SAP says the €950 million restructuring charge is due to offers of early retirement and the reassignment of employees. Rather than being a cost-cutting move, however, the tech giant told Reuters that the restructure will go ahead in order to promote growth. However, up to 3,000 employees may be cut. 

The majority of the charge will hit Q1 2019.

In 2020, SAP expects to reach €28.6 - €29.2 billion non-IFRS total revenue, €8.6 - €9.1 billion non-IFRS cloud subscriptions and support revenue -- an increase from earlier predictions of €8.2 − €8.7 billion -- and €8.5 - €9.0 billion non-IFRS operating profit.

Over the next five years, up to 2023, SAP hopes to reach over €35 billion in non-IFRS total revenue and to grow non-IFRS operating profit by 7.5 to 10 percent.

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In November 2018, SAP acquired Qualtrics in a deal worth $8 billion, a move which changed the plans of the customer and employee experience platform to go public.

This was followed by the purchase of Contextor, a machine learning and robotic automation company. The financial details of this deal were not disclosed. 

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