Stefan Mileschin

If only there were some management software it could use to help out

SAP, the maker of expensive esoteric software, which no-one really knows what it does, has told its shareholders not to expect a major improvement in margins before next year.

The German business software group reported a 21 percent decline in second quarter operating profit on Thursday, sending its shares sharply lower.

CEO Bill McDermott expressed his “absolute commitment” to meeting a strategic goal of expanding margins by five percentage points through 2023.

Shares fell 10 percent at the open as revenue and operating profit came in below expectations, weighed down by one-off costs and weakness in Asian markets.

Investors had driven SAP’s shares to all-time highs after management launched an efficiency drive in April, and are keen to see evidence that it is starting to pay off. However, apparently not.

The spring quarter was, however, marked by a five percent decline in licence revenue, the result of trade tensions that took their toll on Asian markets in particular.

Software licenses and support, SAP’s legacy business, still account for more than half of its revenue and the bulk of its profit. But because most revenue on new deals is recognized up front, it is more volatile than the company’s smaller, but faster-growing cloud business.

Operating profit of 827 million euro was hit by charges from a restructuring that will see more than 4,000 staff leave SAP, the $8 billion acquisition of customer sentiment tracking firm Qualtrics and cash-settled staff bonuses.

After adjusting for one-offs, SAP’s operating profit at constant currencies rose eight percent in the second quarter - in line with revenue growth but below Eikon Refinitiv estimates. Adjusted operating margins were flat at 27.3 percent.

SAP reiterated its guidance for adjusted operating profit to grow by between 9.5 percent and 12.5 percent this year.

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