SAP hit by trade war as profits undershoot expectations

SAP hit by trade war as profits undershoot expectations

Second-quarter profits at SAP missed expectations after Europe’s largest software maker — and Germany’s most valuable company — was hit by the simmering trade war between China and the US, which has dented software sales in Asia. 

Excluding acquisition and restructurings costs as well as stock-based compensation, the Walldorf-based maker of enterprise software increased operating profit by 11 per cent year on year to €1.82bn, SAP reported on Thursday.

Analysts polled by Vara Research had on average expected a 14 per cent increase. Chief financial officer Luka Mucic confirmed the group’s 2019 outlook for lifting annual operating profit by 9.5 to 12.5 per cent before currency changes. 

Shares in SAP were down 6 per cent in pre-market trade on Thursday morning.

With a market cap of €148bn, SAP is by far the highest valued company in Germany, dwarfing Linde (€99bn) and Allianz (€92bn).

Shares in SAP are up more than a third this year after US activist fund Elliott disclosed a $1.3bn investment. 

The software group subsequently announced new, ambitious medium-term profit targets in April. It said it wanted to widen its operating margins by a total of 5 percentage points through 2023 by growing its cloud computing operations. 

In the second quarter, SAP’s profit operating margin was stable at 27.3 per cent, compared to an average of analyst forecasts of 27.7 per cent. 

The group’s all-important cloud and subscription revenue grew in line with analysts’ expectations. At €1.72bn, it was 40 per cent higher than a year ago.

Software licence and support revenue, however, increased just 2 per cent to €3.8bn, undershooting analyst expectations of 3.7 per cent. 

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