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SAP Results for Q2 2022 Show Increased Cloud Revenue

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Latest SAP results for the second quarter ended June 30, 2022 indicated significant increase in cloud revenue, fueled by a growing number of organizations implementing SAP S/4HANA in addition to clients adopting SAP Business Technology Platform (SAP BTP).

SAP’s cloud-led strategy is resonating well with customers as the company has seen accelerated cloud adoption, growth in new business, and a major increase in the number of customers moving to the cloud. The company expects this momentum to continue as it executes on its vision of providing customers with a simple, agile, and secure operating business environment built using only high-quality solutions.

The enterprise software giant had a strong second quarter in terms of cloud revenue performance as it saw a high demand for its offerings in Germany, the United States, Brazil, Japan, India and Switzerland. According to Christian Klein, Chief Executive Officer and Member of the Executive Board at SAP SE, the portfolio that SAP offers is more relevant now than it has ever been before, as indicated in the latest figures for the company’s Q2 financial results. In addition, he stated that SAP’s shift to the cloud is ahead of plans and that it has surpassed top-line projections, with its cloud business becoming the firm’s primary source of revenue.

“Our pipeline is strong, and we are winning market share underpinned by the very strong 100% growth of S/4HANA current cloud backlog,” Klein claimed.

Furthermore, SAP has reaffirmed its goal to grow operating profit by 10% in 2023, which was first published in the company’s Q3 2020 Quarterly Statement. The tech giant has seen a lot of success with its cloud services and has benefited from the recent favorable currency exchange rates, which is why the company is looking to update its mid-term ambition in the near future. This move reflects how successful SAP’s cloud business has been and how they have been able to take advantage of favorable economic conditions.

In terms of SAP S/4HANA adoption, over 650 customers decided to use the intelligent enterprise resource planning (ERP) solution during the quarter, bringing the total number of customers to almost 20,000. This represents a year-over-year increase of 15%. Of these customers, over 14,500 organizations are already operational. More than sixty% of the additional SAP S/4HANA clients who signed up during Q2 were net new.

Strong Cloud Performance Reflected in SAP Q2 Results 

Customers have been rapidly expanding their SAP landscapes and the latest example of this is Microsoft’s investment in RISE with SAP, the German IT giant’s Business Transformation as a Service (BTaaS) signature cloud offering. What this means is that the multinational technology company has increased the size of its partnership with SAP to provide a comprehensive cloud service that goes well beyond ERP. Meanwhile, Mapletree Investments, Malaysia Airlines, HeidelbergCement, and GlobalFoundries have also integrated RISE with SAP together with other solutions to provide customers a one-stop-shop for their IT needs.

SAP SE Chief Financial Officer Luka Mucic believes that the results of this quarter reflect once more that SAP’s strategy is successful, despite the seemingly difficult global setting. He added that the German software vendor has maintained its solid top-line growth, outperforming sales forecasts, and achieving better financial performance in the cloud.

Mucic also mentioned that SAP also recognized the main impact of the war in Ukraine this quarter. The conflict in Ukraine and SAP’s move to wind down the company’s operations in Russia and Belarus both had an effect on the sales revenue during the first half of the year. The company’s IFRS operating profit fell by 32%, hitting €673 million, while IFRS operating margin dropped by 5.8 percentage points, reaching 8.9%. Additionally, the operating profit under non-IFRS measures fell by 13% to €1.68 billion and dropped by 16% when expressed in constant currencies.

As per the press release issued by SAP, the primary factor behind this was a decreased contribution from software licenses revenue, in coupled with high bad debt charges connected to the conflict in Ukraine. In addition, the operating profit calculated using IFRS was negatively impacted by restructuring costs of €130 million. These costs were incurred principally as a result of the company’s decision to withdraw from the Russia and Belarus markets.

The estimated immediate financial impacts of the Ukraine war resulted in a reduction of 28 percentage points in operating profit growth per the IFRS, 8 percentage points in operating profit growth according to non-IFRS, and 6 percentage points in non-IFRS operating profit growth when expressed in constant currencies. Mucic remarked:

“We believe that we are now able to capitalize on our substantial growth investments of the last 18 months, by delivering sustained growth and profitability expansion.”

Moreover, SAP also recently announced its share repurchase program. The implementation of the program, which may have a total cost of up to €500 million, is scheduled to take place between August 1 and December 31 this year. The program will be done in accordance with the conditions that are set forth therein, and based on the authorization that was granted by the Annual General Meeting of SAP SE last May 17, 2018. The majority of the shares that are repurchased will be used to fund service awards that are distributed to staff as part of share-based compensation packages.

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