SAP preliminary Q1 2020 results: Covid-19 takes a bite as in-person events cancelled

The coronavirus public health crisis has hit SAP’s first quarter, according to its preliminary financial results statement

SAP has announced its preliminary financial results for the first quarter of 2020, and signalled the impact that the Covid-19 public health crisis is having on its business.

Its full quarterly statement will be published on 21 April, with such details as pace of adoption of its flagship enterprise resource planning (ERP) product, S/4 Hana.

Before the coronavirus crisis began to take a grip on the global economy, SAP announced, at the beginning of February, a five-year stay of execution for its ECC6 ERP system, which was scheduled for a 2025 end of life.

The supplier said business activity was “healthy” in the first two months of the quarter, but that “as the impact of the Covid-19 crisis rapidly intensified towards the end of the quarter, a significant amount of new business was postponed”.

SAP said it has moved to a virtual sales and remote implementation strategy. It is slowing down recruitment, reducing travel, and moving to virtualised events.

The company announced on 26 March that its global annual conference, Sapphire, due to take place on 12-14 May, will be staged virtually. It has cancelled all other in-person events in April, May and June.

SAP said its total Q1 revenue grew by 7% year on year to €6.52bn, and its cloud revenue grew by 29% year on year to €2.01bn. Software licences revenue was down by 31% year on year to €0.45bn.

The company’s operating profit more than doubled year on year to €1.21bn, but it took a cost hit of €36m for the cancellation of Sapphire and other customer events.

Recently installed co-CEOs Jennifer Morgan and Christian Klein said: “As the world navigates the Covid-19 pandemic, SAP has remained focused on our employees, customers and communities. To support them, we made our vast business networks and technology available for companies to find new sources of supply and manage demand.”

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Chief financial officer Luka Mucic, whose contract has been extended by five years to 2026, added: “Our multi-year emphasis on building a strong base of more predictable revenue has made SAP more resilient than ever. Combined with an even more prudent expense management and a continued focus on innovation, we will weather the Covid-19 crisis and emerge stronger than before, as we have done in past downturns.”

SAP is revising its 2020 outlook to reflect the estimated impact of the coronavirus crisis. It assumes the current crisis will ensure deterioration in Q2 “before gradually improving in the third and fourth quarter as economies reopen and population lockdowns end”.

Non-IFRS cloud revenue is now expected to be in a range of €8.3bn to €8.7bn. The previous range was €8.7bn to €9.0bn.

Total revenue is now expected to be in a range of €27.8bn to €28.5bn. The previous range was €29.2bn to €29.7bn.

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