SAP lowers profit forecast on war in Ukraine

SAP SE posted higher revenue for the second quarter, as its cloud business continued to grow but the war in Ukraine hurt its operating profit, prompting the German business-software giant to lower its forecast for the year.

SAP said its operating profit fell to 1.68 billion euros $1.71 billion from EUR 1.92 billion on a non-IFRS basis, with its operating margin down to 22.4% from 28.8%. Analysts polled by FactSet had predicted operating profit of EUR 1.74 billion.

SAP said it expects a hit of around 350 million to operating profit at constant currencies for the year due to lower software licenses revenue and bad debt expenses linked to the war in Ukraine. The company said that the war left a hole of about 160 million in its second-quarter operating profit and 230 million in the first half.

SAP has lowered its forecast for the year, and now expects non-IFRS operating profit at constant currencies between EUR 7.6 billion and EUR 7.9 billion, rather than EUR 7.8 billion and EUR 8.25 billion.

Many Western firms have said they would try to leave Russia due to Moscow launching a full-scale invasion of Ukraine on February 24 and have started doing so in widely different ways. SAP slowed down its business operations in Russia and Belarus, handing out severance payments to employees there and recognizing impairments on some assets.

The main impact of the war in Ukraine was recognized, according to SAP Chief Financial Officer Luka Mucic. We believe that we are able to capitalize on our substantial growth investments of the last 18 months by delivering sustained growth and profitability expansion. SAP is moving away from software-licenses sales, once its biggest revenue stream, to subscription-based cloud services to a more profitable and predictable model based on recurring revenue.

The total revenue for the second quarter went up to EUR 7.52 billion from EUR 6.67 billion, with cloud revenue up to EUR 3.06 billion from EUR 2.28 billion. Software-licenses revenue fell to EUR 426 million from EUR 650 million.

For the year, SAP believes cloud revenue will be between EUR 11.55 billion and EUR 11.85 billion.

Analysts polled by FactSet had predicted total revenue of EUR 7.43 billion and cloud revenue of EUR 3 billion.

The transition to the cloud is ahead of schedule and we have exceeded topline expectations, with cloud revenue becoming SAP's largest revenue stream, Chief Executive Christian Klein said.