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SAP Q1 Profit in Line as Sales Surge, Aided by Cheap Euro

Rising investment in cloud-based software squeezes margin.

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German business software maker SAP reported a 15 percent rise in operating profit, helped by a cheap euro, even as rising investment in newer cloud-based software squeezed its profit margin.

Europe’s largest software company said on Tuesday first-quarter operating profit, excluding special items, rose to 1.06 billion euros ($1.13 billion), matching the average expectation in a Reuters poll.

First-quarter revenue rose 22 percent to 4.5 billion euros, helped by currency effects, solid business in European markets and the $7.3 billion acquisition of Concur, the expenses software maker.

That beat the average analyst expectation of 4.25 billion euros in the Reuters poll.

SAP’s results contrasted with those of U.S. technology services giant IBM, which on Monday posted its twelfth quarter of revenue decline as it sheds unprofitable businesses to focus on cloud computing.

Excluding the effect of currencies, SAP operating profit dropped 2 percent, while operating margin fell to 23.5 percent from 24.8 percent in the same period last year. The declines were tied to stepped-up investments in newer cloud-based software, which requires higher initial costs, as revenue is recognized over time, squeezing short-term margins.

SAP is changing its business to deliver business planning software via cloud-based Internet services, rather than as packaged software running on customers’ in-house computers. In the first quarter, new cloud bookings rose 121 percent to 120 million euros from the same period in the previous year.

The company stuck to its outlook for the full 2015 year for non-IFRS operating profit of between 5.6 billion and 5.9 billion euros at constant currencies, which represents flat growth to a rise of as much as 5 percent from 5.6 billion euros last year.

Including the effect of the weaker euro, which makes the multinational software maker’s products and services more competitive outside Europe, operating profit is expected to grow as much as 18 percent, the company said.

That is slightly lower than SAP’s prediction last month, that profit could rise by 19 percent, reflecting the modest strengthening of the euro since then.

(Reporting by Harro Ten Wolde; Editing by Eric Auchard and Louise Heavens)

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