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Global Economy

Ukraine war brakes SAP

In the past three months, the software group SAP has clearly felt the consequences of the war in Ukraine. Adjusted for special effects, earnings before interest and taxes fell by 13 percent year-on-year to EUR 1.68 billion. The cessation of business in Russia and Belarus cost 160 million euros. In addition, the group had to shoulder high investments in the cloud software business and cope with the gloomy economic environment.

The net profit even dropped by 86 percent to just 203 million euros. Not only the share price of SAP, but also the market valuation of smaller start-ups in the technology sector suffered significantly in the first months of the year. SAP is investing in just such companies through its stake in venture capitalist Sapphire Ventures.

Cloud software is growing faster than expected

In the fall of 2020, Klein pushed SAP's efforts towards the cloud significantly. The company also sacrifices returns for this, because conventional licensed software is initially more profitable thanks to its high one-time sale prices. The cloud software only pays off for SAP after a longer term via the income from the subscription model. Because the technology is also being modified for the changed strategy and sales are trimmed with financial incentives for the sale of cloud products, it costs money.

Worse outlook – SAP stock falls

The bundle of news was badly received on the market: the share lost 4.4 percent at a low of 86.70 euros. One trader spoke of taking profits after a disappointing outlook. Currency-adjusted earnings before interest and taxes adjusted for special effects should now fall by four to eight percent this year compared to the previous year. SAP had previously announced that the operating result would stagnate or fall by up to five percent.

The US investment bank Goldman Sachs wrote in an initial statement that SAP had achieved mixed results in the second quarter. The new outlook for the operating result for 2022 is rather poor, it said.

Further share buybacks planned

After all, SAP wants to buy back more shares on the market. After the completion of a previous program of almost one billion euros this year, the DAX group intends to spend up to 500 million euros again to acquire paper, primarily for employee share-based remuneration programs.

SAP CFO Mucic said in a conference call that the group wanted to take advantage of the still low share price. The new program is scheduled to run from the beginning of August to the end of December. In 2020, SAP bought back shares for around 1.5 billion euros.

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