In 2024, SAP SE (NYSE: SAP) aims to undertake a company-wide transformation initiative that will include restructuring. Furthermore, SAP is revising its goal for 2025. The amended non-IFRS definition of profit measures, the anticipated advantages of the new program, and the robust performance in the fourth quarter of 2023 are all reflected in the update.
Share-based compensation costs of about €2 billion are now included in the revised 2025 non-IFRS operating profit aim of about €10.0 billion. SAP’s analysis indicates that this profit goal is significantly higher than related analyst consensus expectations. Furthermore, the revised goal for free cash flow by 2025—roughly €8.0 billion—is higher than the most recent consensus of analysts.
Ambition 2025
Due to the inclusion of share-based compensation expenses under the updated non-IFRS definition, the non-IFRS operating profit ambition has been updated. This includes a reduction of approximately €2 billion as a result, as well as an increase of approximately €0.5 billion due to anticipated incremental efficiency gains from the transformation program.
SAP has revised its estimates for non-IFRS cloud gross profit by 2025, which now includes share-based compensation charges of about €0.1 billion (compared to approximately €16.3 billion previously, excluding share-based compensation expenses).
- An approximate €10.0 billion non-IFRS operating profit, which now includes around €2 billion in share-based compensation expenses (previously: approximately €11.5 billion, excluding share-based compensation charges)
- About €8.0 billion in free cash flow (previously: approximately €7.5 billion)
SAP is still projecting the following revenue levels: over €21.5 billion in cloud revenue; over €37.5 billion in total revenue; and over 86% of income coming from more predictable sources.
The goal for 2025 is predicated on a 1.10 USD/EUR exchange rate.
The 2024 Transformation Program will prioritize important strategic growth areas and operational scalability.
SAP plans to intensify its attention on strategic growth areas in 2024, with a special emphasis on Business AI. Additionally, it plans to change how operations are run in order to take advantage of organizational synergies, AI-driven efficiency, and to build up the business for future revenue growth that will be extremely scalable.
To this aim, SAP intends to carry out a corporate-wide reorganization initiative in 2024 to guarantee that its skill base and resources continue to meet future business needs. Programs for voluntary leave and internal reskilling are anticipated to cover most of the roughly 8,000 affected positions. SAP forecasts its personnel to remain at present levels by the end of 2024, taking into account reinvestments into strategic growth areas.
The estimated preliminary cost of restructuring is approximately €2 billion, with the majority of this amount expected to be realized in the first half of 2024, thereby affecting IFRS operating profit. With restructuring costs excluded, the program’s projected cost benefit in 2024 is estimated to be very little.
The new 2025 non-IFRS operational profit- and free cash flow objective as well as SAP’s 2024 projection fully account for anticipated cost reductions and reinvestments.
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