(new: share price updated, management statements from analyst conference, details)

WALLDORF (dpa-AFX) - Europe's largest software maker SAP continues to make speed with the sale of its software for use over the network. In the first quarter, sales of such products from continuing operations rose by almost a quarter year-on-year, the Dax heavyweight announced Friday in Walldorf. Analysts had expected somewhat more. But even criticism from industry experts that it was primarily the legacy licensing software that generated a surprisingly high operating profit, and not the cloud business, could not ultimately weigh on SAP shares in the long term. In the afternoon, it rose significantly at the top of the Dax.

After the share had already performed well this year, its price turned positive in the course of trading only after initial losses and was most recently up more than five percent at 121.82 euros. Since the beginning of the year, the stock has gained almost a quarter. Following the withdrawal of the gas company Linde from the Frankfurt Stock Exchange, SAP is now once again the most valuable German listed company.

Overall, Group revenue in the first quarter increased by 10 percent to 7.44 billion euros. Earnings before interest and taxes, adjusted for non-recurring items, grew by 12 percent to 1.88 billion euros, which was about as much as experts had previously estimated. The business figures already exclude the U.S. subsidiary Qualtrics, whose sale SAP announced in March and which is expected to be completed in the second half of the year.

Analysts pointed to unexpected strength in license sales as the main reason for the operating profit. According to Charles Brennan of the US investment bank Jefferies, the majority of experts had expected a 35 percent decline in license sales. In the end, the decline was only 13 percent. SAP was convincing overall, but "not for the right reasons," Brennan wrote. The overall results were not as bad as he feared, he said.

Software licenses generate a comparatively large amount of earnings in one fell swoop with high one-time sales prices. SAP's new chief financial officer, Dominik Asam, pointed to several large deals in that area in the first quarter. This is unlikely to be repeated in the rest of the year. In sales, SAP is also hardly focusing on the license business anymore, since CEO Christian Klein has been trimming the group even more to the cloud business. These are considered to be more stable, and SAP estimates that they are also more profitable in the long term due to recurring subscription payments. Starting next year, Klein wants to achieve double-digit percentage growth in total revenue thanks to the swelling user fees.

The Group has set itself rather cautious targets in continuing operations for the current year following the announcement of the Qualtrics sale. Adjusted for foreign exchange, earnings before interest, taxes and exceptional items are expected to climb by eight to eleven percent. Including Qualtrics, the target had been 10 to 13 percent. Asam said there had been little change in the fundamental trends in day-to-day business.

The cloud software backlog continued to grow strongly. Klein said SAP has never achieved such growth rates with a central program for enterprise resource planning (ERP) as with the cloud version of its core S/4 Hana program.

Below the line, however, SAP had to accept a noticeable drop in profits. Including all effects and the still-subsidiary Qualtrics, net profit fell by almost a fifth to 509 million euros. On the one hand, increases in the value of investments in start-ups played into SAP's hands a year ago. But the cost-cutting program with the planned elimination of around 3,000 jobs has now cost SAP around 255 million euros. Most of the plan was completed in the first quarter, Klein said. Management also does not expect further such cuts this year.

In addition, 170 million euros were due for regulatory matters related to compliance, as the company put it. CFO Asam did not want to give any details on this; however, these were already known problems from the past. In recent years, SAP has had to contend with violations of rules in South Africa, for example.

Share-based employee compensation also had a much greater impact on earnings in the first quarter than a year earlier, because the share price performed better in the first quarter of 2023 than in the same period last year. At least the planned sale of Qualtrics will give the Walldorf-based company a little more room to maneuver: Instead of EUR 2.55 to 2.85 billion including Qualtrics, costs are expected to be only EUR 1.85 to 2.25 billion in the future. At Qualtrics, share-based compensation has always been lavish.

Asam wants to have the planned sales proceeds of around 7.7 billion U.S. dollars (7 billion euros) for its own Qualtrics shares in its coffers first before the company decides what to do with them. Asam spoke of options this would open up, including shareholder participation and possible acquisitions. But he said the Walldorf-based company does not feel compelled to make any acquisitions, he said in a conference with analysts.

SAP said it is making progress in discontinuing business in Russia and Belarus as a result of Russia's war of aggression against Ukraine. For example, it said, the discontinuation of the business is almost complete. However, SAP warned that a worsening of the situation could have further negative consequences for the company./men/stw/he