SAP expects to expand margins after Qualtrics deal: CFO

Business

FILE PHOTO: SAP logo at SAP headquarters in Walldorf, Germany, January 24, 2017. REUTERS/Ralph Orlowski/File Photo

BARCELONA (Reuters) – Germany’s SAP (SAPG.DE) still expects its margins to expand after its $8 billion takeover of Qualtrics, a U.S. company that specializes in tracking the sentiment of consumers online, Chief Financial Officer Luka Mucic said on Friday.

SAP will be able to scale growth and profitability quickly at Qualtrics by cranking up its sales organization outside the United States, Mucic told the Morgan Stanley European Technology, Media and Telecoms Conference.

After closing, SAP forecasts top-line growth in double digits, with non-IFRS operating profits growing faster.

“We will continue to outperform the market in the coming years,” Mucic said in Barcelona, providing reassurance to investors who have sold down SAP stock this week on concerns that it may have overpaid for Qualtrics.

SAP’s margin expansion story will remain intact but the improvement will be incremental, Mucic added, cautioning that investors should not expect a ‘hockey-stick’, or steep acceleration, in the coming years.

Looking into 2019, SAP does not expect capital investment to rise as costs related to its transition from on-premise to the cloud roll off, Mucic said. Revenues from its cash-cow software licence business will decline at single-digit rates.

The Qualtrics deal surprised some in the market because SAP had been managing investors to expect smaller, ‘tuck-in’ acquisitions. Mucic said SAP may do small deals to buy companies in the fields of artificial intelligence or robotics.

Reporting by Douglas Busvine; editing by Thomas Seythal and Michelle Martin

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