SAP: good figures, but bad mood

There are rumblings among the SAP workforce: The index value for employee engagement is at a ten-year low. For 2024, SAP management around CEO Christian Klein expects only 70 to 74 percent. This is according to the current financial report for the third quarter of 2023.

The index is determined on the basis of five questions from employee surveys and indicates the percentage of questions answered positively, according to SAP. “Employee engagement is an expression of the satisfaction and commitment of our employees, their pride in our company and their identification with SAP,” the company said. “We use this metric because we know that our growth strategy depends on engaged employees.”

Restructuring affects up to 10,000 jobs

But there is dissatisfaction among SAP employees. At the beginning of 2024, the group had announced a restructuring program that was to affect about 8000 jobs. Terms such as layoffs and job cuts were avoided by those responsible. It is a measure to set up qualifications and resources according to future business requirements, the SAP managers said instead. In 2024, the company wants to focus more strongly on key strategic growth areas such as AI for companies.

In the course of the year, there were already indications that the conversion could go deeper than originally planned. In the current quarterly report, SAP speaks of 9000 to 10,000 jobs that will be affected by the restructuring. Most of them would involve volunteer programs and internal retraining measures, it said. According to SAP, the program is to be completed at the beginning of 2025 and cost around €3 billion.

But the conversion leaves clear traces. The satisfaction of SAP employees is declining. Employee engagement was at 86 percent in 2020, and never fell below 80 percent in the years before or since, but now SAP management expects only a value of between 70 and 74 percent for 2024. Last year, 76 to 80 percent had been expected in Walldorf. The software company is a long way from the 2022 target of achieving 84 to 86 percent next year. In the meantime, no concrete figures for 2025 are given in the boardroom. There is only talk of wanting to steadily increase the number.

Cloud business is going well for SAP

Financially, on the other hand, things are going splendidly for SAP. For the third quarter of 2024, the software manufacturer reported revenue of just under €8.5 billion, an increase of ten percent after adjusting for currency effects compared to the same quarter last year. The operating result even improved by 28 percent from just under €1.8 billion to a good €2.2 billion. The bottom line was a profit of over €1.4 billion, compared to €1.3 billion in the previous year.

Cloud revenue in particular drove the SAP business. Compared to the third quarter of 2023, this item increased by a quarter from 3.5 to almost €4.4 billion. In the traditional business with software licenses and maintenance services, SAP still earned just under €3.1 billion from July to September of this year. The lion’s share of this is accounted for by software support at just under €2.8 billion. License revenue fell further by 15 percent compared to the same quarter of the previous year to only €285 million.

SAP raises outlook

In view of the good quarterly results, SAP management raised its expectations for the full year 2024. Cloud and software revenue are therefore expected to be in a range between €29.5 billion and €29.8 billion after adjusting for currency effects (previously €29.0 billion to €29.5 billion). Operating profit in Walldorf is expected to be between €7.8 billion and €8.0 billion after adjusting for currency effects, compared to €7.6 billion to €7.9 billion a year earlier.

SAP CEO Christian Klein spoke of a strong result in the third quarter. “Cloud revenue growth has been extraordinarily good, especially for our Cloud ERP Suite.” In addition, the SAP CEO referred to decisive progress in corporate AI. “A significant portion of our cloud contracts in the third quarter included AI use cases.”

CFO Dominik Asam emphasized that the 2024 transformation program has already provided initial efficiency gains. Among other things, the strong operating result is due to this. “We are now focused on building on this success in the fourth quarter in order to achieve our targets for 2025 despite an extremely volatile environment,” Asam said.