SAP says its margins are expected to finally flatten out in the year’s fourth quarter, according to the firm’s CFO Luka Mucic.
News from Reuters on Friday (Nov. 17) revealed that the German technology firm is expecting improved earnings starting in 2018 as the company continues its shift toward cloud-based enterprise offerings. Investments in data centers, among other shakeups, led to declines in SAP margins.
But that shrinkage will finally level out and gradually improve in the coming months, Mucic predicted.
“We see now the advent of a period when the margin inflection point should be reached soon,” he said at a conference in Barcelona. “In Q4, I see at least the chance to reach flat margins in non-EFRS terms.”
He added that earnings and stocks will continue to expand as SAP’s investments pay off throughout 2019 and 2020.
Reports said analysts predict the German technology company will post a 29 percent decline in margins for this year. While the business is confident in reversing the trend, Mucic noted that investors should be patient.
“The market should not be overly ambitious in terms of the margin increase, especially in 2018,” he said. SAP also will not be pursuing large acquisitions, instead choosing to focus on organic growth.
“We will continue [to look] for opportunities to expand our portfolio in tuck-in mode,” he said, noting that the German business will prefer smaller technology acquisitions and organic growth instead of larger M&A deals.
SAP inked a deal in 2014 that became its largest acquisition ever, acquiring corporate travel and expense management company Concur for $8.3 billion after a series of similarly large-scale deals.
More recently, SAP struck a partnership with EY to collaborate on the development of blockchain-based solutions with a focus on supply chain management. Their initiative enables businesses to experiment and innovate with EY’s blockchain-based supply chain management technology, Ops Chain, on SAP’s Leonardo platform.