BARCELONA (Reuters) - German business software maker SAP will spell out in the new year how it plans to grow each of its major lines of business over the next few years, without making any further big acquisitions, its chief executive said on Wednesday.
“You will see exactly what our plan is to grow the core, to grow the cloud and to grow the operating income,” Bill McDermott told the Morgan Stanley European Technology, Media and Telecoms Conference in Barcelona.
McDermott was addressing investor concerns that the company might be facing slowing growth in its core licensed software business and substantially lower profit margins on its newer online cloud services.
SAP’s share price dropped last month when the company cut its operating profit forecast this year as the shift by customers to subscription-based online services rather than buying a software package upfront slows up revenues.
McDermott said the new growth strategy would be presented with SAP’s year-end results, which are due to be announced on Jan. 20, according to the company’s website.
“I will lay out a 2015 to 2020 growth plan for SAP, for each year, he said, as he promised “a very clear path to 2020 with each year lined out” so as to reassure investors.
The strategy will focus on organic growth from existing businesses and successful execution rather than on doing the sorts of multi-billion-dollar merger deals it has undertaken in recent years, McDermott said.
SAP is still in the throes of buying expense-control software maker Concur for $7.3 billion, its largest acquisition ever, which has been criticized as being too high a price. The deal is set to close in the coming weeks, McDermott said.
“Faced with a choice of stepping up or stepping it down, we are going to step it down,” McDermott said when asked at the conference on Wednesday about the company’s appetite for further major merger deals.
Shareholders can expect only smaller acquisitions that provide the company with new technologies or services that it would take too long for the company to develop itself.
“If we do something it will be tuck-in. It will probably put you to sleep,” he said.
Commenting on its current state of business, McDermott said SAP faces a similar macroeconomic environment half way through the fourth quarter as it did last quarter.
The United States and Europe remained “pretty steady”, McDermott said, with the exception of Russia, while Latin America, led by Brazil, has been less predictable.
Morgan Stanley analyst Adam Wood said later in a research note that SAP has been undergoing an internal debate over whether to invest heavily in the short term to speed up its transition to internet-based software, or whether to take a more measured investment approach over the coming years up to 2020.
Additional reporting by Harro ten Wolde in Frankfurt; Editing by Maria Sheahan and Greg Mahlich