SAP says improving margins, cash flow to create scope for more buybacks

BARCELONA (Reuters) - Improving profit margins and cash flow at SAP <SAPG.DE> will create room for further capital return to shareholders after a 1.5 billion euro (£1.3 billion) buyback the company plans for 2020, finance chief Luka Mucic said on Friday.

The German business software company, which has just hired Jennifer Morgan and Christian Klein as its new co-CEOs, earlier this year set a target of expanding margins by an average of one percentage point a year through to 2023.

Acquisition-related costs mean the gain will be slightly lower this year, followed by a catch-up next year and then a straight line progression after that, Mucic told the Morgan Stanley European Technology, Media and Telecoms Conference in Barcelona.

Those gains will in turn boost both operating and free cash flow, Mucic added, creating additional scope to return capital to investors on top of paying dividends and reducing debt.

Mucic forecast SAP would make 4.5 billion euros in free cash flow in 2020, predicting compound annual growth of 15%-25% after that as the company moves to rationalise its hardware infrastructure.

"This should give us considerable scope to consider further capital return in the years to come," he said.

SAP, which under former CEO Bill McDermott launched a string of multibillion-dollar takeovers, has now foresworn large-scale deals, instead focusing on integrating its existing products to improve the user experience of its customers.

"We have no intention and line of sight to consider large-scale acquisitions at this point in time," said Mucic, confirming the line taken at a capital markets presentation in New York earlier this week.

(Reporting by Douglas Busvine; Editing by Mark Potter)