SAP's CEO hints to investors more margin gains on the way

By Patricia Uhlig

MANNHEIM, Germany (Reuters) - The chief executive of SAP (SAPG.DE) struck a confident note on the German software giant's future on Thursday, hinting that further operating profit margin gains were on the way, while apologizing for corporate governance missteps in South Africa.

Speaking to investors at the company's annual general meeting here, CEO Bill McDermott said SAP had made mistakes in failing to better detect corrupt practices used to win South African government contracts. But he said the company had responded quickly to prevent similar practices re-occurring.

"Trust is earned in drops, but lost in buckets," McDermott said. "When we make mistakes, we admit them so we can fix them."SAP removed executives in South Africa and made sweeping changes to its global sales practices. It also acknowledged that it had paid funds to firms with links to the politically influential Gupta family, which were at the heart of a scandal that toppled President Jacob Zuma.

On a more upbeat note, McDermott said its latest quarterly results showed SAP was beginning to enjoy operating margin expansion for the first time since it began investing heavily in shifting its business from up-front licensing to subscriptions.

"This is one of many reasons that momentum in our share price has been re-established over the past several weeks," he said, before suggesting further gains were on the way. "Our shareholders should continue to benefit from this momentum".

SAP's American-born CEO said Germany's most valuable stock remains committed to once again tripling its market capitalization while declining to set any timeline for achieving the goal. SAP's share price trebled between 2010 and 2017.

"There is clearly the potential to triple the value of this company. We believe that is only a matter of time," McDermott told investors, reiterating previous comments on the target.

"While we are not giving a specific time frame, we are certainly charging ahead with this in mind," he said.

The company's market capitalization stands at just above 118 billion euros ($139 billion). Rival U.S. software maker Oracle (ORCL.N) is valued at around $190 billion.

At the annual general meeting, SAP asked for and received shareholder approval that sets limits on executive compensation, seeking to deflect anger in the country over McDermott's big, American-style payout, which is higher than any German peer.

(Reporting by Patricia Uhlig in Mannheim; Writing by Eric Auchard in London; Editing by Adrian Croft)