Executive Board’s Assessment
In 2015, SAP saw exceptional growth in its cloud business. Its core on-premise license business performed strongly as well, growing 10%. With the strong top line result we generated the highest non-IFRS operating profit in SAP’s history.
The exceptional strong cloud growth is driven by a broad cloud portfolio, the largest cloud business network in the world (SAP Ariba, Concur, and SAP Fieldglass solutions), and the SAP HANA Enterprise Cloud service.
We made substantial progress in transforming our Company by shifting investments from non-core activities to strategic growth areas, enabling us to capture the tremendous growth opportunities in the market. The completeness of vision in the cloud combined with a soaring adoption of SAP S/4HANA gives us confidence in our business in 2016 and beyond, which is reflected in an increase of our 2017 ambition. We exceeded our targets for cloud and software revenues and operating income and we are ever confident that SAP will remain a profitable growth business well into the future.
Influence of Accounting Policies on Our Financial Position
For more information about our accounting policies, see the Notes to the Consolidated Financial Statements section, Note (3).
There are no off-balance sheet financial instruments, such as sale-and-lease-back transactions, asset-backed securities, and liabilities related to structured entities, which are not disclosed in our Consolidated Financial Statements.
Our 2015 operating profit-related internal management goals and published outlook were based on our non-IFRS financial measures. For this reason, in the next section we discuss performance against our outlook only in terms of non-IFRS numbers derived from IFRS measures. The subsequent section about IFRS operating results discusses numbers only in terms of the International Financial Reporting Standards (IFRSs). So the numbers in that section are not expressly identified as IFRS numbers.
We acquired Concur Technologies in December 2014, so Concur results are incorporated in our 2014 results only for December. We acquired Fieldglass in May 2014, so Fieldglass results are incorporated in our 2014 results only from May to December.
Guidance for 2015 (Non-IFRS)
At the beginning of 2015, we projected, based on the strong momentum in our cloud business, that our non-IFRS cloud subscriptions and support revenue would end between €1.95 billion and €2.05 billion at constant currencies (2014: €1.10 billion). The upper end of this range represents a growth rate of 86% at constant currencies. The acquired companies Concur and Fieldglass were expected to contribute approximately 50 percentage points to this growth. SAP expected full-year 2015 non-IFRS cloud and software revenue to increase by 8% to 10% at constant currencies (2014: €14.33 billion). We also expected our full-year operating profit (non-IFRS) for 2015 to end between €5.6 billion and €5.9 billion (2014: €5.64 billion) at constant currencies. We anticipated an effective tax rate (IFRS) of between 25.0% and 26.0% (2014: 24.7%) and an effective tax rate (non-IFRS) of between 26.5% and 27.5% (2014: 26.1%).
Actual Performance Compared to Guidance 2015 (Non-IFRS)
We achieved or exceeded the amended outlook guidance for revenue and operating profit we published at the beginning of the year.
Comparison of Forecast and Results for 2015
|Forecast for 2015||Results for 2015|
|Cloud subscriptions and support revenue
(non-IFRS, at constant currencies)
|€ 1.95 billion
to € 2.05 billion
|€ 2.00 billion|
|Cloud and software revenue
(non-IFRS, at constant currencies)
to +10 %
(non-IFRS, at constant currencies)
to €5.9 billion
|Effective tax rate (IFRS)||25.0 %
to 26.0 %
|Effective tax rate (non-IFRS)||26.5 %
to 27.5 %
Despite ongoing economic uncertainty throughout 2015, our new and existing customers continued to show a strong willingness to invest in our solutions.
At constant currencies, non-IFRS cloud subscriptions and support revenue grew from €1.1 billion in 2014 to €2.0 billion in 2015. That represents an increase of 82% at constant currencies. The increase includes effects relating to acquisitions not included, or not included in full, in the 2014 amount. Besides these positive acquisition effects our cloud line of business also continued to benefit from strong organic growth (32% at constant currencies), which surpassed our long-term growth expectations for 2015.
Starting with the reporting for the first quarter of 2015, SAP reports a new cloud related measure called “new cloud bookings.” This measure is an order entry measure that is determined by including all order entry of a given period that meets all of the following conditions:
- The revenue from the orders is expected to be classified as cloud subscriptions and support revenue.
- It results from purchases by new customers and incremental purchases by existing customers. Consequently, orders to renew existing contracts are not included.
- The order amount is contractually committed (that is, variable amounts from pay-per-use and similar arrangements are not included). Consequently, due to their uncommitted pay-per-use nature, transaction-based fees from SAP Ariba and SAP Fieldglass solutions are not reflected in the new cloud bookings metric.
- Amounts are annualized. That is, for contracts with durations of more than one year, the average annual order entry amount is included in the number.
Thus, the new cloud bookings measure is an indicator for our cloud-related sales success in a given period and for future cloud subscriptions revenue. New cloud bookings increased 100% in 2015 to €874 million (2014: €436 million). Concur contributed €169 million to new cloud bookings. In addition to the strong growth of the new cloud bookings the combination of our cloud backlog (unbilled future revenue based on existing customer contracts) and deferred cloud revenue that together reflect the committed future cloud subscriptions and support revenue climbed by 53% to €4.6 billion (2014: €3.0 billion). This committed business will drive cloud growth in 2016 and beyond.
Besides the cloud business also our core on-premise business showed an exceptional growth in 2015. Cloud and software revenue (non-IFRS) was €17.2 billion (2014: €14.3 billion). On a constant currency basis, the increase was 12% and based on that result significantly above the forecast for 2015.
Our total revenue (non-IFRS) rose 18% in 2015 to €20.8 billion (2014: €17.6 billion). On a constant currency basis, the increase was 10%.
Operating expenses (non-IFRS) in 2015 were €14.5 billion (2014: €11.9 billion), an increase of 21%. On a constant currency basis the increase was 12%.
Our expense base in 2015 was impacted by the transformation to a fast-growing cloud business resulting in a significant higher share of more predictable revenue. The gross margins of our cloud offerings made good progress throughout 2015. Our gross margin (Non-IFRS) in our business network segment resulted in ~75% for 2015, already close to our long-term ambition of ~80%. This good result is based on an overall improved profitability as well as related to positive effects of the Concur acquisition. The revenue growth of our private cloud offering was more positive than expected. At the same time, the profitability of our private cloud offering could also be improved further; it is still negative but based on the good progress we saw throughout 2015, we expect break even in the course of 2016. Profitability in our public cloud offering was ~70% for 2015 compared to our long-term ambition of ~80%. Our overall cloud gross margin improved year over year from 64.3% in 2014 to 65.6% in 2015, despite incremental investments in the cloud infrastructure. These investments were necessary so as to be able in future periods to satisfy the increased customer demand that can be seen in the significantly higher cloud backlog as well as the increased cloud bookings.
Efficiency improvements in both our core and our cloud business drove absolute operating profit growth. Non-IFRS operating profit in 2015 was €5.904 billion, an increase of 5% at constant currencies. The growth in our operating profit in 2015 reflects the continued success of our business transformation in combination with the strong top-line growth. In 2015, we had a positive impact from our Company-wide transformation program in the triple-digit million euro range. On the other hand, we had a net increase of more than 2,500 employees in 2015 as we continued to invest in innovation and growth markets. Thus, constant currency non-IFRS operating profit amounting to €5.904 billion slightly exceeded the range (€5.6 billion to €5.9 billion) we had expected in our outlook.
We achieved an effective tax rate (IFRS) of 23.4% and an effective tax rate (non-IFRS) of 26.1%, which is below the outlook of 25.0% to 26.0% (IFRS) and 26.5% to 27.5% (non-IFRS). The reduction mainly results from taxes for prior years.
This section on operating results (IFRS) discusses results only in terms of IFRS measures, so the IFRS numbers are not expressly identified as such.
We break our operations down into three regions: the Europe, Middle East, and Africa (EMEA) region, the Americas region, and the Asia Pacific Japan (APJ) region. We allocate revenue amounts to each region based on where the customer is located. For more information about revenue by geographic region, see the Notes to the Consolidated Financial Statements section, Note (28).
Total revenue increased from €17,560 million in 2014 to €20,793 million in 2015, representing an increase of €3,233 million, or 18%. This growth reflects a 10% increase from new business and a 9% increase from currency effects. The growth in revenue resulted primarily from a €1,264 million rise in support revenue, a €1,199 million increase in cloud subscriptions and support revenue, software license revenue increased €436 million and services revenue grew by €334 million. Cloud and software revenue climbed to €17,214 million in 2015, an increase of 20%. Cloud and software revenue represented 83% of total revenue in 2015 (2014: 82%). Service revenue increased 10% from €3,245 million in 2014 to €3,579 million, which was 17% of total revenue, in 2015.
For more information about the breakdown of total revenue by region and industry, see the Revenue by Region and Industry section below.
Cloud and Software Revenue
Software licenses revenue results from the fees earned from selling or licensing software to customers. Revenue from cloud subscriptions and support refers to the income earned from contracts that permit the customer to access specific software solutions hosted by SAP during the term of its contract with SAP. Support revenue represents fees earned from providing technical support services and unspecified software upgrades, updates, and enhancements to customers.
Cloud subscriptions and support revenue increased from €1,087 million in 2014 to €2,286 million in 2015.
Despite a combination of a challenging macro
-economic and political environment and the accelerating industry shift to the cloud we achieved a €436 million increase in software license revenue. This increase, from €4,399 million in 2014 to €4,835million in 2015, reflects a 4% increase from new license business and a 6% increase from currency effects.
Our customer base continued to expand in 2015. Based on the number of contracts concluded, 13% of the orders we received for software in 2015 were from new customers (2014: 12%). The total value of software orders received increased 16% year
Our stable customer relations and continued investment in new software licenses by customers throughout 2015 and the previous year resulted in an increase in software support revenue from €8,829 million in 2014 to €10,093 million in 2015. The SAP Enterprise Support offering was the largest contributor to our software support revenue. The €1,264 million, or 14%, growth in software support revenue reflects a 7% increase from new support business and an 8% increase from currency effects. This growth is primarily attributable to SAP Product Support for Large Enterprises and SAP Enterprise Support. The acceptance rate for SAP Enterprise Support among new customers slightly increased to 99% in 2015 (2014: 98%).
Software licenses and software support revenue rose €1,700 million, or 13%, from €13,228 million in 2014 to €14,928 million in 2015. This growth breaks down into a 6% increase from new software licenses and software support business and a 7% increase from currency effects.
Cloud and software revenue grew from €14,315 million in 2014 to €17,214 million in 2015, an increase of 20%. This reflects a 12% increase from new cloud and software business and a 9% increase from currency effects.
Services Revenue combines revenue from professional services, premium support services, training services, messaging services and payment services. Professional services primarily relate to the installation and configuration of our cloud subscriptions and on-premise software products. Our premium support offering consists of high-end support services tailored to customer requirements. Messaging services are primarily transmission of electronic text messages from one mobile phone provider to another. Payment services are primarily delivered in connection with our travel and expense management offerings.
Services revenue increased €334 million, or 10%, from €3,245 million in 2014 to €3,579 million in 2015. This increase reflects a 2% increase from new services business and an 8% increase from currency effects.
A solid market demand led to an 8% increase of €222 million in consulting revenue and premium support revenue from €2,634 million in 2014 to €2,856 million in 2015. This increase reflects a 0% increase from new business and an 8% increase from currency effects. Consulting and premium support revenue contributed 80% of the total service revenue (2014: 81%). Consulting and premium support revenue contributed 14% of total revenue in 2015 (2014: 15%).
Revenue from other services increased €112 million, or 18%, to €723 million in 2015 (2014: €611 million). This reflects a 9% increase from new business and a 10% increase from currency changes.
Revenue by Region and Industry
In 2015, the EMEA region generated €9,181 million in revenue, which was 44% of total revenue (2014: €8,383 million; 48%). This represents a year-over-year increase of 10%. Revenue in Germany increased 8% to €2,771 million in 2015 (2014: €2,570 million). Germany contributed 30% (2014: 31%) of all EMEA region revenue. The remaining revenue in the EMEA region was primarily generated in France, Italy, the Netherlands, Russia, Switzerland, and the United Kingdom. Cloud and software revenue generated in the EMEA region in 2015 totaled €7,622 million (2014: €6,819 million). Cloud and software revenue represented 83% of all revenue in the region in 2015 (2014: 81%). Cloud subscriptions revenue rose 83% to €507 million in 2015 (2014: €277 million). This growth reflects a 69% increase from new cloud business and a 14% increase from currency effects. Software licenses and software support revenue rose 9% to €7,115 million in 2015 (2014: €6,542 million). This growth reflects an 8% increase from new software license and software support business and a 1% increase from currency effects.
In 2015, 41% of our total revenue was generated in the Americas region (2014: 37%). Total revenue in the Americas region increased 30% to €8,428 million; revenue generated in the United States increased 38% to €6,750 million. This growth reflects a 16% increase from new business and a 22% increase from currency effects. The United States contributed 80% (2014: 75%) of all revenue generated in the Americas region. In the remaining countries of the Americas region, revenue increased 5% to €1,678 million. This reflects a 3% increase from new business and a 2% increase from currency effects. This revenue was primarily generated in Brazil, Canada, and Mexico. Cloud and software revenue generated in the Americas region in 2015 totaled €6,929 million (2014: €5,276 million). Cloud and software revenue represented 82% of all revenue in the Americas region in 2015 (2014: 81%). Cloud subscriptions revenue rose by 123% to €1,579 million in 2015 (2014: €709 million); currency effects were 34%, growth in new cloud business was 89%. Software licenses and software support revenue rose 17% to €5,350 million in 2015 (2014: €4,566 million). This growth reflects a 2% increase from new business; currency effects were 15%.
In 2015, 15% (2014: 15%) of our total revenue was generated in the APJ region, with the strongest revenue growth being achieved in India. Total revenue in the APJ region increased 18% to €3,185 million. In Japan, revenue increased 11% to €667 million. Revenue from Japan was 21% (2014: 22%) of all revenue generated in the APJ region. The revenue growth in Japan was attributable to a 6% increase from new business and a 5% increase from currency effects. In the remaining countries of the APJ region, revenue increased 21%. Revenue in the remaining countries of the APJ region was generated primarily in Australia, China, and India. Cloud and software revenue in the APJ region totaled €2,663 million in 2015 (2014: €2,221 million). That was 84% of all revenue from the region (2014: 83%). Cloud subscriptions revenue grew 98% to €200 million in 2015 (2014: €101 million). This growth reflects an 82% increase from new cloud business and a 17% increase from currency effects. Software licenses and software support revenue increased 16% to €2,463 million in 2015 (2014: €2,120 million). This increase reflects an 8% increase from new business and an 8% increase from currency effects.
Revenue by Industry
We allocate our customers to one of our industries at the outset of an initial arrangement. All subsequent revenue from a particular customer is recorded under that industry sector.
In 2015, we achieved above-average growth in the following industry sectors, measured by changes in total revenue: Public Services (€2,174 million, at a growth rate of 22%); Consumer (€4,934 million, at a growth rate of 22%); and Discrete Manufacturing (€3,672 million, at a growth rate of 20%). Revenue from the other industry sectors was Services (€3,298 million, at a growth rate of 17%); Energy & Natural Resources (€4,834 million, at a growth rate of 16%); and Financial Services (€1,881 million, at a growth rate of 11%).
Operating Profit and Operating Margin
SAP continued to invest in innovation and its cloud business and generated record turnover in 2015. The strong growth in revenue, however, also led to an increase in compensation payments to our employees, while the climbing stock price translated into higher share-based payment expenses. As a result, our operating profit declined slightly by 2% to €4,252 million (2014: €4,331 million).
In 2015, our operating expenses increased €3,311 million or 25% to €16,541 million (2014: €13,230 million). The main contributors to that increase were our acquisition of Concur in December 2014, our greater investment- and revenue-related cloud subscriptions and support costs, our continued investment in sales activities, and higher restructuring expenses.
The effect of acquisition-related expenses, which were €738 million (2014: €562 million), of restructuring expenses, which were €621 million (2014: €126 million), and of a €724 million expense for share-based payments (2014: €290 million) weighed more heavily on operating profit than in the previous year. The record revenue generated increased the cost of bonus payments, and the improving performance of the share price in 2015 pushed share-based payment expenses higher. Continuing investment in the cloud infrastructure, in sales activities around the world, and in research and development also affected operating profit. Our employee headcount (measured in full-time equivalents, or FTEs) increased by 2,579 year-over-year.
These short-term, negative effects on operating profit largely represent investments in the future and were in part offset by the increase in revenue.
The overall result of these effects on operating profit was a 4.2 percentage point narrowing of our operating margin in 2015 to 20.5% (2014: 24.7 %).
Changes to the individual elements in our cost of revenue were as follows:
Cost of Cloud and Software
Cost of cloud and software consists primarily of customer support costs, cost of developing custom solutions that address customers’ specific business requirements, costs for deploying and operating cloud solutions, amortization ex
penses relating to intangibles, and license fees and commissions paid to third parties for databases and the other complementary third-party products sublicensed by us to our customers.
In 2015, the cost of cloud and software increased 30% to €3,313 million (2014: €2,557 million).
Significant costs included an additional €539 million year-over-year to extend our cloud business in response to the sustained strength of customer demand, with an associated increase in the expense of delivering and operating cloud applications, a €164 million revenue-related increase in the license fees we pay to third parties, and a €74 million rise in the cost of providing custom development projects. These investments contributed to revenue growth. Our margin on cloud subscriptions and support narrowed 0.4 percentage points to 55.3% (2014: 55.8%). This decrease was primarily due to increasing expenses related to the extension of our cloud infrastructure. These expenses represent an investment in our fast-growing cloud business of the future, and were in part already offset by a significant increase in cloud subscriptions and support revenue.
The gross margin on cloud and software, defined as cloud and software profit as a percentage of cloud and software revenue, narrowed to 80.8% in 2015 (2014: 82.1%). This change is driven by the revenue mix effect with a rising cloud subscriptions and support revenue share while both cloud subscriptions and support margin as well as software license and support margin only changed marginally.
Cost of Services
Cost of services consists primarily of the cost of consulting, premium services and training personnel and the cost of bought-in consulting and training resources. This item also includes sales and marketing expenses for our services resulting from sales and marketing efforts where those efforts cannot be clearly distinguished from providing the services.
Although we were able to increase our service revenue by 10% year-
over- year to €3,579 million in 2015 (2014: €3,245 million), our service business continues to be greatly affected as we trend away from classic software licensing and consulting revenue toward more subscription revenue from cloud solutions. We are also investing in our SAP ONE Service organization. As a result, cost of service rose 22% to €3,313 million (2014: €2,716 million). Our gross margin on services, defined as services profit as a percentage of services revenue, narrowed to 7.4% (2014: 16.3%).
Research and Development Expense
Our research and development (R&D) expense consists primarily of the personnel cost of our R&D employees, costs incurred for independent contractors we retain to assist in our R&D activities, and amortization of the computer hardware and software we use for our R&D activities.
Due to growing personnel costs because of the 11% increase in our headcount by the end of the year, and the revenue-related year-over-year increase in compensation payments, our R&D expense increased by 22% to €2,845 million in 2015 from €2,331 million in 2014. R&D expense as a percentage of total revenue increased to 13.7% (2014: 13.3%). For more information, see the Products, Research & Development, and Services section.
Sales and Marketing Expense
Sales and marketing expense consists mainly of personnel costs, direct sales costs, and the cost of marketing our products and services.
Our sales and marketing expense rose 25% from €4,304 million in 2014 to €5,401 million in 2015. The increase was mainly the result of greater personnel costs as we expanded our global sales force, and of increased expenditure for bonus payments prompted by the strong revenue growth. The ratio of sales and marketing expense to total revenue, expressed as a percentage, increased to 26.0% year-over-year (2014: 24.5%), an increase of 1.5 percentage points.
General and Administration Expense
Our general and administration expense consists mainly of personnel costs to support our finance and administration functions.
General and administration expense increased 17% from €892 million in 2014 to €1,048 million in 2015. That this expense grew less rapidly than revenue is primarily the result of careful cost management. Consequently, the ratio of general and administration expense to total revenue dropped slightly in 2015 to 5.0% (2014: 5.1%).
Segment Information (Non-IFRS)
In 2015, SAP had two reportable segments: the Applications, Technology, and Services segment; and the SAP Business Network segment. These are the components of SAP that our Executive Board regularly reviews to assess the performance of our Company and to make resource allocation decisions.
Revenue and profit figures for each of our operating segments are calculated in line with our internal management reporting and therefore differ from the corresponding revenue and profit in our Consolidated Statements of Income prepared according to IFRS. For more information about our segment reporting, the activities that our two segments derive their revenues from, financial performance measures, and reconciliation from our internal management reporting to our external IFRS reporting, see the Notes to the Consolidated Financial Statements section, Note (28), and the Performance Management System section.
The financial data presented for 2015 contain all revenues and expenses from Concur and Fieldglass, whereas the prior year's comparison figures only include their financial data as of their respective acquisition dates. Fieldglass was acquired on May 2, 2014; Concur on December 4, 2014.
Applications, Technology & Services Segment
|€ millions, unless otherwise stated
|2015||2014||∆ in %||∆ in %
|Gross margin (in %)||72||73||-1pp||-1pp|
|Cloud subscription and support margin (in %)||53||55||-2pp||-5pp|
|Segment margin (in %)||41||42||-1pp||-1pp|
In 2015, the Applications, Technology & Services segment revenue increased 13% (6% at constant currencies) to €19,126 million (2014: €16,871 million). This increase was driven mainly by strong growth in software support revenue, which increased 14% (7% at constant currencies) to €10,061 million and a 10% increase in software licenses (5% at constant currencies) to €4,836 million. As a consequence of continuous strong demand in the human capital management, customer engagement and commerce, and SAP HANA Enterprise Cloud business, cloud subscriptions and support revenue in the Applications, Technology & Services segment grew 64% (45% at constant currencies) to €961 million.
The increase of cloud subscriptions and support revenue and software support revenue results in an increasing revenue share of more predictable revenue streams in this segment of 2 percentage points from 56% in 2014 to 58% in 2015. Software license revenue attributable to this segment increased 10% (5% at constant currencies) to €4,835 million (2014: €4,381 million).
The segment's cost of revenue during the same time period increased 17% (9% at constant currencies) to €5,343 million (2014: €4,564 million). This increase in expenses was primarily the result of greater investment in expanding our cloud infrastructure and in providing and operating our cloud applications, as well as additional personnel expenses to support the growth of the SAP HANA Enterprise Cloud service. The cloud subscriptions and support margin for the segment, therefore, decreased by 2.2 percentage points to 52.9% (50.4% at constant currencies). Segment gross profit increased 12% in 2015 (5% at constant currencies) to €13,784 million (2014: €12,307 million), which resulted in a decrease of the segment gross margin from 72.9% to 72.1% (72.1% at constant currencies). Segment profit increased 12% (4% at constant currencies) to €7,918 million (2014: €7,099 million), while the segment margin decreased by 0.7 percentage points to 41.4% (41.3% at constant currencies).
SAP Business Network Segment
|€ millions, unless otherwise stated
|2015||2014||∆ in %||∆ in %
|Gross margin (in %)||67||66||1pp||0pp|
|Cloud subscription and support margin (in %)||75||75||0pp||-1pp|
|Segment margin (in %)||19||16||3pp||2pp|
In 2015, revenue from the SAP Business Network segment, which combines all of our business network solutions, increased 150% (116% at constant currencies) to €1,614 million (2014: €644 million). Concur and Fieldglass, which were acquired in 2014, together contributed €909 million (2014: €107 million) to the segment’s revenue. SAP internal analyses show that more than US$740 billion in commerce is conducted on the network annually.
The segment's cost of revenue increased 144% in 2015 (114% at constant currencies) to €530 million (2014: €217 million), of which €299 million in expenses are attributable to Concur and SAP Fieldglass (2014: €28 million). The cloud subscriptions and support margin for the segment decreased by 0.4 percentage points to 74.9% (74.5% at constant currencies). The SAP Business Network segment achieved a segment gross profit of €1,084 million in 2015 (2014: €427 million), an increase of 154% (117% at constant currencies). This resulted in an increase of the segment gross margin from 66.3% to 67.2% (66.5% at constant currencies). Segment profit increased 199% year on year (139% at constant currencies) to €312 million (2014: €105 million), resulting in an increase in the segment margin of +3.1 percentage points to 19.4% (18.0% at constant currencies).
Financial Income, Net
Financial income, net, changed to –€5 million (2014: –€25 million). Our finance income was €241 million (2014: €127 million) and our finance costs were €246 million (2014: €152 million).
Finance income mainly consists of gains from disposal of equity securities and interest income from loans and receivables, financial assets (cash, cash equivalents, and current investments), and income of derivatives.
Finance costs mainly consist of interest expense on financial liabilities (€135 million in 2015 compared to €93 million in 2014) due to higher average indebtedness and negative effects from derivatives (€72 million in 2015 compared to €28 million in 2014). For more information about financing instruments, see the Notes to the Consolidated Financial Statements section, Note (17b).
Our effective tax rate decreased to 23.4% in 2015 (2014: 24.7%). The year-over-year decrease in the effective tax rate mainly resulted from changes in taxes for prior years. For more information on income taxes, see the Notes to the Consolidated Financial Statements section, Note (10).
Profit After Tax and Earnings per Share
Profit after tax decreased to €3,056 million in 2015 (2014: €3,280 million).
Basic earnings per share decreased to €2.56 (2014: €2.75). The number of shares outstanding increased to 1,197 million in 2015 (2014: 1,195 million).
We believe our shareholders should benefit appropriately from the profit the Company made in 2015. In recent years, the payout has always been greater than 35% of profit after tax. We aim to continue our policy to pay a dividend totaling more than 35% of profit after tax in the future.
The Executive Board and the Supervisory Board will recommend to the Annual General Meeting of Shareholders that the total dividend will be increased by 5 % to €1.15 per share (2014: €1.10). Based on this recommendation, the overall dividend payout ratio (which here means total distributed dividend as a percentage of profit) would be 45% (2014: 40 %).
If the shareholders approve this recommendation and if treasury shares remain at the 2015 closing level, the total amount distributed in dividends would be €1,378 million. The actual amount distributed may be different from this total because the number of shares held in treasury may change before the Annual General Meeting of Shareholders. In 2015, we distributed €1,316 million in dividends from our 2014 profit. In 2015 and 2014, we did not repurchase any SAP treasury shares.
In 2011, in addition to the regular dividend of €0.75 per share, we rewarded our shareholders with a special dividend of €0.35 per share to celebrate our 40th anniversary.
Global Financial Management
We use global centralized financial management to control liquid assets and monitor exposure to interest rates and currencies. The primary aim of our financial management is to maintain liquidity in the Group at a level that is adequate to meet our obligations. Most SAP companies have their liquidity managed centrally by the Group, so that liquid assets across the Group can be consolidated, monitored, and invested in accordance with Group policy. High levels of liquid assets help keep SAP flexible, sound, and independent. In addition, various credit facilities are currently available for additional liquidity, if required. For more information about these facilities, see the Credit Facilities section.
We manage credit, liquidity, interest rate, equity price, and foreign exchange rate risks on a Group-wide basis. We use selected derivatives exclusively for this purpose and not for speculation, which is defined as entering into a derivative instrument for which we do not have a corresponding underlying transaction. The rules for the use of derivatives and other rules and processes concerning the management of financial risks are collected in our treasury guideline document, which applies globally to all companies in the Group. For more information about the management of each financial risk and about our risk exposure, see the Notes to the Consolidated Financial Statements section, Notes (24) to (26).
Our primary source of cash, cash equivalents, and current investments is funds generated from our business operations. Over the past several years, our principal use of cash has been to support operations and our capital expenditure requirements resulting from our growth, to quickly repay financial debt, to acquire businesses, to pay dividends on our shares, and to buy back SAP shares on the open market. On December 31, 2015, our cash, cash equivalents, and current investments were primarily held in euros and U.S. dollars. We generally invest only in the financial assets of issuers or funds with a minimum credit rating of BBB, and pursue a policy of cautious investment characterized by wide portfolio diversification with a variety of counterparties, predominantly short-term investments, and standard investment instruments. We rarely invest in the financial assets of issuers with a credit rating lower than BBB, and such investments were not material in 2015.
We believe that our liquid assets combined with our undrawn credit facilities are sufficient to meet our present operating needs and, together with expected cash flows from operations, will support debt repayments and our currently planned capital expenditure requirements over the near term and medium term. It may also be necessary to enter into financing transactions when additional funds are required that cannot be wholly sourced from free cash flow (for example, to finance large acquisitions).
To expand our business, we have made acquisitions of businesses, products, and technologies. Depending on our future cash position and future market conditions, we might issue additional debt instruments to fund acquisitions, maintain financial flexibility, and limit repayment risk. Therefore, we continuously monitor funding options available in the capital markets and trends in the availability of funds, as well as the cost of such funding. In recent years, we were able to repay additional debt within a short period of time due to our persistently strong free cash flow. For more information about the financial debt, see the Cash Flows and Liquidity section.
Capital Structure Management
The primary objective of our capital structure management is to maintain a strong financial profile for investor, creditor, and customer confidence, and to support the growth of our business. We seek to maintain a capital structure that will allow us to cover our funding requirements through the capital markets at reasonable conditions, and in so doing, ensure a high level of independence, confidence, and financial flexibility.
The long-term credit rating for SAP SE is “A” by Standard and Poor’s and “A2” by Moody’s, both with stable outlook. Since their initial assignment in September 2014, the ratings and outlooks have not changed.
Our general intention is to remain in a position to return liquidity to our shareholders by distributing annual dividends totaling more than 35% of our profit after tax. There are currently no plans for future share buybacks.
∆ in %
|€ millions||% of Total equity
|€ millions||% of Total equity
|Total equity and liabilities||41,390||100||38,565||100||7|
In 2015, we repaid €1,270 million in bank loans that we had taken to finance the Concur acquisition and refinanced another part of this loan through the issuance of a three-tranche Eurobond of €1.75 billion in total with maturities of two to ten years. We also repaid a €550 million Eurobond and a US$300 million U.S. private placement tranche at their maturity. Thus, the ratio of total financial debt to total equity and liabilities decreased by 7 percentage points to 22% at the end of 2015 (29% as at December 31, 2014).
Total financial debt consists of current and non-current bank loans, bonds, and private placements. For more information about our financial debt, see the Notes to the Consolidated Financial Statements section, Note (17).
As part of our financing activities in 2016, the Company intends to repay a US$600 million U.S. private placement tranche when it matures and a further substantial portion of our outstanding bank loan.
Total liabilities on December 31, 2015, mainly comprised financial liabilities of €9,522 million (of which €8,681 million are non-current). Financial liabilities on December 31, 2015, consisted largely of financial debt, which included amounts in euros (€6,994 million) and U.S. dollars (€2,202 million). On December 31, 2015, approximately 64% of financial debt was held at variable interest rates, partially swapped from fixed into variable using interest rate swaps. Total liabilities on December 31, 2015, also comprised non-financial liabilities. Most of these non-financial liabilities result from employee-related obligations.
For more information about financial and non-financial liabilities, see the Notes to the Consolidated Financial Statements section, Note (18).
Group liquidity on December 31, 2015, primarily comprised amounts in euros and U.S. dollars. Current investments are included in other financial assets in the statement of financial position. Financial debts are included within financial liabilities in the statement of financial position.
Group Liquidity of SAP Group
|Cash and cash equivalents||3,411||3,328||83|
|Current financial debt||-567||-2,157||1,590|
|Net liquidity 1||2,992||1,266||1,726|
|Non-current financial debt||-8,607||-8,936||329|
|Net liquidity 2||-5,615||-7,670||2,055|
Group liquidity consists of cash and cash equivalents (for example, cash at banks, money market funds, and time deposits with original maturity of three months or less) and current investments (for example, investments with original maturities of greater than three months and remaining maturities of less than one year) as reported in our Consolidated Financial Statements.
Net liquidity is Group liquidity less total financial debt as defined above.
The increase in Group liquidity compared to 2014 was mainly due to cash inflows from our operations and financing activities in issuing bonds. They were offset by cash outflows for dividend payments and repayments of borrowings.
For information about the impact of cash, cash equivalents, current investments, and our financial liabilities on our income statements, see the analysis of our financial income, net, in the Operating Results (IFRS) section.
Net cash provided by operating activities increased 4% year-over-year to €3,638 million in 2015 (2014: €3,499 million). Payments in connection with the restructuring of €204 million to employees and €272 million to insurance policies have offset partly the non-recurring effect from litigations in 2014. In 2015, days’ sales outstanding (DSO) for receivables, defined as the average number of days from the raised invoice to cash receipt from the customer, increased six days to 71 days (2014: 65 days).
Cash outflows from investment activities decreased significantly to €334 million in 2015 (2014: €7,240 million). Cash outflows from purchase of intangible assets and property, plant, and equipment remained stable. Cash outflows in 2014 had resulted mainly from business combinations of Concur and Fieldglass. For more information about current and planned capital expenditures, see the Assets section and the Investment Goals section.
Net cash outflows from financing activities were €3,356 million in 2015, compared to net cash inflows of €4,298 million in 2014. The 2015 cash outflows had resulted from repayments of €1,270 million bank loans, €550 million Eurobonds and US$300 million private placements. We refinanced another part of the bank loan through the issuance of a three-tranche Eurobond of €1,750 million in total. Cash inflows in 2014 were the result of issuing a €2,750 million Eurobond and drawing two tranches (of €1,270 million and €3,000 million) of a bank loan. Cash outflows in 2014 arose chiefly from repayments of €1,086 million borrowings and US$1,160 million convertible bonds that we assumed in connection with our acquisition of Concur.
The dividend payment of €1,316 million made in 2015 exceeded the amount of €1,194 million in the prior year resulting from the increased dividend paid per share from €1.00 to €1.10.
Other sources of capital are available to us through various credit facilities, if required.
We are party to a revolving €2.0 billion credit facility contract with maturity in November 2020. The credit line may be used for general corporate purposes. A possible future withdrawal is not subject to any financial covenants. Borrowings under the facility bear interest at the Euro Interbank Offered Rate (EURIBOR) or London Interbank Offered Rate (LIBOR) for the respective optional currency plus a margin ranging from 0.3% to 0.525%. We pay a commitment fee of 0.079% per annum on unused amounts of the available credit facility. So far, we have not used and do not currently foresee any need to use, this credit facility.
As at December 31, 2015, SAP SE had additional available credit facilities totaling €471 million. Several of our foreign subsidiaries have credit facilities available that allow them to borrow funds at prevailing interest rates. As at December 31, 2015, approximately €49 million was available through such arrangements. There were immaterial borrowings outstanding under these credit facilities from our foreign subsidiaries as at December 31, 2015.
Analysis of Consolidated Statements of Financial Position
Total assets increased by 7% year-over-year to €41,390 million.
Total current assets increased by 8% in 2015 from €8,999 million to €9,739 million. This was mainly due to an increase in trade and other receivables to €5,275 million (2014: €4,342 million) stemming from strong business in the last quarter of 2015.
Total non-current assets increased by 7% in 2015 to €31,651 million compared to the previous year’s figure of €29,566 million. This change was mainly due to foreign exchange related revaluations.
Current liabilities decreased by 8% to €7,867 million in 2015 as compared to the prior year (€8,574 million) which is mainly due to repayments of a short-term bank loan we took to finance the Concur acquisition.
Total non-current liabilities decreased slightly by €229 million in 2015 to €10,228 million compared to the previous year figure of €10,457 million.
For more information about financing activities in 2015, see the Finances (IFRS) section.
Thus, the equity ratio (that is, the ratio of shareholders’ equity to total assets) improved to 56% (prior year: 51%).
Principal Capital Expenditures and Divestitures Currently in Progress
In 2015, we continued with various construction projects and started new construction activities in several locations. The expansion of our data centers is again an important aspect of our investments planned for 2016. We aim to extend our office space to be able to cover future growth. We plan to cover all of these projects in full from operating cash flow. Our most important projects are:
- In Bangalore, India, we want to add additional capacity of roughly 2,500 employees. We estimate the total cost to be approximately €50 million, of which we had paid approximately €7 million as at December 31, 2015. We expect to complete the construction of this office building in 2017.
- In Ra’anana, Israel, we continued with the construction of a new building. We estimate the total cost of this project to be approximately €60 million, of which we had paid approximately €25 million as at December 31, 2015. We expect to complete the construction of this office building in 2016.
- In our research center in Potsdam, Germany, we started a third construction phase to realize additional capacity for approximately 150 employees. With the extension of our research center, we aim to create the general conditions for further teams contributing innovations to SAP products in miscellaneous fields. We estimate the total cost to be approximately €16 million, of which we had paid approximately €11 million as at December 31, 2015. We expect to complete the construction of this office building in 2016.
- In New York, New York, in the United States, we continued executing the leasehold improvements for our new office space. The project includes the consolidation of our New York City offices for approximately 450 employees. We estimate the total capital expenditures for this project to be approximately €34 million, of which we had paid approximately €3.5 million as at December 31, 2015. We expect to complete the leasehold improvements in 2016.
- In Dubai, United Arab Emirates, we continued with our office consolidation project including an expansion of office space adding additional capacity for 100 employees. We estimate the total cost to be approximately €11 million, of which we had paid approximately €0.9 million as at December 31, 2015. We expect to complete the leasehold improvements in 2016.
- In Walldorf, Germany, we started construction on a new office building for about 700 employees. We estimate the total cost to be approximately €71 million, of which we had paid approximately €0.5 million as of December 31, 2015. We expect to complete the construction in 2018.
- In Walldorf, Germany, we also started construction on a new data center as well as a new power station. We estimate the total cost to be approximately €58 million, of which we had paid approximately €0.7 million as at December 31, 2015. We expect to complete the construction for both projects in 2017.
- In Prague, Czech Republic, we started the expansion of an office building and began an office move. We estimate the total capital expenditures for this project to be approximately €19 million. We expect to complete the project in 2016.
- In Colorado Springs, Colorado, in the United States, we started construction on a new data center in 2015. We estimate the total cost of this project to be approximately €75 million. We expect to complete the construction of this data center in 2017.
- In San Ramon, California, in the United States, we began an office move. We estimate the total cost of this move to be approximately €22 million. We expect to complete this project in 2017.
- In Shanghai, China, we started an expansion of our office building. We estimate the total cost to be approximately €15 million, of which we had paid approximately €2 million as at December 31, 2015. We expect to complete the construction in 2016.
For more information about planned capital expenditures, see the Investment Goals section. There were no material divestitures within the reporting period.
The resources that are the basis for our current as well as future success do not appear on the Consolidated Statements of Financial Position. This is apparent from a comparison of the market capitalization of SAP SE (based on all outstanding shares), which was €90.1 billion at the end of 2015 (2014: €71.6 billion), with the book value of our equity on the Consolidated Statements of Financial Position, which was €23.3 billion (2014: €19.5 billion). This means that the market capitalization of our equity is nearly four times higher than the book value. The difference is mainly due to certain internally generated intangible resources that the applicable accounting standards do not allow to be recorded (at all or at fair value) on the Consolidated Statements of Financial Position. They include customer capital (our customer base and customer relations), employees and their knowledge and skills, our ecosystem of partners, software we developed ourselves, our ability to innovate, the brands we have built up – in particular, the SAP brand itself – and our organization.
As of December 31, 2015, SAP was the second most valuable companies in Germany in terms of market capitalization based on all outstanding shares.
According to the Interbrand “Best Global Brands” annual survey, SAP ranked as the 26th most valued brand in the world (2014: 25th). Against other German brands, the SAP brand ranks third behind Mercedes-Benz and BMW, and 9th globally against other IT brands. Interbrand determined our brand value as US$ 18.8 billion, an increase of 8 % compared to the previous year (2014: US$17.3 billion).
The results of our current and past investment in research and development are also a significant element in our competitive intangibles.
Our customer capital continued to grow in 2015. At the end of 2015 we had approx. 300,000 customers (2014: 282,000) in various market segments. The U.S. magazine Forbes revealed in its World’s Most Valuable Brands report that 98% of the 100 most valued brands, 87% of the Forbes Global 2000 companies, and 100% of the Dow Jones top scoring sustainability companies are SAP customers. To help us improve insight into our customers’ view of SAP, in 2012 we began measuring our Customer Net Promoter Score (NPS), a metric that gives a more complete picture of customer loyalty as it answers the question of how likely our customers would be to recommend SAP. For more information about our new customers and the Customer NPS, see the Customers section.
Employee-related activities increased the value of our employee base and our own software. For more information, see the Employees and Social Investment section and the Products, Research & Development, and Services section. We also increased the value of our partner ecosystem by continuing to develop sales and development partnerships.
SAP SE is headquartered in Walldorf, Germany, and is the parent company of the SAP Group, which comprises 256 companies. SAP SE is the Group holding company and employs most of the Group’s Germany-based development and service and support personnel.
As the owner of the intellectual property in most SAP software, SAP SE derives its revenue mainly from software license fees paid by its subsidiaries for the right to market SAP solutions.
The SAP SE annual financial statements are prepared in accordance with the reporting standards in the German Commercial Code and the German Stock Corporation Act. The full SAP SE annual financial report and unqualified audit report are submitted to the operator of the Elektronischer Bundesanzeiger (Online German Federal Gazette) for publication and inclusion in the Unternehmensregister (German Business Register). It is available from SAP SE on request.
The income statement uses the nature of expense method and presents amounts in millions of euros.
SAP SE Income Statement − German Commercial Code
|Other operating income||1,719||722|
|Cost of services and materials||-4,031||-3,099|
|Depreciation and amortization||-263||-272|
|Other operating expenses||-3,955||-2,697|
|Income from ordinary activities||3,501||3,056|
The total revenue of SAP SE in 2015 was €10,866 million (2014: €8,957 million), an increase of 21%. Product revenue increased €1,125 million to €8,051 million (2014: €6,926 million). As in previous years, product revenue was primarily generated from license fees paid by subsidiaries of SAP SE. Therefore, the increase in SAP SE revenue in 2015 was principally a result of the increase in cloud and software revenue achieved by the SAP Group. Due to intensified pooling of services at SAP SE and positive currency effects, other revenues increased by 47% to €2,270 million.
SAP SE operating profit increased 21% to €2,573 million (2014: €2,135 million) owing to the growth in revenue. Other operating income increased €997 million to €1,719 million (2014: €722 million). The year-over-year increase is due primarily to an increase in gains from currency effects. SAP SE cost of services and materials increased 30% to €4,031 million (2014: €3,099 million). SAP SE cost of services and materials comprises third-party services, including those provided by SAP subsidiaries. The rise is mainly due to increased services received in the context of intra group cost allocations. SAP SE personnel expenses, mainly the labor cost of software developers, service and support employees, and administration staff employed by SAP SE, increased 20% to €1,764 million (2014: €1,476 million) primarily because of higher share-based compensation expenses and headcount increase over the year. Other operating expenses increased 47% to €3,955 million (2014: €2,697 million). This increase is mainly attributable to €722 million higher losses from currency effects, a €385 million increase in expenses for licenses and provisions and restructuring costs that increased by €261 million compared to the previous year. The effect was partly offset by a €256 million decrease in miscellaneous other expenses.
Finance income was €929 million (2014: €921 million), an increase of €8 million compared with the previous year. The increase is primarily due to a €48 million higher income from profit transfer agreements and a decrease of €11 million in write-downs of financial assets. These were partly offset by a decrease of €46 million in net interest income.
SAP SE income from ordinary activities, which is the sum of operating profit and finance income, increased €445 million to €3,501 million (2014: €3,056 million). Income and other taxes increased 12% to €837 million (2014: €749 million). After deducting taxes, the resultant net income is €2,664 million (2014: €2,307 million), an increase of €357 million year-over-year.
Assets and Financial Position
In 2015, SAP SE total assets closed at €30,953 million (2014: €30,206 million).
SAP SE Balance Sheet − German Commercial Code
|Property, plant, and equipment||999||994|
|Prepaid expenses and deferred charges||173||146|
|Surplus arising from offsetting||1||33|
|Equity and liabilities|
|Total shareholders' equity and liabilities||30,953||30,206|
Financial assets increased €304 million compared with the previous year to €25,257 million (2014: €24,953 million), due mainly to the increase in contributions to subsidiaries. Short-term assets stood at €4,233 million (2014: €3,778 million), a year-over-year increase of €455 million, reflecting a €787 million increase in accounts receivable and €331 million decrease in liquid assets.
SAP SE shareholders’ equity rose 12% to €14,024 million (2014: €12,494 million). Against outflows of €1,316 million associated with the payment of the 2014 dividend, there was a €2,664 million increase in net income and an inflow of €180 million from the issuance of shares to service the share-based payments of employees. The equity ratio (that is, the ratio of shareholders’ equity to total assets) increased from 41% in 2014 to 45% in 2015.
Provisions increased €145 million to €1,247 million (2014: €1,102 million). While the other provisions increased €170 million to €844 million primarily as a result of additions to the other employee-related liabilities, the reserves for tax decreased €28 million to €398 million (2014: €426 million).
Other liabilities decreased €926 million to €15,679 million (2014: €16,605 million). This decrease is mainly attributable to contrasting effects: On the one hand, SAP SE issued new debt in the amount of €1,750 million and liabilities to affiliated companies increased €817 million, primarily due to increased cash contributions by subsidiaries through SAP SE centralized management of finance and liquidity; on the other hand, SAP SE repaid €3,020 million in liabilities to banks and made a scheduled repayment of a bond in the amount of €550 million.
SAP SE Cash Flow Statement − German Commercial Code
|Net cash flows from operating activities||1,835||1,309|
|Net cash flows from investing activities||447||-7,204|
|Net cash flows from financing activities||-3,118||5,175|
|Net decrease/increase in funds of financial resources||-836||-720|
|Funds of financial resources at the beginning of the year||-5,368||-4,648|
|Cash and cash equivalents||360||691|
|Cash pool balances||-6,564||-6,059|
|Funds of financial resources at the end of the year||-6,204||-5,368|
Cash flow from operating activities increased €526 million to €1,835 million in 2015 (2014: €1,309 million), largely caused by the increase in net income.
SAP SE net cash flows from investing activities were €447 million in 2015 compared to a cash outflow of €7,204 million in 2014. Received finance income of €1,160 million and inflows of €76 million from sales of property, plant, and equipment were in part offset by outflows of €295 million for financial assets, €248 million for intangible assets and property, plant, and equipment and €244 million contributions to plan assets. The previous year net cash outflow from investing activities was notably due to the contributions to the capital of SAP America, Inc. in 2014 in connection with the acquisition of Concur and Fieldglass.
Net cash outflows from financing activities were €3,118 million in 2015 compared to a cash inflow of €5,175 million in 2014. Inflows of €1,926 million were attributable to issued new bonds of €1,750 million, taking up intercompany loans of €111 million and €65 million inflows were generated from the reissuance of treasury shares for share-based payments. SAP SE outflows included the dividend of €1,316 million (2014: €1,194 million), interest payments of €158 million (2014: €115 million) and repayments of financial liabilities of €3,570 million.
At the close of the year, SAP SE funds of financial resources amounted to €6,204 million (2014: €5,368 million), a year-over-year decrease of €836 million; thereof €505 million were cash contributions by subsidiaries through SAP SE centralized management of finance and liquidity. In addition short-term liquid assets decreased by €331 million and closed at €360 million (2014: €691 million).