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Letter from the CEO

Dear Fellow Shareholders,

2020 was a year none of us will ever forget. The coronavirus has turned the world upside down, and the year has also brought into focus other major challenges – just think climate change or geopolitical tensions. Despite the difficulties the year posed, I hope that you and your loved ones are healthy and safe. For everyone impacted by the COVID-19 pandemic, my sincerest thoughts are with you.

 

At SAP, we live by our purpose to help the world run better and improve people’s lives. So, as the pandemic took hold, in addition to supporting our communities, our priority was to ensure the safety of our employees, partners, and customers, while safeguarding business continuity. We moved nearly all our interactions with customers to a virtual context, including sales, go-lives, and support. Through the year, our software helped companies develop and distribute vaccines, make their supply chains more resilient, adjust business processes, and stay close to their employees’ and customers’ needs; in short, our resources and solutions helped them move forward.

 

2020 also brought changes to SAP. In April, I took over as SAP’s sole CEO. This is both an honor and a huge responsibility, and I am wholeheartedly committed to the long-term success of SAP.

 

In the face of headwinds from the pandemic and ensuing economic crisis, SAP showed our resilience, strength, discipline, and agility in 2020, exceeding all of the topline outlook indicators of our revised outlook and achieving the upper end of the revised profit outlook1).

I would like to share an overview of our results:

  • Cloud revenue continued to be the major growth driver, growing 18%. This was impacted by a decline in transactional revenue in our Intelligent Spend business mainly due to a decrease in business travel. Excluding Intelligent Spend, growth across our SaaS/PaaS offerings was 27%.
  • Current cloud backlog increased by 14%.
  • Total revenue grew 1%.
  • Operating profit increased by 4%.
  • Cloud gross margin increased 3.1pp, reflecting increased efficiency in cloud delivery.
  • Operating cash flow doubled since last year to €7.2 billion, while free cash flow increased to €6.0 billion.

We achieved strong performance in our non-financials. A renewed focus on putting our customers first led to a strong 10-point increase in the Customer Net Promoter Score. The Employee Engagement Index increased a further three percentage points to a record high. And thanks to our continued efforts, together with reduced travel, we were able to decrease our net greenhouse gas emissions to 135 kt, less than half of the prior year’s emissions.

 

With this, we are pleased that we were able to pay a full dividend in 2020 and returned an additional €1.5 billion to shareholders through a share buyback. For 2020, we have proposed an annual dividend of €1.85 per share, representing an increase of 17%.

 

Our share price performance experienced volatility through the year. While it ended 2020 down 10.9%, SAP remained the most valuable company in the DAX with a market capitalization of €132 billion. The volatility during the first part of the year was related to the pandemic. SAP stock dropped sharply in October after we announced an adjustment to our strategy and medium-term outlook. I know that this was not easy for our shareholders, but we must respond decisively to the requirements of our customers in a fast-changing world.

 

We will not weigh the success of our customers and the significant growth potential of SAP against short-term priorities. This is why we are making investments in our portfolio and innovations that further enable customers to adapt to today’s highly volatile environment and accelerate our growth in the cloud. Sustainable value creation will continue to be our top priority.

 

To this end, we have worked tirelessly to further strengthen our portfolio. Since the beginning of 2020, we have focused our application portfolio on areas where we win clearly, shifting our application workloads to the cloud and embedding intelligence in all our applications. We have tremendously improved integration across our portfolio and will continue our efforts in 2021 at full speed. We are moving away from our legacy infrastructure and accelerating migration to one harmonized cloud delivery platform. We have made SAP Business Technology Platform THE platform for integration, extensibility, and data-to-value, based on one domain model and many other world-class application services. We strengthened our partner ecosystem, extending our solutions and leveraging game-changing capabilities. We have entered new markets, building on the strength of our core:

  • With SAP’s industry cloud, we are providing modular cloud solutions to extend the core business of our customers in an open environment, tailored to their individual needs.
  • We are embedding sustainability into our applications, to manage not only the top- and bottom line of an enterprise, but also to measure and account for environmental factors – the “green” line.
  • SAP Business Network enables our customers to manage complex supply chain dependencies no longer along sequential process steps but with all stakeholders in real time.
  • We initiated our business process intelligence offering to allow customers to model, understand, improve, and transform their business processes at scale.

And already in 2021, we introduced the RISE with SAP offering, supporting our customers’ holistic business transformation and their move of mission-critical core ERP processes to the cloud.

 

The challenges we faced over the last year reconfirmed the relevance of SAP as well as our extensive responsibility and the impact we can have on the economy, the society, and the environment.

 

We are honored to support the global fight against COVID-19. In Germany, together with Deutsche Telekom, we developed a contact tracing app (Corona-Warn-App), which is key to breaking infection chains. In fact, seventeen of the top 20 global vaccine producers run SAP solutions. We also support many logistics companies and organizations around the globe that are at the forefront of vaccine distribution.

 

We looked at ways we can drive social justice and equality. Among efforts worldwide, we have set a new goal to double the share of Black and African American employees in the workforce in the United States within the next three years. The share of women in management increased to 27.5%, and we remain committed to our goal of 30% by 2022.

 

We held digital skill-building and coding programs, training 117,000 teachers and engaging 2.3 million underserved people and youth, more than half of which were girls.

 

Turning to our responsibility to the environment, we have pulled forward our goal to become carbon neutral from 2025 to 2023.

 

2020 was certainly an inflection point and a true catalyst for our customers to drive their transformation efforts. We have an exceptional opportunity to partner with them in a way that only SAP can, thanks to our deep knowledge of business processes, industries, and the mutual trust we have established over our operating history.

In closing, you have my word that our focus is on:

  • Putting our customers’ success and their business transformation first
  • Investing in R&D to accelerate the pace of innovation and co-innovate with our customers
  • Empowering every employee to flourish
  • Creating opportunities for social justice to prevail
  • Delivering to our investors long-term value by accelerating our profitable cloud growth and turning SAP into the cloud leader it is meant to be.

I am truly optimistic and deeply excited about the future of SAP. I am convinced that, together, we can reinvent how businesses run and continue to help the world run better and improve people’s lives.

 

 

Sincerely,

 

Christian Klein
CEO, SAP SE

 

 

1) Note: All growth rates are non-IFRS at constant currencies.

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