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Third Quarter 2020
Financial Results

October 25, 2020


COVID-19 has created an inflection point for our customers. The move to the cloud combined with a true business transformation has become a must for enterprises, to gain resiliency and position them to emerge stronger out of the crisis. Together with our customers and partners we will co-innovate and reinvent how businesses run in a digital world. SAP will accelerate growth in the cloud to more than €22 billion in 2025 and expand the share of more predictable revenue to approximately 85%.
Christian Klein, CEO


In Q3 we continued to improve our operating margin against a strong prior year comparison amidst a challenging environment. Earnings per share and cash flow grew even more rapidly. This allows us to raise our 2020 free cash flow outlook even beyond the target communicated last November. Our expedited move to the cloud will ensure we continue our path as a cloud growth company while we remain focused on cost efficiency. These actions and our resilient business model position us well to meet our new ambition targets as uncertainty recedes.

Luka Mucic, CFO

Business Performance Third Quarter 2020

SAP again demonstrated its resilience in the third quarter with stable total revenue and an improvement in operating profit and margins (non-IFRS at constant currencies). In the COVID-19 crisis customers realize the strong need to transform and automate operations and adapt to new business models. SAP’s expertise in running the world’s most mission critical business processes combined with innovative solutions like commerce, supply chain and Qualtrics are extremely relevant for customers to increase their resiliency. Nevertheless, SAP’s customers, particularly those in hard hit industries, continue to be impacted by the economic consequences of the COVID-19 pandemic. Lockdowns have been re-introduced in some regions, recovery is uneven and companies are facing more business uncertainty. Consequently, there is greater scrutiny of larger projects. Transactional revenue continues to be impacted, especially in SAP Concur where business travel-related revenues have yet to see a meaningful recovery. 

SAP continues to serve its customers effectively with an embedded virtual sales and remote implementation strategy. In the first nine months of 2020, approximately 28,000 customers went live with SAP solutions. To protect profitability, the company retains a disciplined approach to hiring and discretionary spend while capturing natural savings e.g. from lower travel, facility-related costs and virtual events.

Since the COVID-19 crisis began, SAP has also been providing solutions to address many of the issues faced by its customers and the broader community. In the third quarter SAP continued to work with Deutsche Telekom to further develop the Corona Warn App. The application has been downloaded over 20 million times and over 18,000 positive test results have been shared, helping to interrupt the transmission chain. Further, the app now supports the European gateway service, enabling exchange of data between the apps from Germany, Italy and Ireland, while still maintaining the highest data protection standards. Other countries are planned to follow. 

SAP Accelerates Transition to Cloud, Driving Customers’ Business Transformation

The COVID-19 crisis is an accelerator for transformation. Customers are looking to move to the cloud at an accelerated speed for greater resiliency and agility. SAP is responding to these market demands by providing the technology and expertise to help its customers migrate their existing IT environments to the cloud and truly transform their businesses end-to-end on top of SAP’s Business Technology Platform (BTP). SAP’s platform will be the foundation for all SAP applications, integration, customer and partner ecosystem extensions, as well as new innovations such as Industry Cloud and Business Network. 

The combination of state-of-the-art technology and deep, global business expertise across 25 industries puts SAP in a unique position to reinvent how businesses run their most mission-critical processes in the cloud as they enter the digital age to ultimately become Intelligent Enterprises.

In addition, SAP plans to accelerate the modernization of its cloud delivery, arriving at a harmonized delivery infrastructure earlier than planned. As a result, SAP will significantly increase the efficiency and resiliency of its cloud delivery operations.

Further, SAP will increase R&D investments to accelerate its customers’ transformation in the cloud and to establish a leading position in new categories like Industry Cloud.

The impact of these new strategy initiatives, together with macroeconomic factors, are reflected in the Company’s updated Mid-Term Ambition.

Financial Performance Third Quarter 2020

In the third quarter, current cloud backlog was up 10% year over year to €6.60 billion (up 16% at constant currencies) amid continued COVID-19 effects on SAP’s cloud business. Cloud revenue grew 11% year over year to €1.98 billion (IFRS), up 10% to €1.98 billion (non-IFRS) and up 14% (non-IFRS at constant currencies). Continued lower transactional revenues, particularly in Concur, negatively impacted cloud growth by 6 percentage points. Cloud revenue from SAP’s SaaS/PaaS offerings, that do not belong to Intelligent Spend, and its IaaS offering grew by 26% and 24% (non-IFRS at constant currencies), respectively. Software licenses revenue was down 23% year over year to €0.71 billion (IFRS and non-IFRS) and down 19% (non-IFRS at constant currencies). Cloud and software revenue was down 2% year over year to €5.54 billion (IFRS and non-IFRS) and up 2% (non-IFRS at constant currencies). Total revenue was down 4% year over year to €6.54 billion (IFRS and non-IFRS) and flat (non-IFRS at constant currencies). 

The share of more predictable revenue grew strongly by approximately 5 percentage points year over year to approximately 74% in the third quarter.

In the third quarter, IFRS operating profit and operating margin decreased primarily due to higher share-based compensation expenses compared to the prior year period. Operating profit decreased by 12% year over year to €1.47 billion (IFRS) and was down 1% to €2.07 billion (non-IFRS) and up 4% (non-IFRS at constant currencies). Operating margin decreased by 2.2 percentage points year over year to 22.5% (IFRS) and increased 1.0 percentage points year over year to 31.7% (non-IFRS) and increased 1.3 percentage points to 31.9% (non-IFRS at constant currencies) on a strong prior year comparison. 

EPS was up 26% year over year to €1.32 (IFRS) and up 31% year over year to €1.70 (non-IFRS) reflecting a strong contribution from Sapphire Ventures.

Operating cash flow for the first nine months was €5.09 billion, up 54% year-over-year. Operating cash flow benefited from lower restructuring related payments and lower income tax payments. Free cash flow for the first nine months was €4.17 billion, up 79% year over year. Free cash flow additionally benefited from lower capital expenditure compared to the previous year. At the end of the third quarter, net debt was -€6.89 billion.

Financial Results at a Glance

Third Quarter 2020

    IFRS   Non-IFRS1)
€ million, unless otherwise stated   Q3 2020   Q3 2019   ∆ in %   Q3 2020   Q3 2019   ∆ in %   ∆ in % const. curr.
Current cloud backlog2)   NA   NA   NA   6,599   5,995   10   16
Cloud revenue   1,984   1,789   11   1,984   1,807   10   14
Software licenses and support revenue   3,559   3,839   −7   3,559   3,840   −7   −4
Cloud and software revenue   5,544   5,629   −2   5,544   5,647   −2   2
Total revenue   6,535   6,791   −4   6,535   6,809   −4   0
Share of more predictable revenue (in %)   74   69   5pp   74   69   5pp    
Operating profit (loss)   1,473   1,679   −12   2,069   2,086   −1   4
Profit (loss) after tax   1,652   1,259   31   2,098   1,564   34    
Basic earnings per share (in €)   1.32   1.04   26   1.70   1.30   31    
Number of employees (FTE, September 30)   101,450   99,710   2   NA   NA   NA   NA

1) For a breakdown of the individual adjustments see table “Non-IFRS Adjustments by Functional Areas” in this Quarterly Statement.

2) As this is an order entry metric, there is no IFRS equivalent.

Due to rounding, numbers may not add up precisely.

Nine months ended September 2020

    IFRS   Non-IFRS1)
€ million, unless otherwise stated   Q1–Q3
2020
  Q1–Q3
2019
  ∆ in %   Q1–Q3
2020
  Q1–Q3
2019
  ∆ in %   ∆ in % const. curr.
Current Cloud Backlog2)   NA   NA   NA   6,599   5,995   10   16
Cloud revenue   6,039   5,037   20   6,041   5,106   18   19
Software licenses and support revenue   10,610   11,130   −5   10,610   11,130   −5   −4
Cloud and software revenue   16,649   16,167   3   16,651   16,236   3   4
Total revenue   19,800   19,513   1   19,801   19,583   1   2
Share of more predictable revenue (in %)   74   70   4pp   74   70   4pp    
Operating profit (loss)   3,967   2,370   67   5,515   5,368   3   4
Profit (loss) after tax   3,348   1,733   93   4,507   3,961   14    
Basic earnings per share (in €)   2.74   1.43   92   3.71   3.29   13    
Number of employees (FTE, September 30)   101,450   99,710   2   NA   NA   NA   NA

1) For a breakdown of the individual adjustments see table “Non-IFRS Adjustments by Functional Areas” in this Quarterly Statement.

2) As this is an order entry metric, there is no IFRS equivalent.

Due to rounding, numbers may not add up precisely.

 

Segment Results

Segment Performance Third Quarter 2020

    Applications, Technology &
Support
  Concur   Qualtrics   Services
€ million, unless otherwise stated
(Non-IFRS)
  Actual
Currency
  ∆ in %   ∆ in %
const. curr.
  Actual
Currency
  ∆ in %   ∆ in %
const. curr.
  Actual
Currency
  ∆ in %   ∆ in %
const. curr.
  Actual
Currency
  ∆ in %   ∆ in %
const. curr.
Cloud revenue   1,550   15   20   303   −15   −11   129   25   31   0   NA   NA
Segment revenue   5,172   −2   2   357   −14   −10   169   22   28   753   −16   −13
Segment profit (loss)   2,249   −4   0   139   −16   −12   15   >100   >100   154   3   4
Cloud gross margin (in %)   65.5   2.4pp   2.2pp   88.3   1.4pp   1.3pp   90.9   −0.5pp   −0.4pp   NM1)   NM1)   NM1)
Segment margin (in %)   43.5   −1.2pp   −1.2pp   39.0   −0.8pp   −0.8pp   8.6   5.5pp   5.1pp   20.4   3.6pp   3.2pp

1) NM = not meaningful

 

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