SAP SE / Key word(s): Preliminary Results/Change in Forecast
First Quarter Business Update
Walldorf, Germany - April 8, 2020. After an initial review of its first quarter 2020 performance, SAP SE (NYSE: SAP) today announced its preliminary financial results for the first quarter ended March 31, 2020. All 2020 figures in this release are approximate due to the preliminary nature of the announcement and the high uncertainty associated with the COVID-19 crisis.
Business activity in the first two months of the quarter was healthy. As the impact of the COVID-19 crisis rapidly intensified towards the end of the quarter, a significant amount of new business was postponed. This is reflected, in particular, in the significant year over year decrease in software licenses revenue.
SAP has quickly responded to the new environment by adopting a virtual sales and remote implementation strategy. To protect profitability SAP is slowing hiring and reducing discretionary spend in addition to natural savings e.g. from lower travel and virtualized events.
SAP remains committed to its long-term strategy and prospects and is continuing to invest in innovation. SAP expects to emerge from the COVID-19 crisis in an even stronger competitive position than before.
In the first quarter, cloud revenue grew 29% year over year to €2.01 billion (IFRS), up 27% to €2.01 billion (non-IFRS) and 25% (non-IFRS at constant currencies). Software licenses revenue was down 31% year over year to €0.45 billion (IFRS and non-IFRS) and 31% (non-IFRS at constant currencies). Cloud and software revenue grew 7% year over year to €5.40 billion (IFRS), up 6% to €5.40 billion (non-IFRS) and 5% (non-IFRS at constant currencies). Total revenue grew 7% year over year to €6.52 billion (IFRS), up 7% to €6.52 billion (non-IFRS) and
The share of more predictable revenue grew by approximately 4 percentage points year over year to approximately 76% in the first quarter. The share of more predictable revenue is the total of non-IFRS cloud revenue and non-IFRS software support revenue as a percentage of total revenue.
As expected, the IFRS operating profit in the first quarter increased significantly primarily due to a significantly lower impact from both restructuring expenses and share-based compensation expenses. Operating profit increased more than 100% year over year to €1.21 billion (IFRS) and up 1% to €1.48 billion (non-IFRS) and down 1% (non-IFRS at constant currencies).
In the first quarter, SAP incurred a cost of approximately €36 million in relation to the cancellation of its in-person annual SAPPHIRE NOW and other customer events. Absent the cancellations, these expenses would have been recognized in the later quarters for which the events were originally scheduled.
Operating margin increased 20.7 percentage points year over year to 18.5% (IFRS) and declined 1.3 percentage points year over year to 22.7% (non-IFRS) and 1.3 percentage points to 22.6% (non-IFRS at constant currencies).
Business Outlook 2020
The Company is updating its 2020 outlook to reflect the estimated impact of the COVID-19 crisis. The revised outlook assumes the current COVID-19 induced challenging demand environment deteriorates through the second quarter before gradually improving in the third and fourth quarter as economies reopen and population lockdowns end.
Non-IFRS cloud revenue is now expected to be in a range of €8.3 billion to €8.7 billion at constant currencies (2019: €7.01 billion), up 18% to 24% at constant currencies. The previous range was €8.7 billion to €9.0 billion at constant currencies.
Non-IFRS cloud and software revenue is now expected to be in a range of €23.4 to €24.0 billion at constant currencies (2019: €23.09 billion), up 1% to 4% at constant currencies. The previous range was €24.7 to €25.1 billion at constant currencies.
Non-IFRS total revenue is now expected to be in a range of €27.8 to €28.5 billion at constant currencies (2019: €27.63 billion), up 1% to 3% at constant currencies. The previous range was €29.2 to €29.7 billion at constant currencies.
Non-IFRS operating profit is now expected to be in a range of €8.1 to €8.7 billion at constant currencies (2019: €8.21 billion), down 1% to up 6% at constant currencies. The previous range was €8.9 to €9.3 billion at constant currencies.
The share of more predictable revenue (defined as the total of cloud revenue and software support revenue) is now expected to reach approximately 72%. The respective previously expected share was approximately 70%.
While SAP's full-year 2020 business outlook is at constant currencies, actual currency reported figures are expected to be impacted by currency exchange rate fluctuations as the Company progresses through the year.
Information and Explanation of the Issuer to this News:
'As the world navigates the COVID-19 pandemic, SAP has remained focused on our employees, customers, and communities. To support them, we made our vast business networks and technology available for companies to find new sources of supply and manage demand, understand and act on sentiment across value chains that went virtual overnight, and support learning efforts at scale. Our customers will continue to rely on us to listen and engage with their employees in new ways, manage their supply chains, and connect with their customers in a virtual world where sentiment will become a leading indicator.'
Jennifer Morgan and Christian Klein, Co-CEOs
Luka Mucic, CFO
The total difference between non-IFRS revenue metrics und the respective IFRS revenue metrics results from adjusting the impact of business combination fair value accounting. The difference between non-IFRS operating profit and IFRS operating profit includes, in addition to the revenue adjustments of significantly less than €0.01 billion (Q1 2019: €0.03 billion), adjustments for acquisition-related charges of €0.16 billion (Q1 2019: €0.17 billion), adjustments for share-based payment expenses of €0.09 billion (Q1 2019: €0.52 billion) and adjustments for restructuring expenses of €0.02 billion (Q1 2019: €0.89 billion). For more details on the individual adjusted expense and revenue categories, our reasons for providing non-IFRS measures and the limitations of our non-IFRS measures please refer to https://www.sap.com/docs/download/investors/2018/sap-non-ifrs-measures.pdf
SAP confirms its 2023 ambition which was previously published in its 2019 Integrated Report.
The Company remains in its quiet period until reporting its complete first quarter 2020 results on April 21st when it will provide further details on its first quarter and projected full-year 2020 performance.
This press release and all information therein is preliminary and unaudited.
The 2019 comparative numbers for first quarter only include Qualtrics revenues and profits from acquisition date of January 23rd.
First Quarter 2020 Quarterly Statement
SAP's first quarter 2020 quarterly statement will be published on April 21, 2020 and will be available for download at www.sap.com/investor.
SAP senior management will host a financial analyst conference call on Tuesday, April 21st at 2:00 PM (CET) / 1:00 PM (GMT) / 8:00 AM (Eastern) / 5:00 AM (Pacific). The call will be webcast live on the Company's website at www.sap.com/investor and will be available for replay. Supplementary financial information pertaining to the first quarter results can be found at www.sap.com/investor.
As the Experience Company powered by the Intelligent Enterprise, SAP is the market leader in enterprise application software, helping companies of all sizes and in all industries run at their best: 77% of the world's transaction revenue touches an SAP(R) system. Our machine learning, Internet of Things (IoT), and advanced analytics technologies help turn customers' businesses into intelligent enterprises. SAP helps give people and organizations deep business insight and fosters collaboration that helps them stay ahead of their competition. We simplify technology for companies so they can consume our software the way they want - without disruption. Our end-to-end suite of applications and services enables more than 440,000 business and public customers to operate profitably, adapt continuously, and make a difference. With a global network of customers, partners, employees, and thought leaders, SAP helps the world run better and improve people's lives. For more information, visit http://www.sap.com.
Any statements contained in this document that are not historical facts are forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. Words such as 'anticipate,' 'believe,' 'estimate,' 'expect,' 'forecast,' 'intend,' 'may,' 'plan,' 'project,' 'predict,' 'should' and 'will' and similar expressions as they relate to SAP are intended to identify such forward-looking statements. SAP undertakes no obligation to publicly update or revise any forward-looking statements. All forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. The factors that could affect SAP's future financial results are discussed more fully in SAP's filings with the U.S. Securities and Exchange Commission ('SEC'), including SAP's most recent Annual Report on Form 20-F filed with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates.
No part of this publication may be reproduced or transmitted in any form or for any purpose without the express permission of SAP SE. The information contained herein may be changed without prior notice.
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