SAP Cloud Momentum Accelerates Significantly

Strong Surge in ‘RISE with SAP’ Adoption

Current Cloud Backlog Up 24% (Up 22% At Constant Currencies)

– S/4HANA Current Cloud Backlog Up 60% (Up 58% At Constant Currencies)

– Cloud Revenue Up 20% (Up 20% At Constant Currencies)

– IFRS Operating Profit Down 15%; Non-IFRS Operating Profit Up 2% (Up 2% At Constant Currencies)

– Raises Full Year Revenue and Profit Outlook On The Basis of Strong Third Quarter

SAP SE announced its financial results for the third quarter ended September 30, 2021.

Business Update Third Quarter 2021

Businesses around the world are reevaluating their business models with increased urgency given the dramatic changes due to the pandemic and the ongoing focus on digital transformation. Customers are choosing SAP for its clearly differentiated capabilities. In addition to helping customers manage their technical migrations, SAP is helping customers redefine and optimize their core end-to-end business processes. This expertise is based on SAP’s unmatched knowledge of industry best practices from working with customers of all sizes across industries and geographies. This is reflected in SAP’s strong third quarter results which were above market expectations.

SAP is seeing continued strong demand and adoption of its ‘RISE with SAP’ offering which customers of all sizes, including an increasing number of large clients, are selecting to manage their business transformation. As more customers adopt this holistic subscription offering, software licenses revenue decreased as anticipated.

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SAP is seeing strong growth in current cloud backlog across its cloud portfolio, in particular with S/4HANA Cloud. SAP’s cloud revenue growth also accelerated sequentially.

Highlights

  • ‘RISE with SAP’ continued to gain traction after a successful launch in January. SAP saw strong demand from companies of all sizes and closed deals with more than 300 customers in the third quarter. Large customers such as Asda Stores Ltd. and EG Group selected ‘RISE with SAP’. Additional wins included Cirque du Soleil, Philips Domestic Appliances Netherlands, HCL, Röhm, Etihad Water and Electricity, Tate & Lyle Americas, KTM Fahrrad, Ingram Micro, and Sky Italia.
  • More than 500 S/4HANA customers were added in the quarter, taking total adoption to more than 17,500 customers, up 16% year over year, of which more than 11,400 are live. In the third quarter, approximately 60% of the additional S/4HANA customers were net new.
  • Signavio continued to show outstanding performance as part of SAP’s Business Process Intelligence (BPI) segment. Current cloud backlog grew in triple digits. SAP’s BPI solutions are key to our customers’ business transformation and acceleration to the cloud. DB Schenker and many others chose SAP BPI solutions in the third quarter.
  • Business Technology Platform, SAP’s PaaS offering, is the foundation of the Intelligent Enterprise, providing a single platform for integration and extensibility across the SAP portfolio and non-SAP solutions, as well as deriving insights from data. Gartner named SAP a Leader in its Magic Quadrant for its Enterprise Integration PaaS report for the second year in a row, ahead of key competitors. Current cloud backlog grew in strong double digits. Dufry International, Yamaha Corporation, SoftBank, Office Depot Mexico, and Reckitt chose this offering in the third quarter.
  • SAP aims to make sustainability profitable and profitability sustainable, with solutions that provide unparalleled levels of transparency and understanding across data and processes. SAP launched SAP Product Footprint Management, which will help customers reduce their supply-chain carbon footprints. Forthcoming products include SAP Responsible Design and Production, which is designed to enable customers to build sustainable outcomes into product design, and SAP Sustainability Control Tower, which lets companies report effectively on their progress to net zero.
  • Key customer wins across SAP’s solutions portfolio included: Continental, Adidas, Bayer, Robert Bosch, U.S. Department of Defense, Siemens Energy, University of Florida, VMware, The Football Association, FAW-Volkswagen Automotive, and People’s Insurance Company of China (PICC). Lycamobile, E.ON, Atos, and Generali China Life Insurance all went live on SAP solutions in the third quarter.
  • Google Cloud and SAP partnered to accelerate business transformations in the cloud. The expanded partnership will help customers execute business transformations, migrate critical business systems to the cloud and augment existing business systems.
  • In September SAP and Dediq launched SAP Fioneer, a joint venture for the financial services industry. SAP Fioneer will help banking and insurance companies meet their needs for speed, scalability and cost-efficiency.
  • Qualtrics closed its acquisition of Clarabridge, a leader in omnichannel conversational analytics capabilities, on October 1st. This will further accelerate Qualtrics’ growth and position as the world’s #1 experience management platform.

Financial Performance Third Quarter 2021

SAP’s cloud momentum further accelerated in the third quarter with sequential growth in both current cloud backlog and cloud revenue. Current cloud backlog was up 24% to €8.17 billion and up 22% (at constant currencies). Concur’s backlog remained flat and weighed 3 percentage points on overall backlog growth. Cloud revenue was up 20% to €2.39 billion and up 20% (at constant currencies). SaaS/PaaS cloud revenue outside the Intelligent Spend business was up 27% and up 27% (at constant currencies). Software licenses revenue was down 8% year over year to €0.66 billion and down 8% (at constant currencies). Cloud and software revenue was up 7% to €5.91 billion and up 6% (at constant currencies). Services revenue was down 6% year over year to €0.93 billion and down 6% (at constant currencies). This revenue decline is primarily attributable to the November 2020 divestiture of SAP Digital Interconnect which contributed approximately €81 million of services revenue in the third quarter of 2020. Total revenue was up 5% year over year to €6.84 billion and up 5% (at constant currencies).

The share of more predictable revenue grew by 3 percentage points year over year to 77% in the third quarter.

IFRS Operating profit decreased 15% to €1.25 billion and IFRS Operating margin decreased by 4.3 percentage points to 18.2% mainly due to higher share-based compensation expenses (primarily related to Qualtrics). Non-IFRS Operating profit increased 2% to €2.10 billion (up 2% at constant currencies) and Non-IFRS Operating margin decreased by 0.9 percentage points to 30.7% (down 0.7 percentage points at constant currencies). IFRS and Non-IFRS Operating profit includes a disposal gain of €77 million related to the launch of SAP Fioneer, a dedicated Financial Services Industry unit jointly owned by SAP and Dediq.

IFRS Earnings per share decreased 10% to €1.19 and Non-IFRS Earning per share increased 2% to €1.74, including another strong contribution from Sapphire Ventures.

Operating cash flow for the first nine months was down 3% year over year to €4.95 billion. Free cash flow decreased by 1% year over year to €4.13 billion. Positive effects from lower share-based compensation and lower restructuring payments were compensated by higher income taxes paid net of refunds. At quarter end, net debt was –€3.62 billion.

Expanded Financial Disclosure – SAP’s Accelerated Cloud Transition

Beginning in 2021, SAP expanded its financial disclosure to provide investors with transparency on the transition of its core ERP business to the cloud. Specifically, the Company discloses current cloud backlog and cloud revenue contributed by SAP S/4HANA Cloud, along with nominal and constant currencies year-over-year growth rates.

In the third quarter, S/4HANA current cloud backlog was up 60% (Non-IFRS) to €1.28 billion and up 58% (at constant currencies). S/4HANA cloud revenue growth accelerated as anticipated, up 46% to €276 million and up 46% (at constant currencies).

SAP S/4HANA Cloud represents SAP’s cloud offering for core ERP processes. It mainly includes cloud solutions for financial management, supply chain management, engineering and manufacturing, order management and asset management, as well as associated data management, analytics, development and integration capabilities.

‘RISE with SAP’, SAP’s holistic offering for business transformation in the cloud, is an important driver of S/4HANA Cloud and Business Technology Platform adoption.

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1 The Q3 2021 results were also impacted by other effects. For details please refer to the disclosures on page 30 of this document.

Segment Performance Third Quarter 2021

SAP’s three reportable segments “Applications, Technology & Support”, “Qualtrics” and “Services” showed the following performance:

Applications, Technology & Support (AT&S)
Segment revenue in AT&S was up 5% at € 5.76 billion year over year and up 5% (at constant currencies). Segment performance was driven by strong double-digit cloud revenue growth in S/4HANA Cloud, Digital Supply Chain, Business Technology Platform, and Customer Experience, in particular ecommerce. Software licenses revenue decreased as anticipated due to strong adoption of ‘RISE with SAP’. Segment support revenues were up 1% year over year (at constant currencies) reflecting high retention rates coupled with the shift of some support revenue to cloud.

Qualtrics

Qualtrics segment revenue was up 38% to €233 million year over year, up 39% (at constant currencies). The continued strong growth was driven by robust renewal rates and expansions as customers increase their usage and acquire additional modules of Qualtrics to measure all four experience areas: customer, employee, product, and brand. L.L.Bean, State of Colorado Department of Personnel and Administration/Dept. of Health, Kyoto University, DoorDash, Dish Network Corporation, ServiceNow, Peloton, Zoom, and NASCAR, among others, selected Qualtrics Experience Management Solutions.

Services

Services segment revenue was down 1% to €803 million year over year, down 1% (at constant currencies). While SAP continues to see solid growth in its Premium Engagement revenue on the basis of a very resilient business model, consulting revenue declined year over year.

Segment Results at a Glance

Segment Performance Third Quarter 2021

Applications, Technology & Support

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.

Cloud revenue

2,155

16

16

189

46

47

0

NA

NA

Segment revenue

5,762

5

5

233

38

39

803

–1

–1

Segment profit (loss)

2,406

3

4

14

71

68

201

5

5

Cloud gross margin (in %)

68.4

–0.9pp

–1.0pp

91.6

0.7pp

0.7pp

NM1)

NM1)

NM1)

Segment margin (in %)

41.8

–0.7pp

–0.6pp

5.9

1.1pp

1.0pp

25.0

1.3pp

1.5pp

1) NM = not meaningful

Regional Revenue Performance Third Quarter 2021

SAP had a strong cloud performance across all of its regions.

In the EMEA region, cloud and software revenue increased 8% and 7% (at constant currencies). Cloud revenue increased 29% and 28% (at constant currencies) with Germany, the UK and France being highlights.

In the Americas region, cloud and software revenue increased 6% and was up 6% (at constant currencies). Cloud revenue increased 14% and was up 14% (at constant currencies) with a robust performance in the U.S., CanadaBrazil and MexicoThe United States, SAP’s largest market, had another strong sequential acceleration in cloud revenue growth.

In the APJ region, cloud and software revenue increased 6% and 6% (at constant currencies). Cloud revenue increased 23% and 25% (at constant currencies) with JapanSingapore and South Korea being highlights.

Financial Results at a Glance

Third Quarter 2021

IFRS

Non-IFRS1)

€ million, unless otherwise stated

Q3 2021

Q3 2020

∆ in %

Q3 2021

Q3 2020

∆ in %

∆ in %
const.
curr.

Current cloud backlog2)

NA

NA

NA

8,171

6,599

24

22

Thereof SAP S/4HANA Current Cloud Backlog2)

NA

NA

NA

1,283

801

60

58

Cloud revenue

2,386

1,984

20

2,386

1,984

20

20

Thereof SAP S/4HANA Cloud revenue

276

189

46

276

189

46

46

Software licenses and support revenue

3,524

3,559

–1

3,524

3,559

–1

–1

Cloud and software revenue

5,910

5,544

7

5,910

5,544

7

6

Total revenue

6,845

6,535

5

6,845

6,535

5

5

Share of more predictable revenue (in %)

77

74

3pp

77

74

3pp

Operating profit (loss)

1,249

1,473

–15

2,102

2,069

2

2

Profit (loss) after tax

1,418

1,652

–14

2,129

2,098

1

Basic earnings per share (in €)

1.19

1.32

–10

1.74

1.70

2

Number of employees (FTE, September 30)

105,015

101,450

4

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 2021

IFRS

Non-IFRS1)

€ million, unless otherwise stated

Q1–Q3

2021

Q1–Q3

2020

∆ in %

Q1–Q3

2021

Q1–Q3

2020

∆ in %

∆ in %
const. curr.

Current Cloud Backlog2)

NA

NA

NA

8,171

6,599

24

22

Thereof SAP S/4HANA Current Cloud Backlog2)

NA

NA

NA

1,283

801

60

58

Cloud revenue

6,806

6,039

13

6,806

6,041

13

17

Thereof SAP S/4HANA Cloud revenue

761

550

38

761

550

38

42

Software licenses and support revenue

10,281

10,610

–3

10,281

10,610

–3

–1

Cloud and software revenue

17,088

16,649

3

17,088

16,651

3

6

Total revenue

19,861

19,800

0

19,861

19,801

0

3

Share of more predictable revenue (in %)

77

74

3pp

77

74

3pp

Operating profit (loss)

3,193

3,967

–20

5,762

5,515

4

8

Profit (loss) after tax

3,936

3,348

18

6,063

4,507

35

Basic earnings per share (in €)

3.22

2.74

18

4.88

3.71

31

Number of employees (FTE, September 30)

105,015

101,450

4

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.

Business Outlook 2021

SAP is raising its full-year 2021 outlook, reflecting the strong business performance which is expected to continue to accelerate cloud revenue growth. The Company continues to expect software licenses revenue to decline for the full year as more customers turn to the ‘RISE with SAP’ subscription offering for their mission-critical core processes. This outlook also continues to assume the COVID-19 crisis will continue to recede as vaccine programs roll out globally.

SAP now expects:

  • €9.4 – 9.6 billion Non-IFRS cloud revenue at constant currencies (2020: €8.09 billion), up 16% to 19% at constant currencies. The previous range was €9.3 – 9.5 billion at constant currencies.
  • €23.8 – 24.2 billion Non-IFRS cloud and software revenue at constant currencies (2020: €23.23 billion), up 2% to 4% at constant currencies. The previous range was €23.6 – 24.0 billion at constant currencies.
  • €8.1 – 8.3 billion Non-IFRS operating profit at constant currencies (2020: €8.29 billion), down 2% to flat at constant currencies. The previous range was €7.95 – 8.25 billion at constant currencies.

SAP continues to expect the share of more predictable revenue to reach approximately 75% (2020: 72%).

SAP continues to expect operating cash flow of approximately €6.0 billion (2020 €7.2 billion) and free cash flow above €4.5 billion (2020 €6.0 billion).

SAP now expects a full-year 2021 effective tax rate (IFRS) of 21.0% to 22.0% (previously: 21.5% to 23.0%) and an effective tax rate (non-IFRS) of 20.0% to 21.0% (previously: 20.0% to 21.5%).

While SAP’s full-year 2021 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. See the table below for the Q4 and FY 2021 expected currency impacts.

     Expected Currency Impact Based on September 2021 Level for the Rest of the Year (Non-IFRS)     

In percentage points

Q4

FY

Cloud revenue growth

0pp to 2pp

-4pp to -2pp

Cloud and software revenue growth                                                  

0pp to 2pp

-3pp to -1pp

Operating profit growth

0pp to 2pp

-3pp to -1pp

SAP is focusing on three non-financial indicators: customer loyalty, employee engagement, and carbon emissions.

In 2021 SAP continues to aim for:

  • a Customer Net Promoter Score of 5 to 10 (2020: 4)
  • an Employee Engagement Index in a range of 84% to 86% (2020: 86%)
  • Carbon emissions in a range of 90 to 110 kt (2020: 135 kt)

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