SAP Updates Business Outlook 2020
October 26, 2020
SAP’s previous full year 2020 outlook
issued on April 8th, 2020 reflected its best estimates concerning the
timing and pace of recovery from the COVID-19 crisis. This outlook
assumed economies would reopen and population lockdowns would ease,
leading to a gradually improving demand environment in the third and
Christian Klein, SAP CEO said, "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%."
Luka Mucic, SAP CFO added, "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."
SAP is therefore updating its full year 2020 outlook and now expects:
SAP continues to expect its share of more predictable revenue to be approximately 72%.
The Company has raised its cash flow expectations for 2020 on the back of a strong year-to-date cash flow performance and now expects an operating cash flow of approximately €6.0 billion (previously above €5.0 billion) and a free cash flow above €4.5 billion (previously approximately €4.0 billion).
Updated Mid-Term Ambition
SAP’s previous mid-term ambition was issued on April 24th, 2019, before the COVID-19 crisis. The company is now updating its mid-term ambition to reflect the following factors:
As a consequence of SAP’s accelerated cloud transition, the Company expects software licenses revenue to continue to trend lower from 2020 levels.
The combined impact of the above factors and the mechanics of the associated business model switch are expected to lead to muted non-IFRS total revenue growth as well as flat or slightly lower non-IFRS operating profit over the next two years, followed by accelerated non-IFRS total revenue and double-digit non-IFRS operating profit growth from 2023 to 2025.
By 2025, this trajectory is expected to take SAP to:
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. See the table below for the Q4 and FY 2020 expected currency impacts.