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SAP Meets Expectations - Guides Up

January 29, 2020

SAP reported its preliminary financial results for the fourth quarter ended December 31, 2019.The firm's Q4 net profit rose to €2.18 billion from €1.79 billion last year. Buoyed by a 32% rise in Q4 cloud revenue, SAP guided up its sales outlook for 2020 around 2% to as much as €29.7 billion. It also pumped up its profit target to up to €9.3 billion from a previous estimate of €9.1 billion.

SAP hit all of its 2019 revenue and profit targets.

For the full year new cloud bookings were €2.27 billion, up 25% (up 21% at constant currencies) and up 31% excluding Infrastructure-as-a-Service (IaaS). Cloud subscriptions and support backlog increased 23%, exceeding €12 billion at year-end. Cloud revenue was €6.93 billion (IFRS) or €6.77 billion (non-IFRS at constant currencies), achieving the full year outlook (€6.7 to €7.0 billion non-IFRS at constant currencies). Software licenses revenue decreased 2% (down 5% at constant currencies) year over year to €4.53 billion. New cloud and software license order entry exceeded €11.5 billion and grew by 10% year over year (7% at constant currencies). Cloud and software revenue was €23.01 billion (IFRS) or €22.49 billion (non-IFRS at constant currencies), achieving the full year outlook (€22.4 to €22.7 billion non-IFRS at constant currencies). Total revenue was up 12% year over year to €27.55 billion (IFRS), up 12% (non-IFRS) and up 9% at (non-IFRS at constant currencies).

The share of more predictable revenue grew by 2 percentage points year-over-year to 67% for the full year 2019.

Cloud gross margin increased 4.9 percentage points year over year to 63.5% (IFRS) and increased by 5.2 percentage points year over year to 68.2% (non-IFRS).

As expected, IFRS operating profit, operating margin and earnings per share were impacted by higher acquisition-related charges due to the Qualtrics acquisition and the charges from SAP's global restructuring program announced in early 2019. In addition, IFRS operating profit, operating margin and earnings per share were impacted by higher share-based compensation (due to the Qualtrics acquisition and the strong SAP share price increase over the year). For the full year, IFRS operating profit was down 21% to €4.50 billion and operating margin decreased 6.8 percentage points year over year to 16.3% (IFRS). Non-IFRS operating profit at constant currencies was €7.96 billion, achieving the full year outlook (€7.85 to €8.05 billion non-IFRS at constant currencies). Non-IFRS operating margin expanded by 0.8 percentage points year over year (non-IFRS) and 0.6 percentage points (non-IFRS at constant currencies).

Earnings per share decreased 18% to €2.80 (IFRS) and increased 18% to €5.11 (non-IFRS).

Operating cash flow for the full year was €3.50 billion, a decrease of 19% year over year. The decrease in operating cash flow was primarily due to higher payouts related to share-based compensation (€286 million), restructuring payouts (€784 million) and higher tax cash outflows (€651 million) compared to the full year 2018. In addition, operating cash flow experienced a year over year benefit of roughly €404 million from the application of IFRS 16. Free cash flow decreased 20% year over year to €2.28 billion. At year end, net debt was –€8.29 billion.

Fourth Quarter 2019

In the fourth quarter, new cloud bookings were €878 million, up 19% (up 17% at constant currencies) and up 20% excluding Infrastructure-as-a-Service (IaaS). Validating SAP's hybrid cloud strategy, one of SAP's largest on premise customers decided to move most of its SAP on premise landscape to the cloud and augmented the use of SAP SaaS solutions. This contract contributed 10 percentage points to the total new cloud bookings growth of 19%. SAP expects more of its larger customers to follow this path. Cloud revenue grew 35% year over year to €1.90 billion (IFRS), up 35% (non-IFRS) and up 32% (non-IFRS at constant currencies). Software licenses revenue was down 4% year over year to €2.00 billion (IFRS), down 4% (non-IFRS) and down 6% (non-IFRS at constant currencies). New cloud and software order entry exceeded €5 billion and grew by 6% year over year (5% at constant currencies) in the fourth quarter. Cloud and software revenue grew 8% year over year to €6.85 billion (IFRS), up 8% (non-IFRS) and 6% (non-IFRS at constant currencies). Total revenue was up 8% year over year to €8.04 billion (IFRS), up 8% (non-IFRS) and up 6% (non-IFRS at constant currencies).

Cloud gross margin increased 6.9 percentage points year over year to 65.2% (IFRS) and increased by 7.4 percentage points year over year to 69.5% (non-IFRS).

Operating profit decreased 11% year over year to €2.12 billion (IFRS), up 12% (non-IFRS) and up 9% (non-IFRS at constant currencies). Operating margin decreased 5.9 percentage points year over year to 26.4% (IFRS) and expanded by 1.1 percentage points (non-IFRS) and 1.0 percentage points (non-IFRS at constant currencies).

Earnings per share was down 3% to €1.37 (IFRS) and up 21% to €1.82 (non-IFRS).

Segment Performance Fourth Quarter 2019

SAP's three reportable segments "Applications, Technology & Services", "Intelligent Spend Group" and "Qualtrics " showed the following performance:

Applications, Technology & Services (AT&S)

In the fourth quarter, segment revenue in AT&S was up 5% to €6.97 billion year-over-year (up 3% at constant currencies). Solutions which contributed to this growth are listed below.

SAP S/4HANA

SAP S/4HANA, the core of the Intelligent Enterprise, embeds analytics, simulation, prediction, and decision support to run LIVE business. SAP offers customers a choice of deployment options including cloud, on-premise and hybrid so they can choose the scenario or combination that is right for them. SAP S/4HANA is the market-leading intelligent ERP that provides unparalleled business agility, empowering companies across all industries to reinvent their business models for the digital economy and navigate dynamic marketplaces.

Approximately 1,200 SAP S/4HANA customers were added in the quarter, taking total adoption to more than 13,800 customers, up 24% year over year. In the fourth quarter, approximately 40% of the additional SAP S/4HANA customers were net new.

In Q4, world class organizations such as Ford Motor Group, Zalando, die Autobahn GmbH, Decathlon, E.ON, Lockheed Martin, MINTH Group, and Roche selected SAP S/4HANA. Vodafone recently went live on a single global instance of SAP S/4HANA. Additional go lives include BDO, Deutsche Telekom, Sandvik Mining and Construction, ARAMEX, Aareal Bank and PayPal Giving Fund. A fast-growing number of companies of all sizes including Kubota Corporation, Gate Gourmet Switzerland, Centaur Holding and Tom Tailor are deploying SAP S/4HANA in part or entirely in the cloud. Mercedes Benz Formula E is now live on SAP S/4HANA Cloud.

Human Experience Management (HXM)

The SAP SuccessFactors Human Experience Management (HXM) Suite provides powerful solutions for core HR and payroll, talent management, employee experience management and people analytics to empower employees while enabling HR leaders to accelerate business growth. As the next evolution of human capital management (HCM), HXM is a new way of delivering software that is designed completely around what employees need, how they work, and what motivates them. The SAP SuccessFactors HXM Suite is unique in that it builds on the best of HCM and extends it to create truly dynamic, engaging and employee-centered experiences.

SAP SuccessFactors Human Experience Management solutions from SAP leverage Qualtrics to help customers gain real-time insight into which behaviors are trending across the organization and the sentiment behind them. More than 450 customers have selected these solutions since their launch in May 2019.

Landesbank Baden-Wόrttemberg, Genting Hong Kong, and Universal Beijing Resort were some of many competitive wins and Eurobank, Computacenter and Chalhoub Group went live on SAP SuccessFactors this quarter.

SAP C/4HANA

SAP C/4HANA combines leading solutions for marketing, sales, commerce, service and customer data, enabling companies to manage and deliver personalized customer experiences across touchpoints and channels based on a complete view of the customer. As part of the Intelligent Enterprise, SAP C/4HANA integrates with SAP S/4HANA from demand signals to fulfillment in one end-to-end process.

SAP C/4HANA solutions also use the benefits of Qualtrics Customer Experience Management to understand the wants and needs of customers. This enables organizations to combine customer feedback and operational data to listen, understand and take action in the moment to improve the customer experience.

The Nielsen Company, Royal Dutch Shell, Chevron, Carhartt, Intersport Deutschland, and Aldo Group all chose SAP C/4HANA solutions in Q4.

Business Technology Platform

SAP's business technology platform helps customers to turn their data into business value. It encompasses database and data management, application development and integration, analytics, and intelligent technologies. The business technology platform represents a combination of SAP's leading technologies such as SAP HANA, SAP Cloud Platform, SAP Data Warehouse Cloud, SAP Analytics Cloud, SAP Data Intelligence and SAP Intelligent Robotic Process Automation bundled into one single reference architecture. It supports cloud, on-premise and hybrid customer landscapes. Additionally, the business technology platform offers seamless interoperability with hyperscalers' technologies to deliver a high level of scalability and flexibility. The business technology platform provides customers with convenient access to SAP data, SAP technology and SAP pre-configured business services to help them drive business value across their entire solution landscape.

Barclaycard, Telecom Italia, GetYourGuide and Allegiant Travel Company selected SAP's business technology platform and analytics cloud solutions in the fourth quarter.

Intelligent Spend Group (ISG)

In the fourth quarter, segment revenue in the Intelligent Spend Group was up 15% to €830 million year-over-year (up 12% at constant currencies).

With the Intelligent Spend Group, SAP provides collaborative commerce capabilities (SAP Ariba), effortless travel and expense processing (SAP Concur) and flexible workforce management (SAP Fieldglass). SAP Intelligent Spend is also leveraging Qualtrics. Every Ariba screen will have Qualtrics embedded to enhance experience and to create a continuous feedback loop for buyers and suppliers on the network. The Intelligent Spend Group portfolio represents the largest commerce platform in the world with over $3.6 trillion in global commerce annually transacted in more than 180 countries.

Kδrcher, Electrolux, Coca-Cola Hellenic Bottling Company, GEA Group, Repsol, and New York Yankees chose SAP's Intelligent Spend Group solutions in the fourth quarter.

Qualtrics

In the fourth quarter, Qualtrics segment revenue was €156 million.

With Qualtrics, SAP combines market leadership in Experience Management (XM) with end-to-end operational power in over 25 industries to help organizations manage and improve the four core experiences of business: customer, employee, product, and brand. Chalhoub Group is one example of numerous companies using the SuccessFactors Qualtrics platform.

The Qualtrics XM™ Platform is trusted by over 11,450 customers to listen, understand, and take action on experience data (X-data™) by combining X-data with the operational data (O-data™) systems of the enterprise.

In Q4, Volkswagen Group Australia, JPMorgan Chase, Allianz SE, Alaska Airlines, ExxonMobil, Santander, Samsung Group and the Hearst Corporation and many others selected Qualtrics to move beyond systems of record to new systems of action and achieve breakthrough results.

Regional Revenue Performance Full Year 2019

SAP had a solid performance in the EMEA region with cloud and software revenue increasing 9%. Cloud revenue increased 47% with Germany, the Netherlands and the UK being highlights. In addition, Spain and Switzerland had strong years in software licenses revenue.

The Company had a strong performance in the Americas region. Cloud and software revenue increased 15% (IFRS) and 16% (non-IFRS). Cloud revenue increased 34% (IFRS) and 35% (non-IFRS) with Canada and Brazil being highlights. For software licenses revenue, the U.S. had a solid year, while Brazil and Canada had a strong year.

In the APJ region, SAP had a solid year amidst a challenging market environment. Cloud and software revenue was up 10%, while cloud revenue increased 43%. For cloud revenue and software licenses revenue, both China and Japan were highlights in 2019.

Business Outlook 2020

Reflecting SAP's strong business momentum, the Company provides the following 2020 outlook replacing the previous 2020 financial ambition:


Non-IFRS cloud revenue is expected to be in a range of €8.7 − €9.0 billion at constant currencies (2019: €7.01 billion), up 24% – 28% at constant currencies

Non-IFRS cloud and software revenue is expected to be in a range of €24.7 – €25.1 billion at constant currencies (2019: €23.09 billion), up 7% – 9% at constant currencies

Non-IFRS total revenue is expected to be in a range of €29.2 – €29.7 billion at constant currencies (2019: €27.63 billion), up 6% – 8% at constant currencies

Non-IFRS operating profit is expected to be in a range of €8.9 – €9.3 billion at constant currencies (2019: €8.21 billion), up 8% – 13% at constant currencies

The share of more predictable revenue (defined as the total of cloud revenue and software support revenue) is expected to reach 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.

Ambition 2023

Over the period from 2018 through 2023, SAP continues to expect the following:


More than triple non-IFRS cloud revenue (2018: €5.03 billion)

Grow to more than €35 billion in non-IFRS total revenue (2018: €24.74 billion)

Approach a share of more predictable revenue of 80%

Reach a non-IFRS cloud gross margin of 75%

Increase the non-IFRS operating margin by one percentage point per year on average, representing a total expansion of approximately 500 basis points

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