SAP Announces Q1 2023 Results

Rhea-AI Summary

SAP SE (NYSE: SAP) reported its Q1 2023 financial results, highlighting a 24% increase in cloud revenue to €3.18 billion, driven by a 77% surge in S/4HANA cloud revenue to €716 million. The current cloud backlog rose 25% to €11.15 billion. While IFRS operating profit fell 45% to €803 million due to restructuring and compliance costs, non-IFRS operating profit increased by 12% to €1.87 billion. Earnings per share from continuing operations dropped 60% to €0.35. The financial outlook for 2023 anticipates cloud revenue growth of 23% to 26% and non-IFRS operating profit of €8.6 to €8.9 billion. Additionally, SAP is updating its guidance to reflect the anticipated divestiture of Qualtrics. The results reflect SAP's strategic transformation, focusing on cloud solutions.

Positive

• Cloud revenue increased by 24% to €3.18 billion.
• S/4HANA cloud revenue rose by 77% to €716 million.
• Current cloud backlog grew by 25% to €11.15 billion.
• Non-IFRS operating profit increased by 12% to €1.87 billion.
• Financial outlook for 2023 includes expected cloud revenue growth of 23% to 26%.

Negative

• IFRS operating profit declined by 45% to €803 million.
• Earnings per share from continuing operations dropped by 60% to €0.35.

Unless otherwise stated, all figures in this statement are based on SAP group results from continuing operations.

• Cloud revenue up 24% and up 22% at constant currencies, up 1 percentage point sequentially. S/4HANA cloud revenue up 77% and up 75% at constant currencies
• Current cloud backlog up 25%, both at nominal and constant currencies, a sequential growth improvement of 1 percentage point
• IFRS cloud gross profit up 28%, non-IFRS cloud gross profit up 28% and up 27 % at constant currencies fueling double-digit non-IFRS operating profit growth
• IFRS operating profit down 45%, non-IFRS operating profit up 12% and up 12% at constant currencies
• 2023 outlook updated to reflect the expected Qualtrics divestiture. SAP reaffirms outlook for continuing operations including anticipated acceleration of topline and operating profit growth
• In Q1 2023, the Qualtrics consolidated group ("Qualtrics") has been classified as discontinued operations under IFRS 5. Consequently, the contribution from Qualtrics is not included in the reporting of SAP's continuing operations. See section (N) Discontinued Operations. For more information on changes in SAP's presentation and disclosures please see recorded info session https://www.sap.com/investors/en/reports/reporting-framework.html.

WALLDORF, Germany, April 21, 2023 /PRNewswire/ -- SAP SE (NYSE: SAP) today announced its financial results for the first quarter ended March 31, 2023.

Christian Klein, CEO: "We have entered a powerful new phase in our strategic transformation, with topline and bottom-line results clearly demonstrating the tipping point we passed in the fourth quarter 2022. Our cloud momentum continues at a fast pace which is contributing to our strong revenue and double-digit non-IFRS operating profit growth this quarter."

Dominik Asam, CFO: "The year is off to a good start. I am excited to have joined an organization which is delivering and staying on the right track. We have accelerated topline growth and have already achieved double-digit non-IFRS operating profit growth in Q1. Our results set solid groundwork for our full year outlook, thereby pivoting back to profitable growth in 2023. Saying what we do, and doing what we say, will continue to be of great importance to us."

Financial Performance

Group results at a glance – First quarter 2023
	IFRS				Non-IFRS1
€ million, unless otherwise stated	Q1 2023	Q1 2022	∆ in %		Q1 2023	Q1 2022	∆ in %	∆ in % const. curr.
Cloud revenue	3,178	2,565	24		3,178	2,565	24	22
Thereof SAP S/4HANA Cloud revenue	716	404	77		716	404	77	75
Software licenses	276	317	–13		276	317	–13	–13
Software support	2,905	2,923	–1		2,905	2,923	–1	–1
Software licenses and support revenue	3,180	3,240	–2		3,180	3,240	–2	–2
Cloud and software revenue	6,358	5,806	10		6,358	5,806	10	8
Total revenue	7,441	6,773	10		7,441	6,773	10	9
Share of more predictable revenue (in %)	82	81	1pp		82	81	1pp
Operating profit (loss)	803	1,471	–45		1,875	1,676	12	12
Profit (loss) after tax from continuing operations	403	1,016	–60		1,254	1,171	7
Profit (loss) after tax²	509	632	–19		1,587	1,166	36
Earnings per share - Basic (in €) from continuing operations	0.35	0.87	–60		1.08	1.00	8
Earnings per share - Diluted (in €) from continuing operations	0.35	0.87	–60
Earnings per share - Basic (in €)²	0.41	0.63	–35		1.27	1.00	27
Earnings per share - Diluted (in €)²	0.41	0.63	–35
Net cash flows from operating activities from continuing operations	2,311	2,465	–6
Free cash flow					1,955	2,159	–9
Number of employees (FTE, March 31)	105,132	104,670	0

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

2 From continuing and discontinued operations.

Due to rounding, numbers may not add up precisely.

Financial Highlights¹

First Quarter 2023

Current cloud backlog grew by 25% to €11.15 billion and was up 25% at constant currencies, a sequential growth improvement of 1 percentage point. SAP S/4HANA current cloud backlog was up 78% to €3.42 billion and up 79% at constant currencies.

In the first quarter, cloud revenue was up 24% to €3.18 billion and up 22% at constant currencies, up 1 percentage point sequentially. SAP S/4HANA cloud revenue was up 77% to €716 million and up 75% at constant currencies.

Supported by a few major transactions, software licenses revenue decreased by a moderate 13% to €276 million and was down 13% at constant currencies. Cloud and software revenue was up 10% to €6.36 billion and up 8% at constant currencies. Services revenue was up 12% to €1.08 billion and up 11% at constant currencies. Total revenue was up 10% to €7.44 billion and up 9% at constant currencies.

The share of more predictable revenue increased by 1 percentage point to 82% in the first quarter.

Cloud gross profit was up 28% (IFRS) to €2.24 billion, up 28% to €2.27 billion (non-IFRS), and up 27% (non-IFRS at constant currencies).

IFRS operating profit decreased 45% to €803 million. The decrease is mainly driven by the increase in share-based compensation which reflects the increase in share price over the first quarter as compared to last year's decline over the same period. In addition, IFRS operating profit was impacted by restructuring expenses associated with the targeted restructuring program, as well as expenses resulting from a provision for pre-existing regulatory compliance matters (see section (D) Basis of Non-IFRS Presentation). Non-IFRS operating profit was up 12% to €1.87 billion and up 12% at constant currencies.

As a result, IFRS basic earnings per share decreased 60% to €0.35. Non-IFRS earnings per share (basic) increased 8% to €1.08. The effective tax rate was 40.5% (IFRS) and 28.3% (non-IFRS). For IFRS, the year-over-year increase mainly resulted from changes in non-deductible expenses and valuation allowances on deferred tax assets. For non-IFRS, the changes in non-deductible expenses do not apply due to respective adjustments of pre-tax figures.

Free cash flow was down 9% mainly due to the impact of sale of trade receivables in the fourth quarter last year which was weighing on Q1.

Impact of War in Ukraine

The wind down of our business operations in Russia and Belarus is almost complete. Should the situation escalate beyond its current scope, our business could potentially be subject to materially adverse consequences.

Business Highlights

In the first quarter, customers around the globe continued to choose "RISE with SAP" to drive their end-to-end business transformations. These customers included BMW Group, DOLCE & GABBANA, GAMA, GlasfaserPlus, The Government of Manitoba, Henkel, KANSAI PAINT CO, Lingong Heavy Machinery, MLS, NEC Networks & System Integration Corporation, Pastificio Rana, Sempra Infrastructure, Sodexo BRS, Sri Intellectual, Thales Defense & Security Inc, VEM Conveniência, and Zagis.

Advanced Micro Devices, Air India, Aurobay, FLYING WHALES, Hengan Group, JFE Steel Corporation, Ourofino Agrociência, REPETCO Innovations, and Shinsegae International went live on SAP S/4HANA Cloud in the first quarter.

Key customer wins across SAP's solution portfolio included: A.S. Watson, BayWa, Berlin Hyp, Brisanet, Dr. Martens (Airwair International Limited), Envision Energy, Grupo Estrella Blanca, Grupo Minero Bacis, Haffner Energy, HCLTech, Hitachi High-Tech Corporation, N+, NTT DATA Business Solutions, Lee Kum Kee Sauce Group, SMA Solar Technology, Soleum, University Hospital Bonn, and Whirlpool Corporation. Numerous customers have also gone live with SAP solutions, including: Dexco, DKSH Holding Limited, Larsen & Toubro Limited, and Wipro.

In the first quarter, SAP's cloud revenue performance was robust across all regions. Brazil, Germany and India had outstanding cloud revenue growth while China, Japan, Mexico, the Netherlands, Switzerland, and the United States performed particularly strong.

SAP proposed a dividend of €2.05 per share for fiscal year 2022 representing a year-over-year increase of 5% compared to the regular dividend paid for fiscal year 2021. The dividend is subject to shareholder approval at the upcoming AGM scheduled for May 11, 2023.

On February 1, 2023, SAP and Red Hat, Inc., the world's leading provider of open-source solutions, announced an expanded partnership intended to significantly increase SAP's use of and support for Red Hat Enterprise Linux.

On February 8, SAP announced a strategic partnership with Merck KGaA, Germany, to jointly drive sustainable business practice innovation. The partnership is expected to further accelerate the migration of the systems of Merck KGaA to the cloud with RISE with SAP, a core element of which is SAP S/4HANA Cloud.

On February 22, SAP announced that the Supervisory Board of SAP SE nominated Dr. h. c. Punit Renjen to stand for election as a new member of the Supervisory Board and proposes Dr. Renjen as the designated successor to Chairman, Prof. Dr. Hasso Plattner.

On March 2, SAP announced that it filed the SAP Annual Report on Form 20-F for the year ended December 31, 2022, with the U.S. Securities and Exchange Commission (SEC) and that the SAP Integrated Report 2022 is available and accessible online at www.sapintegratedreport.com.

On March 8, SAP announced the SAP Datasphere solution, the next generation of its data management portfolio. In addition, SAP also introduced strategic partnerships with industry-leading data and AI companies – Collibra NV, Confluent Inc., Databricks Inc. and DataRobot Inc.

On March 13, SAP announced that it agreed to sell all of its 423 million shares of Qualtrics International Inc. as part of the acquisition of Qualtrics by funds affiliated with Silver Lake as well as Canada Pension Plan Investment Board. At a purchase price of US$18.15 in cash per share, the transaction corresponds to a Qualtrics equity value of approximately US$12.5 billion on a fully diluted basis, representing a 73% premium over the 30-day average trading price prior to SAP's announcement to explore a sale (approx. 62% premium relative to the unaffected closing price on January 25, 2023). SAP's stake will be acquired for approximately US$7.7 billion. The closing of the transaction is subject to customary regulatory approvals and closing conditions.

On March 16, SAP announced that it closed a new sustainability-linked revolving credit facility with a volume of €3 billion and a tenor of five years plus two one-year extension options.

On March 21, SAP announced GROW with SAP, a new offering to help midsize customers adopt cloud ERP that enables speed, predictability and continuous innovation. It is a comprehensive offering built on SAP S/4HANA Cloud, public edition and SAP Business Technology Platform.

On March 31, SAP announced that the SAP Supervisory Board extended the contracts of Executive Board Members Julia White, Chief Marketing & Solutions Officer, and Scott Russell, who leads SAP's Customer Success organization, for three years until 2027. Furthermore, Sabine Bendiek, Chief People & Operating Officer and Labor Relations Director, informed the Supervisory Board that she will not seek to renew her Executive Board contract. Her contract ends on December 31, 2023.

Segment Results at a Glance

SAP's reportable segment showed the following performance:

Applications, Technology & Services1	Q1 2023
€ million, unless otherwise stated (Non-IFRS)	Actual Currency	∆ in %	∆ in % Constant Currency
SaaS2	2,204	25	23
PaaS3	482	47	45
IaaS4	200	–12	–13
Cloud revenue	2,886	24	23
Cloud gross profit	1,990	30	28
Segment revenue	7,143	9	8
Segment profit (loss)	2,103	12	12
SaaS2 (in %)	68.8	0.3pp	0.5pp
PaaS3 (in %)	84.3	3.6pp	4.1pp
IaaS4 (in %)	33.6	6.3pp	9.0pp
Segment margin (in %)	29.4	0.7pp	0.9pp
1 Segment information for comparative prior periods were restated to conform with the new segment composition. 2 Software as a service 3 Platform as a service 4 Infrastructure as a service

In the first quarter, segment revenue in AT&S was up 9% to €7.14 billion year-over-year and up 8% at constant currencies, primarily due to strong cloud revenue growth, which was supported by SAP S/4HANA as well as Business Technology Platform. Software licenses revenue decreased due to the shift to the cloud as more customers chose our 'RISE with SAP' offering. Segment services revenue was up 12% to €1.08 billion year-over-year and up 11% at constant currencies.

Cloud Performance

	Q1 2023
€ millions, unless otherwise stated (non-IFRS)	Actual currency	∆ in %	∆ in % Constant currency
Current Cloud Backlog
Total	11,148	25	25
Thereof SAP S/4HANA	3,418	78	79
Cloud Revenue
SaaS1	2,496	24	22
PaaS2	482	47	45
IaaS3	200	–12	–13
Total	3,178	24	22
Thereof SAP S/4HANA	716	77	75
Cloud Gross Profit
SaaS1	1,796	25	23
PaaS2	406	54	53
IaaS3	67	8	16
Total	2,269	28	27
Cloud Gross Margin (in %)
SaaS1 (in %)	71.9	0.3pp	0.5pp
PaaS2 (in %)	84.3	3.6pp	4.1pp
IaaS3 (in %)	33.6	6.3pp	9.0pp
Total	71.4	2.5pp	2.9pp

1 Software as a service: SaaS comprises all other offerings which are not shown as PaaS and IaaS.

2 Platform as a service: PaaS includes primarily SAP Business Technology Platform and SAP Signavio.

3 Infrastructure as a service: Major portion of IaaS comes from SAP HANA Enterprise Cloud.

Due to rounding, numbers may not add up precisely.

The first quarter 2023 results were also impacted by other effects. For details, please refer to the disclosure on page 21 of this document.

Business Outlook

Reflecting the expected Qualtrics divestiture, SAP is updating its full-year 2023 outlook to cover only continuing operations.

Financial Outlook 2023

	Actual 2022 (continuing operations)	2023 Outlook (as of January 26)	Adjustment for discontinued operations	2023 Outlook (continuing operations)
Cloud revenue (at constant currencies)	€11.43 billion	€15.3 – 15.7 billion	€1.3 billion	€14.0 – 14.4 billion +23% to +26%
Cloud and software revenue (at constant currencies)	€25.39 billion	€28.2 – 28.7 billion	€1.3 billion	€26.9 – 27.4 billion +6% to +8%
Operating profit (non-IFRS, at constant currencies)	€7.99 billion	€8.8 – 9.1 billion	€0.2 billion	€8.6 – 8.9 billion +8% to +11%
Share of more predictable revenue	79 %	approx. 83%	n/a	approx. 82%
Free cash flow	n/a	approx. €5.0 billion	€0.1 billion	approx. €4.9 billion
Effective tax rate (IFRS)	32.0 %	28.0 – 32.0%	n/a	28.0 – 32.0%
Effective tax rate (non-IFRS)	29.6 %	26.0 – 28.0%	n/a	26.0 – 28.0%

The adjustment for cloud revenue and operating profit is based on the Qualtrics outlook for 2023 as published by Qualtrics on January 25. In the absence of such guidance, financial outlook parameters are based on the 2023 Qualtrics analyst consensus as of April 19.

The disposal gain realized upon closing of the transaction will be included into profit (loss) after tax from discontinued operations. The divestiture will not impact operating profit or free cash flow from continuing operations.

SAP confirms its performance expectations underlying its January 2023 outlook for continuing operations but now updates its 2023 outlook to reflect the anticipated divestiture of Qualtrics and expects:

• €14.0 – 14.4 billion cloud revenue at constant currencies (2022: €11.43 billion), up 23% to 26% at constant currencies.
• €26.9 – 27.4 billion cloud and software revenue at constant currencies (2022: €25.39 billion), up 6% to 8% at constant currencies.
•  €8.6 – 8.9 billion non-IFRS operating profit at constant currencies (2022: €7.99 billion), up 8% to 11% at constant currencies.
• A share of more predictable revenue of approximately 82% (2022: 79%). It is defined as the total of cloud revenue and software support revenue divided by total revenue.
• Free cash flow of approximately €4.9 billion.
• A full-year effective tax rate (IFRS) of 28.0% to 32.0% (2022: 32.0%) and an effective tax rate (non-IFRS) of 26.0% to 28.0% (2022: 29.6%).

While SAP's full-year 2023 financial 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.

Currency Impact Assuming March 2023 Rates Apply for 2023

In percentage points	Q2 2023	FY 2023
Cloud revenue growth	–3pp to –1pp	–3pp to –1pp
Cloud and software revenue growth	–2pp to 0pp	–3pp to –1pp
Operating profit growth (non-IFRS)	–3pp to –1pp	–3pp to –1pp

Non-Financial Outlook 2023

SAP continues to focus on three non-financial indicators: customer loyalty, employee engagement, and carbon emissions.

In 2023, for continuing operations SAP continues to expect:  

• a Customer Net Promoter Score of 8 to 12².
• an Employee Engagement Index to be in a range of 76% to 80%.
• Net carbon emissions of 0kt, meaning the Company will be carbon neutral in its own operations.

Ambition 2025

SAP expects to update its mid-term ambition as part of its financial analyst conference at Sapphire on May 16, 2023.

Additional Information

The full Q1 2023 Quarterly Statement can be downloaded from: https://www.sap.com/investors/sap-2023-q1-statement.  

This press release and all information therein is preliminary and unaudited.

SAP Performance Measures

For more information about our key growth metrics and performance measures, their calculation, their usefulness, and their limitation, please refer to the following document on our Investor Relations website: https://www.sap.com/investors/performance-measures

Webcast

SAP senior management will host a financial analyst conference call on Friday, April 21^st at 2:00 PM (CEST) / 1:00 PM (BST) / 8:00 AM (Eastern) / 5:00 AM (Pacific). The conference will be webcast on the Company's website at https://www.sap.com/investor and will be available for replay. Supplementary financial information pertaining to the first quarter results can be found at https://www.sap.com/investor.

Financial Analyst and Investor Conference

SAP will hold a financial analyst event on Tuesday, May 16^th, in conjunction with its annual SAP Sapphire conference.

About SAP

SAP's strategy is to help every business run as an intelligent enterprise. As a market leader in enterprise application software, we help companies of all sizes and in all industries run at their best: SAP customers generate 87% of total global commerce. 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 business and public customers across 25 industries globally 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 www.sap.com. 

For customers interested in learning more about SAP products:
Global Customer Center:	+49 180 534-34-24
United States Only:	+1 (800) 872-1SAP (+1-800-872-1727)

This document contains forward-looking statements, which are predictions, projections, or other statements about future events. These statements are based on current expectations, forecasts, and assumptions that are subject to risks and uncertainties that could cause actual results and outcomes to materially differ. Additional information regarding these risks and uncertainties may be found in our filings with the Securities and Exchange Commission, including but not limited to the risk factors section of SAP's 2022 Annual Report on Form 20-F.

© 2023 SAP SE. All rights reserved.

SAP and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP SE in Germany and other countries. Please see https://www.sap.com/copyright for additional trademark information and notices.

¹ The Q1 2023 results were also impacted by other effects. For details, please refer to the disclosures on page 21 of this document.   
² The guidance is based on an adjusted methodology for 2023 to better reflect the business priorities of the company.

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SOURCE SAP SE

FAQ

What are the latest Q1 2023 results of SAP?

SAP reported a 24% increase in cloud revenue to €3.18 billion and a 45% decline in IFRS operating profit to €803 million.

How did SAP's S/4HANA cloud revenue perform in Q1 2023?

S/4HANA cloud revenue increased by 77% to €716 million.

What is SAP's financial outlook for 2023?

SAP expects cloud revenue growth of 23% to 26% and non-IFRS operating profit of €8.6 to €8.9 billion.

What major changes were reported in SAP's earnings per share for Q1 2023?

Earnings per share from continuing operations fell by 60% to €0.35.

How much did SAP's current cloud backlog grow in Q1 2023?

The current cloud backlog grew by 25% to €11.15 billion.