SAP Announces Q1 2024 Results

Rhea-AI Summary

SAP announced its Q1 2024 financial results with cloud revenue up 24%, a current cloud backlog of €14.2 billion, and a strong focus on Business AI. The company reported a €2.2 billion restructuring provision resulting in an IFRS operating loss. Despite this, non-IFRS operating profit increased by 16% and revenue showed growth across various segments.

Positive

• None.

Negative

• The IFRS operating loss of -€0.8 billion due to a €2.2 billion restructuring provision is a negative aspect impacting SAP's financial performance.
• Cloud revenue growth, while strong, may be impacted by currency exchange rate fluctuations as reported figures are expected to be influenced by currency changes throughout the year.

Insights

Financial Analyst

SAP's Q1 2024 report illustrates a robust financial performance, particularly within its cloud services. Cloud revenue growth of 24% and an impressive 32% growth in Cloud ERP Suite revenue are indicative of strong market demand for integrated cloud solutions. These figures, particularly the current cloud backlog of €14.2 billion, which has increased by 27%, signal a healthy pipeline that could translate to future revenues. However, investors should be cautious about the IFRS operating loss of –€0.8 billion, largely due to a €2.2 billion restructuring provision. While this is a one-time expense and non-IFRS operating profit is up 16%, the initial market reaction to this reshuffling will likely be mixed. The reaffirmation of the 2024 outlook suggests confidence in the company's strategic direction, but the full impact of the restructuring on operational efficiency and future earnings potential remains to be seen.

Market Research Analyst

An interesting aspect of SAP’s reported earnings is the strategic emphasis on Business AI and midmarket penetration, promising areas in terms of scalability and long-term growth. The 27% increase in the cloud backlog and the 16% rise in non-IFRS operating profit reflect a company adapting well to market trends towards cloud integration. However, the 17% decline in IaaS shows a potential area of weakness that could concern investors focused on a diverse cloud portfolio. On the other hand, the consistent growth in Cloud ERP Suite suggests that SAP is effectively capturing more of the market transitioning to cloud-based solutions. Retail investors should also take note of the proposed shareholder dividend, which at €2.20 per share, represents a 7% increase from the previous year, signaling strong financial health and a commitment to shareholder returns.

Sustainability Analyst

The report hints at SAP’s forward-looking approach to sustainability with initiatives aimed at achieving Net Zero carbon emissions by 2030 and increasing the number of women in executive roles. These non-financial targets, while secondary to the core financial metrics, offer investors insights into the company's governance and social responsibility. They align with global trends favoring socially responsible investments and could potentially contribute to long-term value creation. SAP's intention to focus on Business AI and operational scalability also hints at anticipated efficiency gains and innovation, which may contribute positively to sustainability goals.

• Cloud revenue up 24% and up 25% at constant currencies, supported by 32% Cloud ERP Suite revenue growth at constant currencies
• Current cloud backlog of €14.2 billion, up 27% and up 28% at constant currencies
• IFRS cloud gross profit up 27%, non-IFRS cloud gross profit up 27% and up 28% at constant currencies
• IFRS operating loss of –€0.8 billion due to a €2.2 billion restructuring provision
• Non-IFRS operating profit up 16% and up 19% at constant currencies even including higher share-based compensation resulting from strong share price increase
• Outlook 2024 reaffirmed

WALLDORF, Germany, April 22, 2024 /PRNewswire/ -- SAP SE (NYSE: SAP) announced today its financial results for the first quarter ended March 31, 2024.

Christian Klein, CEO:
We're off to a great start in 2024 and we're confident we'll achieve our goals for the year. Looking ahead, we have powerful growth drivers in place – Business AI, cross-selling across our cloud portfolio, and winning new customers particularly in the midmarket. The strength of our current cloud backlog reaching a record growth rate is a testament to that momentum. Our transformation program is also well on track and will help us to capture this growth and increase efficiency.

Dominik Asam, CFO:
In the first quarter we successfully kicked off the implementation of our transformation program thereby allowing us to focus our investments on the Business AI opportunity while decoupling expense from revenue growth. We are also very pleased by the unabated growth momentum of the Cloud ERP Suite, reflecting the market's secular shift towards integrated cloud solutions.

All figures in this statement are based on SAP group results from continuing operations unless otherwise noted.

Financial Performance

Group results at a glance – First quarter 2024

	IFRS				Non-IFRS1
€ million, unless otherwise stated	Q1 2024	Q1 2023	∆ in %		Q1 2024	Q1 2023	∆ in %	∆ in % const. curr.
SaaS/PaaS	3,764	2,980	26		3,764	2,980	26	28
Thereof Cloud ERP Suite2	3,167	2,422	31		3,167	2,422	31	32
Thereof Extension Suite3	597	558	7		597	558	7	8
IaaS4	164	197	–17		164	197	–17	–15
Cloud revenue	3,928	3,178	24		3,928	3,178	24	25
Cloud and software revenue	6,960	6,358	9		6,960	6,358	9	11
Total revenue	8,041	7,441	8		8,041	7,441	8	9
Share of more predictable revenue (in %)	84	82	2pp		84	82	2pp
Cloud gross profit	2,837	2,239	27		2,849	2,249	27	28
Gross profit	5,762	5,284	9		5,774	5,305	9	10
Operating profit (loss)	–787	803	N/A		1,533	1,321	16	19
Profit (loss) after tax from continuing operations	–824	403	N/A		944	868	9
Profit (loss) after tax5	–824	509	N/A		944	1,012	–7
Earnings per share - Basic (in €) from continuing operations	–0.71	0.35	N/A		0.81	0.75	8
Earnings per share - Basic (in €)5	–0.71	0.41	N/A		0.81	0.83	–3
Net cash flows from operating activities from continuing operations	2,757	2,311	19
Free cash flow					2,492	1,955	28

1	For a breakdown of the individual adjustments see table "Non-IFRS Operating Expense Adjustments by Functional Areas" in this Quarterly Statement.
2	Cloud ERP Suite references the portfolio of strategic Software-as-a-Service (SaaS) and Platform-as-a-Service (PaaS) solutions that are tightly integrated with our core ERP solutions and are included in key commercial packages, such as RISE with SAP. The following offerings contribute to Cloud ERP Suite revenue: SAP S/4HANA Cloud, SAP Business Technology Platform, and core solutions for HR and payroll, spend management, commerce, customer data solutions, business process transformation, and working capital management. For additional information and historical data on Cloud ERP Suite, see SAP's Reporting Framework.
3	Extension Suite references SAP's remaining SaaS and PaaS solutions that supplement and extend the functional coverage of the Cloud ERP Suite.
4	Infrastructure as a service (IaaS): The major portion of IaaS comes from SAP HANA Enterprise Cloud.
5	From continuing and discontinued operations.

Financial Highlights¹

First Quarter 2024

In the first quarter, SAP's cloud momentum further accelerated with a sequential growth rate increase in current cloud backlog of 1 percentage point at constant currencies. Current cloud backlog grew by 27% to €14.18 billion and was up 28% at constant currencies, the fastest growth on record. Cloud revenue was up 24% to €3.93 billion and up 25% at constant currencies, mainly driven by Cloud ERP Suite revenue, which was up 31% and up 32% at constant currencies.

Software licenses revenue decreased by 26% to €203 million and was down 25% at constant currencies. Cloud and software revenue was up 9% to €6.96 billion and up 11% at constant currencies. Services revenue was flat at €1.08 billion and up 1% at constant currencies. Total revenue was up 8% to €8.04 billion and up 9% at constant currencies.

The share of more predictable revenue increased by 2 percentage points to 84% in the first quarter.

Cloud gross profit was up 27% (IFRS) to €2.84 billion, up 27% to €2.85 billion (non-IFRS), and up 28% (non-IFRS at constant currencies).

IFRS operating profit in the first quarter was impacted by a €2.2 billion restructuring provision associated with the 2024 transformation program. This resulted in an IFRS operating loss of –€787 million. Non-IFRS operating profit was up 16% to €1.53 billion and was up 19% at constant currencies. Non-IFRS operating profit growth was negatively affected by a €0.1 billion increase in share-based compensation, predominately driven by the strong share price increase over the course of the first quarter.  

IFRS earnings per share (basic) were –€0.71 and non-IFRS earnings per share (basic) increased 8% to €0.81. IFRS effective tax rate was 16.0% (Q1/2023: 40.5%) and non-IFRS effective tax rate 32.4% (Q1/2023: 29.1%). Both year-over-year changes mainly resulted from a temporary inability to offset withholding taxes in Germany due to tax losses in 2024 resulting from restructuring. This adverse impact was partially compensated by changes in non-deductible expenses.

Free cash flow in the first quarter increased by 28% to €2.49 billion. While increased payouts mainly resulted from compliance-related matters and interest, the positive development was primarily attributable to increased profitability, improvements in working capital and lower payments for capex and leasing.

Share Repurchase Program

In May 2023, SAP announced a share repurchase program with an aggregate volume of up to €5 billion and a term until December 31, 2025. As of March 31, 2024, SAP had repurchased 10,024,841 shares at an average price of €137.62 resulting in payouts of approximately €1.38 billion under the program.

2024 Transformation Program: Focus on scalability of operations and key strategic growth areas

In 2024, SAP is further increasing its focus on key strategic growth areas, in particular business AI. It is transforming its operational setup to capture organizational synergies and AI-driven efficiencies, and to prepare the company for highly scalable future revenue growth.

To this end, as announced in January, SAP is executing a company-wide restructuring program which is anticipated to conclude in early 2025. The restructuring is intended to ensure that SAP's skillset and resources continue to meet future business needs and is expected to affect approximately 8,000 positions, a majority of which will be covered by voluntary leave programs and internal re-skilling measures. Reflecting re-investments into strategic growth areas, SAP expects to exit 2024 at a headcount similar to year-end 2023. 

In the first quarter, a restructuring provision of €2.2 billion was recorded, which is expected to cover the vast majority of the program's total restructuring expenses. The provision includes incremental expenses driven by the impact of the first quarter's share price increase on share-based compensation of leavers, as well as the positive reception of the voluntary early retirement program amongst eligible employees in the US.

Since acceptance rates and precise conditions of voluntary measures in some geographies, particularly Germany, are currently still unknown, SAP expects to provide an update on restructuring expenses and cash outflows once program implementation has further progressed.

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: Brussels Regional Public Service, Clearway Energy Group, Curtiss-Wright, Fresenius, Ineos Europe, Lindt & Sprüngli, LyondellBasell, MAHLE International, Public Power Corporation, SKF Group, Sumitomo Heavy Industries, Sutherland, Velliv, ZF Friedrichshafen, and Zoetis.

Foodstuffs South Island, Havells India, PureTech Scientific, Randoncorp, and Stuttgart Netze, went live on SAP S/4HANA Cloud in the first quarter.

Aleron Shared Resources, American Printing House for the Blind, Centrale del Latte di Roma, Churchill Downs Incorporated, Climeworks, Ironwood Pharmaceuticals, MaxiTRANS, SFC Energy, and Unico chose "GROW with SAP", an offering helping midsize customers adopt cloud ERP with speed, predictability, and continuous innovation.

Key customer wins across SAP's solution portfolio included: Cintas, FrieslandCampina, LEONI, Maersk, Rabobank, Schaeffler Group, Sky, and Vaillant Group.

ALDO Group, BARMER, Coca-Cola Europacific Partners, Dell, and Korea Chamber of Commerce and Industry went live on SAP solutions.

In the first quarter, SAP's cloud revenue performance was particularly strong in APJ and EMEA and robust in the Americas region. Brazil, Canada, Germany, Italy, the United Arab Emirates, India, and South Korea had outstanding performances in cloud revenue growth while the U.S., Japan and Spain were particularly strong.

SAP proposed a dividend of €2.20 per share for fiscal year 2023 representing a year-over-year increase of 7% compared to the regular dividend paid for fiscal year 2022. The dividend is subject to shareholder approval at the upcoming AGM scheduled for May 15, 2024.

On February 11, SAP announced that the Supervisory Board of SAP SE nominated Mr. Pekka Ala-Pietilä to stand for election as a new member of the Supervisory Board and proposes Mr. Ala-Pietilä as the designated successor to Chairman Prof. Dr. Hasso Plattner.

On February 29, SAP announced that it filed the SAP Annual Report on Form 20-F for the year ended December 31, 2023, with the U.S. Securities and Exchange Commission (SEC), and that the SAP Integrated Report 2023 is available and accessible online at www.sapintegratedreport.com.

On March 6, SAP announced transformative data innovations that will help customers harness the full power of their data to drive deeper insights, faster growth, and more efficiency in the era of AI. New capabilities in the SAP Datasphere solution, including new generative-AI features, transform enterprise planning through simplified data landscapes and more-intuitive data interaction.

On March 15, Taulia and Visa announced a new partnership to make embedded finance accessible to businesses worldwide.

On March 18, SAP and NVIDIA announced a partnership expansion focused on accelerating enterprise customers' ability to harness the transformative power of data and generative AI across SAP's portfolio of cloud solutions and applications.

On March 20, SAP was informed that Moody's upgraded its long-term issuer rating to A1 from A2, its senior unsecured rating to A1 from A2 and its senior unsecured MTN program rating to (P)A1 from (P)A2. Concurrently, Moody's affirmed its P-1 short term issuer ratings. The outlook changed to stable from positive.

Segment Results at a Glance

SAP's reportable segment showed the following performance:

Applications, Technology & Services1	Q1 2024
€ million, unless otherwise stated (Non-IFRS)	Actual Currency	∆ in %	∆ in % Constant Currency
Cloud revenue	3,863	24	25
Cloud gross profit	2,804	27	29
Segment revenue	7,971	8	9
Segment profit (loss)	2,198	13	15
Segment margin (in %)	27.6	1.2pp	1.4pp

1 Segment information for comparative prior periods were restated to conform with the new segment composition.

In the first quarter, segment revenue in AT&S was up 8% to €7.97 billion and up 9% at constant currencies, primarily due to strong cloud revenue growth, which was supported by Cloud ERP Suite. Operating Expenses of the segment increased by 6% and by 7% at constant currencies, resulting in a segment margin of 27.6% and 27.8% at constant currencies. This implies an increase of 1.2 percentage points and 1.4 percentage points at constant currencies compared to the first quarter of the prior year.

Financial Outlook 2024

SAP's financial outlook 2024 is based on SAP's updated non-IFRS definition of profit measures which, beginning in 2024, include share-based compensation expenses and exclude gains and losses from equity securities, net. For more details, please refer to the Reporting Framework section on our Investor Relations website: https://www.sap.com/investors/en/reports/reporting-framework.html.

For 2024, SAP continues to expect:

• €17.0 – 17.3 billion cloud revenue at constant currencies (2023: €13.66 billion), up 24% to 27% at constant currencies.
• €29.0 – 29.5 billion cloud and software revenue at constant currencies (2023: €26.92 billion), up 8% to 10% at constant currencies.
• €7.6 – 7.9 billion non-IFRS operating profit at constant currencies (2023: €6.51 billion based on updated non-IFRS operating profit definition), up 17% to 21% at constant currencies.
• Free cash flow of approximately €3.5 billion (2023: €5.09 billion).
• An effective tax rate (non-IFRS) of approximately 32% (2023: 30.3% based on updated tax rate definition (non-IFRS))².

While SAP's 2024 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 2024 Rates Apply for 2024

In percentage points	Q2 2024	FY 2024
Cloud revenue growth	–1.5pp to +0.5pp	–1.5pp to +0.5pp
Cloud and software revenue growth	–1.5pp to +0.5pp	–1.5pp to +0.5pp
Operating profit growth (non-IFRS)	–2pp to 0pp	–2pp to 0pp

Non-Financial Outlook 2024

In 2024, SAP continues to expect: 

• A customer net promoter score of 9 to 13.
• The employee engagement index in the range of 76% to 80%.
• To steadily decrease carbon emissions across the relevant value chain, in line with our target of achieving Net Zero carbon emissions by 2030.
• To steadily increase the number of women in executive roles in line with our end of year 2027 target to achieve 25%.

Additional Information

This press release and all information therein is preliminary and unaudited. Due to rounding, numbers may not add up precisely. The full Q1 2024 Quarterly Statement can be downloaded from: https://www.sap.com/investors/sap-2024-q1-statement.

Financial Analyst and Investor Conference

SAP will hold a financial analyst event on Wednesday, June 5^th, in conjunction with its annual SAP Sapphire conference.

SAP Performance Measures

For more information about our key growth metrics and performance measures, their calculation, their usefulness, and their limitations, 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 Monday, April 22nd at 11:00 PM (CEST) / 10:00 PM (BST) / 5:00 PM (EDT) / 2:00 PM (PDT). 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

About SAP

As a global leader in enterprise applications and business AI, SAP (NYSE: SAP) stands at the nexus of business and technology. For over 50 years, organizations have trusted SAP to bring out their best by uniting business-critical operations spanning finance, procurement, HR, supply chain, and customer experience. 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 2023 Annual Report on Form 20-F.

© 2024 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 2024 results were also impacted by other effects. For details, please refer to the disclosures on page 20 of this document. 

² The effective tax rate (non-IFRS) is a non-IFRS financial measure and is presented for supplemental informational purposes only. We do not provide an outlook for the effective tax rate (IFRS) due to the uncertainty and potential variability of gains and losses associated with equity securities, which are reconciling items between the two effective tax rates (non-IFRS and IFRS). These items cannot be provided without unreasonable efforts but could have a significant impact on our future effective tax rate (IFRS).

 

 

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SOURCE SAP SE

FAQ

What was SAP's cloud revenue growth in Q1 2024?

SAP's cloud revenue grew by 24% in Q1 2024.

What was the current cloud backlog of SAP in Q1 2024?

SAP's current cloud backlog was €14.2 billion in Q1 2024.

What was the impact of the €2.2 billion restructuring provision on SAP's financial performance?

The €2.2 billion restructuring provision resulted in an IFRS operating loss of -€0.8 billion for SAP in Q1 2024.

What was the non-IFRS operating profit growth for SAP in Q1 2024?

SAP's non-IFRS operating profit increased by 16% in Q1 2024.

What is SAP's financial outlook for 2024?

SAP expects cloud revenue of €17.0 – 17.3 billion, cloud and software revenue of €29.0 – 29.5 billion, and a non-IFRS operating profit of €7.6 – 7.9 billion at constant currencies in 2024.