SAP SE: Updates 2020 Outlook and Mid-Term Ambition - Accelerates Transition to Cloud
SAP has updated its 2020 business outlook due to muted recovery in demand amid reintroduced lockdowns. Expected non-IFRS cloud revenue has been revised down to €8.0-8.2 billion from €8.3-8.7 billion, while total revenue is now projected at €27.2-27.8 billion, reduced from €27.8-28.5 billion. Operating profit expectations remain at €8.1-8.5 billion. Despite these challenges, SAP has raised its cash flow outlook to €6.0 billion, up from above €5.0 billion. The company is also adjusting its mid-term goals, projecting more than €22 billion in cloud revenue by 2025, impacted by COVID-19 and currency fluctuations.
- Cash flow expectations raised to approximately €6.0 billion from above €5.0 billion.
- Expected free cash flow increased to above €4.5 billion from approximately €4.0 billion.
- Reduced non-IFRS cloud revenue forecast from €8.3-8.7 billion to €8.0-8.2 billion.
- Total revenue outlook decreased from €27.8-28.5 billion to €27.2-27.8 billion.
- Operating profit expectation lowered from €8.1-8.7 billion to €8.1-8.5 billion.
- Anticipated impact of COVID-19 pushing out revenue and profit targets by 1 to 2 years.
WALLDORF, GERMANY / ACCESSWIRE / October 25, 2020 / Updated Business Outlook 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 fourth quarters.
While SAP continues to see robust interest in its solutions to drive digital transformation as customers look to emerge from the crisis with more resilience and agility, lockdowns have been recently re-introduced in some regions and demand recovery has been more muted than expected. Further and for the same reasons, SAP no longer anticipates a meaningful recovery in SAP Concur business travel-related revenues for the remainder of the year 2020.
SAP is therefore updating its full year 2020 outlook and now expects:
- €8.0 - 8.2 billion non-IFRS cloud revenue at constant currencies (previously €8.3 - 8.7 billion)
- €23.1 - 23.6 billion non-IFRS cloud and software revenue at constant currencies (previously €23.4 - 24.0 billion)
- €27.2 - 27.8 billion non-IFRS total revenue at constant currencies (previously €27.8 - 28.5 billion)
- €8.1 - 8.5 billion non-IFRS operating profit at constant currencies (previously €8.1 - 8.7 billion)
SAP continues to expect its share of more predictable revenue to be approximately
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:
- The most recent currency exchange rates (October 2020) which translates to a negative 3 to 4 percent effect on revenue and operating profit since April 2019.
- The COVID-19 pandemic which is expected to impact the demand environment, particularly in hard hit industries, through at least the first half of 2021 pushing out the achievement of key metrics such as non-IFRS cloud revenue, total revenue, and operating profit, by 1 to 2 years.
- The acceleration of customers' move to the cloud and subsequent business transformations which drive the new ambition's cloud revenue target of more than €22 billion by 2025. SAP expects this to negatively impact the 2023 operating margin by approximately 4 to 5 percentage points relative to the previous mid-term ambition.
- The accelerated harmonization of SAP cloud delivery which is expected to require an incremental investment in 2021 and 2022 and to drive the non-IFRS cloud gross margin to approximately
80% by 2025.
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 onwards.
By 2025, this trajectory is expected to take SAP to:
- More than €22 billion non-IFRS cloud revenue
- More than €36 billion non-IFRS total revenue
- More than €11.5 billion non-IFRS operating profit
- A significant expansion of the Company's more predictable revenue share to approximately
85%
Contact:
Stefan Gruber
Head of Investor Relations
Phone: +49 6227 7-44872
Email: investor@sap.com
Information and Explanation of the Issuer to this News:
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.
| Expected Currency Impact Based on September 2020 Level for the Rest of the Year | ||
| In percentage points | Q4 | FY |
| Cloud revenue | -6pp to -4pp | -3pp to -1pp |
| Cloud and software revenue | -5pp to -3pp | -3pp to -1pp |
| Operating profit | -5pp to -3pp | -4pp to -2pp |
Extended Earnings Conference Call
SAP senior management will host an extended earnings conference call including slide presentations to discuss the key drivers behind the updated mid term ambition on Monday, October 26th, from 2:00 - 3:30 PM (CET) / 1:00 - 2:30 PM (GMT) / 9:00 - 10:30 AM (EDT) / 6:00 - 7:30 AM (PDT).
This extended earnings conference call will be webcast live on SAP's website at www.sap.com/investor and will be held in lieu of a virtual capital markets day in the fourth quarter. The presentation slides will be published prior to the earnings call on SAP's website at www.sap.com/investor as well.
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Any statements contained in this document that are not historical facts are forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. Words such as 'anticipate,' 'believe,' 'estimate,' 'expect,' 'forecast,' 'intend,' 'may,' 'plan,' 'project,' 'predict,' 'should' and 'will' and similar expressions as they relate to SAP are intended to identify such forward-looking statements. SAP undertakes no obligation to publicly update or revise any forward-looking statements. All forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. The factors that could affect SAP's future financial results are discussed more fully in SAP's filings with the U.S. Securities and Exchange Commission ('SEC'), including SAP's most recent Annual Report on Form 20-F filed with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates.
SOURCE: SAP SE via EQS Newswire
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