Stellar Start To 2021: Fastest Growth in New Cloud Business in Five Years Reaccelerates Current Cloud Backlog, Up 19% at Constant Currencies, to €7.6 Billion

Rhea-AI Summary

SAP announced its Q1 2021 financial results, highlighting a 7% increase in cloud revenue to €2.14 billion (IFRS). The company recorded a strong order entry growth, marking the highest in five years. Notably, Non-IFRS operating profit rose 17% to €1.74 billion. The adoption of 'RISE with SAP' has been pivotal, with over 100 transactions closed in Q1. Despite COVID-19 impacts, SAP maintains a positive outlook for cloud growth, raising its full-year expectations to €9.2 – 9.5 billion in cloud revenue. The share of predictable revenue rose to 78%, boosting financial stability.

Positive

• 7% increase in cloud revenue to €2.14 billion (IFRS).
• Strong order entry growth, the highest in five years.
• Non-IFRS operating profit up 17% to €1.74 billion.
• 'RISE with SAP' initiative resulted in over 100 new transactions in Q1.
• Full-year cloud revenue outlook raised to €9.2 – 9.5 billion.

Negative

• IFRS operating profit decreased by 21% to €0.96 billion.
• Total revenue declined 3% year over year to €6.35 billion (IFRS).
• Services revenue down 18% year over year to €0.9 billion (IFRS).

WALLDORF, Germany, April 22, 2021 /PRNewswire/ --

Cloud Revenue in € millions		Total Revenue in € millions
IFRS	Non-IFRS	IFRS	Non-IFRS
2,145	2,147	6,348	6,350
 +7%	 +7% (+13% cc)	-3%	-3% (+2% cc)

The share of more predictable revenue reached 78% in the first quarter 2021 (+2 percentage points)

Cloud & Software Revenue in € millions		Operating Profit in € millions
IFRS	Non-IFRS	IFRS	Non-IFRS
5,428	5,431	960	1,741
 +1%	+1% (+6% cc)	-21%	+17% (+24% cc)

" We are seeing very strong order entry growth across our applications portfolio. And we are just getting started. Our new offering 'RISE with SAP' is rapidly becoming a massive accelerator to our customers' business transformations with our platform at the center. Together with our unique ecosystem of more than 22,000 partners and with a strong innovation pipeline for the year, we are well on track with our strategy to deliver robust cloud growth."
Christian Klein, CEO

The first quarter of 2021 was unique in many ways. We had the highest order entry growth across cloud and software in five years while posting the strongest increase in Non-IFRS operating profit and margin in a decade. Free cash flow was up double-digit compared to a record prior year. In the mid term SAP's expedited shift to the cloud will accelerate topline growth and significantly increase the resiliency and predictability of our business."
Luka Mucic, CFO

SAP SE (NYSE: SAP) today announced its financial results for the first quarter ended March 31, 2021.

Business Update First Quarter 2021

SAP saw a sharp acceleration in new cloud business across its cloud portfolio including Qualtrics, Human Experience Management, Procurement, Customer Experience, Business Technology Platform, as well as a strong start for 'RISE with SAP' which is driving customers' business transformations in the cloud. Software licenses were up 7% (IFRS) and had strong, double-digit growth of 11% (Non-IFRS at constant currencies). SAP had significant competitive wins in ERP, digital supply chain and across its broader cloud solution portfolio.

Despite the continued impact of global travel restrictions on Concur's business, SAP's cloud revenue growth was resilient in the first quarter, up 7% (IFRS) and up 13% (Non-IFRS at constant currencies). SaaS/PaaS cloud revenue outside the Intelligent Spend business was up 17% (IFRS) and up 24% (Non-IFRS at constant currencies). Looking forward, SAP's strong new cloud business performance is expected to reaccelerate cloud revenue growth.

Throughout the COVID-19 crisis, SAP continues to serve its customers effectively with an embedded virtual sales and remote implementation strategy. The company retains a disciplined approach to hiring and discretionary spend while capturing natural savings e.g. from lower travel, facility-related costs and virtual events. The prior year included a cost of approximately €36 million in relation to the cancellation of its in-person annual SAPPHIRE NOW and other customer events, as well as normal travel behavior.

Highlights

• Key customer wins included: Unilever, BioNTech, IKEA, Nippon Express, BMW, Yamaha Motor Company, Toshiba Corporation, AstraZeneca, Zalando, Deichmann, B. Braun, and Clemson University. AkzoNobel, CONA Services, Daikin Chemicals, Olam International, Google, Bosch Siemens Hausgeräte, Douglas, LIVEKINDLY Collective, Peloton, and Chobani went live on SAP solutions.
• SAP launched "RISE with SAP" on January 27, a simplified pathway for customers to transform their business in the cloud. In the first quarter alone, SAP closed more than 100 transactions. Customers such as Carrefour Brazil, Sono Motors, KIA Chile, Hillrom, and Grupo Feromax chose "RISE with SAP" in the first quarter.
• In total, more than 400 S/4HANA customers were added in the quarter, taking total adoption to more than 16,400 customers, up more than 16% year over year, of which more than 9,600 are live. In the first quarter, more than 50% of the additional S/4HANA customers were net new.
• The acquisition of Signavio was completed on March 5, significantly deepening SAP's business process intelligence capabilities.
• SAP closed the acquisition on AppGyver, a no-code development pioneer. AppGyver's solutions will become part of the SAP Business Technology Platform.
• SAP announced a strategic partnership with Dediq to jointly expand SAP's financial services portfolio with a significant investment in developing new solutions to better serve the rapidly changing banking and insurance industry. The new solutions will be built as part of SAP's industry cloud solutions. SAP and Dediq intend to form a dedicated Financial Services Industry (FSI) Unit, which will be jointly owned by the two companies. Pending regulatory approval, the new FSI Unit is expected to be established in September 2021.
• SAP proposed a dividend of €1.85 per share for fiscal year 2020 representing a year-over-year increase of €0.27 or 17%. The dividend is subject to shareholder approval at the upcoming AGM to be held on May 12, 2021.

Financial Performance First Quarter 2021¹

Current cloud backlog was up 15% to €7.63 billion and up 19% (at constant currencies). Cloud revenue was up 7% year over year to €2.14 billion (IFRS), up 7% to €2.15 billion (non-IFRS) and up 13% (non-IFRS at constant currencies). Software licenses revenue was up 7% year over year to €0.48 billion (IFRS and non-IFRS) and up 11% (non-IFRS at constant currencies). Cloud and software revenue was up 1% to €5.43 billion (IFRS and non-IFRS) and up 6% (non-IFRS at constant currencies). Services revenue was down 18% year over year to €0.9 billion (IFRS and non-IFRS) and down 14% (non-IFRS at constant currencies). This revenue decline reflects the November 2020 divestiture of SAP Digital Interconnect, which contributed approximately €90 million of services revenue (IFRS and non-IFRS) in the first quarter of 2020. Total revenue was down 3% year over year to €6.35 billion (IFRS and non-IFRS) and up 2% (non-IFRS at constant currencies).

The share of more predictable revenue² grew by approximately 2 percentage points year over year to approximately 78% in the first quarter.

IFRS operating profit decreased 21% to €0.96 billion and IFRS operating margin decreased by 3.4 percentage points to 15.1% due to higher share-based compensation expenses (primarily related to Qualtrics IPO awards) and restructuring expenses related to the accelerated harmonization of SAP's cloud delivery infrastructure. Non-IFRS operating profit increased 17% to €1.74 billion, up 24% (non-IFRS at constant currencies) and operating margin increased by 4.7 percentage points to 27.4%, up 4.9 percentage points (non-IFRS at constant currencies).

Earnings per share increased 29% to €0.88 (IFRS) and increased 63% to €1.40 (non-IFRS) reflecting another strong contribution from Sapphire Ventures.

Operating cash flow for the first quarter was €3.09 billion. Free cash flow increased 10% year over year to €2.85 billion. Cash flow was positively impacted by lower share-based and restructuring payments. Free cash flow was further supported by a decline in capex. At quarter end, net debt was –€2.66 billion.

Expanded Financial Disclosure – SAP's Accelerated Cloud Transition

Starting with the first quarter 2021, SAP is expanding its financial disclosure to provide investors with transparency on the transition of its core ERP business to the cloud. Specifically, the Company is disclosing current cloud backlog and cloud revenue contributed by SAP S/4HANA Cloud, along with nominal and constant currencies year-over-year growth rates.

In the first quarter S/4HANA current cloud backlog was up 39% to €1.04 billion and up 43% (at constant currencies). S/4HANA cloud revenue was up 36% to €227 million (IFRS and non-IFRS) and up 43% (at constant currencies).

SAP S/4HANA Cloud represents SAP's cloud offering for core ERP processes. It mainly includes cloud solutions for financial management, supply chain management, engineering and manufacturing, order management and asset management, as well as associated data management, analytics, development and integration capabilities.

"RISE with SAP ", SAP's holistic offering for business transformation in the cloud, is an important driver of S/4HANA Cloud and Business Technology Platform adoption.

Segment Performance First Quarter 2021

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

Applications, Technology & Support (AT&S)

Segment revenue in AT&S was down 1% to €5.31 billion year over year (up 4% at constant currencies). Segment performance was driven by strong double-digit cloud revenue growth in S/4HANA Cloud, Digital Supply Chain, Business Technology Platform, and Customer Experience, in particular ecommerce. Software licenses revenue grew sharply driven by a significant number of ERP and supply chain competitive wins against peers. Segment support revenues were flat at constant currencies (year over year) reflecting high retention rates coupled with the shift of some support revenue to cloud.

Qualtrics

Qualtrics segment revenue was up 25% to €202 million year over year (up 37% at constant currencies). The strong growth was driven by companies using Qualtrics experience data and insights to drive employee retention and engagement, to find new customers and strengthen relationships to keep the ones they already have. LIXIL, Singapore Post, Bank of Montreal, Los Angeles County Public Health, Mitsubishi Electric Corporation, Royal Caribbean International, and many others selected Qualtrics Experience Management Solutions.

Services

Services segment revenue was down 12% to €800 million year over year (down 8% at constant currencies). The services implementation business continues to demonstrate its resilience and flexibility with SAP's shift to remote delivery, and SAP's premium services remain in high demand. However, SAP's training business continues to be impacted due to delays in re-opening of global training centers.

Segment Results at a Glance

First Quarter 2021

	Applications, Technology & Support			Qualtrics			Services
€ million, unless otherwise stated (Non-IFRS)	Actual Currency	∆ in %	∆ in % const. curr.	Actual Currency	∆ in %	∆ in % const. curr.	Actual Currency	∆ in %	∆ in % const. curr.
Cloud revenue	1,958	4	10	160	33	45	0	NA	NA
Segment revenue	5,314	–1	4	202	25	37	800	–12	–8
Segment profit (loss)	2,127	8	13	13	<-100	<-100	170	26	33
Cloud gross margin (in %)	68.8	–0.1pp	–0.2pp	92.2	1.4pp	1.5pp	NM1)	NM1)	NM1)
Segment margin (in %)	40.0	3.1pp	3.2pp	6.4	16.5pp	15.6pp	21.2	6.4pp	6.5pp

1) NM = not meaningful

Regional Revenue Performance First Quarter 2021

SAP had a strong performance across all of its regions.

In the EMEA region, cloud and software revenue increased 5% (IFRS) and 7% (non-IFRS at constant currencies). Cloud revenue increased 21% (IFRS) and 24% (non-IFRS at constant currencies) with Germany and Switzerland being highlights.

In the Americas region, cloud and software revenue decreased 6% (IFRS) and was up 3% (non-IFRS at constant currencies). Cloud revenue decreased 2% (IFRS) and was up 7% (non-IFRS at constant currencies). Canada and Mexico had a robust performance.

In the APJ region, cloud and software revenue increased 7% (IFRS) and 11% (non-IFRS at constant currencies). Cloud revenue increased 14% (IFRS) and 18% (non-IFRS at constant currencies) with Japan, Australia and Singapore being highlights.

Financial Results at a Glance

First Quarter 2021

	IFRS			Non-IFRS1)
€ million, unless otherwise stated	Q1 2021	Q1 2020	∆ in %	Q1 2021	Q1 2020	∆ in %	∆ in % const. curr.
Current cloud backlog2)	NA	NA	NA	7,628	6,634	15	19
Cloud revenue	2,145	2,011	7	2,147	2,012	7	13
Software licenses and support revenue	3,283	3,386	–3	3,283	3,386	–3	1
Cloud and software revenue	5,428	5,397	1	5,431	5,398	1	6
Total revenue	6,348	6,521	–3	6,350	6,522	–3	2
Share of more predictable revenue (in %)	78	76	2pp	78	76	2pp
Operating profit (loss)	960	1,210	–21	1,741	1,482	17	24
Profit (loss) after tax	1,070	811	32	1,722	1,015	70
Basic earnings per share (in €)	0.88	0.68	29	1.40	0.85	63
Number of employees (FTE, March 31)	103,142	101,150	2	NA	NA	NA	NA

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

2) As this is an order entry metric, there is no IFRS equivalent.

Due to rounding, numbers may not add up precisely.

Business Outlook 2021

SAP raised its full-year 2021 outlook on April 13 reflecting the strong new cloud business performance which is expected to reaccelerate cloud revenue growth. The Company continues to expect a software licenses revenue decline for the full year as more customers turn to the "RISE with SAP" subscription offering for their mission-critical core processes. This outlook also continues to assume the COVID-19 crisis will begin to recede as vaccine programs roll out globally, leading to a gradually improving global demand environment in the second half of 2021.

SAP expects:

• €9.2 – 9.5 billion non-IFRS cloud revenue at constant currencies (2020: €8.09 billion), up 14% to 18% at constant currencies. The previous range was €9.1 – 9.5 billion at constant currencies.
• €23.4 – 23.8 billion non-IFRS cloud and software revenue at constant currencies (2020: €23.23 billion), up 1% to 2% at constant currencies. The previous range was €23.3 – 23.8 billion at constant currencies.
• €7.8 – 8.2 billion non-IFRS operating profit at constant currencies (2020: €8.28 billion), down 1% to 6% at constant currencies.
• The share of more predictable revenue (defined as the total of cloud revenue and software support revenue) to reach approximately 75% (2020: 72%).

The Company continues to expect operating cash flow of approximately €6.0 billion (2020 €7.2 billion) primarily reflecting moderately lower profit, higher expected income tax payments and adverse currency exchange movements. Free cash flow is expected above €4.5 billion (2020 €6.0 billion), also impacted by a modest increase in capex.

While SAP's full-year 2021 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 Q2 and FY 2021 expected currency impacts.

Expected Currency Impact Based on March 2021 Level for the Rest of the Year
In percentage points	Q2	FY
Cloud revenue	-6pp to -4pp	-4pp to -2pp
Cloud and software revenue	-5pp to -3pp	-3pp to -1pp
Operating profit	-5pp to -3pp	-3pp to -1pp

SAP focuses on three non-financial targets for 2021: customer loyalty, employee engagement, and carbon emissions. SAP continues to aim for:

• a Customer Net Promoter Score of 5 to 10 in 2021,
• an Employee Engagement Index in a range of 84% to 86%, and
• net greenhouse gas emissions of 145 kt in 2021.

The full Q1 2021 Quarterly Statement can be downloaded from http://www.sap.com/investors/sap-2021-q1-statement.

Additional Information

This Quarterly Statement and all information therein is unaudited.

Definition of key growth metrics

Current cloud backlog (CCB) is the contractually committed cloud revenue we expect to recognize over the upcoming 12 months as of a specific key date. Thus, it is a subcomponent of our overall remaining performance obligations following IFRS 15.120. For CCB, we take into consideration committed deals only. CCB can be regarded as a lower boundary for cloud revenue to be recognized over the next 12 months, as it excludes utilization-based models without pre-commitments and committed deals, both new and renewal, closed after the key date. For our committed cloud business, we believe the CCB is a valuable indicator of go-to-market success, as it reflects both new contracts closed as well as existing contracts renewed.

Share of more predictable revenue is the total of non-IFRS cloud revenue and non-IFRS software support revenue as a percentage of total revenue.

For explanations on other key growth metrics please refer to the performance management section of SAP's Integrated Report 2020, which can be found at www.sap.com/investor.

Webcast

SAP senior management will host a financial analyst conference call on Thursday, April 22, at 2:00 PM (CEST) / 1:00 PM (BST) / 8:00 AM (Eastern) / 5:00 AM (Pacific), The conference will be webcast live on the Company's website at www.sap.com/investor and will be available for replay. Supplementary financial information pertaining to the first quarter results can be found at www.sap.com/investor.

Financial Analyst and Investor Conference

SAP will hold a virtual financial analyst event on Tuesday, June 15, in conjunction with its annual SAPPHIRE NOW conference kicking off on June 2^nd https://events.sap.com/sapandasug/en/home.

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. Our machine learning, Internet of Things (IoT), and advanced analytics technologies help turn customers' businesses into intelligent enterprises. SAP helps to 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 http://www.sap.com.

Follow SAP Investor Relations on Twitter at @sapinvestor.

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)

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.

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____________________

1 The Q1 2021 results were also impacted by other effects. For details please refer to the disclosures on page 24 of this document.

2 Share of more predictable revenue is the total of non-IFRS cloud revenue and non-IFRS software support revenue as a percentage of total revenue.

 

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FAQ

What were SAP's cloud revenue figures for Q1 2021?

SAP's cloud revenue for Q1 2021 increased by 7% to €2.14 billion under IFRS.

How did SAP's operating profit perform in Q1 2021?

SAP's IFRS operating profit decreased by 21% to €0.96 billion in Q1 2021.

What is the outlook for SAP's cloud revenue in 2021?

SAP raised its full-year 2021 cloud revenue outlook to between €9.2 and €9.5 billion.

What initiatives contributed to SAP's business growth in Q1 2021?

The 'RISE with SAP' initiative led to more than 100 transactions in Q1 2021.

What was the share of predictable revenue for SAP in Q1 2021?

SAP reported a share of predictable revenue of 78% in Q1 2021, up 2 percentage points year over year.