SAP Cloud Business Soars
WALLDORF, Germany, July 19, 2018 /PRNewswire/ -- SAP SE (NYSE: SAP) today announced its financial results for the second quarter ended June 30, 2018.
"The 4th generation of enterprise applications has taken another major step forward with C/4HANA. Together with S/4HANA, SAP customers are finally able to focus their entire business on delivering a personalized experience to their customers. The intelligent enterprise is the elixir to bridge silos inside fractured businesses and beyond so CEOs get a single view of the customer. SAP is presenting a clear strategy, customers are already validating it in Q2 and we are increasing guidance as a signal that a new wave of growth has been unleashed." - Bill McDermott, CEO
"This quarter is exemplary for the road we have chosen: rapidly transforming the company to the cloud while substantially growing profits and margins. I am very confident that this momentum will continue to expand. That's why we raised our 2018 outlook and 2020 ambition." - Luka Mucic, CFO
Business Highlights
Financial Highlights
Second Quarter 2018
New cloud bookings(1) grew 24% (29% at constant currencies) in the second quarter and reached EUR421 million. Cloud subscriptions and support revenue grew 30% year over year to EUR1.21 billion (IFRS), up 40% (non-IFRS at constant currencies).(2 ) Software revenue was down 9% year over year to EUR996 million (IFRS), down 5% (non-IFRS at constant currencies). New cloud and software license order entry(3) grew 12% at constant currencies year over year in the second quarter. Cloud and software revenue grew 4% year over year to EUR4.94 billion (IFRS), up 10% (non-IFRS at constant currencies). Total revenue grew 4% year over year to EUR6.00 billion (IFRS), up 10% (non-IFRS at constant currencies).
SAP's rapidly expanding cloud business together with solid growth in support revenue continued to drive the share of more predictable revenue. The total of cloud subscriptions & support revenue and software support revenue as a percentage of total revenue grew 2 percentage points year-over-year to 66% in the second quarter.
Second quarter operating profit was up 13% year over year to EUR1.04 billion (IFRS), up 12% (non-IFRS at constant currencies). As announced in January 2018, the Company expects a positive revenue and profit impact from the adoption of IFRS 15 in 2018. In the second quarter, this positive impact on SAP's operating profit was around EUR54 million. Earnings per share increased 8% to EUR0.60 (IFRS) and increased 5% to EUR0.98 (non-IFRS).
Operating cash flow for the first six months was EUR2.99 billion, down 15% year over year. The decrease in operating cash flow was mainly due to timing of stock based compensation payments, currency headwinds as well as higher tax and insurance payments. Free cash flow decreased 25% year over year to EUR2.17 billion. Free cash flow was also lower due to the previously announced additional CapEx for 2018. At the end of the second quarter, net liquidity was -EUR2.97 billion.
SAP S/4HANA
With SAP's next generation ERP S/4HANA, customers can massively simplify their IT landscape, turn real-time data into actions and reinvent their business models for the digital economy across every industry.
S/4HANA adoption grew to more than 8,900 customers, up 41% year over year. In the second quarter, approximately 600 additional customers signed up of which approximately 40% were net new.
S/4HANA continues to be selected by world-class global companies, including McDonalds (China) in the quarter. A growing number of companies are now adopting S/4HANA in the Cloud. TechnipFMC, China Sports Lemon, and Spirit Airlines chose S/4HANA Cloud.
SAP C/4HANA (Customer Experience)
SAP's C/4HANA solutions serve a wide range of industries across both B2C and B2B and enable businesses to manage their entire front office: marketing, sales, commerce, service, customer data cloud - seamlessly and in real-time.
In the second quarter, SAP's C/4HANA customer experience solutions achieved high double-digit year-over-year growth in new cloud bookings and total revenue in the SAP Customer Experience segment was up 65% to EUR242 million at constant currencies.
Whirlpool, Deutsche Telekom, and Novartis were among those that chose SAP's C/4HANA solutions this quarter.
Human Capital Management
With SAP SuccessFactors and SAP Fieldglass, SAP delivers total workforce management across both permanent and contingent labor. The SAP SuccessFactors suite is localized for 92 countries and 42 languages.
SAP SuccessFactors Employee Central, which is the flagship of SAP's HCM offering, ended the quarter with more than 2,600 customers and scored numerous competitive wins including BMW, Telecom Argentina, Shiseido, and MG Motors India.
SAP Leonardo
With SAP Leonardo SAP delivers powerful innovation by bringing together deep process and industry expertise, advanced design thinking methodology and cutting edge software capabilities such as IoT, Big Data, Machine Learning, Analytics, and Blockchain. All of this is integrated on the SAP Cloud Platform with new technologies easily added as they emerge.
Toyota and Porsche are among many others that adopted SAP Leonardo solutions in the second quarter.
Business Networks
With the SAP Business Networks SAP provides collaborative commerce capabilities (Ariba), flexible workforce management (Fieldglass) and effortless travel and expense processing (Concur). SAP Business Network is the largest commerce platform in the world with approximately $2.4 trillion(4) in global commerce annually transacted in more than 180 countries.
In the second quarter, total revenue in the SAP Business Network segment was up 21% to EUR688 million at constant currencies year over year. Bosch-Siemens Hausgeräte, and Avianca chose SAP's Business Network Solutions in the second quarter.
Regional Revenue Performance in the Second Quarter 2018
SAP had a very strong performance in the EMEA region with cloud and software revenue increasing 10% (IFRS) and 12% (non-IFRS at constant currencies). Cloud subscriptions and support revenue was strong and grew by 40% (IFRS) and 46% (non-IFRS at constant currencies) with Germany and the UK being highlights. In addition, SAP had strong double-digit software revenue growth in the UK, and the Middle East and Germany had another strong software revenue quarter with solid single digit growth.
The Company had a solid performance in the Americas region with a significant currency headwind. Cloud and software revenue decreased by 3% (IFRS) and increased by 8% (non-IFRS at constant currencies). Cloud subscriptions and support revenue increased by 24% (IFRS) and 35% (non-IFRS at constant currencies) with Brazil being a highlight.
In the APJ region, SAP had a strong performance. Cloud and software revenue was up by 4% (IFRS) and grew by 11% (non-IFRS at constant currencies). Cloud subscriptions and support revenue was exceptional and grew by 42% (IFRS) and 52% (non-IFRS at constant currencies) with China and Japan being highlights. For software revenue, Australia, China and India had impressive quarters and grew by double digits.
Financial Results at a Glance
Second Quarter 20181)
--------------------
IFRS Non-IFRS2)
---- ---------
EUR million, unless
otherwise stated Q2 2018 Q2 2017 Delta in % Q2 2018 Q2 2017 Delta in % Delta in %
const.
curr.
--- -----
New Cloud Bookings3) N/A N/A N/A 421 340 24 29
Cloud subscriptions and
support revenue 1,213 932 30 1,227 932 32 40
Software licenses and
support revenue 3,731 3,826 -2 3,731 3,826 -2 3
Cloud and software
revenue 4,944 4,757 4 4,959 4,758 4 10
Total revenue 5,999 5,782 4 6,014 5,782 4 10
Share of predictable
revenue (in %) 66 63 2pp 66 63 2pp
Operating profit 1,044 926 13 1,640 1,570 4 12
Profit after tax 720 666 8 1,173 1,120 5
Basic earnings per
share (EUR) 0.60 0.56 8 0.98 0.94 5
Number of employees
(FTE, June 30) 93,846 87,114 8 N/A N/A N/A N/A
Six months ended June 20181)
---------------------------
IFRS Non-IFRS2)
---- ---------
EUR million, unless
otherwise stated Q1-Q2 Q1-Q2 Delta in % Q1-Q2 Q1-Q2 Delta in % Delta in %
2018 2017 2018 2017 const. curr.
--- ---- ---- ---- ---- ------------
New Cloud Bookings3) N/A N/A N/A 667 555 20 28
Cloud subscriptions and
support revenue 2,283 1,837 24 2,299 1,837 25 36
Software licenses and
support revenue 7,012 7,248 -3 7,012 7,248 -3 3
Cloud and software
revenue 9,295 9,085 2 9,311 9,085 2 10
Total revenue 11,260 11,066 2 11,276 11,067 2 10
Share of predictable
revenue (in %) 68 66 2pp 68 66 2pp
Operating profit 2,069 1,599 29 2,876 2,768 4 13
Profit after tax 1,428 1,197 19 2,041 2,006 2
Basic earnings per
share (EUR) 1.20 0.99 21 1.71 1.67 3
Number of employees
(FTE, December 31) 93,846 87,114 8 N/A N/A N/A N/A
1) All figures are unaudited.
2) For a detailed description of
SAP's non-IFRS measures see
Explanation of Non-IFRS
Measures online. For a
breakdown of the individual
adjustments see table "Non-
IFRS Adjustments by Functional
Areas" in this Quarterly
Statement.
3) As this is an order entry
metric, there is no IFRS
equivalent.
Due to rounding, numbers may not
add up precisely.
Business Outlook 2018
Due to the strong momentum in SAP's cloud business the Company is raising its outlook for the full year 2018:
-- Non-IFRS cloud subscriptions and support revenue is now expected to be
in a range of EUR5.050 billion - EUR5.200 billion at constant currencies
(2017: EUR3.77 billion), up 34.0% - 38.0% at constant currencies. The
previous range was EUR4.95 billion - EUR5.15 billion at constant
currencies.
-- Non-IFRS cloud and software revenue is now expected to be in a range of
EUR21.025 - EUR21.250 billion at constant currencies (2017: EUR19.55
billion), up 7.5% - 8.5% at constant currencies. The previous range was
EUR20.85 - EUR21.25 billion at constant currencies.
-- Non-IFRS total revenue is now expected to be in a range of EUR24.975
billion - EUR25.300 billion at constant currencies (2017: EUR23.46
billion), up 6.0% - 7.5% at constant currencies. The previous range was
EUR24.80 billion - EUR25.30 billion at constant currencies.
-- Non-IFRS operating profit is now expected to be in a range of EUR7.400
billion - EUR7.500 billion at constant currencies (2017: EUR6.77
billion), up 9.0% - 11.0% at constant currencies. The previous range was
EUR7.35 billion - EUR7.50 billion at constant currencies.
While SAP's full-year 2018 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 Q3 and FY 2018 expected currency impacts.
Expected Currency Impact Based on June 2018 Level for the Rest
of the Year
--------------------------------------------------------------
In percentage points Q3 FY
-------------------- --- ---
Cloud subscriptions and support 1 to -1pp -4 to -6pp
------------------------------- --------- ----------
Cloud and software 1 to -1pp -2 to -4pp
------------------ --------- ----------
Operating profit 1 to -1pp -2 to -4pp
---------------- --------- ----------
IFRS 15 Impact
As of January 1, 2018, SAP changed several of its accounting policies to adopt IFRS 15 'Revenue from Contracts with Customers'. Under the IFRS 15 adoption method chosen by SAP prior years are not restated to conform to the new policies. Consequently, the year-over-year growth of revenue and profit in 2018 will be impacted by the new policies.
As already announced in SAP's Q4 2017 Quarterly Statement, the Company expects the full year 2018 impact of the policy change(5) on revenue, operating expenses and profit to be as follows:
-- Revenues are expected to experience a benefit of substantially less than
EUR0.1 billion with most of the difference resulting from exercises of
customer software purchase options granted in prior years which result
in software revenue.
-- Operating expenses are expected to benefit, in cost of sales and
marketing, in the amount of approximately EUR0.2 billion from higher
capitalization of sales commissions. Other policy changes will weigh on
operating expenses with an additional cost of revenue of substantially
less than EUR0.1 billion.
-- The above-mentioned effects will result in a net positive impact on
operating profit of approximately EUR0.2 billion.
The new revenue recognition policies are described in our Half Year Report. Details regarding the IFRS 15 impact in the second quarter and first six months can be found in the section 'Impact of Changes in Accounting Policies' in this Quarterly Statement.
Ambition 2020
Looking beyond 2018, SAP is updating its 2020 ambition. This update reflects the strong momentum in SAP's cloud business, the acquisition of Callidus Software as well as a more challenging currency environment compared to 2017.
SAP now expects 2020 non-IFRS cloud subscriptions and support revenue in a range of EUR8.2 - EUR8.7 billion (previously: EUR8.0 - EUR8.5 billion).
SAP continues to expect:
-- EUR28 - EUR29 billion non-IFRS total revenue
-- EUR8.5 - EUR9.0 billion non-IFRS operating profit
-- The share of more predictable revenue (defined as the total of cloud
subscriptions & support revenue and software support revenue) in a range
of 70% - 75%.
The updated ambition is based on estimated average 2018 currencies, assuming the current foreign exchange environment prevails until year-end. The previous ambition was based on average 2017 currencies. The change in currency assumptions negatively impacts the cloud subscriptions and support revenue ambition by approximately -EUR0.35 billion, the total revenue ambition by approximately -EUR1.0 billion and the operating profit ambition by approximately -EUR0.4 billion. These negative impacts are now included in the updated 2020 ambition.
The full Q2 2018 Quarterly Statement can be downloaded from http://www.sap.com/investors/sap-2018-q2-statement
Additional Information
On April 5, 2018, SAP acquired Callidus Software Inc. and changed the structure of the Applications, Technology & Services segment. The Callidus business was combined with our existing customer experience activities into a new business unit called 'SAP Customer Experience'. This new unit, which qualifies as an operating segment (called 'Customer Experience'), comprises on premise and cloud-based products that run front office functions across the customer experience. The company has retrospectively adjusted its revenue and results for the Applications, Technology & Services segment to reflect these changes. For further information regarding changes in SAP's segment structure, see Note 14 in our consolidated Half-Year Report.
All numbers for the SAP group and the Customer Experience segment include Callidus revenues and profits from April 5, 2018 onwards. Numbers for periods before the acquisition do not include Callidus' revenues or profits.
For a more detailed description of all of SAP's non-IFRS measures and their limitations as well as our constant currency and free cash flow figures see Explanation of Non-IFRS Measures online.
Webcast
SAP senior management will host a financial analyst conference call at 2:00 PM (CET) / 1:00 PM (GMT) / 8:00 AM (Eastern) / 5:00 AM (Pacific). The call 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 second quarter results can be found at www.sap.com/investor.
About SAP
As market leader in enterprise application software, SAP (NYSE: SAP) helps companies of all sizes and industries run better. From back office to boardroom, warehouse to storefront, desktop to mobile device - SAP empowers people and organizations to work together more efficiently and use business insight more effectively to stay ahead of the competition. SAP applications and services enable more than 404,000 business and public sector customers to operate profitably, adapt continuously, and grow sustainably. For more information, visit www.sap.com.
For more information, financial community only:
Stefan Gruber +49 (6227) 7-44872 investor@sap.com, CET
Follow SAP Investor Relations on Twitter at @sapinvestor.
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For customers interested in learning more about SAP products:
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(1) New cloud bookings is the total
of all orders received in a given
period the revenue from which is
expected to be classified as cloud
subscription and support revenue
and that result from purchases by
new customers and from incremental
purchases by existing customers.
Consequently, orders to renew
existing contracts are not
included in this metric. The order
amount must be committed.
Consequently, due to their pay-
per-use nature, business network
transaction fees which do not
include a committed minimum
consumption are not reflected in
the bookings metric (e.g. SAP
Ariba and SAP Fieldglass
transaction-based fees). Amounts
included in the measures are
generally annualized (annualized
contract value ACV).
(2) For the second quarter 2018,
Callidus contributed EUR50 million
to SAP's Non-IFRS cloud
subscriptions and support revenue
at constant currencies. The
Callidus acquisition was closed on
April 5th 2018.
(3) New cloud and software license
order entry is the total of new
cloud order entry and software
license order entry. The new cloud
order entry metric is identical to
the new cloud bookings metric
defined above except that it
considers the total contract value
(TCV) of the orders where the new
cloud bookings metric considers
the orders' annualized contract
value (ACV). Software license
order entry is the total of all
orders received in a given period
the revenue from which is expected
to be classified as software
license revenue. The support
services commonly sold with the
software licenses are not included
in the software license order
entry metric.
4 SAP Business Network commerce is
the total commerce transacted on
the Ariba, Concur and Fieldglass
Networks in the trailing 12
months. Ariba commerce includes
procurement and sourcing spend.
Previously we only included the
total commerce transacted on the
Ariba Network in this metric.
5 "Impact of the accounting policy
change" means the difference
between a revenue and profit
measure determined under SAP's new
IFRS 15-based policies and the
respective measure as it would
stand had our previous accounting
policies continued to apply.
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