SAP SE: Cloud Growth Soars Beyond Expectations

WALLDORF, Germany, Oct. 18, 2018 /PRNewswire/ -- SAP SE (NYSE: SAP) today announced its financial results for the third quarter ended September 30, 2018.

"SAP is the fastest growing cloud company at scale in the enterprise software applications industry. Our growth drivers are firing on all cylinders, especially SAP C/4HANA and SAP S/4HANA as foundations of the Intelligent Enterprise. With a stronger than ever Q4 pipeline, we confidently raise our full year guidance." - Bill McDermott, CEO

"I am proud of SAP's excellent business momentum: our accelerating cloud growth shows our strategic priorities are exactly on track. Our non-IFRS operating profit was up double digit even with a higher share of cloud and services revenue. As promised SAP's business is growing its resilience with a constantly increasing share of more predictable revenue. All of this makes me confident that we will deliver on our raised 2018 outlook and 2020 ambition." - Luka Mucic, CFO

Business Performance

Financial Highlights Third Quarter 2018

New cloud bookings[1] growth accelerated to 36% (37% at constant currencies). Cloud subscriptions and support revenue grew 39% year over year to EUR1.30 billion (IFRS), up 41% (non-IFRS at constant currencies).[2] Software revenue was down 9% year over year to EUR937 million (IFRS), down 8% (non-IFRS at constant currencies). While SAP had a strong software revenue performance in APJ and Greater China, customers in the Americas and parts of EMEA were moving faster than expected to cloud and hybrid models. With its expanded Intelligent Suite in the cloud and unique hybrid capabilities, SAP is capitalizing on this market trend. This is reflected in the strong new cloud and software license order entry[3], up 12% at constant currencies year over year in the third quarter. Cloud and software revenue grew 7% year over year to EUR5.01 billion (IFRS), up 10% (non-IFRS at constant currencies). Total revenue grew 8% year over year to EUR6.02 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 three percentage points year-over-year to 68% in the third quarter.

Amid a higher than expected share of cloud and services revenue third quarter operating profit declined 6% year over year to EUR1.24 billion (IFRS) and was up 11% (non-IFRS at constant currencies). The IFRS operating profit was mainly impacted by higher share-based compensation expenses. As announced in January 2018, the Company expects a positive revenue and profit impact from the adoption of IFRS 15 in 2018. In the third quarter, this positive impact on SAP's operating profit was around EUR74 million. Earnings per share declined 1% at EUR0.82 (IFRS) and increased 13% to EUR1.14 (non-IFRS).

Operating cash flow for the first nine months was EUR3.48 billion, down 16% year-over-year. The decrease in operating cash flow was mainly due to higher share-based compensation payments, higher tax and insurance payments as well as currency headwinds. Free cash flow decreased 26% year-over-year to EUR2.34 billion. Free cash flow was also lower due to the previously announced additional CapEx for 2018. At the end of the third quarter, net liquidity was -EUR2.78 billion.

Segment Performance Third Quarter 2018

SAP's three reportable segments "Applications, Technology & Services", "Customer Experience" and "SAP Business Network" showed the following performance.

Applications, Technology & Services (ATS)

In the third quarter, segment revenue in ATS was up 5% to EUR5.05 billion year-over-year (up 8% at constant currencies). Solutions which contributed to this growth in the third quarter are listed below.

SAP S/4HANA

SAP S/4HANA is at the core of the Intelligent Enterprise. With S/4HANA, customers automate more and more of their business processes enabling employees to focus on higher-value tasks. It detects patterns, predicts outcomes and suggests actions empowering companies to reinvent their business models for the digital economy across every industry.

S/4HANA adoption grew to approximately 9,500 customers, up 37% year over year. In the third quarter, approximately 50% of the additional S/4HANA customers were net new.

S/4HANA continues to be selected by world-class global companies, including Wipro, Bombardier and McKesson. OSRAM Continental went live with S/4HANA this quarter. A growing number of companies including Delivery Hero and Shanghai Fosun Pharmaceutical Group have chosen S/4HANA in the Cloud. Shell has gone live on S/4HANA Cloud in the third quarter.

Human Capital Management

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, added more than 200 customers in the quarter and has now more than 2,800 customers globally. Competitive wins included Skechers, Atos, and Air Arabia. American Airlines went live with SAP SuccessFactors Employee Central in the third quarter.

SAP SuccessFactors was recently named a Leader in the Gartner Magic Quadrant for Talent Management Suites and all four IDC MarketScape reports for Worldwide Integrated Talent Management, Performance, Learning and Compensation.

SAP Leonardo

SAP Leonardo brings together cutting-edge technologies - AI, Machine Learning, IoT, Big Data, Advanced Analytics and Blockchain - with deep process and industry expertise, delivering completely new ways of working and powering the Intelligent Enterprise.

Companies like Deloitte and Chint Group are among many others that adopted SAP Leonardo solutions in the third quarter.

SAP Digital Platform

SAP Digital Platform includes SAP Cloud Platform and SAP Data Management Solutions. With SAP HANA's data rich and real-time in-memory architecture as the foundation, this represents a massive opportunity to drive full use of HANA.

The SAP Cloud Platform (SCP) facilitates new app development, extensions and seamless integration. It orchestrates "hybrid" customer landscapes across on premise and cloud.

The SAP Data Hub is the "enterprise control tower" bringing together multi-source data including unstructured. It provides a 360-degree view of all company data and manages compliance and governance policies from one central location.

Grupo Energía Bogotá is one of many customers that adopted SAP's Digital Platform solutions in the third quarter.

Customer Experience

In the third quarter, SAP's C/4HANA customer experience solutions achieved triple-digit growth in new cloud bookings and cloud subscription revenue year-over-year. Segment revenue in Customer Experience was up 54% to EUR232 million year-over-year (up 54% at constant currencies).

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.

C/4HANA provides companies with a single, complete view of their customer across all channels and connects demand to the fulfillment engine in one end-to-end value chain.

Giorgio Armani, Dubai Expo 2020, Colgate-Palmolive, HP, and Döhler were among those that chose SAP's C/4HANA solutions this quarter.

SAP Business Network

In the third quarter, segment revenue in SAP Business Network was up 22% to EUR675 million year-over-year (up 22% at constant currencies).

With the SAP Business Network SAP provides collaborative commerce capabilities (Ariba), effortless travel and expense processing (Concur) and flexible workforce management (Fieldglass). SAP Business Network is the largest commerce platform in the world with approximately $2.6 trillion(([4])) in global commerce annually transacted in more than 180 countries.

Public Works of Canada, United States Department of Defense, Nationwide, and Commonwealth Bank of Australia chose SAP's Business Network Solutions in the third quarter.

Segment Results at a Glance




                                                                           
           Segment Performance Third Quarter 2018

                                                                                                ---

                               Applications, Technology &
                                         Services            SAP Business Network           Customer Experience



             EUR million,                                                                                                     Actual                       Delta in % const.         Actual                         Delta in % const.
              unless otherwise                                                                                                       Currency                                   curr.       Currency                                     curr.
              stated             
            Actual Currency              Delta in %                   Delta in % const. curr.                      Delta in %                                              Delta in %
    (Non-IFRS)

    ---

             Cloud
              subscriptions
              and support                             600                       38                             39             563             24                 24                     151   
          >100        
            >100

    ---

             Segment revenue                        5,046                        5                              8             675             22                 22                     232            54                    54

    ---

             Segment profit                         2,096                        4                              8             155             60                 57                      24            21                    23

    ---

             Cloud
              subscriptions
              and support                              48  
      0pp                                               
            -1pp             78      
            3pp                
       3pp             70  
            16pp                    
       16pp
    gross margin (in %)

    ---

             Segment margin
              (in %)                                  42  
      -1pp                                               
            0pp             23      
            5pp                
       5pp             10  
            -3pp                    
       -3pp

    ---

Regional Revenue Performance

SAP had a solid performance in the EMEA region with cloud and software revenue increasing 4% (IFRS) and 5% (non-IFRS at constant currencies). Cloud subscriptions and support revenue was strong and grew by 40% (IFRS) and 40% (non-IFRS at constant currencies) with Germany and Russia being highlights. In addition, SAP had strong software revenue growth in Russia, Italy and the Netherlands.

The Company had a strong performance in the Americas region. Cloud and software revenue increased by 9% (IFRS) and increased by 13% (non-IFRS at constant currencies). Cloud subscriptions and support revenue increased by 36% (IFRS) and 38% (non-IFRS at constant currencies) with a solid quarter in the United States. Canada had an especially strong quarter in software revenue.

In the APJ region, SAP had a strong performance. Cloud and software revenue was up by 15% (IFRS) and grew by 17% (non-IFRS at constant currencies). Cloud subscriptions and support revenue was exceptional and grew by 53% (IFRS) and 58% (non-IFRS at constant currencies) with Greater China and Japan being highlights. For software revenue, Greater China, Japan, India and South Korea had impressive quarters.

Financial Results at a Glance




                                                        
        Third Quarter 2018

                                                               ---

                                
      IFRS     
       Non-IFRS1)

                                                        ---

        EUR million, unless
         otherwise stated        
      Q3 2018   
         Q3 2017      Delta in %     
     Q3 2018     
     Q3 2017      Delta in %       Delta in %
                                                                                                                                  const.
                                                                                                                                   curr.

    ---                                                                                                                                ---

        New Cloud Bookings2)            N/A             N/A             N/A            411            302               36                 37

    ---                                                                                                                                ---

        Cloud subscriptions and
         support revenue              1,304              937               39           1,315            938               40                 41

    ---

        Software licenses and
         support revenue              3,702            3,720                0           3,702          3,720                0                  2

    ---

        Cloud and software
         revenue                      5,007            4,657                7           5,017          4,658                8                 10

    ---

        Total revenue                 6,020            5,590                8           6,031          5,590                8                 10

    ---

        Share of predictable
         revenue (in %)                 68               65   
              3pp             68             65   
              3pp

    ---

        Operating profit              1,236            1,314    
              -6          1,742          1,637                6                 11

    ---

        Profit after tax                974              993    
              -2          1,360          1,214               12

    ---

        Basic earnings per
         share (EUR)                   0.82             0.82    
              -1           1.14           1.01               13

    ---

        Number of employees
         (FTE, September 30)         94,989           87,874                8             N/A           N/A             N/A               N/A




                                                
              Nine months ended September 2018

                                                                    ---

                                
       IFRS    
       Non-IFRS1)

                                                       ---

        EUR million, unless
         otherwise stated         
       Q1-Q3   
          Q1-Q3            Delta in %       
        Q1-Q3     
     Q1-Q3      Delta in %       Delta in %
                                                                                                                                        const.
                                       2018            2017                                     2018         2017                              curr.

    ---                                                                                                                                      ---

        New Cloud Bookings2)            N/A            N/A                   N/A             1,078          857               26                 31

    ---                                                                                                                                      ---

        Cloud subscriptions and
         support revenue              3,588           2,775                     29              3,614        2,775               30                 37

    ---

        Software licenses and
         support revenue             10,714          10,968          
              -2            10,715       10,968    
              -2                 3

    ---

        Cloud and software
         revenue                     14,302          13,742                      4             14,329       13,743                4                 10

    ---

        Total revenue                17,280          16,656                      4             17,307       16,657                4                 10

    ---

        Share of predictable
         revenue (in %)                 68              66         
              2pp                68           66   
              2pp

    ---

        Operating profit              3,304           2,913                     13              4,618        4,405                5                 12

    ---

        Profit after tax              2,401           2,189                     10              3,401        3,220                6

    ---

        Basic earnings per
         share (EUR)                   2.01            1.81                     11               2.85         2.67                7

    ---

        Number of employees
         (FTE, September 30)         94,989          87,874                      8                N/A         N/A             N/A               N/A



                            1) 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.




                            2) 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 cloud and overall business momentum 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 EUR5.150 billion - EUR5.250 billion at constant currencies
        (2017: EUR3.77 billion), up 36.5% - 39.0% at constant currencies. The
        previous range was EUR5.050 billion - EUR5.200 billion at constant
        currencies.
    --  Non-IFRS cloud and software revenue is now expected to be in a range of
        EUR21.150 - EUR21.350 billion at constant currencies (2017: EUR19.55
        billion), up 8.0% - 9.0% at constant currencies. The previous range was
        EUR21.025 - EUR21.250 billion at constant currencies.
    --  Non-IFRS total revenue is now expected to be in a range of EUR25.200
        billion - EUR25.500 billion at constant currencies (2017: EUR23.46
        billion), up 7.5% - 8.5% at constant currencies. The previous range was
        EUR24.975 billion - EUR25.300 billion at constant currencies.
    --  Non-IFRS operating profit is now expected to be in a range of EUR7.425
        billion - EUR7.525 billion at constant currencies (2017: EUR6.77
        billion), up 9.5% - 11.0% at constant currencies. The previous range was
        EUR7.400 billion - EUR7.500 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 Q4 and FY 2018 expected currency impacts.


                     Expected Currency Impact Based on September
                         2018 Level for the Rest of the Year

                                   ---

        In percentage
         points                                  Q4                   FY

    ---

        Cloud subscriptions
         and support                         1 to -1 pp          -4 to -6 pp

    ---

        Cloud and software                   1 to -1 pp          -3 to -5 pp

    ---

        Operating profit                     1 to -1 pp          -3 to -5 pp

    ---

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 were described in our Half Year Report 2018. Details regarding the IFRS 15 impact in the third quarter and first nine months can be found in the section 'Impact of Changes in Accounting Policies' in this Quarterly Statement.

Ambition 2020

Looking beyond 2018, SAP continues to expect in 2020:

    --  EUR8.2 - EUR8.7 billion non-IFRS cloud subscriptions and support revenue
    --  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 full Q3 2018 Quarterly Statement can be downloaded from www.sap.com/investors/sap-2018-q3-statement.

Additional Information

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.

This Quarterly Statement and all information therein is unaudited.

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 third quarter results can be found at www.sap.com/investor.

About SAP

As the cloud company powered by SAP HANA®, SAP is the market leader in enterprise application software, helping companies of all sizes and in all industries run at their best. Our machine learning, IoT, and advanced analytics technologies help turn customers' businesses into intelligent enterprises. Our end-to-end suite of applications and services enable more than 413,000 business and public customers to operate profitably, adapt continuously, and make a difference. For more information, visit www.sap.com.



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           investor@sap.com, CET



     Follow SAP Investor Relations on Twitter at @sapinvestor.





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           rajiv.sekhri@sap.com, CET


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           daniel.reinhardt@sap.com, CET





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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 third quarter 2018,
                             Callidus contributed EUR52 million
                             to SAP's Non-IFRS cloud
                             subscriptions and support revenue
                             at constant currencies and
                             negatively impacted the operating
                             margin by approximately 40 basis
                             points. 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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