SAP SAP SE

• All financial outlook metrics met in FY 2022
• Cloud revenue up 33% and up 24% at constant currencies in FY 2022. Q4 S/4HANA cloud revenue further accelerates, up 101% and up 90% at constant currencies
• Current cloud backlog exceeds €12 billion, up 27% and up 24% at constant currencies
• IFRS cloud gross profit up 38%, non-IFRS cloud gross profit up 37% and up 28% at constant currencies in FY 2022
• IFRS operating profit flat, non-IFRS operating profit down 2% and down 7% at constant currencies in FY 2022. Q4 IFRS operating profit up 17%, non-IFRS operating profit up 5% and up 2% at constant currencies
• 2023 outlook anticipates accelerating topline and double-digit non-IFRS operating profit growth
• Targeted restructuring in 2023 reflects focus on strategic growth areas and accelerated cloud transformation
• SAP has decided to explore a sale of its stake in Qualtrics

WALLDORF, Germany, Jan. 26, 2023 /PRNewswire/ -- SAP SE (NYSE: SAP) today announced its financial results for the fourth quarter and fiscal year ended December 31, 2022.

Christian Klein, CEO: "SAP is more resilient than ever. We end 2022 with continued strong cloud momentum and a return to operating profit growth in the fourth quarter, marking an important inflection point. Heading into 2023, this gives us great confidence in delivering on our promise of accelerating topline and double-digit non-IFRS operating profit growth. As we enter the next chapter of SAP, I want to thank Luka for his great partnership on this journey."

Luka Mucic, CFO: "In my 37th and final earnings for SAP, I am proud that the SAP team is announcing excellent results and continued cloud momentum. We are on track to deliver our growth and profitability commitments for 2023. I am extremely confident in the continued success of SAP's most exciting transformation in its history. Thank you to the wonderful SAP family that I have been part of for 27 years." 

Financial Performance

Financial Highlights¹

Fourth Quarter 2022

In the fourth quarter, cloud revenue was up 30% to €3.39 billion and up 22% at constant currencies. SAP S/4HANA cloud revenue further accelerated and was up 101% to €0.66 billion and up 90% at constant currencies.

Software licenses revenue was down 38% to €0.91 billion and down 39% at constant currencies. Cloud and software revenue was up 4% to €7.29 billion and flat at constant currencies. Services revenue was up 15% to €1.14 billion and up 10% at constant currencies. Total revenue was up 6% to €8.44 billion and up 1% at constant currencies.

The share of more predictable revenue increased by 6 percentage points to 76% in the fourth quarter.

Cloud gross profit was up 36% (IFRS), up 34% (non-IFRS) and up 27% (non-IFRS at constant currencies). Cloud gross margin was up 2.9 percentage points to 69.4% (IFRS), up 2.3 percentage points to 71.3% (non-IFRS) and up 2.7 percentage points to 71.6% (non-IFRS at constant currencies). This increase was driven by expanding gross margins across all cloud business models, with efficiency gains overcompensating increased investments into our next generation cloud delivery program.

IFRS operating profit increased 17% to €1.71 billion and IFRS operating margin increased by 1.9 percentage points to 20.2%. Non-IFRS operating profit was up 5% to €2.58 billion and up 2% at constant currencies. Non-IFRS operating margin decreased by 0.3 percentage points to 30.6% and was up 0.3 percentage points to 31.2% at constant currencies. The increase in profitability was supported by disciplined spend management in the fourth quarter. In addition, IFRS operating profit included a disposal gain of €175 million and non-IFRS operating profit of €109 million related to the sale of the SAP Litmos business.

IFRS earnings per share decreased 62% to €0.47 and non-IFRS earnings per share decreased 46% to €1.00. The year-over-year decline of earnings per share reflects a contribution to financial income by Sapphire Ventures that, mainly due to market conditions, was significantly lower than in the same period last year. The effective tax rate was 56.3% (IFRS) and 37.0% (non-IFRS). The year-over-year increase mainly resulted from changes in tax-exempt income related to Sapphire Ventures, which were partly compensated by changes in non-deductible expenses in IFRS.

At year end, current cloud backlog expanded to €12.03 billion, growing by 27% and 24% at constant currencies. Current cloud backlog growth was negatively impacted by approximately 1.5 percentage points from the divestiture of our Litmos business and the wind down of our business operations in Russia and Belarus. SAP S/4HANA current cloud backlog was up 86% to €3.17 billion and up 82% at constant currencies.

As of December 31, total cloud backlog – which is defined as the contractually committed cloud revenue we expect to recognize in future periods – was up 35% to €34.2 billion.

For the full year, cloud revenue was up 33% to €12.56 billion and up 24% at constant currencies, driven by double-digit growth across the SaaS and PaaS portfolio. SAP S/4HANA cloud revenue was up 91% to €2.08 billion and up 79% at constant currencies. 

Software licenses revenue was down 37% to €2.06 billion and down 39% at constant currencies. Despite lower software licenses revenue, cloud and software revenue was up 10% to €26.52 billion and up 4% at constant currencies. Services revenue was up 16% to €4.35 billion and up 9% at constant currencies. Total revenue was up 11% to €30.87 billion and up 5% at constant currencies.

The share of more predictable revenue increased by 4 percentage points year over year to 79% for the full year 2022.

Cloud gross profit was up 38% (IFRS), 37% (non-IFRS) and 28% (non-IFRS at constant currencies). Cloud gross margin was up 2.3 percentage points to 69.3% (IFRS), up 1.8 percentage points to 71.3% (non-IFRS) and up 2.1 percentage points to 71.6% (non-IFRS at constant currencies). This 2.1 percentage point increase was driven by expanding gross margins across all cloud business models, with efficiency gains overcompensating increased investments into the next generation cloud delivery program.

IFRS operating profit was flat at €4.67 billion and IFRS operating margin decreased by 1.6 percentage points to 15.1%. Non-IFRS operating profit decreased 2% to €8.03 billion and decreased 7% at constant currencies and non-IFRS operating margin decreased by 3.5 percentage points to 26.0% and was down 3.2 percentage points to 26.4% at constant currencies. Operating profit performance was impacted by the decision to wind down business operations in Russia and Belarus, and a reduced contribution from software licenses revenue as well as accelerated investments into research and development and sales & marketing to capture current and future growth opportunities.

IFRS earnings per share decreased 56% to €1.96 and non-IFRS earnings per share decreased 39% to €4.08. The year-over-year decline of earnings per share reflects a contribution to financial income by Sapphire Ventures that, due to market conditions faced throughout the year, was significantly lower than in the same period last year. Effective tax rate was 44.6% (IFRS) and 29.5% (non-IFRS). The year-over-year increase mainly resulted from changes in tax-exempt income related to Sapphire Ventures.

Free cash flow for the full year was down 14% to €4.35 billion, in line with the revised outlook of approximately €4.5 billion. This is predominantly due to lower profitability and adverse working capital impacts in other assets. While tax payments developed positively, smaller negative impacts came from share-based payments as well as capital expenditures and leasing. In addition, the increased volume of trade receivables sold in 2022 amounting to €0.8 billion versus €0.5 billion in 2021 had a positive impact on free cash flow. At year end, net debt was €2.07 billion.

Impact of War in Ukraine

In 2022, SAP's business was impacted by the war in Ukraine and SAP's decision to wind down its business operations in Russia and Belarus.

At the end of the fourth quarter, current cloud backlog was approximately €62 million lower due to the termination of existing cloud engagements in Russia and Belarus, reducing current cloud backlog growth by approximately half a percentage point at constant currencies. The impact on full-year IFRS operating profit was approximately €410 million (fourth quarter: €70 million) and approximately €290 million (fourth quarter: €70 million) on non-IFRS operating profit, mainly due to reduced revenues and bad debt provisions.

Other impacts due to this evolving situation are currently unknown and could potentially subject our business to materially adverse consequences should the situation escalate beyond its current scope.

Non-Financial Performance 2022

Customer Net Promoter Score (NPS) decreased 7 points year over year to 3 in 2022, achieving the lower end of the revised outlook range.

SAP's Employee Engagement Index decreased 3 percentage points to 80%, reflecting a continued high level of engagement at the low end of the revised outlook range. SAP's retention rate was 92.3%, closely aligning with 2021 at 92.8%. The proportion of women in management increased to 29.4%, an increase of 1.1 percentage points year over year. In the fourth quarter, the Company also reached 35% of women in the workforce.

Net carbon emissions continued to decrease, at 95 kilotons in 2022, down 15 kt year over year. This result is at the upper end of the revised outlook range.

Business Highlights

In the fourth quarter, customers around the globe continued to choose "RISE with SAP" to drive their end-to-end business transformations. These customers included Al-Futtaim Group, City of Vancouver, ExxonMobil, Fujitsu Limited, German Football Association (DFB), Imperial Brands, Kanton Aargau, Lockheed Martin, Merck KGaA, Munich Leukemia Laboratory (MLL), Lenovo, Lumen Technologies, Natuzzi, PETRONAS, Port of Rotterdam, Renault Group, Swarovski, Warsteiner Brauerei, and ZF Friedrichshafen AG. Accenture, Canon Production Printing, Daimler Truck AG, Ducati Motor Holding, Mahindra Group, Walgreens Boots Alliance, and Zespri went live on SAP S/4HANA Cloud in the fourth quarter.

Key customer wins across SAP's solution portfolio included: ArcelorMittal Europe, C6 Bank, Caixabank Tech, Euronews, Groupe SEB, Groupe TF1, Fressnapf, Haier, Hisense, Macquarie Banking and Financial Services, NBA, DOUGLAS, Qualcomm, Robert Bosch, SCOTT Sports, Soriana, Technical University of Munich, Transport for London, VINCI ENERGIES.

In the fourth quarter, SAP's cloud revenue performance was strong across all regions. Brazil, Germany and Japan had outstanding cloud revenue performances while China, India, the Netherlands, Switzerland, and the United States were particularly strong.
For the full year, Germany, the United States, and Japan all had outstanding performances while Brazil, Chile, China, Italy, Saudi Arabia, South Korea, and Switzerland were particularly strong.

On November 15, 2022, SAP launched SAP Build which enables business users to integrate systems; intelligently monitor, analyze and automate processes; and build applications using SAP BTP and business application data from SAP – all without moving data to an external system. In addition, SAP also announced a partnership with Coursera to empower a new generation of developers.

On December 1, SAP announced that Francisco Partners had completed the acquisition of SAP's Litmos business. 

On December 5, SAP and PwC announced a new co-innovation strategy to make sustainability an integral part of standard business operations to help organizations achieve their ESG and net zero target.

Among other recognitions, in the fourth quarter SAP was:

• named a Leader in 2022 Gartner® Magic Quadrant™ for Configure, Price, and Quote Application Suites²
• named a Leader in Forrester Wave™: Digital Operations Platforms for Manufacturing & Distribution in Q3 2022
• recognized as a Leader in IDC MarketScape: Worldwide Holistic Supply Chain Planning 2022 Vendor Assessment³

As of January 1, 2023, SAP maintained its position as an industry leader in the software industry in the S&P Global Corporate Sustainability Assessment for the 16th consecutive year.

On January 18, SAP was named one of the 100 most sustainable companies in the world, joining the Corporate Knights Global 100 once again.

On January 25, BMW Group chose RISE with SAP together with additional cloud solutions from SAP to support their transformation to S/4HANA as well as their strategic cloud transformation. Further, through a Platinum Partnership, BMW and SAP are creating a joint approach for the entire automotive industry and related digital end-to-end processes.

Segment Results at a Glance

SAP's two reportable segments showed the following performance:

In the fourth quarter, segment revenue in AT&S was up 4% to €7.74 billion year-over-year, down 1% at constant currencies, primarily due to strong cloud revenue growth, supported by SAP S/4HANA as well as Business Technology Platform. Software licenses revenue decreased due to the shift to the cloud as more customers chose our 'RISE with SAP' offering. Segment support revenue was up 2% to €2.99 billion year-over-year and down 1% at constant currencies.

Qualtrics segment revenue was up 37% to €389 million year-over-year, up 22% at constant currencies in the fourth quarter. The continued strong growth was driven by robust renewal rates and expansions.

Cloud Performance

Business Outlook

Financial Outlook 2023

For the full-year 2023, SAP expects:

• €15.3 – 15.7 billion cloud revenue at constant currencies (2022: €12.56 billion), up 22% to 25% at constant currencies.
• €28.2 – 28.7 billion cloud and software revenue at constant currencies (2022: €26.52 billion), up 6% to 8% at constant currencies.
•  €8.8 – 9.1 billion non-IFRS operating profit at constant currencies (2022: €8.03 billion), up 10% to 13% at constant currencies.
• The share of more predictable revenue (defined as the total of cloud revenue and software support revenue divided by total revenue) is expected to reach approximately 83% (2022: 79%).
• Free cash flow of approximately €5.0 billion (2022: €4.35 billion).
• A full-year effective tax rate (IFRS) of 28.0% to 32.0% (2022: 44.6%) and an effective tax rate (non-IFRS) of 26.0% to 28.0% (2022: 29.5%), strongly depending on the development of Sapphire Ventures' investments.

While SAP's full-year 2023 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.

Currency Impact Assuming December 2022 Rates Apply for 2023

Non-Financial Outlook 2023

SAP is focusing on three non-financial indicators: customer loyalty, employee engagement, and carbon emissions.

In 2023, SAP expects:  

• a Customer Net Promoter Score of 8 to 12[4].
• an Employee Engagement Index to be in a range of 76% to 80%.
• Net carbon emissions of 0kt, meaning the Company will be carbon neutral in its own operations.

Ambition 2025

By 2025, SAP continues to expect:

• More than €22 billion cloud revenue.
• More than €36 billion total revenue.
• More than €11.5 billion non-IFRS operating profit.
• A non-IFRS cloud gross margin of approximately 80%.
• A significant expansion of the Company's more predictable revenue share to approximately 85%.
• A free cash flow of approximately €8 billion.

SAP expects to update its mid-term ambition in the first half of 2023.

For 2025 non-financial performance SAP continues to aim for:

• Employee Engagement Index between 84% and 86%.
• Steadily increasing the Customer Net Promoter Score through 2025.
• Maintaining net carbon emissions in our own operations of 0 kt. Further, SAP is also committed to achieving net-zero along our value chain by 2030.

Increased Focus on Strategic Growth Areas and Accelerated Cloud Transformation

In 2023, SAP will conduct a targeted restructuring program in selected areas of the company. The purpose is to further focus on strategic growth areas by aligning our operating models and go-to-market approach with our accelerated cloud transformation. Furthermore, SAP intends to strengthen its core business and improve overall process efficiency. The program is expected to affect approximately 2.5% of SAP's employees. The vast majority of the €250 million to €300 million restructuring costs associated with the program is expected to be recognized in the first quarter 2023, impacting IFRS operating profit. The program is expected to provide a moderate cost benefit in 2023 and €300 million to €350 million in annual cost savings as of 2024, impacting both IFRS and Non-IFRS operating profit which will help to fuel investments into strategic growth areas. The expected cost savings and reinvestments are fully reflected in SAP's financial outlook for 2023 and 2025 ambitions.

SAP to Explore a Sale of its Stake in Qualtrics

In line with SAP's strategic initiative to streamline its portfolio, SAP has decided to explore a sale of its stake in Qualtrics.

This would be a continuation of the strategy we set at the time of the Qualtrics IPO in 2021. SAP believes that this potential transaction could unlock significant value for both companies and their shareholders: for SAP, to focus more on its core cloud growth and profitability; for Qualtrics, to extend its leadership in the XM category that it pioneered.

Since the acquisition, Qualtrics has increased revenue by 3.5x to ~ $1.5 billion while delivering profitability, and has significantly expanded its offerings and enterprise customer adoption. In the event of a successful transaction, SAP intends to remain a go-to-market and technology partner, servicing its joint customers and contributing to its growth and category leadership.

A final decision on any transaction, its conditions and timing is subject to market conditions, agreement on acceptable terms, regulatory approvals and the approval of the SAP SE Supervisory Board. SAP has retained Morgan Stanley as financial advisor to assist in the exploration of the sale of its stake in Qualtrics.

The full Q4 2022 Quarterly Statement can be downloaded from: https://www.sap.com/investors/sap-2022-q4-statement. 

Additional Information

This press release and all information therein is preliminary and unaudited.

New consensus provider

As of February 1^st, 2023, Visible Alpha will replace VARA Research as new consensus provider. Analysts and Investors will be able to access the official consensus for SAP SE directly on our website by using the following link: https://www.sap.com/investors/consensus

The consensus estimates published by VARA Research are no longer used for official consensus measurements.

SAP Annual General Meeting of Shareholders

The Annual General Meeting of Shareholders will take place on May 11, 2023, as a physical event in the SAP Arena in Mannheim, Germany. The whole event will be webcast on the Company's website and online voting options will be available. Further details will be published at https://www.sap.com/agm in early April.

SAP Performance Measures

For more information about our key growth metrics and performance measures, their calculation, their usefulness, and their limitation, 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 press conference on Thursday, January 26th at 10:00 AM (CET) / 9:00 AM (GMT) / 4:00 AM (Eastern) / 1:00 AM (Pacific), followed by a financial analyst conference call at 2:00 PM (CET) / 1:00 PM (GMT) / 8:00 AM (Eastern) / 5:00 AM (Pacific). Both conferences 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 full-year and quarterly results can be found at https://www.sap.com/investor.

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: SAP customers generate 87% of total global commerce. Our machine learning, Internet of Things (IoT), and advanced analytics technologies help turn customers' businesses into intelligent enterprises. SAP helps 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 www.sap.com. 

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 2021 Annual Report on Form 20-F.

© 2023 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 Q4 and full-year 2022 results were also impacted by other effects. For details, please refer to the disclosures on page 32 of this document.   
² Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner's research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose. Gartner and Magic Quadrant are registered trademarks and service marks of Gartner, Inc. and/or its affiliates in the U.S. and internationally and is used herein with permission. All rights reserved. The Gartner content described herein, (the "Gartner Content") represent(s) research opinion or viewpoints published, as part of a syndicated subscription service, by Gartner, Inc. ("Gartner"), and are not representations of fact. Gartner Content speaks as of its original publication date (and not as of the date of this Quarterly Statement) and the opinions expressed in the Gartner Content are subject to change without notice.  
³ IDC MarketScape: Worldwide Holistic Supply Chain Planning, September 2022, IDC #US49578717  
SAP is not responsible for the content of third-party research reports.  
⁴ The guidance is based on an adjusted methodology for 2023 to better reflect the business priorities of the company. The baseline for 2022 calculated using the new methodology is 7.

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SOURCE SAP SE