SAP Announces Q2 2024 Results

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Jul 22, 2024, 16:05 ET

Current cloud backlog of €14.8 billion, up 28%, both at nominal and constant currencies
Cloud revenue up 25%, underpinned by 33% Cloud ERP Suite revenue growth, all at nominal and constant currencies
Total revenue up 10%, both at nominal and constant currencies
IFRS cloud gross profit up 29%, non-IFRS cloud gross profit up 28% and up 29% at constant currencies
IFRS operating profit down 11% due to restructuring expenses of €0.6 billion. Non-IFRS operating profit up 33% and up 35% at constant currencies
2024 financial outlook reiterated. 2025 operating profit ambition increased to reflect anticipated incremental efficiency gains from expanded transformation program

WALLDORF, Germany, July 22, 2024 /PRNewswire/ -- SAP SE (NYSE: SAP) announced today its financial results for the second quarter ended June 30, 2024.

Christian Klein, CEO:
Our cloud growth momentum remained strong in Q2, with Business AI enabling many deals. We continue to execute on our transformation with great discipline, leading to an increase in our operating profit ambition for 2025. At the same time, we continue to invest into our transformation to be the leader in Business AI. Given our progress and strong pipeline, we are confident to achieve accelerating topline growth through 2027.

Dominik Asam, CFO:
We are staying squarely focused on delivering our outlook for this year. Our current cloud backlog growth during the second half of 2024, and especially in Q4 will be decisive to lay a solid foundation for our cloud revenue ambition for 2025. At the same time, we'll continue to execute against our transformation plan to achieve our 2025 free cash flow ambition despite a mid-triple-digit million cash out for restructuring spilling into next year.

All figures in this statement are based on SAP group results from continuing operations unless otherwise noted.

Financial Performance

Group results at a glance – Second quarter 2024

	IFRS			Non-IFRS¹
€ million, unless otherwise stated	Q2 2024	Q2 2023	∆ in %	Q2 2024	Q2 2023	∆ in %	∆ in % const. curr.
SaaS/PaaS	4,018	3,130	28	4,018	3,130	28	28
Thereof Cloud ERP Suite²	3,414	2,562	33	3,414	2,562	33	33
Thereof Extension Suite³	604	568	6	604	568	6	6
IaaS⁴	135	186	–27	135	186	–27	–27
Cloud revenue	4,153	3,316	25	4,153	3,316	25	25
Cloud and software revenue	7,175	6,505	10	7,175	6,505	10	10
Total revenue	8,288	7,554	10	8,288	7,554	10	10
Share of more predictable revenue (in %)	84	82	2pp	84	82	2pp
Cloud gross profit	3,030	2,357	29	3,043	2,368	28	29
Gross profit	6,017	5,409	11	6,029	5,432	11	11
Operating profit (loss)	1,222	1,371	–11	1,940	1,457	33	35
Profit (loss) after tax from continuing operations	918	724	27	1,278	799	60
Profit (loss) after tax⁵	918	2,982	–69	1,278	2,437	–48
Earnings per share - Basic (in €) from continuing operations	0.76	0.62	22	1.10	0.69	59
Earnings per share - Basic (in €)⁵	0.76	2.70	–72	1.10	2.40	–54
Net cash flows from operating activities from continuing operations	1,540	848	82
Free cash flow				1,291	604	>100

¹	For a breakdown of the individual adjustments see table "Non-IFRS Operating Expense Adjustments by Functional Areas" in this Quarterly Statement.
²	Cloud ERP Suite references the portfolio of strategic Software-as-a-Service (SaaS) and Platform-as-a-Service (PaaS) solutions that are tightly integrated with our core ERP solutions and are included in key commercial packages, such as RISE with SAP. The following offerings contribute to Cloud ERP Suite revenue: SAP S/4HANA Cloud, SAP Business Technology Platform, and core solutions for HR and payroll, spend management, commerce, customer data solutions, business process transformation, and working capital management. For additional information and historical data on Cloud ERP Suite, see SAP's Reporting Framework.
³	Extension Suite references SAP's remaining SaaS and PaaS solutions that supplement and extend the functional coverage of the Cloud ERP Suite.
⁴	Infrastructure as a service (IaaS): The major portion of IaaS comes from SAP HANA Enterprise Cloud.
⁵	From continuing and discontinued operations.

Group results at a glance – Six months ended June 2024

	IFRS			Non-IFRS¹
€ million, unless otherwise stated	Q1–Q2 2024	Q1–Q2 2023	∆ in %	Q1–Q2 2024	Q1–Q2 2023	∆ in %	∆ in % const. curr.
SaaS/PaaS	7,782	6,110	27	7,782	6,110	27	28
Thereof Cloud ERP Suite revenue²	6,581	4,984	32	6,581	4,984	32	33
Thereof Extension Suite revenue³	1,202	1,126	7	1,202	1,126	7	7
IaaS⁴	299	383	–22	299	383	–22	–21
Cloud revenue	8,082	6,493	24	8,082	6,493	24	25
Cloud and software revenue	14,134	12,863	10	14,134	12,863	10	11
Total revenue	16,329	14,995	9	16,329	14,995	9	10
Share of more predictable revenue (in %)	84	82	2pp	84	82	2pp
Cloud gross profit	5,867	4,596	28	5,892	4,617	28	29
Gross profit	11,778	10,693	10	11,803	10,737	10	11
Operating profit (loss)	434	2,174	–80	3,473	2,779	25	27
Profit (loss) after tax from continuing operations	94	1,128	–92	2,223	1,667	33
Profit (loss) after tax⁵	94	3,491	–97	2,223	3,448	–36
Earnings per share - Basic (in €) from continuing operations	0.05	0.97	–95	1.91	1.44	33
Earnings per share - Basic (in €)⁵	0.05	3.12	–98	1.91	3.23	–41
Net cash flows from operating activities from continuing operations	4,297	3,160	36
Free cash flow				3,784	2,559	48

¹	For a breakdown of the individual adjustments see table "Non-IFRS Operating Expense Adjustments by Functional Areas" in this Quarterly Statement.
²	Cloud ERP Suite references the portfolio of strategic Software-as-a-Service (SaaS) and Platform-as-a-Service (PaaS) solutions that are tightly integrated with our core ERP solutions and are included in key commercial packages, such as RISE with SAP. The following offerings contribute to Cloud ERP Suite revenue: SAP S/4HANA Cloud, SAP Business Technology Platform, and core solutions for HR and payroll, spend management, commerce, customer data solutions, business process transformation, and working capital management. For additional information and historical data on Cloud ERP Suite, see SAP's Reporting Framework.
³	Extension Suite references SAP's remaining SaaS and PaaS solutions that supplement and extend the functional coverage of the Cloud ERP Suite.
⁴	Infrastructure as a service (IaaS): The major portion of IaaS comes from SAP HANA Enterprise Cloud.
⁵	From continuing and discontinued operations.

Financial Highlights¹

Second Quarter 2024

In the second quarter, SAP's strong cloud momentum continued. Current cloud backlog grew by 28% to €14.81 billion and again was up 28% at constant currencies. Cloud revenue was up 25% to €4.15 billion and up 25% at constant currencies, mainly driven by Cloud ERP Suite revenue, which was up 33% to €3.41 billion and up 33% at constant currencies.

Software licenses revenue decreased by 28% to €0.2 billion and was down 27% at constant currencies. Cloud and software revenue was up 10% to €7.17 billion and up 10% at constant currencies. Services revenue was up 6% to €1.11 billion and up 6% at constant currencies. Total revenue was up 10% to €8.29 billion and up 10% at constant currencies.

The share of more predictable revenue increased by 2 percentage points to 84% in the second quarter.

Cloud gross profit was up 29% (IFRS) to €3.03 billion, up 28% to €3.04 billion (non-IFRS), and up 29% (non-IFRS at constant currencies).

IFRS operating profit in the second quarter was down 11% to €1.22 billion. The decrease was driven by restructuring expenses of €0.6 billion associated with the 2024 transformation program. Non-IFRS operating profit was up 33% to €1.94 billion and was up 35% at constant currencies. Non-IFRS operating profit growth was supported by strong revenue growth as well as disciplined execution of the 2024 transformation program.

IFRS earnings per share (basic) increased 22% to €0.76. Non-IFRS earnings per share (basic) increased 59% to €1.10. The effective tax rate (IFRS) was 33.8% (Q2/2023: 33.8%) and the effective tax rate (non-IFRS) was 33.6% (Q2/2023: 33.0%). For non-IFRS, the year-over-year increase mainly resulted from a temporary inability to offset withholding taxes in Germany due to tax losses in 2024 resulting from restructuring. For IFRS, the negative effects from withholding taxes were compensated mainly by changes in tax-exempt income and valuation allowances on deferred tax assets.

Free cash flow in the second quarter increased by 114% to €1.3 billion. While around €0.5 billion was paid out for restructuring, the positive development was primarily attributable to increased profitability and enhanced working capital management. For the first six months, free cash flow was up 48% to €3.8 billion.

Share Repurchase Program

In May 2023, SAP announced a share repurchase program with an aggregate volume of up to €5 billion and a term until December 31, 2025. As of June 30, 2024, SAP had repurchased 12,895,525 shares at an average price of €145.20 resulting in a purchased volume of approximately €1.87 billion under the program.

2024 Transformation Program: Focus on scalability of operations and key strategic growth areas

In 2024, SAP is further increasing its focus on key strategic growth areas, in particular business AI. It is transforming its operational setup to capture organizational synergies and AI-driven efficiencies, and to prepare the company for highly scalable future revenue growth.

To this end, as announced in January, SAP is executing a company-wide restructuring program which is anticipated to conclude in early 2025. The restructuring is intended to ensure that SAP's skillset and resources continue to meet future business needs and is currently expected to affect 9,000 to 10,000 positions, a majority of which will be covered by voluntary leave programs and internal re-skilling measures. Reflecting re-investments into strategic growth areas, SAP still expects to exit 2024 at a headcount similar to year-end 2023.

In the second quarter, additional restructuring expenses of €0.6 billion were recorded, which mainly reflect the positive reception of the voluntary leave programs.

While restructuring expenses recorded in the first half of 2024 total €2.9 billion, the overall expenses associated with the program are now estimated to be approximately €3 billion.

Restructuring payouts in the second quarter and first half of 2024 amounted to €0.5 billion. Overall payouts associated with the program are currently expected at approximately €3 billion, of which a mid-triple-digit million amount is expected to occur in 2025.

Business Highlights

In the second quarter, customers around the globe continued to choose "RISE with SAP" to drive their end-to-end business transformations. These customers included: Alpargatas, Auckland Council, Blue Diamond Growers, Border States, Copenhagen Airports, ExxonMobil, Navantia, PANDORA, Porsche Informatik, Powerlink Queensland, Prairie Farms Dairy, ProRail, Prysmian, Shiseido Company, Tokio Marine & Nichido Fire Insurance, VistaPrint, Warsaw City Hall, and Xerox.

BMI Group Holdings, Co-op, Fiagril, Pure Storage, UBE Corporation, and Wegmans went live on SAP S/4HANA Cloud in the second quarter.

Consolidated Hospitality Supplies, flatexDEGIRO, Fortera Corporation, La Trobe University, Stern-Wywiol Gruppe, and Trade Capital Corporation chose "GROW with SAP", an offering helping customers adopt cloud ERP with speed, predictability, and continuous innovation.

Key customer wins across SAP's solution portfolio included: Accenture, Ambipar, Arca Continental, BASF, Buderus Guss, Carl Zeiss, DACHSER, Endress+Hauser, iHerb, Lenovo, Minor Hotels, New Look, Parle Biscuits, Refresco, U.S. Sugar, Veolia Group, and Zoomlion.

Beiersdorf, E.ON, Gerdau, Hyundai Motor Company, Kia Corporation and SMA Solar Technology went live on SAP solutions.

In the second quarter, SAP's cloud revenue performance was particularly strong in APJ and EMEA and robust in the Americas region. Brazil, Canada, Germany, India, Japan, and South Korea had outstanding performances in cloud revenue growth while China, the U.S., and Saudi Arabia were particularly strong.

On April 22, SAP announced AI advancements in its supply chain solutions that we anticipate will unleash a transformative wave of productivity, efficiency and precision in manufacturing. AI-driven insights from real-time data will help companies use their own data to make better decisions across supply chains, streamline product development and improve manufacturing efficiency.

On May 6, SAP announced that it had extended the contract of CEO and Member of the Executive Board Christian Klein for three years, until April 2028.

On May 8, SAP and IBM announced their vision for the next era of their collaboration, which includes new generative AI capabilities and industry-specific cloud solutions that can help clients unlock business value.

On May 13, SAP announced that Charoen Pokphand Foods Public Company Limited ("CP Foods") had selected multiple SAP solutions to drive further growth and competitive advantage and to ensure the sustainability of its products for the future.

On May 15, SAP announced that the Annual General Meeting (AGM) of Shareholders of SAP SE elected Pekka Ala-Pietilä as new member of the company's Supervisory Board. Subsequently, Ala-Pietilä was also elected the new Chairman of the SAP Supervisory Board, completing the handover from former Chairman of the Board, Prof. Dr. h. c. mult. Hasso Plattner. In addition, Prof. Dr. Ralf Herbrich was elected and Aicha Evans, Gerhard Oswald and Dr. Friederike Rotsch were reelected as members of the Supervisory Board. The AGM also approved all other proposals of the Executive Board and Supervisory Board with strong support. That includes the adjustment of the compensation of the Chairman of the Supervisory Board. Furthermore, the dividend proposal of €2.20 per share for fiscal year 2023 was approved.

On May 29, SAP and Amazon Web Services (AWS), an Amazon.com company, announced an expanded, strategic collaboration to transform modern cloud enterprise resource planning (ERP) experiences and help enterprises drive new capabilities and efficiencies with generative artificial intelligence (AI).

On June 5, SAP and WalkMe Ltd. (Walkme) announced that the companies had entered into a definitive agreement under which SAP will acquire 100% of WalkMe, a leader in digital adoption platforms. The Executive and Supervisory Boards of SAP SE and the board of directors of WalkMe have approved the transaction for US $14.00 per share in an all-cash transaction, representing an equity value of approximately US $1.5 billion. The offer price represents a 45% premium to WalkMe's closing share price on June 4, 2024. The acquisition is subject to customary closing conditions, including the receipt of WalkMe shareholder approval and necessary regulatory clearances, and is expected to close in the third quarter of 2024.

On June 5, SAP announced that it was adjusting its dividend policy effective immediately. The new policy is to pay a dividend amounting to at least 40% of the group's non-IFRS profit after tax from continuing operations (previously: at least 40% of the group's IFRS profit after tax).

Financial Outlook 2024

SAP's financial outlook 2024 is based on SAP's updated non-IFRS definition of profit measures which, beginning in 2024, include share-based compensation expenses and exclude gains and losses from equity securities, net. For more details, please refer to the Reporting Framework section on our Investor Relations website: https://www.sap.com/investors/en/reports/reporting-framework.html.

SAP continues to expect:

€17.0 – 17.3 billion cloud revenue at constant currencies (2023: €13.66 billion), up 24% to 27% at constant currencies.
€29.0 – 29.5 billion cloud and software revenue at constant currencies (2023: €26.92 billion), up 8% to 10% at constant currencies.
€7.6 – 7.9 billion non-IFRS operating profit at constant currencies (2023: €6.51 billion), up 17% to 21% at constant currencies.
Free cash flow of approximately €3.5 billion (2023: €5.09 billion).
An effective tax rate (non-IFRS) of approximately 32% (2023: 30.3%)².

While SAP's 2024 financial 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, as reflected in the table below.

Currency Impact Assuming June 30, 2024 Rates Apply for 2024

In percentage points	Q3 2024	FY 2024
Cloud revenue growth	+0.5pp	–0.5pp
Cloud and software revenue growth	+0.5pp	–0.5pp
Operating profit growth (non-IFRS)	+0.0pp	–1.5pp

Non-Financial Outlook 2024

SAP now expects the Employee Engagement Index to be in a range of 70% to 74% in 2024 (previously: 76% to 80%).

In 2024, SAP continues to expect:

A Customer Net Promoter Score of 9 to 13.
To steadily decrease carbon emissions across the relevant value chain, in line with our target of achieving Net Zero carbon emissions by 2030.
To steadily increase the number of women in executive roles in line with our end of year 2027 target to achieve 25%.

Ambition 2025

SAP is updating its financial ambition 2025, reflecting the anticipated incremental benefits from the transformation program.

By 2025, SAP now expects:

Non-IFRS operating profit of approximately €10.2 billion (previously: approximately €10 billion).

SAP continues to expect:

Cloud revenue of more than €21.5 billion.
Total revenue of more than €37.5 billion.
Non-IFRS cloud gross profit of approximately €16.2 billion.
Free cash flow of approximately €8.0 billion (now including an anticipated mid-triple-digit million Euro restructuring payout in 2025 associated with the 2024 transformation program).
A share of more predictable revenue of approximately 86%.

The 2025 financial ambition is based on an exchange rate of 1.10 USD per EUR.

Non-Financial Ambition 2025

For 2025, SAP now aims to increase the Employee Engagement Index (previously: Steadily increasing the Employee Engagement Index).

SAP continues to aim for

Steadily increasing the Customer Net Promoter Score.

The 2025 non-financial ambitions are in addition to our medium-term targets of achieving Net Zero carbon emissions across the value chain by 2030 and reaching 25% women in executive roles by the end of 2027.

Additional Information

This press release and all information therein is preliminary and unaudited. Due to rounding, numbers may not add up precisely. The full Q2 2024 Quarterly Statement can be downloaded from: https://www.sap.com/investors/sap-2024-q2-statement.

SAP Performance Measures

For more information about our key growth metrics and performance measures, their calculation, their usefulness, and their limitations, 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 financial analyst conference call on Monday, July 22nd at 11:00 PM (CEST) / 10:00 PM (BST) / 5:00 PM (EDT) / 2:00 PM (PDT). The conference 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 second quarter results can be found at https://www.sap.com/investor

About SAP

As a global leader in enterprise applications and business AI, SAP (NYSE: SAP) stands at the nexus of business and technology. For over 50 years, organizations have trusted SAP to bring out their best by uniting business-critical operations spanning finance, procurement, HR, supply chain, and customer experience. For more information, visit www.sap.com.

For customers interested in learning more about SAP products:
Global Customer Center:	+49 180 534-34-24
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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 2023 Annual Report on Form 20-F.

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¹ The Q2 2024 results were also impacted by other effects. For details, please refer to the disclosures on page 27 of this document.

² The effective tax rate (non-IFRS) is a non-IFRS financial measure and is presented for supplemental informational purposes only. We do not provide an outlook for the effective tax rate (IFRS) due to the uncertainty and potential variability of gains and losses associated with equity securities, which are reconciling items between the two effective tax rates (non-IFRS and IFRS). These items cannot be provided without unreasonable efforts but could have a significant impact on our future effective tax rate (IFRS).

SOURCE SAP SE