SAP announce financial results for the third quarter of 2020

Strong Double-Digit Growth in EPS and Cash Flow
SAP Accelerates Transition to Cloud, Targets More than €22 Billion
in Cloud Revenue by 2025

• Current Cloud Backlog of €6.6 Billion, Up 16% At Constant Currencies
• IFRS Cloud Gross Margin Up 1.8pp; Non-IFRS Cloud Gross Margin Up 0.7pp At Constant Currencies
• IFRS Operating Margin Down 2.2pp; Non-IFRS Operating Margin Up 1.3pp At Constant Currencies On Strong Prior Year Comparison
• IFRS EPS Up 26%; Non-IFRS EPS Up 31%
• Operating Cash Flow Up 54%, Free Cash Flow Up 79% Year-To-Date
• Updates 2020 Outlook and Mid-Term Ambition
• Targeting Significant Expansion of Cloud Revenue to More than €22 Billion, Share of More Predictable Revenue of Approximately 85%, Non-IFRS Cloud Gross Margin of Approximately 80% by 2025
• Targeting Double-Digit Non-IFRS Operating Profit Growth from 2023 to 2025

Christian Klein, CEO: “COVID-19 has created an inflection point for our customers. The move to the cloud combined with a true business transformation has become a must for enterprises, to gain resiliency and position them to emerge stronger out of the crisis. Together with our customers and partners we will co-innovate and reinvent how businesses run in a digital world. SAP will accelerate growth in the cloud to more than 22 billion Euro in 2025 and expand the share of more predictable revenue to approximately 85%.”

Luka Mucic, CFO: In Q3 we continued to improve our operating margin against a strong prior year comparison amidst a challenging environment. Earnings per share and cash flow grew even more rapidly. This allows us to raise our 2020 free cash flow outlook even beyond the target communicated last November. Our expedited move to the cloud will ensure we continue our path as a cloud growth company while we remain focused on cost efficiency. These actions and our resilient business model position us well to meet our new ambition targets as uncertainty recedes.”

From the report:

Business Update Third Quarter 2020
SAP again demonstrated its resilience in the third quarter with stable total revenue and an improvement in operating profit and margins (non-IFRS at constant currencies). In the COVID-19 crisis customers realize the strong need to transform and automate operations and adapt to new business models. SAP’s expertise in running the world’s most mission critical business processes combined with innovative solutions like commerce, supply chain and Qualtrics are extremely relevant for customers to increase their resiliency. Nevertheless, SAP’s customers, particularly those in hard hit industries, continue to be impacted by the economic consequences of the COVID-19 pandemic. Lockdowns have been re-introduced in some regions, recovery is uneven and companies are facing more business uncertainty. Consequently, there is greater scrutiny of larger projects. Transactional revenue continues to be impacted, especially in SAP Concur where business travel-related revenues have yet to see a meaningful recovery.

SAP continues to serve its customers effectively with an embedded virtual sales and remote implementation strategy. In the first nine months of 2020, approximately 28,000 customers went live with SAP solutions. To protect profitability, the company retains a disciplined approach to hiring and discretionary spend while capturing natural savings e.g. from lower travel, facilityrelated costs and virtual events.

Since the COVID-19 crisis began, SAP has also been providing solutions to address many of the issues faced by its customers and the broader community. In the third quarter SAP continued to work with Deutsche Telekom to further develop the Corona Warn App. The application has been downloaded over 20 million times and over 18,000 positive test results have been shared, helping to interrupt the transmission chain. Further, the app now supports the European gateway service, enabling exchange of data between the apps from Germany, Italy and Ireland, while still maintaining the highest data protection standards. Other countries are planned to follow