SAP : 2021 Q2 Quarterly Statement

Quarterly Statement Q2 2021

SAP Accelerates Cloud Growth Across Portfolio Raises Revenue and Profit Outlook

• Current Cloud Backlog and Cloud Revenue Growth Accelerates Sequentially
• • Current Cloud Backlog Up 20% At Constant Currencies
  • S/4HANA Current Cloud Backlog Up 48% At Constant Currencies
  • Cloud Revenue Up 11% And 17% At Constant Currencies
• SaaS/PaaS Cloud Revenue Outside Intelligent Spend Up 20% And 25% At Constant Currencies
• EPS Up 57%; Non-IFRS EPS Up 50%

Cloud Revenue		Total Revenue
	in € millions		in € millions
IFRS		Non-IFRS		IFRS		Non-IFRS
2,276		2,276		6,669		6,669
+11%		+11% (+17% cc)		-1%		-1% (+3% cc)

The share of more predictable revenue reached 76% in the second quarter 2021 (+3 percentage points)

Cloud & Software Revenue		Operating Profit
	in € millions			in € millions
IFRS		Non-IFRS		IFRS		Non-IFRS
5,750		5,750		984		1,922
+1%		+1% (+5% cc)		-23%		-2% (+3% cc)

"

We're seeing strong adoption of our cloud portfolio as customers select SAP for their business transformation. Our strategy is working; This is the third straight quarter of strong execution, and we continue to deliver unparalleled customer value through the strength of our platform and applications.

Christian Klein, CEO

"

This has been another strong quarter with accelerating growth for SAP's cloud portfolio. We saw excellent customer momentum and adoption and are raising our outlook for revenue and profit.

Luka Mucic, CFO

SAP Quarterly Statement Q2 2021

1

Walldorf, Germany - July 21, 2021

SAP SE (NYSE: SAP) today announced its financial results for the second quarter ended June 30, 2021.

Business Update Second Quarter 2021

Customers continue to choose SAP as they move to the cloud and transform their business processes. SAP is seeing strong demand and adoption of its 'RISE with SAP' offering which customers of all sizes are selecting to manage this transition. SAP is also seeing strong growth in current cloud backlog across its cloud portfolio including Business Technology Platform, Business Process Intelligence, Qualtrics, as well as Customer Experience. SAP had significant competitive wins in ERP, SuccessFactors, Commerce, Intelligent Spend, and across its broader cloud solution portfolio.

SAP's cloud revenue growth accelerated sequentially. SAP saw the first signs of recovery in travel and expense management with the easing of global travel restrictions, which led to Concur stabilizing its sequential performance for the first time since the pandemic began. The Company's Intelligent Spend category returned to growth but continued to be impacted by the COVID-19 crisis more than other SaaS/PaaS solutions.

Current cloud backlog growth also accelerated further sequentially. As more customers transition to the 'RISE with SAP' subscription offering, software licenses revenue decreased as anticipated.

In general, as many countries began to reopen, SAP saw a positive impact on demand around the world.

Highlights

• 'RISE with SAP' gained even more traction after a successful launch in the first quarter. SAP saw strong demand from companies of all sizes and closed deals with more than 250 customers in the second quarter. Large customers such as AMD, Coop Switzerland, Etihad Airways, and Siemens Energy selected 'RISE with SAP'. Additional wins included arena, Dixons Carphone, EBANX, Fujifilm Diosynth Biotechnologies, The Great Eastern Shipping Co., Inchcape, Mollie, National Basketball Association (NBA), Randstad, R. Twining & Co., and South32 Group.
• More than 600 S/4HANA customers were added in the quarter, taking total adoption to more than 17,000 customers, up 16% year over year, of which more than 10,100 are live. In the second quarter, more than 50% of the additional S/4HANA customers were net new.
• Key customer wins across SAP's solutions portfolio included: ABN AMRO, Clarins, Coca-Cola FEMSA, , Florida Crystals, Florida Department of Management Services, Keolis Group, LeasePlan Corporation, Moderna, Molson Coors Brewing, Nationwide Building Society, Rabobank, Roca Sanitario, The Singapore University of Technology and Design, Stanley Black & Decker, and Tenneco. Bitburger Braugruppe, Wales & West Utilities, and Weber-Stephen Products all went live on SAP solutions in the second quarter.
• SAP Business Technology Platform (SAP BTP) is the foundation of the Intelligent Enterprise, providing a single platform for integration and extensibility across the SAP portfolio and non-SAP solutions, as well as deriving insights from data. The Company already has over 8,000 productive BTP customers and more than 4,000 partners within its ecosystem actively engaged. Hilti, Lenovo, NEC, and Renault chose SAP BTP offerings in the second quarter. Current cloud backlog grew in strong double digits. Hilti, Lenovo, NEC, and Renault chose SAP BTP offerings in the second quarter.
• Signavio had an outstanding first full quarter as part of SAP's Business Process Intelligence (BPI) segment. Current cloud backlog grew in triple digits. SAP's BPI solutions are key to our customers' business transformation and acceleration to the cloud.
• More than 52,000 attendees from 158 countries joined SAPPHIRE NOW, SAP's flagship customer event, across its global and regional sessions.
• In addition to driving innovation in and beyond our core, SAP is continuously expanding into new markets. SAP expects to expand its 2025 Total Addressable Market (TAM) by $150 billion, totaling $600 billion.
• Sustainability continues to be at the center of SAP's business model. In the second quarter, SAP joined the World
  Economic Forum Stakeholder Capitalism Coalition.
• SAP announced 'pledge to flex' in April, showing its commitment to a truly flexible remote workforce operating model even beyond the pandemic.
• SAP paid out an annual dividend of €1.85 per share in the amount of €2.2 billion for fiscal year 2020 representing a year- over-year increase of €0.27 or 17%.

SAP Quarterly Statement Q2 2021

2

Financial Performance Second Quarter 20211

SAP's strong cloud momentum continued in the second quarter with both current cloud backlog and cloud revenue growth accelerating sequentially. Current cloud backlog was up 17% to €7.77 billion (non-IFRS) and up 20% (at constant currencies). Cloud revenue was up 11% to €2.28 billion and up 17% (at constant currencies). SaaS/PaaS cloud revenue outside the Intelligent Spend business was up 20% and up 25% (at constant currencies). Software licenses revenue was down 16% year over year to €0.65 billion and down 13% (at constant currencies). Cloud and software revenue was up 1% to €5.75 billion and up 5% (at constant currencies). Services revenue was down 11% year over year to €0.92 billion and down 7% (at constant currencies). This revenue decline is primarily attributable to the November 2020 divestiture of SAP Digital Interconnect, which contributed approximately €80 million of services revenue in the second quarter of 2020. Total revenue was down 1% year over year to €6.67 billion and up 3% (at constant currencies).

The share of more predictable revenue grew by 3 percentage points year over year to 76% in the second quarter.

Operating profit decreased 23% to €0.98 billion and Operating margin decreased by 4.3 percentage points to 14.8% due to higher share-based compensation expenses (primarily related to Qualtrics). Non-IFRS operating profit decreased 2% to €1.92 billion, up 3% (non-IFRS at constant currencies) and non-IFRS operating margin decreased by 0.3 percentage points to 28.8%, down 0.2 percentage points (non-IFRS at constant currencies) despite the accelerated cloud transition which resulted in higher margin software licenses revenue trending lower, as expected.

Earnings per share increased 57% to €1.15 (IFRS) and increased 50% to €1.75 (non-IFRS) reflecting another outstanding contribution from Sapphire Ventures. With Sapphire Ventures SAP supports entrepreneurs that aspire to build industry- leading businesses through venture capital funds. In the second quarter, the SAP Supervisory Board approved the financing of a new Sapphire Ventures fund ("Sapphire Ventures Fund VI"). The total volume committed for Sapphire Ventures Fund VI is $1.75 billion.

Operating cash flow for the first six months was flat year over year to €3.77 billion. Free cash flow increased 4% year over year to €3.25 billion. Positive effects from lower share-based compensation and lower restructuring payments were compensated by higher income taxes paid net of refunds. At quarter end, net debt was -€4.57 billion.

Expanded Financial Disclosure - SAP's Accelerated Cloud Transition

Beginning in 2021, SAP expanded its financial disclosure to provide investors with transparency on the transition of its core ERP business to the cloud. Specifically, the Company discloses current cloud backlog and cloud revenue contributed by SAP S/4HANA Cloud, along with nominal and constant currencies year-over-year growth rates.

In the second quarter, S/4HANA current cloud backlog was up 45% (Non-IFRS) to €1.13 billion and up 48% (at constant currencies). S/4HANA cloud revenue was up 33% to €257 million and up 39% (at constant currencies).

SAP is seeing strong momentum with its S/4HANA current cloud backlog growth, in particular in the United States. SAP expects S/4HANA cloud revenue growth to significantly accelerate in the second half of 2021.

SAP S/4HANA Cloud represents SAP's cloud offering for core ERP processes. It mainly includes cloud solutions for financial management, supply chain management, engineering and manufacturing, order management and asset management, as well as associated data management, analytics, development and integration capabilities.

'RISE with SAP', SAP's holistic offering for business transformation in the cloud, is an important driver of S/4HANA Cloud and Business Technology Platform adoption.

1 The Q2 2021 results were also impacted by other effects. For details please refer to the disclosures on page 30 of this document.

SAP Quarterly Statement Q2 2021

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Segment Performance Second Quarter 2021

SAP's three reportable segments "Applications, Technology & Support", "Qualtrics" and "Services" showed the following performance:

Applications, Technology & Support (AT&S)

Segment revenue in AT&S was flat at € 5.62 billion year over year and up 4% (at constant currencies). Segment performance was driven by strong double-digit cloud revenue growth in S/4HANA Cloud, Digital Supply Chain, Business Technology Platform, and Customer Experience, in particular ecommerce. Software licenses revenue decreased as anticipated due to strong adoption of 'RISE with SAP'. Segment support revenues were up 1% year over year (at constant currencies) reflecting high retention rates coupled with the shift of some support revenue to cloud.

Qualtrics

Qualtrics segment revenue was up 25% to €211 million year over year, up 37% (at constant currencies). The continued strong growth was driven by robust renewal rates and expansions as customers increase their usage and acquire additional modules of Qualtrics to measure all four experience areas: customer, employee, product, and brand. Daikin, Merck KGaA, Mitsubishi Heavy Industries, M&T Bank, Noom, Trivago, Virgin Cruises and many others selected Qualtrics Experience Management Solutions.

Services

Services segment revenue was down 7% to €796 million year over year, down 3% (at constant currencies). While SAP continues to see solid growth in its Premium Engagement revenue on the back of a very resilient business model, consulting revenue declined year over year due to a strong prior year comparison.

Segment Results at a Glance

Segment Performance Second Quarter 2021

Applications, Technology & Support

Qualtrics

Services

€ million, unless otherwise stated

Actual

∆ in %

∆ in %

Actual

∆ in %

∆ in %

Actual

∆ in %

∆ in %

(Non-IFRS)

Currency

const.

Currency

const.

Currency

const.

curr.

curr.

curr.

Cloud revenue

2,066

8

14

174

33

46

0

NA

NA

Segment revenue

5,619

0

4

211

25

37

796

-7

-3

Segment profit (loss)

2,279

-4

0

13

>100

>100

180

9

16

Cloud gross margin (in %)

69.2

-0.1pp

-0.2pp

92.4

1.4pp

1.5pp

NM1)

NM1)

NM1)

Segment margin (in %)

-1.6pp

-1.5pp

4.9pp

4.0pp

3.2pp

3.7pp

40.6

6.3

22.6

1. NM = not meaningful

Regional Revenue Performance Second Quarter 2021

SAP had a strong cloud performance across all of its regions.

In the EMEA region, cloud and software revenue increased 4% and 5% (at constant currencies). Cloud revenue increased 22% and 23% (at constant currencies) with Germany and Saudi Arabia being highlights.

In the Americas region, cloud and software revenue decreased 3% and was up 5% (at constant currencies). Cloud revenue increased 4% and was up 12% (at constant currencies) with a robust performance in Brazil and Mexico. The United States, SAP's largest market, had a strong sequential acceleration in cloud revenue growth combined with an even stronger current cloud backlog growth.

In the APJ region, cloud and software revenue increased 2% and 6% (at constant currencies). Cloud revenue increased 18% and 23% (at constant currencies) with Japan, Australia and South Korea being highlights.

SAP Quarterly Statement Q2 2021

4

Financial Results at a Glance

Second Quarter 2021

				IFRS				Non-IFRS1)
	€ million, unless otherwise stated	Q2 2021	Q2 2020	∆ in %		Q2 2021	Q2 2020	∆ in %	∆ in %
										const.
										curr.
	Current cloud backlog2)	NA	NA	NA		7,766	6,638	17	20
	Thereof SAP S/4HANA Current Cloud Backlog2)
	NA	NA	NA		1,130	780	45	48
	Cloud revenue		2,044	11		2,044	11	17
	2,276		2,276
	Thereof SAP S/4HANA Cloud revenue		193	33		193	33	39
	257		257
	Software licenses and support revenue		3,665	-5		3,665	-5	-2
	3,474		3,474
	Cloud and software revenue		5,709	1			5,709	1	5
	5,750		5,750
	Total revenue		6,743	-1		6,744	-1	3
	6,669		6,669
	Share of more predictable revenue (in %)		73	3pp		73	3pp
	76		76
	Operating profit (loss)	984	1,284	-23		1,922	1,964	-2	3
	Profit (loss) after tax		885	64		1,395	59
	1,449		2,214
	Basic earnings per share (in €)		0.73	57		1.17	50
	1.15		1.75
	Number of employees (FTE, June 30)	103,876	101,379	2		NA	NA	NA	NA

1. 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.

Six months ended June 2021

				IFRS				Non-IFRS1)
	€ million, unless otherwise stated	Q1-Q2	Q1-Q2	∆ in %		Q1-Q2	Q1-Q2	∆ in %	∆ in %
			2021	2020		2021	2020		const.
										curr.
	Current Cloud Backlog2)	NA	NA	NA		7,766	6,638	17	20
	Thereof SAP S/4HANA Current cloud backlog2)
	NA	NA	NA		1,130	780	45	48
	Cloud revenue		4,055	9		4,057	9	15
	4,421		4,421
	Thereof S/4HANA Cloud revenue	485	360	34		485	360	34	41
	Software licenses and support revenue		7,051	-4			7,051	-4	0
	6,757		6,757
	Cloud and software revenue		11,106	1			11,107	1	5
	11,178		11,178
	Total revenue		13,264	-2			13,266	-2	3
	13,017		13,017
	Share of more predictable revenue (in %)		74	3pp			74	3pp
	77		77
	Operating profit (loss)		2,494	-22			3,446	6	12
	1,944		3,660
	Profit (loss) after tax		1,697	48			2,409	63
	2,519		3,934
	Basic earnings per share (in €)		1.42	43			2.02	56
	2.03		3.14
	Number of employees (FTE, June 30)	103,876	101,379	2		NA	NA	NA	NA

1. 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.

SAP Quarterly Statement Q2 2021

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