Christian Klein, CEO
Luka Mucic, CFO
Fourth Quarter Business Update
SAP’s business performance sequentially improved in the fourth quarter even as the COVID-19 crisis persisted and lockdowns were reintroduced in many regions. Cloud revenue in the fourth quarter continued to be impacted by lower pay-as-you-go transactional revenue, mainly Concur business travel related. However, continued high demand for e-commerce, Business Technology Platform, and Qualtrics solutions along with several competitive wins – particularly for Success Factors Human Experience Management – produced a strong finish to the year for SAP’s cloud business. SAP also saw strong early take up of its new holistic business transformation offering among pilot customers, contributing to the cloud performance in the quarter. Both North America and Europe experienced a better-than-expected performance in cloud order entry as well as software licenses revenue reflecting strong demand for SAP’s digital supply chain solutions in particular. In addition SAP had significant competitive wins in ERP.
Throughout the COVID-19 crisis, SAP continues to serve its customers effectively with an embedded virtual sales and remote implementation strategy. The company retains a disciplined approach to hiring and discretionary spend while capturing natural savings e.g. from lower travel, facility-related costs and virtual events. In combination with the strong topline performance these actions drove higher operating profit (IFRS and non-IFRS at constant currencies) and operating margin despite the challenging macro environment.
Fourth-Quarter and Full-Year Financial Performance
In the fourth quarter, current cloud backlog was up 7% to €7.15 billion (up 14% at constant currencies). Cloud revenue was up 8% year over year to €2.04 billion (IFRS), up 7% to €2.04 billion (non-IFRS) and up 13% (non-IFRS at constant currencies). Software licenses revenue was down 15% year over year to €1.70 billion (IFRS and non-IFRS) and down 11% (non-IFRS at constant currencies). Cloud and software revenue was down 4% year over year to €6.58 billion (IFRS and non-IFRS) and up 1% (non-IFRS at constant currencies). Total revenue was down 6% year over year to €7.54 billion (IFRS and non-IFRS) and down 2% (non-IFRS at constant currencies).
The share of more predictable revenue grew by approximately 4 percentage points year over year to approximately 65% in the fourth quarter.
In the fourth quarter, IFRS operating profit and operating margin were positively impacted by lower share-based compensation expenses compared to the prior year period. Operating profit increased by 26% year over year to €2.65 billion (IFRS) and was down 3% to €2.77 billion (non-IFRS) and up 3% (non-IFRS at constant currencies). Operating margin increased by 9.1 percentage points year over year to 35.2% (IFRS) and increased 1.4 percentage points year over year to 36.7% (non-IFRS) and 1.5 percentage points to 36.8% (non-IFRS at constant currencies).
For the full year, cloud revenue grew 17% year over year to €8.08 billion (IFRS), up 15% to €8.09 billion (non-IFRS) and up 18% (non-IFRS at constant currencies). Software licenses revenue was down 20% year over year to €3.64 billion (IFRS and non-IFRS) and down 17% (non-IFRS at constant currencies). Cloud and software revenue was up 1% year over year to €23.23 billion (IFRS and non-IFRS) and up 3% (non-IFRS at constant currencies). Total revenue was down 1% year over year to €27.34 billion (IFRS and non-IFRS) and up 1% (non-IFRS at constant currencies).
For the full year, the share of more predictable revenue(1) grew by approximately 5 percentage points year over year to approximately 72%.
For the full year, IFRS operating profit and operating margin were positively impacted by significantly lower restructuring charges as well as lower share-based compensation expenses compared to 2019. Operating profit increased by 48% year over year to €6.62 billion (IFRS) and was up 1% to €8.28 billion (non-IFRS) and up 4% (non-IFRS at constant currencies). Operating margin increased 8.0 percentage points year over year to 24.2% (IFRS) and increased 0.6 percentage points year over year to 30.3% (non-IFRS) and 0.8 percentage points to 30.5% (non-IFRS at constant currencies) for the full year.
Operating cash flow for the full year is expected to be at around €7.0 billion, approximately doubling year-over-year and significantly above the raised outlook of approximately €6.0 billion. Free cash flow for the full year is expected to be at around €5.9 billion, significantly above the raised outlook of above €4.5 billion. Cash flow was positively impacted by lower tax and restructuring payments and a successful working capital management.