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2020 Q3 SAP Financial Results and Updated Business Outlook

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The third quarter SAP financial results highlight strong double-digit growth in EPS and cash flow, demonstrating the German software company’s resilience even in the time of COVID-19.

This week opened with the official announcement of the SAP financial results for the third quarter and the company’s updated business outlook for 2020. Amidst the coronavirus pandemic disrupting the global economy, SAP’s latest numbers are looking optimistic with stable total revenue and an improvement in operating profit and margins (non-IFRS at constant currencies). 

“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 in 2025 and expand the share of more predictable revenue to approximately 85{8bf2b29f36318f0ac46ab1cc03d7035abce669a1cea16c9ed62389a818fa22fd},” said SAP CEO Christian Klein.

Q3 SAP Financial Results

Today, more than ever, SAP customers have seen the value of transforming and automating operations and adapting to new business models. Many organisation’s turned to SAP as the expert in running the world’s most mission-critical business to ensure business continuity in the time of COVID-19, which contributed to the German company’s commendable 2020 Q3 financial results:

  • Current Cloud Backlog of €6.6 Billion, Up 16{8bf2b29f36318f0ac46ab1cc03d7035abce669a1cea16c9ed62389a818fa22fd} 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{8bf2b29f36318f0ac46ab1cc03d7035abce669a1cea16c9ed62389a818fa22fd}; Non-IFRS EPS Up 31{8bf2b29f36318f0ac46ab1cc03d7035abce669a1cea16c9ed62389a818fa22fd} 
  • Operating Cash Flow Up 54{8bf2b29f36318f0ac46ab1cc03d7035abce669a1cea16c9ed62389a818fa22fd}, Free Cash Flow Up 79{8bf2b29f36318f0ac46ab1cc03d7035abce669a1cea16c9ed62389a818fa22fd} Year-To-Date 

“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,” said SAP CFO Luka Mucic.

Serving customers with an embedded virtual sales and remote implementation strategy, the first nine months of 2020 was still able to bring in about 28,000 customers going live with SAP solutions.

Segment Performance

In the released Q3 SAP financial results, the four segments highlighted have shown varying performances.  

Applications, Technology & Support (AT&S) 

Segment revenue in AT&S was down 2{8bf2b29f36318f0ac46ab1cc03d7035abce669a1cea16c9ed62389a818fa22fd} to €5.17 billion year over year (up 2{8bf2b29f36318f0ac46ab1cc03d7035abce669a1cea16c9ed62389a818fa22fd} at constant currencies) with the following solutions contributing to the performance:

SAP S/4HANA

Recently named as a Leader in Forrester Wave for Manufacturing ERP, SAP S/4HANA achieved over 500 new customers in Q3, taking total adoption to more than 15,100 customers, up 20{8bf2b29f36318f0ac46ab1cc03d7035abce669a1cea16c9ed62389a818fa22fd} year over year, of which more than 8,100 are live. 

More than 45{8bf2b29f36318f0ac46ab1cc03d7035abce669a1cea16c9ed62389a818fa22fd} of the additional SAP S/4HANA customers were net new, including global companies Lenovo, Æon, Shanghai Land (Group) Co, and Naturgy. Rabobank, Iugu, Basic-Fit, Sharks Sports & Entertainment, and Korea Gas Corporation are now live on SAP S/4HANA Cloud.

Human Experience Management (HXM)

A growing number of organisations have adopted the SAP SuccessFactors Human Experience Management (HXM) suite that leverages Qualtrics to get the pulse of their employees and enable leaders to accelerate business growth in these unpredictable times. Rappi, Kmart Australia, Catholic Education Diocese of Parramatta, Bahrain Airport Services, and Garney Holding Company were among the 775 customers that selected the HXM suite.

SAP Customer Experience

In the third quarter, SAP CX solutions that also use the benefits of Qualtrics Customer Experience Management showed a strong performance, more than doubling new cloud order in-take year over year. Swisscom AG, Barilla, Renault Brazil, Saudi Ports Authority, and Jiangsu Xingda Steel Tyre Cord Co are some of the companies that chose SAP Customer Experience solutions, with Konica Minolta Business Solutions and Energizer Brands going live.

SAP Business Technology Platform

SAP Business Technology Platform, which represents a combination of SAP HANA, SAP Cloud Platform, SAP Data Warehouse Cloud, SAP Analytics Cloud, and SAP Intelligent Robotic Process Automation to build, integrate and extend applications, has been chosen by several companies in Q3 along with SAP Analytics Cloud solutions. The organisation that has recently adopted the platform are Hewlett Packard Enterprise, Alpina Productos Alimenticios S.A, Uniper, and the City of Munich. 

SAP was named as a Leader in Gartner’s Magic Quadrant for both Multiexperience Development Platforms and Enterprise Integration Platform-as-a-Service.

Ariba & Fieldglass

In the third quarter, SAP Ariba solutions’ new customers include Petrobras, Siemens Gamesa, Britvic Soft Drinks Ltd, VELUX Group, and Rumo Logistica.

Meanwhile, SAP Fieldglass added over 975,000 new external workers and a new customer, Algar Telecom.

Concur

With travel restrictions and lockdowns being re-introduced in some regions due to COVID-19, SAP Concur’s transactional revenue continues to be impacted. The Q3 SAP financial results of the Concur segment were down 14{8bf2b29f36318f0ac46ab1cc03d7035abce669a1cea16c9ed62389a818fa22fd} to €357 million year over year (down 10{8bf2b29f36318f0ac46ab1cc03d7035abce669a1cea16c9ed62389a818fa22fd} at constant currencies) due to lower pay-as-you-go transactional revenue.

Despite the challenges, Concur still added commendable clients in Q3 namely Uber Technologies, Bridgestone, Sysmex Europe, and Keio University.

Qualtrics

Qualtrics segment revenue was up 22{8bf2b29f36318f0ac46ab1cc03d7035abce669a1cea16c9ed62389a818fa22fd} to €169 million year over year (up 28{8bf2b29f36318f0ac46ab1cc03d7035abce669a1cea16c9ed62389a818fa22fd} at constant currencies) in Q3. Transamerica Life Insurance Company, Standard Chartered Bank, Lululemon Athletica, Yamaha Motor Corporation, and Telefónica Mexico have selected Qualtrics.

Services

Services segment revenue was down 16{8bf2b29f36318f0ac46ab1cc03d7035abce669a1cea16c9ed62389a818fa22fd} to €753 million year over year (down 13{8bf2b29f36318f0ac46ab1cc03d7035abce669a1cea16c9ed62389a818fa22fd} at constant currencies). While the vast majority of consulting projects continue to be efficiently delivered remotely and SAP’s premium services remain in high demand, in particular, SAP’s training business was also impacted due to delays in the re-opening of global training centers.

Updated 2020 Business Outlook

SAP has also released the updated business outlook for this year considering the continued impact of COVID-19 worldwide and across industries. SAP now expects:

  • €8.0 – 8.2 billion non-IFRS cloud revenue at constant currencies (previously €8.3 – 8.7 billion) 
  • €23.1 – 23.6 billion non-IFRS cloud and software revenue at constant currencies (previously €23.4 – 24.0 billion) 
  • €27.2 – 27.8 billion non-IFRS total revenue at constant currencies (previously €27.8 – 28.5 billion) 
  • €8.1 – 8.5 billion non-IFRS operating profit at constant currencies (previously €8.1 – 8.7 billion) SAP continues to expect its share of more predictable revenue to be approximately 72{8bf2b29f36318f0ac46ab1cc03d7035abce669a1cea16c9ed62389a818fa22fd}

For the remainder of 2020, SAP no longer anticipates a meaningful recovery in SAP Concur business travel-related revenues.

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