- SAP exceeds non-IFRS operating profit and cash flow outlook for FY 2023
- Cloud revenue up 20% and up 23% at constant currencies for FY 2023, underpinned by 25% cloud revenue growth at constant currencies in the fourth quarter
- Current cloud backlog of €13.7 billion, up 25% and up 27% at constant currencies
- IFRS cloud gross profit up 23%, non-IFRS cloud gross profit up 23% and up 27% at constant currencies in FY 2023
- IFRS operating profit down 5%, non-IFRS operating profit up 9% and up 13% at constant currencies in FY 2023
- 2024 outlook anticipates accelerating cloud revenue growth
- Planned transformation program including restructuring in 2024 reflects focus on scalability of operations and Business AI
- 2025 non-IFRS operating profit and free cash flow ambition updated to reflect updated non-IFRS definition as well as approximately half a billion Euro of incremental efficiency gains from the program
Christian Klein, CEO: "SAP has delivered: We met or exceeded our outlook for 2023 in all key metrics. Based on a stellar order entry, our current cloud backlog expanded by 27% - an all-time high. We are confident about the company's prospects in 2024. From this position of strength, SAP is opening the next chapter: with the planned transformation program, we are intensifying the shift of investments to strategic growth areas, above all Business AI. Going forward, this will empower us to keep leading with innovation while increasing the scalability of the operating model."
Dominik Asam, CFO: "2023 was a year of inflection. We kept our promise and achieved double-digit non-IFRS operating profit growth despite an adverse macro environment. In 2024, we will focus on putting the right gradient of earnings growth in place to deliver on our raised ambition for 2025 and sustain growth and financial performance beyond."
All figures in this statement are based on SAP group results from continuing operations unless otherwise noted.
Financial Performance
Group results at a glance – Fourth quarter 2023
1 For a breakdown of the individual adjustments see table "Non-IFRS Adjustments by Functional Areas" in this Quarterly Statement.
2 From continuing and discontinued operations
Group results at a glance – Full year 2023
1 For a breakdown of the individual adjustments see table "Non-IFRS Adjustments by Functional Areas" in this Quarterly Statement.
2 From continuing and discontinued operations
Financial Highlights1
Fourth Quarter 2023
In the fourth quarter, SAP's cloud momentum further accelerated with sequential growth rate increases in both current cloud backlog and cloud revenue. Current cloud backlog was up 25% to €13.75 billion and up 27% at constant currencies, its fastest pace on record. SAP S/4HANA current cloud backlog was up 58% to €5.05 billion and up 61% at constant currencies. Cloud revenue was up 20% to €3.70 billion and up 25% at constant currencies, mainly driven by the growth of SAP's combined SaaS and PaaS portfolio, which was up 22% and up 28% at constant currencies. SAP S/4HANA Cloud revenue was up 55% to €1.03 billion and up 61% at constant currencies.
Supported by a particularly solid performance in Europe, software licenses revenue decreased by only 7% to €841 million and was down 6% at constant currencies. Cloud and software revenue was up 6% to €7.39 billion and up 10% at constant currencies. Services revenue was flat at €1.08 billion and up 4% at constant currencies. Total revenue was up 5% to €8.47 billion and up 9% at constant currencies.
The share of more predictable revenue increased by 2 percentage points to 77% in the fourth quarter.
Cloud gross profit was up 25% (IFRS) to €2.66 billion, up 24% to €2.69 billion (non-IFRS), and up 30% (non-IFRS at constant currencies). Cloud gross profit growth was supported by a strong increase in cloud gross margins.
IFRS operating profit decreased 5% to €1.90 billion. Non-IFRS operating profit was down 2% to €2.51 billion and was up 2% at constant currencies. Fourth quarter operating profit was negatively affected by the accelerated amortization of capitalized sales commissions related to the on-premise business as well as higher bonus accruals related to the strong financial performance. In addition, prior year fourth quarter IFRS operating profit included a disposal gain of €175 million which resulted in a non-IFRS operating profit of €109 million related to the sale of the SAP Litmos business.
IFRS earnings per share (basic) increased 60% to €1.02. Non-IFRS earnings per share (basic) increased 44% to €1.41. The effective tax rate was 33.8% (IFRS) and 31.4% (non-IFRS). The year-over-year decrease in effective tax rate mainly resulted from changes in tax-exempt income, predominantly related to Sapphire Ventures, which were partly offset by changes in valuation allowances on deferred taxes and withholding taxes.
Full Year 2023
SAP performed against its financial outlook as follows (continuing operations2):
As of December 31, total cloud backlog – which is defined as the contractually committed cloud revenue we expect to recognize in future periods – was up 37% to €44 billion and up 39% at constant currencies.
For the full year, cloud revenue was up 20% to €13.66 billion and up 23% at constant currencies, mainly driven by strong double-digit growth across the SaaS and PaaS portfolio, which was up 23% and up 26% at constant currencies. SAP S/4HANA Cloud revenue was up 67% to €3.49 billion and up 72% at constant currencies.
Software licenses revenue was down 14% to €1.77 billion and down 12% at constant currencies. Cloud and software revenue was up 6% to €26.93 billion and up 9% at constant currencies. Services revenue was up 4% to €4.28 billion and up 6% at constant currencies. Total revenue was up 6% to €31.21 billion and up 9% at constant currencies.
The share of more predictable revenue increased by 2 percentage points year over year to 81% for the full year 2023.
Cloud gross profit was up 23% (IFRS) to €9.78 billion, up 23% to €9.91 billion (non-IFRS), and up 27% (non-IFRS at constant currencies). IFRS Cloud gross margin was up 2.2 percentage points to 71.6%, non-IFRS cloud gross margin up 2.2 percentage points to 72.6% and up 2.4 percentage points at constant currencies.
IFRS operating profit was down 5% to €5.79 billion and IFRS operating margin decreased by 2.1 percentage points to 18.5%. Non-IFRS operating profit increased 9% to €8.72 billion and increased 13% at constant currencies, non-IFRS operating margin increased by 0.9 percentage points to 27.9% and was up 1.2 percentage points to 28.2% at constant currencies.
IFRS earnings per share (basic) increased 10% to €3.08 and non-IFRS earnings per share (basic) increased 24% to €5.01. The effective tax rate was 32.6% (IFRS) and 29.3% (non-IFRS), which is above the outlook of 28.0% to 32.0% (IFRS) and 26.0% to 28.0% (non-IFRS). The increase mainly resulted from changes in valuation allowances on deferred taxes.
Free cash flow for the full year was up 16% to €5.08 billion, exceeding the revised outlook of approximately €4.9 billion. While higher payouts for taxes and restructuring weighed on free cash flow, the positive development was driven by SAP's profitability and improvements in working capital and interest payments. In addition, lower payouts for share-based compensation, capex, and leasing supported the positive development. At year end, net liquidity was €3.52 billion.
Share Repurchase Program
On May 16, SAP announced a new share repurchase program with an aggregate volume of up to €5 billion and a term until December 31, 2025. As of December 31, 2023, SAP had repurchased 7,563,796 shares at an average price of €125.49 resulting in payouts of approximately €949 million under the program.
Non-Financial Performance 2023
Customer net promoter score (NPS) increased 2 points year over year to 9 in 2023 within the outlook range.
SAP's employee engagement index remains stable at 80% meeting the upper end of the target range and demonstrating continued high level of engagement. SAP's retention rate was 96.4%, in 2023. The proportion of women in management increased to 29.7%. In the fourth quarter, the Company also reached 35.2% of women in the workforce.
Net carbon emissions were 0kt in 2023, meaning the Company is carbon neutral in its own operations.
Business Highlights
In the fourth quarter, customers around the globe continued to choose "RISE with SAP" to drive their end-to-end business transformations. These customers included: Amer Sports, AusNet, Boots, Christchurch City Council, Coles Group, Covestro, Daikin Industries, Daimler Truck, Deutsche Telekom, EMS, Harrods, Hilti, IBM, KONE, Kyndryl, Landis+Gyr, Marathon Petroleum, Marks and Spencer, Messe Frankfurt, Munich Airport, NEC Corporation, NVIDIA, Nestlé, OXG Glasfaser, SLB, Smyths Toys Superstores, Vodafone Group, and Wärtsilä Corporation.
AES Indiana, Allianz, ARAG, DAK-Gesundheit, Tropicana Brands Group, and Zurich Insurance Company went live on SAP S/4HANA Cloud in the fourth quarter.
Lowe Enterprises, Mangopay, Merida & Centurion Germany, Okuma Europe, Serrala Group, and Solidia Technologies chose "GROW with SAP", an offering helping midsize customers adopt cloud ERP with speed, predictability, and continuous innovation.
Key customer wins across SAP's solution portfolio included: Ahold Delhaize, Airservices Australia, Beiersdorf, Bosideng, Delivery Hero, Douglas, DZ BANK, Ericsson, MATSUMOTO PRECISION, Mercedes-Benz Group, NEOM, Robert Bosch, TechnipFMC, TE Connectivity, Volkswagen, and Wipro.
Axpo Holding, Campari Group, and Roca Sanitario, went live on SAP solutions.
In the fourth quarter, SAP's cloud revenue performance was particularly strong in APJ and EMEA and solid in the Americas region. Brazil, Germany, France, India, and South Korea had outstanding cloud revenue growth while Japan and Saudi Arabia showed exceptional strength.
For the full year, Germany, Brazil and India all had outstanding performances in cloud revenue while France, Japan, South Korea, the Netherlands, Mexico, Chile and Switzerland were particularly strong.
On October 25, SAP announced, that Siemens Healthineers AG, a leading global medical technology company, had selected the RISE with SAP solution to support the company's digital transformation journey.
On November 2, SAP announced at the SAP TechEd event, a comprehensive series of generative AI capabilities and advancements aimed at empowering developers of all skill levels to supercharge their businesses in the age of AI.
On November 8, SAP announced, that it had completed the acquisition of LeanIX.
On November 21, SAP and the Mercedes-AMG PETRONAS F1 Team announced a multiyear partnership to join forces to drive efficiency on and off the racetrack.
On November 22, SAP announced that the Hilti Group, a global leader providing innovative hardware, software and services to the construction industry, is using the Circelligence solution to increase the circularity of its resources.
On December 13, SAP announced that it deepened its partnership with IBM on AI and Quantum. IBM also selected RISE with SAP across the enterprise, broadening its global reach, and continued to embrace the cloud through the use of SAP Fieldglass and SAP Learning Hub.
On January 9, 2024, SAP announced changes to its Executive Board to build on the company's success to enable customers to benefit from the cloud in the era of AI. Starting April 1, 2024, a new Board area will be created to accelerate cloud growth and adoption. This Board area, led by Thomas Saueressig, will be focused on ensuring customers' ability to embrace continuous innovation in the cloud. At the same time, Muhammad Alam will join the Executive Board, succeeding Thomas Saueressig and assuming responsibility for SAP's product engineering.
On January 17, SAP was named one of the 100 most sustainable companies in the world, joining the Corporate Knights Global 100 once again.
Segment Results at a Glance
SAP's reportable segment showed the following performance:
1 Segment information for comparative prior periods were restated to conform with the new segment composition.
2 Software as a service: SaaS comprises all other offerings which are not shown as PaaS and IaaS.
3 Platform as a service: PaaS primarily includes SAP Business Technology Platform and SAP Signavio.
4 Infrastructure as a service: A major portion of IaaS comes from SAP HANA Enterprise Cloud
In the fourth quarter, segment revenue in AT&S was up 5% to €8.17 billion and up 9% at constant currencies, primarily due to strong cloud revenue growth, which was supported by SAP S/4HANA as well as Business Technology Platform. Operating Expenses of the segment increased by 8% and by 13% at constant currencies, resulting in a segment margin of 32.9% at actual and constant currencies. This implies a decrease of 2.2 percentage points and 2.2 percentage points at constant currencies compared to the fourth quarter of the prior year.
Cloud Performance
1 Software as a service: SaaS comprises all other offerings which are not shown as PaaS and IaaS.
2 Platform as a service: PaaS primarily includes SAP Business Technology Platform, SAP LeanIX and SAP Signavio.
3 Infrastructure as a service: A major portion of IaaS comes from SAP HANA Enterprise Cloud.
Business Outlook
SAP's business outlook, which includes the financial outlook 2024 as well as the financial ambition 2025, 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.
Furthermore, the 2024 outlook and 2025 ambition for free cash flow assume all payouts associated with the planned restructuring program will be completed in 2024.
Financial Outlook 2024
For 2024, SAP expects:
- €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: €26.93 billion), up 8% to 10% at constant currencies.
- €7.6 – 7.9 billion non-IFRS operating profit at constant currencies (2023: €6.51 billion based on updated non-IFRS operating profit definition), up 17% to 21% at constant currencies.
- Free cash flow of approximately €3.5 billion (2023: €5.08 billion). This includes a preliminary €2 billion estimate for payouts associated with the program, a €0.2 billion impact from a settlement earlier this year of pre-existing regulatory compliance matters accrued in 2023, as well as a €0.2 billion adverse impact due to the discontinuation of the SAP-triggered financing program.
- An effective tax rate (non-IFRS) of approximately 32% (2023: 30.3% based on updated tax rate definition (non-IFRS))3.
- 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. See the table below.
Currency Impact Assuming December 2023 Rates Apply for 2024
In percentage points
Q1 2024
FY 2024
Cloud revenue growth
–2.5pp to –0.5pp
–2.0pp to 0.0pp
Cloud and software revenue growth
–2.0pp to 0.0pp
–1.5pp to +0.5pp
Operating profit growth (non-IFRS)
–3.0pp to –1.0pp
–2.0pp to 0.0pp
Non-Financial Outlook 2024
In 2024, SAP now expects:
- A customer net promoter score of 9 to 13.
- The employee engagement index in the range of 76% to 80%.
- 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 archive 25%. At the end of 2023 SAP reached 22.2%.
SAP is updating its financial ambition 2025. The update reflects the strong performance in the fourth quarter 2023, the updated non-IFRS definition of profit measures, as well as the anticipated benefits from the 2024 transformation program.
The update of the non-IFRS operating profit ambition includes a reduction by approximately €2 billion due to the inclusion of share-based compensation expenses under the updated non-IFRS definition, as well as an increase of approximately €0.5 billion due to anticipated incremental efficiency gains from the transformation program.
By 2025, SAP now expects:
- Non-IFRS cloud gross profit of approximately €16.2 billion, now including share-based compensation expenses of approximately €0.1 billion (previously: approximately €16.3 billion, excluding share-based compensation expenses).
- Non-IFRS operating profit of approximately €10.0 billion, now including share-based compensation expenses of approximately €2 billion (previously: approximately €11.5 billion, excluding share-based compensation expenses).
- Free cash flow of approximately €8.0 billion (previously: approximately €7.5 billion).
- Cloud revenue of more than €21.5 billion.
- Total revenue of more than €37.5 billion.
- A share of more predictable revenue of approximately 86%.
In addition to our 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, SAP continues to aim for:
Steadily increasing the employee engagement index.
Steadily increasing the customer net promoter score.
2024 Transformation Program: Focus on scalability of operations and key strategic growth areas
In 2024, SAP will further increase its focus on key strategic growth areas, in particular Business AI. It also intends to transform its operational setup to capture organizational synergies, AI-driven efficiencies and to prepare the company for highly scalable future revenue growth.
To this end, and to ensure that SAP's skill set and resources continue to meet future business needs, SAP plans to execute a company-wide restructuring program in 2024. The majority of the approximately 8,000 affected positions is expected to be covered by voluntary leave programs and internal re-skilling measures. Reflecting re-investments into strategic growth areas, SAP expects to exit 2024 at a headcount similar to current levels.
Restructuring expenses are preliminarily projected at around €2 billion, the vast majority of which is expected to be recognized in the first half of 2024, impacting IFRS operating profit. Excluding restructuring expenses, the program is expected to provide only a minor cost benefit in 2024. Expected cost savings and re-investments are fully reflected in SAP's 2024 outlook and the updated 2025 non-IFRS operating profit- and free cash flow ambition.
Additional Information
This press release and all information therein is preliminary and unaudited. Due to rounding, numbers may not add up precisely. The full Q4 and FY 2023 Quarterly Statement can be downloaded from: https://www.sap.com/investors/sap-2023-q4-statement.
SAP Annual General Meeting of Shareholders
The Annual General Meeting of Shareholders will take place on May 15, 2024, as a physical event in the SAP Arena in Mannheim, Germany. The whole event will be webcast on the Company's website and online voting options will be available. Further details will be published at https://www.sap.com/agm in early April.
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 Wednesday, January 24th at 07:00 AM (CET) / 06:00 AM (GMT) / 1:00 AM (EST) / Tuesday, January 23rd 10:00 PM (PST), followed by a press conference at 10:00 AM (CET) / 9:00 AM (GMT) / 4:00 AM (Eastern) / 1:00 AM (PST). Both conferences 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 fourth quarter results can be found at https://www.sap.com/investor.
About SAP
SAP's strategy is to help every business run as an intelligent, sustainable enterprise. As a market leader in enterprise application software, we help companies of all sizes and in all industries run at their best: SAP customers generate 87% of total global commerce. Our machine learning, Internet of Things (IoT), and advanced analytics technologies help turn customers' businesses into intelligent enterprises. SAP helps give people and organizations deep business insight and fosters collaboration that helps them stay ahead of their competition. We simplify technology for companies so they can consume our software the way they want – without disruption. Our end-to-end suite of applications and services enables business and public customers across 26 industries globally to operate profitably, adapt continuously, and make a difference. With a global network of customers, partners, employees, and thought leaders, SAP helps the world run better and improve people's lives. For more information, visit www.sap.com.
For customers interested in learning more about SAP products:
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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 2022 Annual Report on Form 20-F.
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SAP and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP SE in Germany and other countries. Please see https://www.sap.com/copyright for additional trademark information and notice
1 The Q4 and full year 2023 results were also impacted by other effects. For details, please refer to the disclosures on page 31 of this document.
2 Full-year 2023 outlook updated for continuing operations as of April 21, 2023, to reflect the Qualtrics divestiture as reported in Q1 2023 quarterly statement.
3 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 investments, 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).
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