DGAP-Adhoc: SAP SE: Updates 2020 Outlook and Mid-Term Ambition - Accelerates Transition to Cloud

Updated Business Outlook 2020

SAP's previous full year 2020 outlook issued on April 8th, 2020 reflected its best estimates concerning the timing and pace of recovery from the COVID-19 crisis. This outlook assumed economies would reopen and population lockdowns would ease, leading to a gradually improving demand environment in the third and fourth quarters.

While SAP continues to see robust interest in its solutions to drive digital transformation as customers look to emerge from the crisis with more resilience and agility, lockdowns have been recently re-introduced in some regions and demand recovery has been more muted than expected. Further and for the same reasons, SAP no longer anticipates a meaningful recovery in SAP Concur business travel-related revenues for the remainder of the year 2020.

SAP is therefore updating its full year 2020 outlook and 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%.

The Company has raised its cash flow expectations for 2020 on the back of a strong year-to-date cash flow performance and now expects an operating cash flow of approximately €6.0 billion (previously above €5.0 billion) and a free cash flow above €4.5 billion (previously approximately €4.0 billion).

Updated Mid-Term Ambition

SAP's previous mid-term ambition was issued on April 24^th, 2019, before the COVID-19 crisis. The company is now updating its mid-term ambition to reflect the following factors:

• The most recent currency exchange rates (October 2020) which translates to a negative 3 to 4 percent effect on revenue and operating profit since April 2019.
• The COVID-19 pandemic which is expected to impact the demand environment, particularly in hard hit industries, through at least the first half of 2021 pushing out the achievement of key metrics such as non-IFRS cloud revenue, total revenue, and operating profit, by 1 to 2 years.
• The acceleration of customers' move to the cloud and subsequent business transformations which drive the new ambition's cloud revenue target of more than €22 billion by 2025. SAP expects this to negatively impact the 2023 operating margin by approximately 4 to 5 percentage points relative to the previous mid-term ambition.
• The accelerated harmonization of SAP cloud delivery which is expected to require an incremental investment in 2021 and 2022 and to drive the non-IFRS cloud gross margin to approximately 80% by 2025.

As a consequence of SAP's accelerated cloud transition, the Company expects software licenses revenue to continue to trend lower from 2020 levels.

The combined impact of the above factors and the mechanics of the associated business model switch are expected to lead to muted non-IFRS total revenue growth as well as flat or slightly lower non-IFRS operating profit over the next two years, followed by accelerated non-IFRS total revenue and double-digit non-IFRS operating profit growth from 2023 onwards.

By 2025, this trajectory is expected to take SAP to:

• More than €22 billion non-IFRS cloud revenue
• More than €36 billion non-IFRS total revenue
• More than €11.5 billion non-IFRS operating profit
• A significant expansion of the Company's more predictable revenue share to approximately 85%

Contact:
Stefan Gruber
Head of Investor Relations
Phone: +49 6227 7-44872
Email: [email protected]