SAP SE — FY2020 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone Q4 filing; the provided text does not give a clear set of standalone Q4 financial results. Financial statements are prepared under IFRS and presented in euros.
Business context
SAP is a global enterprise software company focused on business applications, cloud services, software support, and related services. Its strategy centers on helping customers become “intelligent enterprises” and accelerating the transition from on-premise software to cloud subscriptions. COVID-19 disrupted customer spending and travel, but also accelerated demand for digital transformation and cloud adoption.
Financial results and liquidity
| Metric | 2020 | 2019 | Change or context |
|---|---|---|---|
| IFRS total revenue | €27.338bn | €27.553bn | Down 1% |
| Cloud revenue | €8.080bn | €6.933bn | Up 17% |
| Software licenses and support | €15.148bn | €16.080bn | Down 6%; licenses alone down 20% |
| Services revenue | €4.110bn | €4.541bn | Down 9% |
| IFRS operating profit | €6.623bn | €4.473bn | Up 48%; 2020 included a €194m gain on the Digital Interconnect disposal |
| IFRS operating margin | 24.2% | 16.2% | Up 8.0 percentage points |
| Profit after tax | €5.283bn | €3.370bn | Up 57% |
| Basic EPS | €4.35 | €2.78 | Up 57% |
| Net cash from operating activities | €7.194bn | €3.496bn | More than doubled |
| Free cash flow | €6.000bn | €2.276bn | Up 164% |
| Group liquidity | €6.781bn | €5.382bn | Includes cash and current investments |
| Net debt | €6.503bn | €8.286bn | Improved by €1.783bn; excludes lease liabilities |
IFRS revenue was nearly flat as cloud growth was offset by weaker software license, support, and services revenue. Cloud and software revenue under SAP’s non-IFRS measure was €23.233bn; total revenue was €27.343bn. Non-IFRS operating profit was €8.287bn at actual currencies (€8.503bn at constant currencies), versus IFRS operating profit of €6.623bn. SAP excludes acquisition-related charges, share-based payments, and restructuring from relevant non-IFRS measures; it cautions investors to consider these alongside IFRS results.
Cloud and software represented 85% of IFRS revenue. More predictable revenue, defined by SAP as cloud plus software support revenue, rose to 72% of total revenue from 67%. Cloud gross margin was 69.7% on SAP’s non-IFRS basis, up 1.4 percentage points at constant currencies. The IFRS effective tax rate was 26.8% versus 26.7%.
Cash generation benefited from higher customer collections, lower tax payments (€1.2bn versus €2.3bn), and lower restructuring payments (€0.2bn versus €0.9bn). DSO increased to 78 days from 71. Investing cash outflow was €2.986bn, including €0.662bn net cash for business combinations. Financing cash outflow was €3.997bn, including a €1.492bn share buyback and €1.864bn in dividends. Financial debt was €13.283bn; net debt including lease liabilities was €8.623bn. SAP reported an undrawn €2.5bn revolving credit facility and stated liquidity plus expected operating cash flows should cover near- and medium-term needs.
Material changes versus 2019
- Cloud revenue grew strongly, while software license revenue fell 20% and software support revenue was approximately flat. The total value of software license orders declined 20%.
- Services revenue fell with COVID-related limits on in-person customer work and delays or changes to major projects; remote delivery and lower related costs improved services gross margin.
- Operating expenses fell 10% to €20.715bn. Reduced travel, virtual events, and cost discipline contributed, while R&D expense rose 4% to €4.454bn and R&D headcount increased 7%.
- IFRS financial income, net increased to €776m from €198m, largely reflecting gains and fair-value movements in equity investments, including Sapphire Ventures investments.
- Investing outflows fell substantially from 2019, when Qualtrics acquisition cash payments were a major use of funds; 2020 included the smaller Emarsys acquisition. SAP sold its Digital Interconnect business, closing the transaction in November.
- Other comprehensive income included €2.791bn of net foreign-exchange translation losses. Total equity declined to €29.928bn from €30.822bn.
Outlook, risks, and unusual items
- 2021 outlook, non-IFRS at constant currencies: cloud revenue €9.1bn–€9.5bn; cloud and software revenue €23.3bn–€23.8bn; operating profit €7.8bn–€8.2bn. SAP expects more predictable revenue to reach approximately 75%. The outlook assumes a gradually improving demand environment in the second half of 2021 as vaccine programs roll out.
- SAP expects software license revenue to continue trending lower as customers shift to subscriptions. Management expects muted total revenue growth and flat or slightly lower operating profit over the next two years, followed by accelerated revenue and double-digit operating profit growth from 2023. Its 2025 ambitions include cloud revenue above €22bn, total revenue above €36bn, operating profit above €11.5bn, and cloud gross margin around 80%.
- Expected 2021 operating cash flow is around €6.0bn and free cash flow above €4.5bn. Planned 2021 capital expenditure is approximately €950m. SAP intends to repay €500m in Eurobonds and all or part of the €1.25bn Qualtrics acquisition term loan.
- A €1.85-per-share dividend for 2020 was proposed, subject to shareholder approval. SAP’s policy is to distribute at least 40% of prior-year profit after tax.
- Management identified COVID-19, global economic uncertainty, competition and cloud execution, cybersecurity, data privacy, regulatory compliance, customer implementation, and talent retention as material risks. SAP said routine security reviews found that some cloud products did not meet certain contractual or statutory standards; identified gaps were resolved by July 2020. It reported no significant GDPR-reportable personal-data incidents in 2020.
- Investigations into potential anti-bribery and export-control or sanctions matters remained ongoing, including engagement with U.S. authorities. SAP recorded no material provision for these matters and said the financial impact could not then be reliably estimated. Income-tax contingent liabilities were €1.221bn; SAP disputes the tax authorities’ claims and recorded no provision for them.
- In January 2021, Qualtrics completed an IPO; SAP’s ownership fell to 83%, while its voting power remained above 98%. SAP announced a €950m proposed Signavio acquisition. A cloud-infrastructure restructuring begun in Q1 2021 is expected to cost €150m–€200m, mainly for impairments of data centers and related assets.
- The Supervisory Board approved €4.0m of supplementary compensation for certain Executive Board members for 2020, payable after the May 2021 AGM and subject to a three-year share-holding requirement. The 2020 STI paid no award because weighted target achievement of 66.5% was below the 75% hurdle.
Most important facts for investors to verify
- Reconcile reported IFRS performance with non-IFRS guidance and adjustments, particularly the disposal gain, share-based payments, and acquisition-related charges.
- Track cloud growth, current cloud backlog (€7.15bn at actual currencies; €7.61bn at constant currencies), renewals, and the pace and profitability of on-premise-to-cloud conversions.
- Assess whether the expected cloud growth and operating-profit outlook account for continuing COVID-19 effects, currency movements, and the stated near-term margin pressure.
- Monitor cash conversion, DSO, debt maturities, lease obligations, and planned repayment of the Qualtrics term loan.
- Follow the outcome and potential financial consequences of the tax, anti-bribery, export-control, and intellectual-property matters; several exposures are uncertain or not practicably estimable.
- Review the Qualtrics IPO’s effect on SAP’s financial statements and control, and the costs and execution of the cloud restructuring and Signavio acquisition.
The filing states that KPMG gave an unqualified opinion on the IFRS consolidated financial statements and an unqualified opinion on internal control over financial reporting; management also concluded disclosure controls were effective as of December 31, 2020.