SAP : Q2 2023 Quarterly Statement

SAP Quarterly Statement Q2 2023

SAP Announces Q2 2023 Results

• Cloud revenue up 19% and up 22% at constant currencies. SAP S/4HANA cloud revenue up 74% and accelerates to 79% at constant currencies
• Current cloud backlog up 21% and up 25% constant currencies
• IFRS cloud gross profit up 20%, non-IFRS cloud gross profit up 20% and up 24% at constant currencies, supported by completion of SAP's next-generation cloud delivery program
• IFRS operating profit up 28%, non-IFRS operating profit up 23% and up 28% at constant currencies
• SAP updates its 2023 revenue and operating profit outlook
• Expands market opportunity through new SAP Business AI and premium AI offerings

in € millions, unless otherwise stated; based on SAP group results from continuing operations

Total revenue	Cloud & Software	Cloud revenue	S/4HANA cloud
	revenue		revenue

7,554	6,505	3,316		823
	+5% (+8% @cc)	+5% (+8% @cc)		+19% (+22% @cc)	+74% (+79% @cc)
Share of more predictable revenue	Current cloud	S/4HANA current
			backlog	cloud backlog
82%		11,537		3,717
	+2pp			+21% (+25% @cc)	+65% (+70% @cc)
Gross profit	Cloud gross profit	Operating profit	Earnings per Share
(Gross margin in %)	(Cloud gross margin in %)				(in €)
IFRS	IFRS	IFRS	IFRS basic
5,409 (71.6%)	2,357 (71.1%)	1,358		0.62
+3%	+20%	+28%		+15%
Non-IFRS	Non-IFRS	Non-IFRS	IFRS diluted	Non-IFRS basic
5,576 (73.8%)	2,395 (72.2%)	2,058		0.62	1.07
	+4% (+7% @cc)	+20% (+24% @cc)		+23% (+28% @cc)	+14%	+12%
	Christian Klein, CEO:		Dominik Asam, CFO:

"This has been another strong quarter. We see significant opportunities ahead, in particular through the transformative power of AI. We are focused on delivering SAP Business AI that's relevant, reliable, and responsible and we see significant possibilities for market expansion through these technologies and new premium offerings."

"We are very pleased with our first half results. The revenue growth and increased profitability, combined with sustained growth of our cloud backlog, demonstrate the strength of our business model. Q2 performance puts us on the right trajectory and allows us to raise our cloud and software revenue, as well as the operating profit outlook for the year."

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SAP Quarterly Statement Q2 2023

Walldorf, Germany - July 20, 2023.

SAP SE (NYSE: SAP) today announced its financial results for the second quarter ended June 30, 2023.

In Q1 2023, the Qualtrics consolidated group ("Qualtrics") was classified as discontinued operations under IFRS 5. Consequently, the contribution from Qualtrics is not included in the reporting of SAP's continuing operations. See section

1. Discontinued Operations. All figures in this statement are based on SAP group results from continuing operations unless otherwise noted.

Financial Performance

Group results at a glance - Second quarter 2023

			IFRS
€ million, unless otherwise stated	Q2 2023	Q2 2022	∆ in %
Cloud revenue	3,316	2,796	19
Thereof SAP S/4HANA Cloud revenue	823	472	74
Software licenses	316	426	-26
Software support	2,873	2,977	-3
Software licenses and support revenue	3,189	3,403	-6
Cloud and software revenue	6,505	6,199	5
Total revenue	7,554	7,207	5
Share of more predictable revenue (in %)	82	80	2pp
Operating profit (loss)	1,358	1,060	28
Profit (loss) after tax from continuing operations	724	613	18
Profit (loss) after tax²	3,381	203	>100
Earnings per share - Basic (in €) from continuing operations	0.62	0.54	15
Earnings per share - Diluted (in €) from continuing operations	0.62	0.54	14
Earnings per share - Basic (in €)²	2.96	0.29	>100
Earnings per share - Diluted (in €)²	2.93	0.28	>100
Net cash flows from operating activities from continuing	848	301	>100
operations
Free cash flow
Number of employees (FTE, June 30)	105,328	104,988	0

				Non-IFRS1
				∆ in %
	Q2 2023	Q2 2022	∆ in %	const.
				curr.
	3,316	2,796	19	22
	823	472	74	79
	316	426	-26	-24
	2,873	2,977	-3	-1
	3,189	3,403	-6	-4
	6,505	6,199	5	8
	7,554	7,207	5	8
	82	80	2pp
	2,058	1,678	23	28
	1,249	1,098	14
	3,460	1,093	>100
	1.07	0.95	12
	3.14	0.96	>100
	604	-10	<-100

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.

Due to rounding, numbers may not add up precisely.

Group results at a glance - Six months ended June 2023

IFRS

Non-IFRS1

€ million, unless otherwise stated	Q1-Q2	Q1-Q2	∆ in %
2023	2022
Cloud revenue	6,493	5,362	21
Thereof SAP S/4HANA Cloud revenue	1,539	876	76
Software licenses	591	743	-20
Software support	5,778	5,900	-2
Software licenses and support revenue	6,369	6,643	-4
Cloud and software revenue	12,863	12,005	7
Total revenue	14,995	13,980	7
Share of more predictable revenue (in %)	82	81	1pp

	Q1-Q2		Q1-Q2		∆ in %
		∆ in %	const.
2023	2022
	curr.
	6,493		5,362	21	22
	1,539	876	76	77
	591	743	-20	-19
	5,778	5,900	-2	-1
	6,369	6,643	-4	-3
	12,863	12,005	7	8
	14,995	13,980	7	8
	82	81	1pp

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SAP Quarterly Statement Q2 2023

IFRS

Non-IFRS1

€ million, unless otherwise stated	Q1-Q2	Q1-Q2	∆ in %
2023	2022

Operating profit (loss)

2,161

2,531

-15

Profit (loss) after tax from continuing operations	1,128	1,629	-31
Profit (loss) after tax2	3,890	835	>100
Earnings per share - Basic (in €) from continuing operations	0.97	1.41	-31
Earnings per share - Diluted (in €) from continuing operations	0.97	1.41	-32
Earnings per share - Basic (in €)2	3.37	0.92	>100
Earnings per share - Diluted (in €)2	3.34	0.91	>100
Net cash flows from operating activities from continuing	3,160	2,766	14
operations
Free cash flow
Number of employees (FTE, June 30)	105,328	104,988	0

Q1-Q2	Q1-Q2		∆ in %
∆ in %	const.
2023	2022
	curr.

3,933

3,354

17

20

2,502	2,269	10
5,047	2,259	>100
2.15	1.96	10
4.41	1.96	>100
2,559	2,149	19

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.

Due to rounding, numbers may not add up precisely.

Financial Highlights1

Second Quarter 2023

Current cloud backlog grew by 21% to €11.54 billion and was up 25% at constant currencies. SAP S/4HANA current cloud backlog was up 65% to €3.72 billion and up 70% at constant currencies.

In the second quarter, cloud revenue was up 19% to €3.32 billion and up 22% at constant currencies. SAP S/4HANA cloud revenue was up 74% to €823 million and up 79% at constant currencies.

Software licenses revenue decreased by 26% to €316 million and was down 24% at constant currencies. Cloud and software revenue was up 5% to €6.50 billion and up 8% at constant currencies. Services revenue was up 4% to €1.05 billion and up 7% at constant currencies. Total revenue was up 5% to €7.55 billion and up 8% at constant currencies.

The share of more predictable revenue increased by 2 percentage points to 82% in the second quarter.

Supported by the successful completion of the next-generation cloud delivery program, cloud gross profit was up 20% (IFRS) to €2.36 billion, up 20% to €2.40 billion (non-IFRS), and up 24% (non-IFRS at constant currencies).

IFRS operating profit increased 28% to €1.36 billion. Non-IFRS operating profit was up 23% to €2.06 billion and up 28% at constant currencies. The increase was mainly driven by cloud revenue growth, finalization of the next generation cloud delivery program, as well as efficiency gains. In addition, operating profit in the second quarter of last year was negatively impacted by SAP's decision to wind down its business operations in Russia and Belarus. Beyond that, Q2 IFRS operating profit growth benefitted from the restructuring expenses we reported in Q2 last year. On the other hand, it was negatively affected by higher share-based compensation expenses primarily due to the share-price development over the second quarter of this year.

IFRS earnings per share (basic) increased 15% to €0.62. Non-IFRS earnings per share (basic) increased 12% to €1.07. The effective tax rate was 33.8% (IFRS) and 30.4% (non-IFRS).

Free cash flow in the second quarter increased significantly to €604 million, driven by the strong expansion of operating profit and a reduction of payments for, amongst others, share-based compensation, capex and leasing. For the first six months, free cash flow was up 19% to €2.56 billion.

Completion of Qualtrics divestiture

On June 28, SAP announced the completion of the sale of its stake in Qualtrics at a price of US$18.15 in cash per share. The closing of the transaction contributed an after-tax gain on sale of approximately €3.2 billion (IFRS) and approximately €2.6 billion (Non-IFRS) to SAP's results. The cash inflow resulting from the purchase price was €7.1 billion (€6.4 billion net of

1 The Q2 2023 results were also impacted by other effects. For details, please refer to the disclosures on page 29 of this document.

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SAP Quarterly Statement Q2 2023

cash and cash equivalents held by Qualtrics). All contributions from the Qualtrics divestiture are reflected in results from discontinued operations. For details, please refer to section M in other disclosures on page 30 of this document.

Completion of next-generation cloud delivery program

Early in the second quarter, SAP successfully completed the migration of its cloud customer base to its state-of-the-art, harmonized cloud infrastructure. More than 20,000 customers and half a million tenants were migrated as part of the program, which was initiated at the beginning of 2021.

Business Highlights

In the second quarter, customers around the globe continued to choose "RISE with SAP" to drive their end-to-end business transformations. These customers included ARAG, Bacardi-Martini, Bayer, DFS Deutsche Flugsicherung, Empresas Polar, Foodstuffs South Island, GOL, McBride, Municipality of Utrecht, and Sochor.

ABN AMRO Bank, Cirque du Soleil, HanesBrands, Levi's, Tech Mahindra, Versuni, went live on SAP S/4HANA Cloud in the second quarter.

The Brenda Strafford Foundation, in-tech GmbH, NKK Switches, Onyx Renewable Partners, StepLock, and Sunny Sky Products chose "GROW with SAP", a new offering helping midsize customers adopt cloud ERP with speed, predictability and continuous innovation.

Key customer wins across SAP's solution portfolio included: Breakthru Beverage, Deutsche Börse, Endress+Hauser InfoServe, La Poste, LB Group, Sabadell Digital, Santander, TATA Projects and Visa. Numerous customers have also gone live with SAP solutions, including: Asahi Kasei Corporation, Coca-ColaHBC, Falabella Financiero, González Byass, Fujitsu,NTT, and OMV.

In the second quarter, SAP's cloud revenue performance was strong across all regions. Germany, Brazil and India had outstanding cloud revenue growth while the United States, the Netherlands, France, China and Chile performed particularly strong.

On April 26, 2023, SAP and HP Inc. announced an expansion of its strategic relationship as HP invested in the RISE with SAPsolution to support its focus on driving digital transformation, portfolio optimization and operational efficiency. The software will provide a platform for combining hardware, software and services to deliver flexible workforce solutions.

On May 11, SAP and Google Cloud announced an extensive expansion of their partnership, introducing a comprehensive open data offering designed to simplify data landscapes and unleash the power of business data.

On May 11, SAP also announced that the Annual General Meeting of Shareholders of SAP SE elected Dr. h.c. Punit Renjen as new member of the company's Supervisory Board and designated successor to Prof. Dr. h.c. mult. Hasso Plattner in his role as the Chairman of the Supervisory Board. In addition, Jennifer Li and Dr. Qi Lu were reelected as members of the Supervisory Board. The AGM also approved all other proposals of the Executive Board and Supervisory Board. That includesthe compensation system for Executive Board members, which incorporates revisions based on shareholder feedback, and the approval to buy back treasury shares. Furthermore, the dividend proposal of €2.05 per share for fiscal year 2022 was approved.

On May 15, SAP announced the next step in its long-standing partnership with Microsoft, using the latest in enterprise-ready generative AI innovation to help solve customers' most fundamental business challenges. The companies will collaborate on integrating SAP SuccessFactors solutions with Microsoft 365 Copilot and Copilot in Viva Learning, as well as Microsoft's Azure OpenAI Service to access powerful language models that analyze and generate natural language.

On May 16, SAP announced a new share repurchase program with a volume of up to €5 billion. The program is scheduled tostart in the second half of 2023 and is expected to be fully executed by the end of 2025.

SAP advances vision of Business Artificial Intelligence (AI)

On May 2, SAP and IBM announced that IBM Watson technology will be embedded into a broad range of SAP solutions to provide new AI-driven insights and automation to help accelerate innovation and create more efficient and effective user experiences across the SAP application portfolio.

On July 11, Sapphire Ventures announced that it is deepening its commitment to AI by investing more than US$1 billion in AI-powered enterprise technology startups, including those specializing in generative AI. The commitment builds on

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SAP Quarterly Statement Q2 2023

Sapphire's history of investing in and scaling enterprise AI startups and will focus on all areas of the emerging AI tech stack including foundation models, enablers and middleware, and next-gen AI applications.

On July 18, SAP announced the next step in its commitment to deliver Business AI that is relevant, reliable, and responsible with strategic direct investments in three leading generative AI companies. The investments in Aleph Alpha, Anthropic and Cohere reinforce SAP's open ecosystem approach to AI, leveraging the best technology to embed AI across SAP's portfolio. They build on a series of AI partnerships and enterprise use cases announced in May and complement the above- mentioned commitment from Sapphire Ventures.

Segment Results at a Glance

SAP's reportable segment showed the following performance:

Applications, Technology & Services1				Q2 2023
€ million, unless otherwise stated	Actual		∆ in %	∆ in %
(Non-IFRS)	Currency		Constant Currency
Cloud revenue - SaaS2	2,325		20	23
Cloud revenue - PaaS3	521	42	45
Cloud revenue - IaaS4	191		-23	-21
Cloud revenue	3,037	19	22
Cloud gross profit - SaaS2	1,620	21	25
Cloud gross profit - PaaS3	437	47	50
Cloud gross profit - IaaS4	70		-35	-36
Cloud gross profit	2,127	22	25
Segment revenue	7,269	5	7
Segment profit (loss)	2,346	22	26
Segment margin (in %)	32.3		4.6pp	4.9pp

1. Segment information for comparative prior periods were restated to conform with the new segment composition.
2. Software as a service
3. Platform as a service
4. Infrastructure as a service

In the second quarter, segment revenue in AT&S was up 5% to €7.27 billion and up 7% at constant currencies, primarily due to rapid cloud revenue growth, which was supported by SAP S/4HANA as well as Business Technology Platform. Operating Expenses of the segment decreased by 2% and remained flat at constant currencies, resulting in a segment margin of 32.3% and 32.6% at constant currencies. This implies a growth of 4.6 percentage points and 4.9 percentage points at constant currencies compared to the second quarter of the prior year.

Cloud Performance

				Q2 2023			Q1-Q2 2023
€ millions, unless otherwise stated	Actual			∆ in %	Actual		∆ in %
	∆ in %	Constant	∆ in %	Constant
(non-IFRS)	Currency		Currency
		Currency		Currency
Current Cloud Backlog
Total	11,537	21	25	11,537	21	25
Thereof SAP S/4HANA	3,717	65	70	3,717	65	70
Cloud Revenue
SaaS1	2,604	19	22	5,099	22	22
PaaS2	521	42	45	1,003	45	45
IaaS3	191		-23	-21	391	-18	-17
Total	3,316	19	22	6,493	21	22
Thereof SAP S/4HANA	823	74	79	1,539	76	77

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