Currency Effects on SAP’s Revenue and Operating Profit (Webmessage)

June 21, 2011 by SAP News

WALLDORF, GermanySAP reports its financial results in accordance with IFRS and additionally discloses certain financial results on a non-IFRS basis (see our Webmessage dated May 17, 2011 (At a Glance: SAP’s Non-IFRS Financial Measures) for more information on our non-IFRS measures). Certain non-IFRS measures (for example non-IFRS revenue, non-IFRS operating profit and non-IFRS operating margin) are provided both, on a nominal currency basis (as reported basis) and on a constant currency basis.

Why does SAP provide constant currency period-over-period numbers?
A significant portion of our revenue and expense is denominated in currencies other than the Euro. Therefore, fluctuations in the exchange rate between the Euro and other currencies to which we are exposed affect our business, financial position, profit and cash flows. Approximately 67%, 64% and 64% of our total revenue in 2010, 2009 and 2008, respectively, was attributable to operations in countries that use currencies other than the Euro. As a result, we translate those revenues into Euros for financial reporting purposes. SAP provides constant currency period-over-period information about our revenue and various values and components relating to operating profit to enable investors to break down period over period changes in our revenue and profit numbers into volume and currency related components.

How does SAP calculate constant currency numbers?
It is a two step process to get from our IFRS numbers to our constant currency non-IFRS numbers:
Step 1: We eliminate certain effects from our IFRS numbers (see a description of these adjustments in our ‘Explanation of non-IFRS Measures’ which is available at ‘http://www.sap.com/investor for more details on these eliminations). The resulting figures are our non-IFRS numbers.
Step 2: We then adjust those non-IFRS numbers by eliminating currency effects. The result is our non-IFRS constant currency financial measures,

The elimination of currency effects is achieved by translating foreign currencies using the average exchange rates from the previous year’s period (i.e. quarter) instead of the current year.

SAP’s guidance format – based on constant currencies
SAP provides a yearly outlook, which is based on non-IFRS at constant currencies. We provide guidance on a non-IFRS constant currency basis because these numbers are used as a basis for SAP’s internal management reporting as well. In addition, we provide guidance at constant currencies since we cannot influence currency movements, and it helps prevent frequent changes in guidance due to fluctuations in currency.

Currency impact on past performance
Historically, every 1% impact on total revenue resulting from foreign currency movements has resulted in a 10-15 basis point movement in margin.*

* Currency impacts on past performance are not a prediction of future performance resulting from currency impacts.

Currency overview on the major currencies for Q2 2010

Currency 2010 Q2*
USD per € 1.27
GBP per € 0.85
JPY per € 117.38
CHF per € 1.41
CAD per € 1.31
AUD per € 1.44

* These exchange rates are rates SAP used in its financial statements

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