Double-Digit Growth Continues in a Challenging Market – SAP Driving the Transition to the Cloud and Gaining Market Share

Walldorf, Germany — SAP AG (NYSE: SAP) today announced its financial results for the second quarter and first half ended June 30, 2013.

• Three Years of Double-Digit Growth – Second Quarter 2013 Non-IFRS Software and Software-Related Service Revenue Increased 10% at Constant Currencies (7% at Actual Currencies to €3.35 Billion)
• Second Quarter 2013 Non-IFRS Software and Cloud Subscription Revenue Increased 7% at Constant Currencies (3% at Actual Currencies to €1.17 Billion)
• Triple-Digit Year-Over-Year Growth in Cloud Subscription and Support Revenue, Annual Cloud Revenue Run Rate Exceeded €930 Million
• Expanding Leadership in In-Memory Computing with SAP HANA
• Second Quarter 2013 Non-IFRS Operating Profit Reached €1.22 Billion, a 10% Increase at Constant Currencies (4% at Actual Currencies)
• SAP Reaffirms Non-IFRS Operating Profit Outlook and Remains Committed to Be a Double-Digit Growth Company with an Increase of at Least 10% in Non-IFRS Software and Software-Related Service Revenue at Constant Currencies in 2013

BUSINESS HIGHLIGHTS IN THE SECOND QUARTER 2013
“The industry transformation we predicted back in 2010 is now happening at full speed and our strategy of innovation for growth is paying off,” said Bill McDermott and Jim Hagemann Snabe, Co-CEOs of SAP. “We continued our double-digit growth momentum, we are leading the transformation of the industry, and our market opportunity is bigger than ever. We are gaining market share in a challenging macroeconomic environment, and with the HANA Enterprise Cloud, we are resolute to capture the future as the cloud company.”

“SAP had a solid overall performance in the second quarter. We remained focused on operating discipline, resulting in double-digit growth in non-IFRS operating profit at constant currencies. We improved the profitability of our core business and see good traction in the cloud on our way towards building a profitable cloud business”, said Werner Brandt, CFO of SAP. “We reaffirm our full year 2013 Non-IFRS operating profit outlook and remain committed to double-digit topline growth despite a difficult macroeconomic environment, in particular in Asia Pacific Japan and the rapid transition to the cloud.”

Second quarter non-IFRS cloud subscription and support revenue increased 166% (171% at constant currencies) year-over-year to €183 million. SAP’s non-IFRS cloud subscription and support revenue in the second quarter outperformed many cloud competitors on a sequential quarterly growth basis. The annual cloud revenue run rate has now reached €932 million¹. With approximately 30 million cloud users, SAP has the largest subscriber base in the cloud market. Non-IFRS deferred cloud subscription and support revenue² was €361 million as of June 30, 2013, a year-over-year increase of 68%. The Ariba business is showing accelerated synergies. For the Ariba segment the trailing twelve month network spend volume³ was approximately $465 billion, an increase of 27% year-over-year. More than 1.1 million companies are connected through the Ariba network, the world’s largest Web-based business trading community.

SAP HANA, the Company’s platform for real-time business applications, continues to be a major growth engine with €102 million software revenue contribution, growing 21% year-on-year. The Company continues to expect HANA software revenue of €650 – €700 million in 2013. Customers have already shown strong interest in SAP Business Suite powered by SAP HANA which was made generally available in May and – together with HANA Enterprise Cloud – is expected to drive adoption of the HANA platform.

SAP’s double-digit growth momentum continued in the second quarter with Non-IFRS software and software-related service revenue increasing 10% at constant currencies (7% at actual currencies to €3.35 billion). Non-IFRS software and cloud subscription revenue in the quarter increased 7% at constant currencies (3% at actual currencies to €1.17 billion). Non-IFRS operating profit reached €1.22 billion in quarter, a 10% increase at constant currencies (4% at actual currencies), resulting in a 60 basis points expansion of the non-IFRS operating margin at constant currencies despite a negative effect from the Ariba acquisition of 40 basis points. The margin performance demonstrates that the efficiency in SAP’s core business has further improved.

Regional Performance

Second Quarter 2013
The Americas region delivered a strong second quarter in non-IFRS software and cloud subscription revenue⁴ with 18% growth year-over-year, driven by excellent software revenue performance in Latin America – in particular Brazil – and strong cloud subscription and support revenue growth in North America. The EMEA region saw solid growth with non-IFRS software and cloud subscription revenue increasing 3% year-over-year, despite a continued difficult market environment and a tough year-over-year comparison. High single-digit software revenue growth in Germany contributed to this performance. Non-IFRS software and cloud subscription revenue in the Asia Pacific Japan (APJ) region declined 7%, mainly due to continued macroeconomic challenges. However, some markets in APJ, such as Southeast Asia and India, saw strong growth in software revenue.

¹⁾The annual revenue run rate is the second quarter 2013 cloud division revenue of €233 million multiplied by 4.
²⁾Beginning in Q1 2013, SAP discloses non-IFRS deferred cloud subscription and support revenue, which is a subset of the total, non-IFRS deferred revenue number reported on the balance sheet.
³⁾Network spend volume is the total value of purchase orders transacted on the Ariba Network in the trailing 12 months.
⁴⁾Non-IFRS software and cloud subscription revenue in the regional paragraphs follow SAP’s management view, which is calculated as the combination of software revenue based on location of negotiation and cloud subscription and support revenue based on customer location; growth rates at constant currencies. See SAP’s second quarter and half year interim report for details.

First Half 2013
The Americas region delivered a strong first half in non-IFRS software and cloud subscription revenue with 29% growth year-over-year, driven by a very strong performance in the United States and Brazil. The EMEA region saw solid growth with non-IFRS software and cloud subscription revenue increasing 8% for the first half of 2013 which is an impressive result in light of continued market uncertainty. Non-IFRS software and cloud subscriptions revenue in the APJ region declined 7% in the first half of 2013.

FINANCIAL RESULTS IN DETAIL

FINANCIAL HIGHLIGHTS – Second Quarter 2013

Second Quarter 20131)
	IFRS			Non-IFRS2)
€ million, unless otherwise stated	Q2 2013	Q2 2012	% change	Q2 2013	Q2 2012	% change	% change const. curr.
Software	982	1,059	-7	982	1,059	-7	-3
Cloud subscriptions and support	159	52	206	183	69	166	171
Software and cloud subscriptions	1,141	1,110	3	1,165	1,127	3	7
Support	2,177	2,013	8	2,182	2,014	8	11
Software and software-related service revenue	3,318	3,124	6	3,347	3,142	7	10
Total revenue	4,062	3,898	4	4,091	3,916	4	8
Total operating expenses	-3,074	-2,977	3	-2,873	-2,743	5	7
Operating profit	988	921	7	1,219	1,173	4	10
Operating margin (%)	24.3	23.6	0.7pp	29.8	30.0	-0.2pp	0.6pp
Profit after tax	724	661	10	874	831	5
Basic earnings per share (€)	0.61	0.55	11	0.73	0.70	4
Number of employees (FTE)	64,937	60,972	7	N/A	N/A	N/A	N/A
1)All figures are unaudited.
2)For a detailed description of SAP’s non-IFRS measures see Explanation of Non-IFRS Measures online. For a breakdown of the individual adjustments see page F8 in the appendix to this press release.

IFRS and non-IFRS software revenue was €982 million (2012: €1.06 billion), a decrease of 7% (3% at constant currencies). IFRS software and cloud subscription revenue was €1.14 billion (2012: €1.11 billion), an increase of 3%. Non-IFRS software and cloud subscription revenue was €1.17 billion (2012: €1.13 billion), an increase of 3% (7% at constant currencies). IFRS software and software-related service revenue was €3.32 billion (2012: €3.12 billion), an increase of 6%. Non-IFRS software and software-related service revenue was €3.35 billion (2012: €3.14 billion), an increase of 7% (10% at constant currencies). IFRS total revenue was €4.06 billion (2012: €3.90 billion), an increase of 4%. Non-IFRS total revenue was €4.09 billion (2012: €3.92 billion), an increase of 4% (8% at constant currencies).

IFRS operating profit was €988 million (2012: €921 million), an increase of 7%. Non-IFRS operating profit was €1.22 billion (2012: €1.17 billion), an increase of 4% (10% at constant currencies). IFRS operating margin was 24.3% (2012: 23.6%), an increase of 0.7 percentage points. Non-IFRS operating margin was 29.8% (2012: 30.0%), a decrease of 0.2 percentage points. Non-IFRS operating margin was 30.6% at constant currencies, an increase of 0.6 percentage points. Non-IFRS operating profit and operating margin for the second quarter 2013 were affected by the acquisition of Ariba, which impacted the operating margin by approximately 40 basis points.

IFRS profit after tax was €724 million (2012: €661 million), an increase of 10%. Non-IFRS profit after tax was €874 million (2012: €831 million), an increase of 5%. IFRS basic earnings per share was €0.61 (2012: €0.55), an increase of 11%. Non-IFRS basic earnings per share was €0.73 (2012: €0.70), an increase of 4%. The IFRS and non-IFRS effective tax rates were 24.8% (2012: 23.6%) and 26.8% (2012: 25.6%), respectively.

FINANCIAL HIGHLIGHTS – First Half 2013

First-Half 20131)
	IFRS			Non-IFRS2)
€ million, unless otherwise stated	1H 2013	1H 2012	% change	1H 2013	1H 2012	% change	% change const. curr.
Software	1,638	1,696	-3	1,638	1,696	-3	0
Cloud subscriptions and support	296	81	266	350	104	238	243
Software and cloud subscriptions	1,935	1,777	9	1,989	1,799	11	14
Support	4,286	3,966	8	4,295	3,968	8	11
Software and software-related service revenue	6,220	5,743	8	6,284	5,768	9	12
Total revenue	7,663	7,248	6	7,727	7,273	6	9
Total operating expenses	-6,029	-5,696	6	-5,607	-5,266	6	8
Operating profit	1,634	1,551	5	2,120	2,007	6	11
Operating margin (%)	21.3	21.4	-0.1pp	27.4	27.6	-0.2pp	0.4pp
Profit after tax	1,244	1,104	13	1,563	1,414	11
Basic earnings per share (€)	1.04	0.93	12	1.31	1.19	10
Number of employees (FTE)	64,937	60,972	7	N/A	N/A	N/A	N/A
1) All figures are unaudited.
2) For a detailed description of SAP’s non-IFRS measures see Explanation of Non-IFRS Measures online. For a breakdown of the individual adjustments see page F8 in the appendix to this press release.

IFRS and non-IFRS software revenue was €1.64 billion (2012: €1.70 billion), a decrease of 3%, (flat at constant currencies). IFRS software and cloud subscription revenue was €1.94 billion (2012: €1.78 billion), an increase of 9%. Non-IFRS software and cloud subscription revenue was €1.99 billion (2012: €1.80 billion), an increase of 11% (14% at constant currencies). IFRS software and software-related service revenue was €6.22 billion (2012: €5.74 billion), an increase of 8%. Non-IFRS software and software-related service revenue was €6.28 billion (2012: €5.77 billion), an increase of 9% (12% at constant currencies). IFRS total revenue was €7.66 billion (2012: €7.25 billion), an increase of 6%. Non-IFRS total revenue was €7.73 billion (2012: €7.27 billion), an increase of 6% (9% at constant currencies).

IFRS operating profit was €1.63 billion (2012: €1.55 billion), an increase of 5%. Non-IFRS operating profit was €2.12 billion (2012: €2.01 billion), an increase of 6% (11% at constant currencies). IFRS operating margin was 21.3% (2012: 21.4%), a decrease of 0.1 percentage points. Non-IFRS operating margin was 27.4% (2012: 27.6%), a decrease of 0.2 percentage points. Non-IFRS operating margin was 28.0% at constant currencies, an increase of 0.4 percentage points.

IFRS profit after tax was €1.24 billion (2012: €1.10 billion), an increase of 13%. Non-IFRS profit after tax was €1.56 billion (2012: €1.41 billion), an increase of 11%. IFRS basic earnings per share was €1.04 (2012: €0.93), an increase of 12%. Non-IFRS basic earnings per share was €1.31 (2012: €1.19), an increase of 10%. The IFRS and non-IFRS effective tax rates were 21.5% (2012: 25.0%) and 24.5% (2012: 26.7%), respectively.

Operating cash flow was €2.48 billion (2012: €2.40 billion), an increase of 3%. Free cash flow was €2.22 billion (2012: €2.13 billion), an increase of 4%. Free cash flow was 29% of total revenue (2012: 29%). At June 30, 2013, SAP had a total group liquidity of €3.53 billion (December 31, 2012: €2.49 billion), which includes cash and cash equivalents and short term investments. Net liquidity at June 30, 2013 was -€1.49 billion compared to -€2.50 billion at December 31, 2012.

BUSINESS OUTLOOK
SAP reaffirms its full year 2013 non-IFRS operating profit outlook to be in a range of €5.85 billion – €5.95 billion at constant currencies (2012: €5.21 billion). Although the difficult macroeconomic environment in particular in Asia Pacific Japan and the rapid transition to the cloud have resulted in lower software revenue expectations, SAP remains committed to be a double-digit growth company with at least 10% growth in non-IFRS software and software-related service revenue at constant currencies in full year 2013 (2012: €13.25 billion). This replaces the previous growth outlook for non-IFRS software and software-related service revenue of 11% – 13% at constant currencies and the underlying guidance for software and cloud subscription revenue.

In addition, SAP reaffirms its outlook for the fast-growing innovation categories cloud and in-memory. The company continues to expect full year 2013 non-IFRS cloud subscription and support revenue of around €750 million at constant currencies (2012: €343 million) and full year 2013 SAP HANA software revenue in a range of €650 – €700 million (2012: €392 million).

The Company now projects a full-year 2013 IFRS effective tax rate of 24.0% – 25.0% (previously 25.5% – 26.5%) (2012: 26.2%) and a non-IFRS effective tax rate of 25.5% – 26.5% (previously 27.0% – 28.0%) (2012: 27.5%).

Additional Information
2013 revenue and profit figures include the revenue and profits from Ariba and SuccessFactors. The comparative numbers for 2012 do not include SuccessFactors until February 21, 2012 and Ariba until October 1, 2012.

For a more detailed description of all of SAP’s non-IFRS measures and their limitations as well as our constant currency and free cash flow figures see Explanation of Non-IFRS Measures online.

 

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Second Quarter 2013 Interim Report
SAP’s second quarter 2013 Interim Report was published today and is available for download at www.sap.com/investor. The interim report includes an update on SAP’s sustainability performance.

Webcast
SAP senior management will host a conference call for financial analysts and media on Thursday, July 18th at 2:00 PM (CEST) / 1:00 PM (GMT) / 8:00 AM (EDT) / 5:00 AM (PDT). The conference call will be web cast live on the Company’s website at www.sap.com/investor and will be available for replay.

About SAP
As market leader in enterprise application software, SAP (NYSE: SAP) helps companies of all sizes and industries run better. From back office to boardroom, warehouse to storefront, desktop to mobile device – SAP empowers people and organizations to work together more efficiently and use business insight more effectively to stay ahead of the competition. SAP applications and services enable more than 248,500 customers to operate profitably, adapt continuously, and grow sustainably. For more information, visit www.sap.com.

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Appendix – Financial Information to Follow