SAP SE — Earnings Release 2016

Jan 24, 2017

Fourth-Quarter and Full-Year 2016 Preliminary Results Release

Walldorf, Germany Tuesday, January 24, 2017

SAP: Fast-Growth Company

SAP Digital Business Framework

Customer-Driven Innovations

© 2017 SAP SE Investor Relations. All rights reserved. 6

SAP: Helping the world run better and improving people's lives

Strong results & higher share of more predictable revenue

• Operating cash flow stellar: Up 152% to €1bn in Q4 and up 27% to €4.6bn in FY
• Growing share of more predictable revenue by 2pp to 61%

Strong 2016: Cloud and software above midpoint of raised guidance

Cloud

• Cloud subscriptions and support: €2.99bn in FY; +31% @cc to €3.01bn @cc
• New cloud bookings: +40% in Q4; +31% in FY
• Cloud backlog: €5.4bn; +47%

Core

Software license +1% @cc on back of strong 2015

Resilient support growth +6% @cc with continued very high renewal rates

Unique combination of software and support growth of +4% @cc

+

Cloud and software revenue

+7% to €18.43bn (+8% @cc) in FY

All revenue figures are non-IFRS

Regional performance* Q4 2016

Americas

26% (+26% cc) 26% (+24% cc) Q4/16 FY/16

Cloud subscriptions and support revenue

5% (+2% cc) 6% (+6% cc) Cloud and software revenue

SAP had strong double-digit growth in software licenses revenue in Mexico

EMEA 38% (+41% cc) Cloud subscriptions and support revenue 35% (+37% cc) Q4/16 FY/16

9% (+10% cc) 7% (+10% cc) Cloud and software revenue

Double-digit software licenses revenue growth in Germany and UK

	APJ
Q4/16	FY/16
54% (+48% cc)	44% (+43% cc)
	Cloud subscriptions and support revenue

9% (+5% cc) 8% (+6% cc) Cloud and software revenue

Double-digit software licenses revenue growth in China, India and Japan

* Revenues calculated based on customer location; All numbers are non-IFRS unless otherwise stated

Revenue mix shift weighs on gross margin

* Cloud subscriptions revenue share of cloud and software revenue

Expanding operating profit which drives operating cash flow

• Operating profit was up 4% to €6.6bn or at the midpoint of our raised guidance range – on top of a significant growth in the previous year
• Continued operating profit expansion despite continuous investments in innovation and highgrowth areas for our transformation which already pay off
• Operating margin (29.7%/-80bps) revenue mix shift effect as well as decrease in services margin weighs on our group profitability in the near term
• Strong operating cash flow of €1bn in Q4 led to strong 2016 – growing by 27% to €4.6bn

All numbers non-IFRS at constant currencies unless otherwise stated Non-IFRS at actual currencies

Continued strong momentum reflected in 2017 outlook and increased 2020 ambition

• Cloud Subscription Revenue €2.99bn
• Cloud and Software Revenue €18.43bn
• Total Revenue €22.07bn

• Operating Profit €6.63bn

• Cloud Subscription Revenue in a range of €3.8 – 4.0bn. Upper end represents a growth rate of 34%

• Cloud and Software Revenue to increase by +6% to +8%
• Total Revenue to increase to €23.2 – 23.6bn

• Operating Profit to increase to €6.8 – 7.0bn

• Cloud Subscription Revenue in a range of €8.0 – 8.5bn

• Total Revenue in a range of €28.0 – 29.0bn
• Operating Profit in a range of €8.5 – 9.0bn
• Support + cloud subs share of revenue 70% to 75%

Fourth-Quarter and Full-Year 2016 Preliminary Results Release

Walldorf, Germany Tuesday, January 24, 2017

Fourth-Quarter and Full-Year 2016 Preliminary Results Release Appendix

Fast growing cloud business

Q4/16 unless otherwise stated

Cloud subscriptions and support revenue, non-IFRS (+29% at cc) +31% yoy to €827m	New cloud bookings1) (+37% at cc ) +40% to €483m	Cloud subscriptions and support backlog2) €5.4bn +47% yoy	Cloud applications total subscribers ~125m
SAP Business network – Segment revenue* (€419m +18% at cc) €429m yoy +21%	~2.5m connected companies trade on Ariba network >\$885bn of commerce3)	Number of end users processing travel & expenses with Concur >45m	Flexible workers managed with Fieldglass platform >3.1m annually

• 1) New cloud bookings key measure for SAP's sales success in the cloud consist of order entry of a given period that is expected to be classified as cloud subscription and support revenue and results from purchases by new customers and from incremental purchases by existing customers. Consequently, orders to renew existing contracts are not included. The order amount must be committed. Consequently, due to their pay-per-use nature, business network transaction fees which do not include a committed minimum consumption are not reflected in the bookings metric (e.g. SAP Ariba and SAP Fieldglass transaction-based fees). Amounts included in the measures are generally annualized.
• 2) Cloud subscriptions and support backlog represents expected future cloud subscriptions and support revenue that is contracted but not yet invoiced and thus not recorded in deferred revenue (as of Dec 31, 2016)
• 3) Network spend volume is the total value of purchase orders transacted on the Ariba Networks in the trailing 12 months.

* Cloud subscriptions and support revenue

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Gross margin development Q4 2016

Non-IFRS	FY/14	Q1/15	Q2/15	Q3/15	Q4/15	FY/15	Q1/16	Q2/16	Q3/16	Q4/16	FY/16
Cloud*	64.3	65.1	65.7	68.8	63.0	65.6	66.3	65.2	64.9	63.1	64.8
Business Network*	75.2	75.1	74.8	77.3	72.3	74.9	75.3	76.3	76.8	75.3	75.9
Software & Support	86.3	85.1	86.1	86.7	87.7	86.6	85.9	87.4	87.4	88.5	87.4
Cloud & Software	84.6	82.3	83.3	84.1	84.8	83.8	82.4	83.7	83.5	84.8	83.7
Services	29.0	19.6	23.4	23.4	24.3	22.7	13.9	17.9	20.5	20.3	18.2
Total gross margin	74.3	70.6	72.4	73.6	75.6	73.3	69.7	72.7	72.7	75.6	72.9

* Subscriptions and support

Q4/16 – Continued operating profit expansion despite ongoing investments in innovation and high-growth areas

$\epsilon$ millions, unless otherwise stated		IFRS			Non-IFRS
Revenue Numbers	Q4/16	Q4/15	$\Delta\%$	Q4/16	Q4/15	$\Delta\%$	$\Delta\%$ at cc
Cloud subscriptions and support	827	631	31	827	632	31	29
Software licenses	2,177	2,146	1	2,177	2,146	1	$\bigcirc$
Software support	2,756	2,600	6	2,756	2,600	6	5
Software licenses and support	4,933	4,745	$\overline{4}$	4,934	4,745	$\overline{4}$	3
Cloud and software	5,760	5,377	7	5,761	5,378	7	6
Services	963	965	$\overline{0}$	963	965	$\Omega$	$-1$
Total revenue	6,724	6,342	6	6,724	6,343	6	5
Operating Expense Numbers
Total operating expenses	$-4,787$	$-4,642$	$\mathcal{S}$	$-4,353$	$-4,061$	$\overline{7}$	7
Profit Numbers
Operating profit	1,936	1,700	14	2,371	2,282	$\overline{4}$	2
Finance income, net	67	$-24$	$< -100$	67	$-24$	$< -100$
Profit before tax	1,949	1,647	18	2,384	2,229	7
Income tax expense	$-438$	$-369$	19	$-565$	$-559$
Profit after tax	1,510	1,278	18	1,818	1,670	9
Operating margin in %	28.8	26.8	2pp	35.3	36.0	$-0,7$ pp	$-0,9pp$
Basic earnings per share, in $\epsilon$	1.26	1.07	18	1.52	1.4	9

FY/16 operating profit at midpoint of raised guidance – up 4% on top of significant 2015 growth and continued investments in 2016

$\epsilon$ millions, unless otherwise stated		IFRS			Non-IFRS
Revenue Numbers	FY/16	FY/15	$\Delta\%$	FY/16	FY/15	$\Delta\%$	$\Delta\%$ at cc
Cloud subscriptions and support	2,993	2,286	31	2,995	2,296	30	31
Software licenses	4,860	4,835	1	4,862	4,836	1	1
Software support	10,571	10,093	5	10,572	10,094	5	6
Software licenses and support	15,431	14,928	3	15,434	14,930	3	$\overline{4}$
Cloud and software	18,424	17,214	7	18,428	17,226	7	8
Services	3,638	3,579	$\overline{2}$	3,638	3,579	$\overline{2}$	$\overline{3}$
Total revenue	22,062	20,793	6	22,067	20,805	6	$\overline{7}$
Operating Expense Numbers
Total operating expenses	$-16,942$	$-16,541$	$\overline{2}$	$-15,438$	$-14,457$	$\overline{7}$	8
Profit Numbers
Operating profit	5,121	4,252	20	6,629	6,348	$\overline{4}$	4
Finance income, net	$-38$	$-5$	$>100$	$-38$	$-5$	$>100$
Profit before tax	4,849	3,991	21	6,357	6,087	4
Income tax expense	$-1,230$	$-935$	32	$-1,707$	$-1,586$	8
Profit after tax	3,618	3,056	18	4,650	4,501	3
Operating margin in %	23.2	20.5	2,8pp	30.0	30.5	$-0,5pp$	$-0,8pp$
Basic earnings per share, in $\epsilon$	3,03	2.56	18	3.89	3.77	3

Balance sheet, condensed December 31, 2016, IFRS

Assets € millions	12/31/16	12/31/15
Cash, cash equivalents and other financial assets	4,826	3,762
Trade and other receivables	5,975	5,274
Other non-financial assets	825	703
Total current assets	11,626	9,739
Goodwill	23,311	22,689
Intangible assets	3,786	4,280
Property, plant, and equipment	2,580	2,192
Other non-current assets	3,051	2,490
Total non-current assets	32,728	31,651
Total assets	44,354	41,390

Equity and liabilities € millions	12/31/16	12/31/15
Trade and other payables	1,290	1,088
Provisions	183	299
Other liabilities	5,829	4,478
Deferred income, current	2,433	2,001
Total current liabilities	9,734	7,867
Financial liabilities	6,481	8,681
Provisions	217	180
Deferred income, non-current	143	106
Other non-current liabilities	1,397	1,262
Total non-current liabilities	8,238	10,228
Total liabilities	17,972	18,095
Total equity	26,382	23,295
Total equity and liabilities	44,354	41,390

Operating cash flow of €1.0 billion in Q4 led to strong operating cash flow for the year – growing by 27% to €4.6 billion

€ millions, unless otherwise stated	01/01/16 – 12/31/16	01/01/15 – 12/31/15	∆
Operating cash flow	4,628	3,638	+27%
- Capital expenditure	-1,001	-636	+57%
Free cash flow	3,627	3,001	+21%
Free cash flow as a percentage of total revenue	16%	14%	+2pp
Cash conversion rate	1.28	1.19	+7%
Days sales outstanding (DSO in days, Sep. 30)	74	71	+3

Net liquidity improved by almost €2.5 billion or 44% in 2016

1) Cash and cash equivalents + current investments

2) Includes purchase and sales of equity or debt instruments of other entities and effects of FX rates on cash and cash equivalents

3) Group Net Liquidity defined as Total Group Liquidity minus Group debt – for more details see 2016 integrated report published end of Feb

Income Statement Balance Sheet and Cash Flow Analysis Outlook and Additional Information Appendix

Additional outlook information and non-IFRS adjustments

The company reported a full-year 2016 effective tax rate (IFRS) of 25.4% (2015: 23.4%) and an effective tax rate (non-IFRS) of 26.9% (2015: 26.1%).

Non-IFRS adjustments	Actual Amounts FY/15	Actual Amounts FY/16	Est. Amounts for FY 2016
Revenue adjustments	€11m	€5m	<€20m
Share-based payment expenses	€724m	€795m	€770m to €840m
Acquisition-related charges	€738m	€680m	€670m to €720m
Restructuring charges	€621m	€28m	€30m to €50m
Sum of all adjustments	€2,084m	€1,504m	€1,490m to €1,630m

FY 2017 – Additional outlook information and non-IFRS adjustments

The company expects a full-year 2017 effective tax rate (IFRS) between 26.0% to 27.0% (2016: 25.4%) and an effective tax rate (non-IFRS) between 27.0% to 28.0% (2016: 26.9%).

IFRS Profit Measure	Actual Amounts FY/2016	Est. Amounts for FY/2017
Revenue adjustments	€5m	<€20m
Share-based payment expenses	€795m	€770m to €1,020m
Acquisition-related charges	€680m	€620m to €650m
Restructuring charges	€28m	€30-50m
Sum of all adjustments	€1,504m	€1,440m to €1,740m

Fourth-Quarter and Full-Year 2016 Preliminary Results Release

Walldorf, Germany Tuesday, January 24, 2017