SAP SE — Interim / Quarterly Report 2016

Jul 20, 2016

Second Quarter and Half Year 2016 Results

Wednesday, July 20, 2016

Safe Harbor Statement

Any statements contained in this document that are not historical facts are forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. Words such as "anticipate," "believe," "estimate," "expect," "forecast," "intend," "may," "plan," "project," "predict," "should" and "will" and similar expressions as they relate to SAP are intended to identify such forward-looking statements. SAP undertakes no obligation to publicly update or revise any forward-looking statements. All forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. The factors that could affect SAP's future financial results are discussed more fully in SAP's filings with the U.S. Securities and Exchange Commission ("SEC"), including SAP's most recent Annual Report on Form 20-F filed with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates.

Income Statement

Balance Sheet and Cash Flow Analysis Outlook and Additional Information Appendix

Key performance metrics Q2 2016

Key performance metrics H1 2016

Regional performance1) Q2 2016

Americas

cloud subscriptions and support revenue

• North America delivered a solid Q2/16; back on track with its half year performance
• In Latin America, the political and macroeconomic instability continued. However, SAP had strong double-digit growth in software license revenue in Brazil and Mexico.

EMEA 7% (+11% cc) cloud and software revenue 38% (+41% cc)

cloud subscriptions and support revenue

• Q2/16 results were not impacted by the UK referendum
• Strong double-digit software licenses revenue growth in France, the Netherlands, Switzerland, across Southern Europe; again solid performance in Germany
• Russia and Germany: very strong double-digit growth in cloud

APJ 7% (+9% cc)

cloud and software revenue 44% (+47% cc)

cloud subscriptions and support revenue

• Strong double-digit software licenses revenue growth in China and India, whereas Japan had almost triple-digit growth.
• All three countries also had double-digit growth in cloud subscriptions and support revenue

Strong momentum in the cloud continued

• 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, 2015)
• 3) Network spend volume is the total value of purchase orders transacted on the Ariba Networks in the trailing 12 months.

© 2016 SAP SE. All rights reserved. 77

Q2 2016 – Accelerated growth in operating profit while investing in fast growth areas

$\epsilon$ millions, unless otherwise stated		IFRS			Non-IFRS
Revenue Numbers	Q2/16	Q2/15	$\Delta\%$	Q2/16	Q2/15	$\Delta\%$	$\Delta\%$ at cc
Cloud subscriptions and support	720	552	30	721	555	30	33
Software licenses	1,040	979	6	1,042	979	6	10
Software support	2,598	2,531	3	2,598	2,531	3	6
Software licenses and support	3,639	3,510	4	3,640	3,510	4	$\overline{7}$
Cloud and software	4,359	4,062	7	4,361	4,065	7	11
Services revenue	878	908	$-3$	878	908	$-3$	$\overline{0}$
Total revenue	5,237	4,970	5	5,239	4,972	5	9
Operating Expense Numbers
Total operating expenses	$-3,968$	$-4,269$	$-7$	$-3,724$	$-3,578$	$\overline{4}$	8
Profit Numbers
Operating profit	1,269	701	81	1,516	1,394	9	11
Finance income, net	$-23$	$-11$	$>100$	$-23$	$-11$	$>100$
Profit before tax	1,144	637	80	1,391	1,330	5
Income tax expense	$-331$	$-168$	97	$-412$	$-369$	11
Profit after tax	813	469	73	979	960	$\overline{2}$
Operating margin in %	24.2	14.1	$+10.1$ pp	28.9	28.0	$+0.9$ pp	$+0.5$ pp
Basic earnings per share, in $\epsilon$	0.68	0.39	73	0.82	0.80	$\overline{2}$

H1 2016 – Strong top line and bottom line growth

$\epsilon$ millions, unless otherwise stated		IFRS			Non-IFRS
Revenue Numbers	H1/16	H1/15	$\Delta\%$	H1/16	H1/15	$\Delta\%$	$\Delta\%$ at cc
Cloud subscriptions and support	1,397	1,056	32	1,399	1,063	32	33
Software licenses	1,649	1,675	$-2$	1,651	1,675	$-1$	$\mathbf{2}$
Software support	5,162	4,985	4	5,163	4,985	4	5
Software licenses and support	6,811	6,660	$\overline{2}$	6,813	6,660	$\overline{2}$	$\overline{4}$
Cloud and software	8,208	7,715	6	8,212	7,723	6	8
Services revenue	1,755	1,751	0	1,755	1,751	$\overline{0}$	3
Total revenue	9,964	9,467	5	9,967	9,475	5	$\overline{7}$
Operating Expense Numbers
Total operating expenses	$-7,882$	$-8,128$	$-3$	$-7,348$	$-7,024$	5	7
Profit Numbers
Operating profit	2,082	1,339	56	2,620	2,451	$\overline{7}$	8
Finance income, net	-59	$-22$	$>100$	-59	$-22$	$>100$
Profit before tax	1,887	1,115	69	2,425	2,227	9
Income tax expense	$-504$	$-233$	$>100$	$-683$	$-571$	20
Profit after tax	1,382	882	57	1,742	1,657	5
Operating margin in %	20.9	14.1	$+6.8$ pp	26.3	25.9	$+0.4$ pp	$+0.1$ pp
Basic earnings per share, in $\epsilon$	1.16	0.74	57	1.46	1.39	5

Non-IFRS operating profit increased by 11% at cc in Q2 2016

Non-IFRS operating profit increased by 8% at cc in H1 2016

Gross margin development Q2 2016

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

Revenue mix shift weighs on ATS and cloud gross margins

• Continued fast growth in cloud while investing in personnel and moving our acquired cloud applications onto SAP HANA – cloud margin decreased to 65.2%
• Cloud margin business network cloud margin increased to 76.3% and ATS cloud margin was stable at 51.5%
• Revenue mix shift effect within ATS accelerated growth in private cloud business weighs on ATS margin since private cloud margin is still negative; expected to be break even by year end
• Revenue mix shift effect within cloud business higher share of ATS segment of total cloud business weighs on cloud margin, which is expected to be stable for FY
• Revenue mix shift effect within cloud and software cloud and software margin increased to 83.7%; Strong performance in core business overcompensated the mix shift effect usually seen from our cloud business on the cloud and software margin

* Cloud subscriptions revenue share of cloud and software revenue

Cost ratios Q2 2016

€5,2bn total revenue

Cost ratios H1 2016

€10.0bn total revenue

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

Balance sheet, condensed June 30, 2016, IFRS

Assets € millions	06/30/16	12/31/15
Cash, cash equivalents and other financial assets	4,591	3,762
Trade and other receivables	5,025	5,275
Other non-financial assets and tax assets	932	703
Total current assets	10,549	9,739
Goodwill	22,354	22,689
Intangible assets	3,884	4,280
Property, plant, and equipment	2,284	2,192
Other non-current assets	2,718	2,490
Total non-current assets	31,239	31,651
Total assets	41,788	41,390

Equity and liabilities € millions	06/30/16	12/31/15
Trade and other payables	1,047	1,088
Provisions	191	299
Other liabilities	2,865	4,478
Deferred income, current	4,470	2,001
Total current liabilities	8,574	7,867
Financial liabilities	8,705	8,681
Provisions	201	180
Deferred income, non-current	106	106
Other non-current liabilities	1,238	1,262
Total non-current liabilities	10,250	10,228
Total liabilities	18,824	18,095
Total equity	22,963	23,295
Total equity and liabilities	41,788	41,390

Operating cash flow increased by 5% to €2.9 billion in H1 2016 and by 7% to €0.4 billion in Q2 2016

€ millions, unless otherwise stated	01/01/16 - 06/30/16	01/01/15 - 06/30/15	∆
Operating cash flow	2,921	2,775	+5%
- Capital expenditure	-406	-276	+47%
Free cash flow	2,516	2,500	+1%
Free cash flow as a percentage of total revenue	25%	26%	-1pp
Cash conversion rate	2.11	3.15	-33%
Days sales outstanding (DSO in days)	73	68	+5

Total group liquidity improved by almost €0.8bn in the first six months

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 2015 annual report

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

Outlook for FY 2016

	Cloud subscriptions and support revenue (Non-IFRS at cc)	Cloud and software revenue (Non-IFRS at cc)	Operating profit (Non-IFRS at cc)
SAP's outlook FY 2016	€2.95bn to €3.05bn upper end +33% [2015: €2.30bn]	+6% to 8% [ 2015: €17.23bn]	€6.4bn to €6.7bn [ 2015: €6.35bn]
Actual performance H1/16	€1.4bn +33%	+8%	€2.6bn +8%

While the Company's full-year 2016 business outlook is at constant currencies, actual currency reported figures are expected to continue to be impacted by exchange rate fluctuations. If exchange rates remain at the end of June 2016 levels for the rest of the year, the Company expects its non-IFRS cloud and software revenue growth rate as well as its non-IFRS operating profit growth rate to experience a currency impact in a range of -1 to +1 percentage points for the third quarter 2016 (-2 to 0 percentage points for the full year 2016).

Additional outlook information and non-IFRS adjustments

The company now expects a full-year 2016 effective tax rate (IFRS) between 27.0% to 28.0% (2015: 23.4%) and an effective tax rate (non-IFRS) between 28.0% to 29.0% (2015: 26.1%).

Non-IFRS adjustments	Actual Amounts H1/15	Actual Amounts H1/16	Est. Amounts for FY 2016
Revenue adjustments	€8m	€4m	<€20m
Share-based payment expenses	€314m	€177m	€560m to €610m
Acquisition-related charges	€371m	€336m	€680m to €730m
Restructuring charges	€418m	€22m	€30m to €50m
Sum of all adjustments	€1,112m	€538m	€1,290m to €1,410m

Explanation of non-IFRS measures

SAP has provided its non-IFRS estimates for the full-year 2016. 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 Non-IFRS Measures and Estimates online.

Constant currency revenue figures are calculated by translating revenue of the current period using the average exchange rates from the previous year's respective period instead of the current period. Constant currency period-over-period changes are calculated by comparing the current year's non-IFRS constant currency numbers with the non-IFRS number of the previous year's respective period.

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

SAP's midterm ambition

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

Key measures of cloud subscription deals

SAP's fast growing cloud business changes the revenue mix Driving a higher share of more predictable revenue*