Business activity gradually improved over the course of the second quarter following the global emergence of the COVID -19 crisis primarily in the last month of the first quarter. Software licenses revenue, while still below normal levels, recovered more than expected. In particular, the APJ region had a strong recovery in software licenses revenue.In the second quarter, current cloud backlog2 was up 20% to €6.65 billion (21% at constant currencies) with continued high demand for digital supply chain, e-commerce, cloud platform and Qualtrics solutions. Cloud revenue was impacted by lower pay-as-you-go transactional revenue as a result of the COVID-19 crisis and grew 21% year over year to €2.04 billion (IFRS), up 19% to €2.04 billion (non-IFRS) and up 18% (non-IFRS at constant currencies). Software licenses revenue was down 18% year over year to €0.77 billion (IFRS and non-IFRS) and down 18% (non-IFRS at constant currencies), a strong sequential im- provement compared to the first quarter. Cloud and software revenue grew 4% year over year to €5.71 billion (IFRS), up 3% to €5.71 billion (non-IFRS) and up 3% (non-IFRS at constant currencies). Total revenue grew 2% year over year to €6.74 billion (IFRS), up 1% to €6.74 billion (non-IFRS) and up 1% (non-IFRS at constant currencies).
The share of more predictable revenue grew by five percentage points year-over-year to 73% in the second quarter. Cloud gross margin increased 3.4 percentage points year over year to 66.0% (IFRS) and increased by 1.6 percentage points year over year to 69.5% (non-IFRS).
IFRS operating profit in the second quarter increased strongly primarily due to a significantly lower impact from restructuring expenses compared to the previous year. Operating profit increased by 55% year over year to €1.28 billion (IFRS) and was up 8% to €1.96 billion (non-IFRS) and up 7% (non-IFRS at constant currencies). Operating margin increased 6.6 percentage points year over year to 19.0% (IFRS) and increased 1.8 percentage points year over year to 29.1% (non-IFRS) and 1.7 percent- age points to 28.9% (non-IFRS at constant currencies).Earnings per share was up 54% year over year to €0.73 (IFRS) and was up 7% to €1.17 (non-IFRS).
Operating cash flow and free cash flow grew strongly in the second quarter. This was mainly driven by positive effects from lower payments to suppliers and lower than expected income tax payments. Operating cash flow for the first six months was €3.77 billion, up 41% year-over-year. Free cash flow for the first six months was up 59% year-over-year at €3.12 billion. Free cash flow additionally benefited from lower capital expenditure compared to the previous year. At the end of the second quar- ter, net debt was -€7.45 billion.
COVID-19 Response
SAP remains focused on supporting its customers, employees and communities during the COVID-19 pandemic. SAP contin- ues to operate with a virtual sales and remote implementation strategy to enable the large majority of its employees to work productively from home while continuing to serve customers effectively. In certain locations around the globe a small number of SAP employees have started to return or are planning to return to the office at a cautious pace as permitted by local regula- tions. SAP remains focused on the safety of the small number of its employees who are working onsite.
To ensure the Company’s financial flexibility, SAP is maintaining a slower pace of hiring than in usual circumstances and re- duced discretionary spend in addition to natural savings e.g. from lower travel, facility related costs and virtualized events.
SAP remains focused on ensuring continuity for its customers and partners and SAP’s data centers are online with appropri- ate backup plans.
Since the COVID-19 crisis began, SAP has also been providing solutions to address many of the issues faced by its customers and the broader community. Some recent examples:
- SAP has developed, together with Deutsche Telekom, the Corona Warning App which is the official German tracing app. The app went live in less than 50 days and has been downloaded more than 16 million times.
- Qualtrics back-to-business solution is helping many US states and communities restart their economies.
- To address ongoing disruption to global supply chains, SAP has extended open access to SAP Ariba Discovery to the endof 2020 so that buyers can post immediate sourcing needs and any supplier can respond
Due to the current uncertainty regarding the duration and severity of the COVID-19 pandemic, SAP cannot predict whether our response to date or actions that we may take in the future will be effective in mitigating the impact of COVID-19 on our business and results of operations.
For explanations on other key growth metrics please refer the performance management section of SAP’s Integrated Report 2019, which can be found at www.sapintegratedreport.com.
Photo courtesy: SAP
