SAP SE

Future Trends in the Global Economy

Global economic growth will decrease slightly in 2024, mainly reflecting the impact of monetary policy tightening across advanced economies, projects the European Central Bank (ECB) in its most recent Economic Bulletin.1 This means that the global economy will expand but still at a rate below the historical average over the ECB’s projection horizon. With post-COVID-19 growth momentum waning, the services sector, which had previously proven resilient, might also show a greater deceleration in 2024.

Concerning the EMEA region, economic growth in the euro area might remain subdued in the near term, as interest rate increases could tighten financing conditions and dampen demand, but at the same time help push down inflation. However, these effects are likely to fade later on in the projection period because of rising real incomes and improving foreign demand, suggests the ECB. It also expects services activity in the EMEA region to soften in the coming months due to spillovers from weaker industrial activity, fading effects from the reopening of the economy, and the broadening impact of tighter financing conditions.

As for the Americas region, the ECB predicts that while economic growth in the United States could moderate in the near term as tighter monetary policy might restrain spending, the U.S. economy should recover again from the second half of 2024 onward.

For the APJ region, the ECB’s growth outlook remains broadly unrevised with respect to emerging Asia and China. In China, the ECB projects economic growth to gradually decrease over the coming years owing to structural factors such as population ageing. In Japan, economic growth might remain positive but modest in 2024, amid signs of a slight rebound in real consumption levels.

Economic Trends – GDP Growth Year Over Year

p = projection

Source: International Monetary Fund (IMF), World Economic Outlook Update January 2024, Moderating Inflation and Steady Growth Open Path to Soft Landing (https://www.imf.org/-/media/Files/Publications/WEO/2024/Update/January/English/text.ashx), p. 6.

1 European Central Bank, Economic Bulletin, Issue 8/2023, Publication Date: January 11, 2024.

The IT Market:

Outlook for 2024 and Beyond

“Organizations that can make smarter investments and better execute on their strategies because of their digital business platforms will find themselves with a major competitive advantage over the next five years, leading them to capture significant portions of the digital market share.”2 That is the assessment of International Data Corporation (IDC), a U.S.-based market research firm. It projects that “spending on digital technology by organizations will grow at 7x the economy in 2024, as companies are compelled by market demands to grow digital business models and strengthen digital capabilities,”2 and finds that “in a scenario where agility is paramount, a continued reliance on legacy systems can be detrimental. As we move closer to 2025, organizations must prioritize this transition not just to be at the forefront of their market but simply to survive.”3

According to IDC, “by early 2025, organizations still on legacy systems will need to modernize their applications immediately to survive and adapt to the digital world already surpassing them.”3 In addition, by 2028, “organizations with established digital business platforms will have 50% higher digital market share with greater abilities to track ROI and execute digital revenue initiatives,”2 and “85% of CIOs will leverage organizational changes to harness AI, automation, and analytics, driving agile, insight-driven digital businesses.”4

Concerning sustainability, IDC expects that “by 2027, G2000 organizations’ business and IT leaders will dedicate at least 20% of their digital tech spending toward sustainability initiatives”, “meeting their digital goals while taking sustainability into account. These types of sustainability initiatives will increase in the next five years as significant parts of digital technology investment strategies.”2

In particular, IDC reports that “tools and technologies that facilitate real-time monitoring and reporting of ESG metrics will be essential” to “mitigate legal risks and enhance their brand and competitive advantage.”4 It predicts, for example, that “applications that enable real-time carbon footprint tracking and integrate seamlessly with green supply chain mechanisms will transition from a nice-to-have to a must-have”3 and that, therefore, “the automation of regulatory compliance will be essential for monitoring, analyzing, and reporting accurate ESG metrics to meet regulatory standards.”4

Impact on SAP

The global economy is currently impacted by multiple crises, such as political tensions, wars in Ukraine and the Middle East, disruptions of supply chains, and increasing natural disasters due to climate change. Nevertheless, SAP’s resilience is remarkable and with 83% of our revenue recurring, the Company is able to withstand economic pressure to a large degree. Even so, SAP must continue to evolve and remain agile while continuously adapting to a fast-changing landscape.

In 2024 and beyond, SAP plans to execute along the refined corporate strategy, with increasing focus on key strategic growth areas, such as cloud adoption, SAP Business AI, and value for customers. This makes us confident in our ability to expand our addressable market and deliver sustained topline growth. In addition, given our increased focus on operational efficiency, we are very confident we will be able to achieve our midterm ambition.

Financial Targets and Prospects

Revenue and Operating Profit Targets and Prospects (Non-IFRS)

Outlook 2024

The outlook for 2024 has been prepared in accordance with our updated non-IFRS definition from 2024. For more information, see thePerformance Management System section.

For the full year 2024, SAP expects:

2 IDC FutureScape: Worldwide Digital Business Strategies 2024 Predictions, Doc #US50120323, October 2023.

3 IDC FutureScape: Worldwide Intelligent ERP 2024 Predictions, Doc #US51300923, October 2023.

4 IDC FutureScape: Worldwide CIO Agenda 2024 Predictions, Doc #US51294523, October 2023.

Furthermore, SAP provides the following additional forward-looking information for selected metrics:

While SAP’s full-year 2024 business outlook is at constant currencies, numbers reported in actual currencies are likely to be impacted by exchange rate fluctuations as the year progresses. See the table below for the expected currency impacts for the full-year 2024. These expectations are based on the December 2023 level.

The following table shows the estimates of the items that represent the differences between our non-IFRS financial measures and our IFRS financial measures for operating profit.

Furthermore, the differences between free cash flow as our non-IFRS financial measure and operating cash flow as our IFRS financial measure include estimated cash flows in 2024 for leasing and capital expenditures of €1.2 billion (2023: €1.1 billion).

We do not provide an outlook for the effective tax rate (IFRS) due to the uncertainty and potential variability of gains and losses associated with equity investments, which are reconciling items between non-IFRS and IFRS.

Proposed Dividend

In 2024, we intend to pay a dividend of €2.20 per share (subject to shareholder approval at the Annual General Shareholders Meeting in May 2024). For more information, see theFinancial Performance: Review and Analysis section.

Ambition 2025

In this section, all numbers (except cloud revenue and total revenue) are based exclusively on non-IFRS measures.

By 2025, SAP now expects:

SAP continues to expect:

Further, SAP strives for an acceleration of total revenue growth and an expansion of operating margin beyond 2025.

1 Non-IFRS. Our Ambition for 2025 has been adjusted in accordance with our updated non-IFRS definition applicable from 2024. For more information, see thePerformance Management System section.

Investment Goals

Our planned investment expenditures for 2024 and 2025, other than for business combinations, consist primarily of the purchase of IT infrastructure and the construction activities described inItem 4. Information about SAP – Description of Property. We expect investments in IT infrastructure to be approximately €400 million and in construction activities to be approximately €350 million in 2024. In 2024, we expect total capital expenditures of approximately €950 million. In 2025, capital expenditures are expected to decrease to approximately €700 million.

Goals for Liquidity and Finance

As of December 31, 2023, our net liquidity was €3.5 billion. We believe that our liquid assets combined with our undrawn credit facilities are sufficient to meet our operating financing needs in 2024 as well, and, together with expected cash flows from operations, will support debt repayments and our currently planned capital expenditure requirements over the near and medium term.

In 2024, we expect a free cash flow of approximately €3.5 billion (compared to €5.1 billion in 2023) and of around €8.0 billion in 2025. The decline in free cash flow in 2024 will be driven predominantly by our preliminary €2.0 billion estimated outflow for restructuring, a €200 million outflow for compliance matters, and a €200 million adverse impact due to the discontinuation of the SAP-triggered financing program.

In 2024, we intend to repay €850 million in Eurobonds and US$323 million in U.S. private placements. The ratio of net debt as of December 31, 2023, divided by the total of operating profit (IFRS) plus depreciation and amortization was –0.49x and therefore below our 2023 target of 0.5x.

Non-Financial Goals for 2024 and Ambition for 2025

In addition to our financial goals, we also focus on four non-financial targets: customer loyalty, employee engagement, carbon impact, and women in executive roles.

For 2024, SAP expects employee engagement, measured by the Employee Engagement Index, to be between 76% and 80% (2023: 80%). Through 2025, we aim to achieve a steady increase in our Employee Engagement Index score.

SAP measures customer loyalty using the Customer Net Promoter Score (Customer NPS). We expect the score to be between 9 and 13 for Customer NPS in 2024. SAP expects to steadily increase the Customer NPS through 2025.

In 2024, we expect to steadily decrease carbon emissions across the relevant value chain. Further, SAP has also committed to achieving net-zero along our value chain in line with a 1.5 degrees Celsius future in 2030.

From 2024, SAP will track a new KPI: Women in Executive Roles (WiER). For 2024 and beyond, we are expecting to steadily increase the percentage of women on Global Executive Team, Senior Executive Team, and Executive Team level as we strive to achieve our target of 25% by the end of 2027.

Premises on Which Our Outlook and Prospects Are Based

In preparing our outlook and prospects, we have taken into account all events known to us at the time we prepared this report that could influence SAP’s business going forward.