UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
¨ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20122015
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
¨ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
For the transition period from to
Commission file number: 1-14251
SAP AGSE
(Exact name of Registrant as specified in its charter)
SAP CORPORATIONEUROPEAN COMPANY
(Translation of Registrant’s name into English)
Federal Republic of Germany
(Jurisdiction of incorporation or organization)
Dietmar-Hopp-Allee 16
69190 Walldorf
Federal Republic of Germany
(Address of principal executive offices)
Wendy Boufford
c/o SAP Labs
3410 Hillview Avenue, Palo Alto, CA, 94304, United States of America
650-849-4000 (Tel)
650-849-2650650-843-2041 (Fax)
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered | |
American Depositary Shares, each Representing | New York Stock Exchange | |
Ordinary Shares, without nominal value | New York Stock Exchange* |
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
Ordinary Shares, without nominal value: 1,228,504,232 (as of December 31, 2012)2015)**
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes þ No ¨
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ¨ No þ
Note –— Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)
Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ | Accelerated filer ¨ | Non-accelerated filer ¨ |
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ¨ International Financial Reporting Standards as issued by the International Accounting Standards Board þ Other ¨
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 ¨ Item 18 ¨
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No þ
* | Listed not for trading or quotation purposes, but only in connection with the registration of American Depositary Shares representing such ordinary shares pursuant to the requirements of the Securities and Exchange Commission. |
** | Including |
TABLE OF CONTENTS[THIS PAGE INTENTIONALLY LEFT BLANK]
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ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS | ||||
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Consolidated Financial Statements and Financial Statement Schedule | ||||
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ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | ||||
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES | ||||
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | ||||
Management’s Annual Report on Internal Control Over Financial Reporting | ||||
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES | ||||
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS | ||||
F-1 | ||||
F-2 | ||||
F-3 |
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SAP AGSE is a German stock corporation (Aktiengesellschaft)European Company (Societas Europaea, or “SE”) and is referred to in this report, together with its subsidiaries, as SAP, or as “Company,” “Group,” “we,” “our,” or “us.” Our Consolidated Financial Statements included in “Item 18. Financial Statements” in this report have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, referred to as IFRS throughout this report.
In this report: (i) references to “US$,” “$,” or “dollars” are to U.S. dollars; (ii) references to “€‘‘€” or “euro” are to the euro. Our financial statements are denominated in euros, which is the currency of our home country, Germany. Certain amounts that appear in this report may not add up because of differences due to rounding.
Unless otherwise specified herein, euro financial data have been converted into dollars at the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York (the “Noon Buying Rate”) on December 31, 2012,2015, which was US$1.31861.0859 per €1.00.€1.00. No representation is made that such euro amounts actually represent such dollar amounts or that such euro amounts could have been or can be converted into dollars at that or any other exchange rate on such date or on any other date. The rate used for the convenience translations also differs from the currency exchange rates used for the preparation of the Consolidated Financial Statements. This convenience translation is not a requirement under IFRSInternational Financial Reporting Standards (IFRS) and, accordingly, our independent registered public accounting firm has not audited these US$ amounts. For information regarding recent rates of exchange between euro and dollars, see “Item 3. Key Information – Exchange Rates.” On March 7, 2013,11, 2016, the Noon Buying Rate for converting euro to dollars was US$1.30981.1180 per €1.00.€1.00.
Unless the context otherwise requires, references in this report to ordinary shares are to SAP AG’sSE’s ordinary shares, without nominal value. References in this report to “ADRs” are to SAP AG’sSE’s American Depositary Receipts, each representing one SAP ordinary share. References in this report to “ADSs” are to SAP AG’sSE’s American Depositary Shares, which are the deposited securities evidenced by the ADRs.
SAP, ABAP, Adaptive Server, Advantage Database Server, Afaria, Ariba, Business ByDesign, BusinessObjects, ByDesign, Concur, Crystal Reports, ExpenseIt, Fieldglass, hybris, PartnerEdge, PowerBuilder, PowerDesigner, Quadrem, R/3, ABAP, BAPI,Replication Server, SAP BusinessObjects Explorer, SAP Business Workflow, SAP EarlyWatch, SAP Fiori, SAP HANA, SAP Jam, SAP Lumira, SAP NetWeaver, Duet, PartnerEdge, ByDesign, SAP BusinessObjectsS/4HANA, SAPPHIRE, SAPPHIRE NOW, SQL Anywhere, Sybase, SuccessFactors, The Best-Run Businesses Run
Explorer, StreamWork, SAP, HANA, the Business Objects logo, BusinessObjects, Crystal Reports, Crystal Decisions,TravelTrax, TripIt, TripLink, TwoGo, Web Intelligence Xcelsius, Sybase, Adaptive Server, Adaptive Server Enterprise, iAnywhere, Sybase 365, SQL Anywhere, Crossgate, B2B 360°, B2B 360° Services, m@gic EDDY, Ariba, Quadrem, b-process, Ariba Discovery, SuccessFactors, Execution is the Difference, BizX Mobile Touchbase, It’s time to love work again, Jam and BadAss SaaS and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP AG in Germany orSE (or an SAP affiliate company.company) in Germany and other countries.
Throughout this report, whenever a reference is made to our website, such reference does not incorporate by reference into this report the information contained on our website.
We intend to make this report and other periodic reports publicly available on our Webweb site (www.sap.com) without charge immediately following our filing with the U.S. Securities and Exchange Commission (SEC). We assume no obligation to update or revise any part of this report, whether as a result of new information, future events or otherwise, unless we are required to do so by law.
This report contains forward-looking statements and information based on the beliefs of, and assumptions made by, our management using information currently available to them. Any statements contained in this report that are not historical facts are forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. We have based these forward-looking statements on our current expectations, assumptions, and projections about future conditions and events. As a result, our forward-looking statements and information are subject to uncertainties and risks. A broad range of uncertainties and risks, many of which are beyond our control, could cause our actual results and performance to differ materially from any projections expressed in or implied by our forward-looking statements. The uncertainties and risks include, but are not limited to:
Uncertainty in the global economy, financial markets, and in political conditions could have a negative impact on our business, financial position, profit, and cash flows and put pressure on our operating profit.
Third parties have claimed, and might claim in the future, that we infringe their intellectual property rights, which could lead to damages being awarded against us and limit our ability to use certain technologies in the future.
There is a risk that undetected security vulnerabilities shipped and deployed within our software products could cause customer damage.
Established customers might not buy additional software products, renew maintenance agreements, or purchase additional professional services, or they might switch to other products or service offerings (including competitor products).
– | Uncertainty in the global economy, financial markets or political conditions could have a negative impact on our business, financial position, profit, and cash flows and put pressure on our operating profit. |
– | Third parties have claimed, and might claim in the future, that we infringe their intellectual property rights, which could lead to damages being awarded against us and limit our ability to use certain technologies in the future. |
– | Claims and lawsuits against us could have an adverse effect on our business, financial position, profit, cash flows and reputation. |
– | We may not be able to protect our critical information and assets or to safeguard our business operations against disruption. |
We describe these and other risks and uncertainties in the Risk Factors section.
If one or more of these uncertainties or risks materializes, or if management’s underlying assumptions prove incorrect, our actual results could differ materially from those described in or inferred from our forward-looking statements and information.
The words “aim,” “anticipate,” “assume,” “believe,” “continue,” “could,” “counting on,” “is confident,” “development,” “estimate,” “expect,” “forecast,” “future trends,” “guidance,” “intend,” “may,” “might,” “outlook,” “plan,” “project,” “predict,” “seek,” “should,” “strategy,” “want,” “will,” “would,” and similar expressions as they relate to us are intended to identify such forward-looking statements. Such statements include, for example, those made in the Operating Results section, our quantitative and qualitative disclosures about market risk pursuant to the International Financial Reporting Standards (IFRS), namely IFRS 7 and related statements in our Notes to the Consolidated Financial Statements thesection, Expected Developments section; Risk Report, our outlook guidance,Factors section; and other forward-looking information appearing in other parts of this report. To fully consider the factors that could affect our future financial results, both our Management Report and this report and our Annual Report should be considered, as well as all of our other filings with the Securities and Exchange Commission (SEC). Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date specified or the date of this report. Except where legally required, weWe undertake no obligation to publicly update or revise any forward-looking statements as a result of new information that we receive about conditions that existed upon issuance of this report, future events, or otherwise unless we are required to do so by law.
This report includes statistical data about the IT industry and global economic trends that comes from information published by sources including International Data Corporation (IDC), a provider of market information and advisory services for the information technology, telecommunications, and consumer technology markets; the European Central Bank (ECB); and the International Monetary Fund (IMF). This type of data represents only the estimates of IDC, ECB, IMF, and other sources of industry data. SAP does not adopt or endorse any of the statistical information provided by sources such as IDC, ECB, IMF, or other similar sources that is contained in this report. In addition, although we believe that data from these sources is generally reliable, this type of data is imprecise. We caution readers not to place undue reliance on this data.
MEASURES CITED IN THIS REPORTPERFORMANCE MANAGEMENT SYSTEM
We use various performance measures to help manage our performance with regard to our primary financial goals, which are growth and profitability, and our primary
non-financial goals, which are customer satisfactionloyalty and employee engagement. We view growth and profitability as indicators for our current performance, while customer loyalty and employee engagement are indicators for our future performance.
Measures We Use to Manage Our Financial Performance
Revised Software and Software-Related Service Revenue PresentationChanges to Income Statement Structure
As a resultStarting with the first quarter of placing greater focus on cloud computing,2015, we revised the presentation ofmodified our software and software-related service (SSRS) revenue as of January 1, 2012, and we adjusted our comparative figures accordingly. As a result of these adjustments, the subscription and other software-related service revenue item has been deleted.overall income statement structure. We believe this creates more transparency regarding SSRS revenue, particularly with respect to revenue from cloud subscriptions and support. These revenues are no longer recorded under the subscription and other software-related service revenue item, but instead shown as a separate item within the SSRS revenue. Revenue from long-term license agreements and all other revenue previously shown under SSRS revenue has been broken down into its software andreclassified premium support components and recorded under the software revenue and support revenuerelated costs to the respective services line items to align our financial reporting with the changes in our services business. We further simplified and clarified the labeling of several income statement line items. Thus, we present higher revenue for software and for support for 2011. This change is merely a reclassification that only
affects items within SSRS revenue. The overall sum of SSRS revenue and thusFor more information about the total revenue are not affected.
In addition, we introduced a new subtotal atchanges to our income statement structure, see the end of 2012Notes to better reflect our wide range of on-premise and cloud solutions: the software revenue item and the cloud subscription and support revenue item were merged and are now recorded under the software and cloud subscription revenue item. We believe this creates more transparency and allows better comparability with our biggest competitor.Consolidated Financial Statements section, Note (3).
Measures We Use to Manage Our Operating Financial Performance
In 2012,2015, we used the following key measures to manage our operating financial performance:
Non-IFRS SSRS revenue: Our SSRS revenue includes softwareCloud subscriptions and related support revenue plus cloud subscription and support revenue. The principal source(non-IFRS): This revenue driver comprises the main revenues of our software revenue is the fees customers pay for on-premise software licenses resulting in software being installed on the customer’s hardware.fast-growing cloud business. We generate cloud subscriptionsubscriptions and support revenue when we provide software functionality in a cloud-based infrastructure (SaaS) to our customers, when we provide our customers with access to a cloud-based infrastructure to develop, run, and manage applications (PaaS) and also when we provide hosting services for software hosted by SAP (IaaS). Cloud subscriptions and support revenue is also generated when providing additional premium cloud subscription support beyond the respectiveregular support, for deliverywhich is embedded in the cloud. Softwarebasic cloud subscription fees as well as business network services to our customers. We use the measure cloud subscriptions and support revenue (non-IFRS) both at actual currency and at constant currency.
Cloud and software revenue (non-IFRS): We use cloud and software revenue (non-IFRS) and constant currency cloud and software revenue (non-IFRS) to measure our revenue growth. Our cloud and software revenue includes cloud subscriptions and support revenue plus software licenses and support revenue. Cloud subscriptions and support revenue and cloud subscription and supportsoftware revenue are our key revenue drivers because they tend to affect our other revenue streams. Generally, customers whothat buy software licenses also enter into maintenancerelated support contracts, and these generate recurring software-related service revenue in the form of support revenue after the software sale. MaintenanceSupport contracts cover standardized support services andthat comprise unspecified future software updates and
enhancements. Software licenses revenue as well as cloud subscriptionsubscriptions and support revenue also tend to stimulate serviceservices revenue earned from consultingproviding customers with professional services, premium support services, training services, messaging services, and training sales.payment services.
Non-IFRS bookings/billings revenue: New cloud bookings:For our cloud activities, we also look at new cloud bookings. This measure reflects the recognized revenues as well as the contract values generatedcommitted order entry from new customers and from incremental purchases by existing customers for offerings that generate cloud subscriptions and support revenue. In this way, it is an indicator for cloud-related sales success in a given period (bookings/billings).and for secured future cloud subscriptions and support revenue. We measure bookings/billings asfocus primarily on the amounts that we are contractually entitled to invoice the customers over the shorteraverage contract value variant of the new cloud bookings measure that takes into account annualized amounts for multiyear contracts. Additionally, we monitor the total contract term andvalue variant of the first 12 months followingnew cloud bookings measure that takes into account the contract execution date, anniversarytotal committed order entry amounts regardless of contract execution date or contract renewal date (12 months bookings/billings). In contrast to the cloud subscription and support revenues thatdurations. There are recognized over the period of providing the cloud service rather than in the period of contract closure, the booking/billing numbers give insight into the future revenue
potential. When evaluating 12 months bookings/billings numbers, we consider both the total bookings/billings and the subset of bookings/billings that results from new customers or additional sales to existing customers in the reporting period rather than from subsequent years or renewals of existing contracts. There is no comparable IFRS measuremeasures for this figure.
Our Cloud Applications segment has grown significantly through the acquisition of SuccessFactors in early 2012. As SuccessFactors is included in SAP’s financials only from the day of acquisition, a year-over-year comparison of the bookings/billings is impacted by the acquisition. We therefore analyze and report, in addition to the absolute growth rate of bookings/billings for cloud applications, a pro forma growth rate assuming that the acquisition of SuccessFactors was completed as of January 1, 2011. A similar analysis is not provided for the Ariba segment due to the Ariba acquisition having occurred late in 2012.these bookings metrics.
Non-IFRSOperating profit (non-IFRS): We use operating profit/non-IFRS operating margin: In 2012, we used non-IFRS operating profit/non-IFRS operating marginprofit (non-IFRS) and constant currency non-IFRS operating profit/non-IFRS operating marginprofit (non-IFRS) to measure our overall operational process efficiency and overall business performance. Non-IFRS operating margin is the ratio of our non-IFRS operating profit to total non-IFRS revenue, expressed as a percentage. See below for a discussion ofmore information on the IFRS and non-IFRS measures we use.
Cloud subscriptions and support gross margin (non-IFRS): We use our cloud subscriptions and support gross margin (non-IFRS) to measure our process efficiency and our performance in our cloud business. Cloud subscriptions and support gross margin (non-IFRS) is the ratio of our cloud subscriptions and support gross profit (non-IFRS) to cloud subscriptions and support revenue (non-IFRS), expressed as a percentage.
Measures We Use to Manage Our Non-Operating Financial Performance
We use the following measures to manage our non-operating financial performance:
FinanceFinancial income, net: This measure provides insight especially into the return on liquid assets and capital investments and the cost of borrowed funds. To manage our financial income, net, we focus on cash flow, the composition of our liquid assetassets and capital investment portfolio, and the average rate of interest at which assets are invested. We also monitor average outstanding borrowings and the associated finance costs.
Days of Sales Outstanding and Days of Payables Outstanding:(DSO): We manage working capital by controlling the days’days sales outstanding (DSO) for operating receivables or DSO (defined as the average
number of days from the raised invoice to cash
receipt from the customer), and the days’ payables outstanding for operating liabilities, or DPO (defined as average number of days from the received invoice to cash payment to the vendor).
Measures We Use to Manage Overall Financial Performance
We use the following measures to manage our overall financial performance:
Earnings per share (EPS): EPS measures our overall performance because it captures all operating and non-operating elements of profit as well as income tax expense. It represents the portion of profit after tax allocable to each SAP share outstanding (using the weighted average number of shares outstanding over the reporting period).outstanding. EPS is influenced not only by our operating and non-operating business andas well as income taxes but also by the number of shares outstanding. We are authorized by our shareholders to repurchase shares and believe that such repurchases, additional to dividend distributions, are a good means to return value to our shareholders.
Effective tax rate: We define our effective tax rate as the ratio of income tax expense to profit before tax, expressed as a percentage.
Operating, investing, and financing cash flows:flows and free cash flow: Our consolidated statement of cash flows provides insight as to how we generated and used cash and cash equivalents. When usedapplied in conjunction with the other primary financial statements, it provides information that helps us evaluate the changes of our net assets, our financial structure (including our liquidity and solvency), and our ability to affect the amounts and timing of cash flows in order to adapt to changing circumstances and opportunities. We use our free cash flow measure to determine the cash flow remaining after all expenditures required to maintain or expand our organic business have been paid off. This measure provides management with supplemental information to assess our liquidity needs. We calculate free cash flow as net cash from operating activities minus purchases (other than purchases made in connection with business combinations) of intangible assets and property, plant, and equipment.
Measures We Use to Manage Our Non-Financial Performance
In 2012,2015, we used the following key measures to manage our non-financial performance in the areas of employee engagement, customer loyalty and customer satisfaction:leadership trust:
Employee Engagement Index: With We use this index weto measure the level of employee commitment, pride,motivation and loyalty as well as the level of employee advocacy forour employees, how proud they are of our company, and how strongly they identify with SAP. The index is derived from surveys conducted among our employees. With
Applying this measure we recognizeis recognition that we can achieve our growth strategy only withdepends on engaged employees.
Customer Net Promoter Score:Score (NPS): This score measures the willingness of our customers to
recommend or promote SAP to others. It is derived from our annual customer survey. Conducted each year, this survey that identifies, on a scale of 0–10, whether a customer is loyal and likely to recommend SAP to friends or colleagues, is neutral, or is unhappy. We introduced this measure in 2012, as we are convinced that we can achieve our financial goals only when our customers are loyal to, and satisfied with, SAP and our solutions. To derive the Net Promoter Score (NPS),Customer NPS, we start with the percentage of “promoters” of SAP – those who give us a score of 9 or 10 on a scale of 0 to 0–10. We then subtract the percentage of “detractors” – those who give us a score of 0 to 6. The methodology calls for ignoringmethod ignores “passives,” who give us a score of 7 or 8. Due to changes in sampling, resulting from ongoing efforts to implement the survey process holistically in recently acquired entities, the 2015 score is not fully comparable with the prior year’s score.
Leadership Trust Score:We use this score to further enhance accountability and to measure our collective effort to foster a work environment based on trust. It is derived from a question in our annual global employee survey that gauges employees’ trust in our leaders. We measure leadership trust by using the Net Promoter Score (NPS) methodology.
Value-Based Management
Our holistic view of the performance measures described above, together with our associated analyses, comprises the information we use for value-based management. We use planning and control processes to manage the compilation of these key measures and their availability to our decision makers across various management levels.
SAP’s long-term strategic plans are the point of reference for our other planning and controlling processes, including creating a multiyear plan until 2015.through 2020. We identify future growth and profitability drivers at a highly aggregated level. This process is intended to identify the best areas in which to target sustained investment. Next, we evaluate our multiyear plans for our support and development functions and break down the customer-facing plans by sales region. Based on our detailed annual plans, we determine the budget for the respective year. We also have processes in place to forecast revenue and profit on a quarterly basis, to quantify whether we expect to realize our strategicfinancial goals, and to identify any deviations from plan. We continuously monitor the concerned units in the Group to analyze these developments and define any appropriate actions.
Our entire network of planning, control, and reporting processes is implemented in integrated planning and information systems, based on SAP software, across all organizational units so that we can conduct the evaluations and analyses needed to make informed decisions.
Non-IFRS Financial Measures Cited in This Report
As in previous years, we provided our 20122015 financial outlook on the basis of certain non-IFRS
measures. Therefore, this report contains a non-IFRS based comparison of our actual performance in 20122015 against our outlook in the chapter Assets, Finances, and Operating Results.Performance Against Outlook for 2015 (Non-IFRS) section.
Reconciliations of IFRS to Non-IFRS Financial Measures for 20122015 and 20112014
The following table reconciles our IFRS financial measures to the respective and most comparable non-IFRS financial measures of this report for each of 20122015 and 2011.2014. Due to rounding, the sum of the numbers presented in this table might not precisely equal the totals we provide.
ReconciliationsReconciliation of IFRS to Non-IFRS Financial Measures for 2012 and 2011the Years Ended December 31
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IFRS | Adj. | Non-IFRS | Currency Impact | Non-IFRS Constant Currency | IFRS | Adj. | Non-IFRS | |||||||||||||||||||||||||
Revenue measures | ||||||||||||||||||||||||||||||||
Software | 4,658 | 0 | 4,658 | –134 | 4,524 | 4,107 | 0 | 4,107 | ||||||||||||||||||||||||
Cloud subscriptions and support | 270 | 73 | 343 | –21 | 322 | 18 | 0 | 18 | ||||||||||||||||||||||||
Software and cloud subscriptions | 4,928 | 73 | 5,001 | –155 | 4,846 | 4,125 | 0 | 4,125 | ||||||||||||||||||||||||
Support | 8,237 | 9 | 8,246 | –286 | 7,959 | 7,194 | 27 | 7,221 | ||||||||||||||||||||||||
Software and software-related service revenue | 13,165 | 81 | 13,246 | –441 | 12,806 | 11,319 | 27 | 11,346 | ||||||||||||||||||||||||
Consulting | 2,442 | 0 | 2,442 | –95 | 2,347 | 2,341 | 0 | 2,341 | ||||||||||||||||||||||||
Other services | 616 | 0 | 616 | –18 | 599 | 573 | 0 | 573 | ||||||||||||||||||||||||
Professional services and other service revenue | 3,058 | 0 | 3,058 | –113 | 2,945 | 2,914 | 0 | 2,914 | ||||||||||||||||||||||||
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Total revenue | 16,223 | 81 | 16,304 | –553 | 15,751 | 14,233 | 27 | 14,260 | ||||||||||||||||||||||||
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Operating expense measures | ||||||||||||||||||||||||||||||||
Cost of software and software-related services | –2,551 | 414 | –2,137 | –2,107 | 285 | –1,822 | ||||||||||||||||||||||||||
Cost of professional services and other services | –2,514 | 128 | –2,385 | –2,248 | 32 | –2,216 | ||||||||||||||||||||||||||
Research and development | –2,253 | 129 | –2,124 | –1,939 | 41 | –1,898 | ||||||||||||||||||||||||||
Sales and marketing | –3,907 | 223 | –3,684 | –3,081 | 127 | –2,954 | ||||||||||||||||||||||||||
General and administration | –947 | 164 | –783 | –715 | 30 | –685 | ||||||||||||||||||||||||||
Restructuring | –8 | 8 | 0 | –4 | 4 | 0 | ||||||||||||||||||||||||||
TomorrowNow litigation | 0 | 0 | 0 | 717 | –717 | 0 | ||||||||||||||||||||||||||
Other operating income/expense, net | 23 | 0 | 23 | 25 | 0 | 25 | ||||||||||||||||||||||||||
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Total operating expenses | –12,158 | 1,067 | –11,090 | 362 | –10,728 | –9,352 | –198 | –9,550 | ||||||||||||||||||||||||
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Operating profit measures | ||||||||||||||||||||||||||||||||
Operating profit | 4,065 | 1,148 | 5,214 | –191 | 5,023 | 4,881 | –171 | 4,710 | ||||||||||||||||||||||||
Operating margin in % | 25.1 | 32.0 | 31.9 | 34.3 | 33.0 |
€ millions, unless otherwise stated | 2015 | 2014 | ||||||||||||||||||||||||||||||
IFRS | Adj. | Non-IFRS | Currency Impact | Non-IFRS Constant Currency | IFRS | Adj. | Non-IFRS | |||||||||||||||||||||||||
Revenue measures | ||||||||||||||||||||||||||||||||
Cloud subscriptions and support | 2,286 | 10 | 2,296 | –297 | 1,999 | 1,087 | 14 | 1,101 | ||||||||||||||||||||||||
Software licenses | 4,835 | 1 | 4,836 | –255 | 4,581 | 4,399 | 0 | 4,399 | ||||||||||||||||||||||||
Software support | 10,093 | 0 | 10,094 | –678 | 9,416 | 8,829 | 5 | 8,834 | ||||||||||||||||||||||||
Software licenses and support | 14,928 | 2 | 14,930 | –933 | 13,997 | 13,228 | 5 | 13,233 | ||||||||||||||||||||||||
Cloud and software | 17,214 | 11 | 17,226 | –1,230 | 15,996 | 14,315 | 19 | 14,334 | ||||||||||||||||||||||||
Services | 3,579 | 0 | 3,579 | –276 | 3,304 | 3,245 | 0 | 3,245 | ||||||||||||||||||||||||
Total revenue | 20,793 | 11 | 20,805 | –1,505 | 19,299 | 17,560 | 19 | 17,580 | ||||||||||||||||||||||||
Operating expense measures | ||||||||||||||||||||||||||||||||
Cost of cloud subscriptions and support | –1,022 | 232 | –789 | –481 | 88 | –393 | ||||||||||||||||||||||||||
Cost of software licenses and support | –2,291 | 283 | –2,008 | –2,076 | 258 | –1,818 | ||||||||||||||||||||||||||
Cost of cloud and software | –3,313 | 516 | –2,797 | –2,557 | 346 | –2,211 | ||||||||||||||||||||||||||
Cost of services | –3,313 | 180 | –3,133 | –2,716 | 125 | –2,590 | ||||||||||||||||||||||||||
Total cost of revenue | –6,626 | 696 | –5,930 | –5,272 | 471 | –4,801 | ||||||||||||||||||||||||||
Gross profit | 14,167 | 707 | 14,874 | 12,288 | 490 | 12,778 | ||||||||||||||||||||||||||
Research and development | –2,845 | 202 | –2,643 | –2,331 | 127 | –2,204 | ||||||||||||||||||||||||||
Sales and marketing | –5,401 | 449 | –4,952 | –4,304 | 170 | –4,134 | ||||||||||||||||||||||||||
General and administration | –1,048 | 116 | –932 | –892 | 86 | –806 | ||||||||||||||||||||||||||
Restructuring | –621 | 621 | 0 | –126 | 126 | 0 | ||||||||||||||||||||||||||
TomorrowNow and Versata litigation | 0 | 0 | 0 | –309 | 309 | 0 | ||||||||||||||||||||||||||
Other operating income/expense, net | 1 | 0 | 1 | 4 | 0 | 4 | ||||||||||||||||||||||||||
Total operating expenses | –16,541 | 2,084 | –14,457 | 1,062 | –13,395 | –13,230 | 1,288 | –11,942 | ||||||||||||||||||||||||
Operating profit | 4,252 | 2,095 | 6,348 | –443 | 5,904 | 4,331 | 1,307 | 5,638 |
Explanation of Non-IFRS Measures
We disclose certain financial measures, such as non-IFRS revenue non-IFRS(non-IFRS), operating expenses non-IFRS(non-IFRS), operating profit non-IFRS(non-IFRS), operating
margin non-IFRS(non-IFRS), and earnings per share (non-IFRS), as well as constant currency revenue, expense, and operating profit measures that are not prepared in accordance with IFRS and are therefore considered non-IFRS financial measures. Our non-IFRS financial measures may not correspond to non-IFRS financial measures
that other companies report. The non-IFRS financial measures that we report should only be considered in addition to, and not as substitutes for or superior to, revenue, operating expenses, operating profit, operating margin, earnings per share or other measures ofour IFRS financial performance prepared in accordance with IFRS.measures.
We believe that the disclosed supplemental historical and prospective non-IFRS financial information provides useful information to investors because management uses this information, in addition to financial data prepared in accordance with IFRS, to attain a more transparent understanding of our past performance and our anticipated future results. In 2012, we used these non-IFRSWe use the revenue (non-IFRS) and profit (non-IFRS) measures consistently in our internal planning and forecasting, reporting, and compensation, as well as in our external communications, as follows:
Our management primarily uses these non-IFRS measures rather than IFRS measures as the basis for making financial, strategic and operating decisions.
The variable remuneration components of our Executive Board members and employees are based on non-IFRS revenue and non-IFRS operating profit measures rather than the respective IFRS measures.
The annual budgeting process for all management units is based on non-IFRS revenue and non-IFRS operating profit numbers rather than the respective IFRS financial measures.
All forecast and performance reviews with all senior managers globally are based on these non-IFRS measures, rather than the respective IFRS financial measures.
Both our internal performance targets and the guidance we provided to the capital markets are based on non-IFRS revenues and non-IFRS profit measures rather than the respective IFRS financial measures.
– | Our management primarily uses these non-IFRS measures rather than IFRS measures as the basis for making financial, strategic, and operating decisions. |
– | The variable components of our Executive Board members’ and employees’ remuneration are based on revenue (non-IFRS), operating profit (non-IFRS), as well as new cloud bookings measures rather than the respective IFRS measures. |
– | The annual budgeting process for all management units is based on revenue (non-IFRS) and operating profit (non-IFRS) numbers rather than the respective IFRS financial measures. |
– | All forecast and performance reviews with all senior managers globally are based on these non-IFRS measures, rather than the respective IFRS financial measures. |
– | Both our internal performance targets and the guidance we provided to the capital markets are based on revenue (non-IFRS) and profit (non-IFRS) measures rather than the respective IFRS financial measures. |
Our non-IFRS financial measures reflect adjustments based on the items below, as well as adjustments for the related income tax effects.
Non-IFRS Revenue (Non-IFRS)
Revenue items identified as non-IFRS revenue (non-IFRS) have been adjusted from the respective IFRS financial measures by including the full amount of software support revenue, cloud subscriptions and support revenue,
and other similarly recurring revenues whichrevenue that we
are not permitted to record as revenue under IFRS due to fair value accounting for the contracts in effect at the time of the respective acquisitions.
Under IFRS, we record at fair value the contracts in effect at the time entities were acquired. Consequently, our IFRS software support revenue, our IFRS cloud subscriptions and support revenue, our IFRS softwarecloud and cloud subscription revenue, our IFRS software and software-related service revenue, and our IFRS total revenue for periods subsequent to acquisitions do not reflect the full amount of revenue that would have been recorded by entities acquired by SAP had they remained stand-alone entities. Adjusting revenue numbers for this revenue impact provides additional insight into the comparability across periods of our ongoing performance.
Through 2011, our adjustments for deferred revenue write-downs were limited to support revenue. During 2012, we also made such deferred revenue write-down adjustments for cloud subscriptions revenue and other similarly recurring revenues. As the deferred revenue write-down adjustments for recurring revenues other than support revenue from acquisitions that were executed through 2011 were immaterial, we have not restated prior-period non-IFRS measures to align with our new non-IFRS revenue definition.performance across periods.
Non-IFRS Operating Expense (Non-IFRS)
Operating expense figuresnumbers that are identified as non-IFRS operating expenses (non-IFRS) have been adjusted by excluding the following expenses:
– | Acquisition-related charges
|
¡ | Amortization expense/impairment charges of intangibles acquired in business combinations and certain stand-alone acquisitions of intellectual property (including purchased in-process research and development) |
¡ | Settlements of preexisting business relationships in connection with a business combination |
¡ | Acquisition-related third-party expenses |
– | Expenses from the TomorrowNow litigation (formerly labeled as “discontinued activities”) and the Versata litigation cases |
– | Share-based payment expenses |
– | Restructuring expenses |
We exclude certain acquisition-related expenses for the purpose of calculating non-IFRS operating profit non-IFRS(non-IFRS), operating margin (non-IFRS), and non-IFRS earnings per share (non-IFRS) when evaluating SAP’s continuing operational performance because these expenses generally cannot be changed or influenced by management after the relevant acquisition other than by disposing of the acquired assets. Since management at levels below the Executive Board does not influence these expenses, we generally do not consider these expenses for the purpose of evaluating the performance of management units. Additionally, these non-IFRS measures have been adjusted from the respective IFRS measures for the results of the discontinued activities, share-based payment expenses and restructuring expenses, as well as the TomorrowNow and Versata litigation expenses.
Operating Profit (Non-IFRS), Operating Margin (Non-IFRS), and Earnings per Share (Non-IFRS)
Operating profit, operating margin, and earnings per share identified as operating profit (non-IFRS), operating margin (non-IFRS), and earnings per share (non-IFRS)
have been adjusted from the respective IFRS measures by adjusting for the aforementioned revenue (non-IFRS) and operating expenses (non-IFRS).
Constant Currency Information
We believe it is important for investors to have information that provides insight into our sales. Revenue measures determined under IFRS provide information that is useful in this regard. However, both sales volume and currency effects impact period-over-period changes in sales revenue. We do not sell standardized units of products and services, so we cannot provide relevant information on sales volume by providing data on the changes in product and service units sold. To provide additional information that may be useful to investors in breaking down and evaluating changes in sales volume, we present information about our revenue and various values and components relating to operating profit that are adjusted for foreign currency effects.
We calculate constant currency revenue and operating profit measures by translating foreign currencies using the average exchange rates from the comparative period instead of the current period.
Free Cash Flow
The following table shows our free cash flow measure. We use this measure among others to manage our overall financial performance.
Free Cash Flow
€ millions | 2015 | 2014 | in % | |||||||||
Net cash flows from operating activities | 3,638 | 3,499 | 4 | |||||||||
Purchase of intangible assets and property, plant, and equipment (without acquisitions) | –636 | –737 | –14 | |||||||||
Free cash flow | 3,001 | 2,762 | 9 |
Usefulness of Non-IFRS Measures
We believe that our non-IFRS measures are useful to investors for the following reasons:
The non-IFRS measures provide investors with insight into management’s decision making because management uses these non-IFRS measures to run our business and make financial, strategic, and operating decisions.
The non-IFRS measures provide investors with additional information that enables a comparison of year-over-year operating performance by eliminating certain direct effects of acquisitions and discontinued activities.
Non-IFRS and non-GAAP measures are widely used in the software industry. In many cases, inclusion of our non-IFRS measures may facilitate comparison with our competitors’ corresponding non-IFRS and non-GAAP measures.
Additionally, we believe that our adjustments to our IFRS financial measures for the results of our discontinued TomorrowNow activities are useful to investors for the following reason:
TomorrowNow activities were discontinued and we will thus continue to exclude potential future TomorrowNow results, which are expected to mainly comprise expenses in connection with the Oracle lawsuit, from our internal management reporting, planning, forecasting, and compensation plans. Therefore, adjusting our non-IFRS measures for the results of the discontinued TomorrowNow activities provides insight into the financial measures that SAP uses internally.
We include the revenue adjustments outlined above and exclude the expense adjustments outlined above when making decisions to allocate resources, both on a company level and at lower levels of the organization.
– | Our revenue (non-IFRS), expense (non-IFRS), and profit (non-IFRS) measures provide investors with insight into management’s decision making because management uses these non-IFRS measures to run our business and make financial, strategic, and operating decisions. We include the revenue adjustments outlined above and exclude the expense adjustments outlined above when making decisions to allocate resources. In addition, we use these non-IFRS measures to gain a better understanding of SAP’s operating performance from period to period. |
– | The non-IFRS measures provide investors with additional information that enables a comparison of year-over-year operating performance by eliminating certain direct effects of acquisitions, share-based compensation plans, restructuring plans, and the TomorrowNow and Versata litigation cases. |
– | Non-IFRS and non-GAAP measures are widely used in the software industry. In many cases, inclusion of our non-IFRS measures may facilitate comparison with our competitors’ corresponding non-IFRS and non-GAAP measures. |
Limitations of Non-IFRS Measures
We believe that our non-IFRS financial measures described above have limitations, including but not limited to, the following:
The eliminated amounts could be material to us.
Without being analyzed in conjunction with the corresponding IFRS measures, the non-IFRS measures are not indicative of our present and future performance, foremost for the following reasons:
While our non-IFRS profit numbers reflect the elimination of certain acquisition-related expenses, no eliminations are made for the additional revenue and other revenue that result from the acquisitions.
While we adjust for the fair value accounting of the acquired entities’ recurring revenue contracts, we do not adjust for the fair value accounting of deferred compensation items that result from commissions paid to the acquired company’s sales force and third parties for closing the respective customer contracts.
The acquisition-related charges that we eliminate in deriving our non-IFRS profit numbers are likely to recur should SAP enter into material business combinations in the future.
– | The eliminated amounts could be material to us. |
– | Without being analyzed in conjunction with the corresponding IFRS measures, the non-IFRS measures are not indicative of our present and future performance, foremost for the following reasons: |
¡ | While our profit (non-IFRS) numbers reflect the elimination of certain acquisition-related expenses, no eliminations are made for the additional revenue or other income that results from the acquisitions. |
¡ | While we adjust for the fair value accounting of the acquired entities’ recurring revenue contracts, we do not adjust for the fair value accounting of deferred compensation items that result from commissions paid to the acquired company’s sales force and third parties for closing the respective customer contracts. |
¡ | The acquisition-related charges that we eliminate in deriving our profit (non-IFRS) numbers are likely to recur should SAP enter into material business combinations in the future. Similarly, the restructuring expenses that we eliminate in deriving our profit (non-IFRS) numbers are likely to recur should SAP perform restructurings in the future. |
¡ | The acquisition-related amortization expense that we eliminate in deriving our profit (non-IFRS) numbers is a recurring expense that will impact our financial performance in future years. |
¡ | The revenue adjustment for the fair value accounting of the acquired entities’ contracts and the expense adjustment for acquisition-related charges do not arise from a common conceptual basis. This is because the revenue adjustment aims to improve the comparability of the initial post-acquisition period with future post-acquisition periods, while the expense adjustment aims to improve the comparability between post-acquisition periods and pre-acquisition periods. This should particularly be considered when |
The acquisition-related amortization expense that we eliminate in deriving our non-IFRS profit numbers is a recurring expense that will impact our financial performance in future years.
The revenue adjustment for the fair value accounting of the acquired entities’ contracts
evaluating our operating profit (non-IFRS) and operating margin (non-IFRS) numbers as these combine our revenue (non-IFRS) and
|
¡ | Our restructuring charges could result in significant cash outflows. The same applies to our share-based payment expense because most of our share-based payments are settled in cash rather than shares. |
¡ | The valuation of our cash-settled share-based payments could vary significantly from period to period due to the fluctuation of our share price and other parameters used in the valuation of these plans. |
¡ | In the past, we have issued share-based payment awards to our employees every year and we intend to continue doing so in the future. Thus, our share-based payment expenses are recurring although the amounts usually change from period to period. |
We believe that constant currency measures have limitations, particularly as the currency effects that are eliminated constitute a significant element of our revenue and expenses and could materially impact our performance. We thereforeTherefore, we limit our use of constant currency measures to the analysis of changes in volume as one element of the full change in a financial measure.
We do not evaluate our results and performance without considering both constant currency measures in non-IFRS revenue (non-IFRS) and non-IFRS operating profit (non-IFRS) measures on the one hand, and changes in revenue, operating expenses, operating profit, or other measures of financial performance prepared in accordance with IFRS on the other. We caution the readers of our financial reports to follow a similar approach by considering constant currency measures only in addition to, and not as a substitute for or superior to, changes in revenue, operating expenses, operating profit, or other measures of financial performance prepared in accordance with IFRS.
Despite these limitations, we believe that the presentation of the non-IFRS measures and the corresponding IFRS measures, together with the relevant reconciliations, provide useful information to management and investors regarding present and future business trends relating to our financial condition and results of operations. We do not evaluate our growth and performance without considering both non-IFRS measures and the comparable IFRS measures. We caution the readers of our financial reports to follow a similar approach by considering our non-IFRS measures only in addition to, and not as a substitute for or superior to, revenue or other measures of our financial performance prepared in accordance with IFRS.
Free Cash Flow
We use our free cash flow measure to estimate the cash flow remaining after all expenditures required to maintain or expand our organic business have been paid off. This measure provides management with supplemental information to assess our liquidity needs. We calculate free cash flow as net cash from operating activities minus purchases, other than purchases made in connection with business combinations, of intangible assets and property, plant, and equipment.
Free Cash Flow
€ millions | 2012 | 2011 | Change | |||||||||
Net cash flows from operating activities | 3,822 | 3,775 | 1 | % | ||||||||
Purchase of intangible assets and property, plant, and equipment (without acquisitions) | –541 | –445 | 22 | % | ||||||||
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Free Cash Flow | 3,281 | 3,330 | –1 | % |
Part I
Item 1, 2, 3
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
The following table sets forth our selected consolidated financial data as of and for each of the years in the five-year period ended December 31, 2012.2015. The consolidated financial data has been derived from, and should be read in conjunction with, our Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS), presented in “Item 18. Financial Statements” of this report.
Our selected financial data and our Consolidated Financial Statements are presented in euros. Financial data as of and for the year ended December 31, 20122015 has been translated into U.S. dollars for the convenience of the reader.
Part ISelected Financial Data: IFRS
millions, unless otherwise stated | 2015(1) US$ | 2015 € | 2014 € | 2013 € | 2012 € | 2011 € | ||||||||||||||||||
Income Statement Data: Years ended December 31, | ||||||||||||||||||||||||
Cloud subscriptions and support | 2,482 | 2,286 | 1,087 | 696 | 270 | 18 | ||||||||||||||||||
Software licenses and support | 16,210 | 14,928 | 13,228 | 12,809 | 12,532 | 11,012 | ||||||||||||||||||
Cloud and software | 18,693 | 17,214 | 14,315 | 13,505 | 12,801 | 11,030 | ||||||||||||||||||
Total revenue | 22,579 | 20,793 | 17,560 | 16,815 | 16,223 | 14,233 | ||||||||||||||||||
Operating profit | 4,618 | 4,252 | 4,331 | 4,479 | 4,041 | 4,884 | ||||||||||||||||||
Profit after tax | 3,318 | 3,056 | 3,280 | 3,325 | 2,803 | 3,437 | ||||||||||||||||||
Profit attributable to owners of parent | 3,327 | 3,064 | 3,280 | 3,326 | 2,803 | 3,435 | ||||||||||||||||||
Earnings per share(2) | ||||||||||||||||||||||||
Basic in€ | 2.78 | 2.56 | 2.75 | 2.79 | 2.35 | 2.89 | ||||||||||||||||||
Diluted in€ | 2.78 | 2.56 | 2.74 | 2.78 | 2.35 | 2.89 | ||||||||||||||||||
Other Data: | ||||||||||||||||||||||||
Weighted-average number of shares outstanding | ||||||||||||||||||||||||
Basic | 1,197 | 1,197 | 1,195 | 1,193 | 1,192 | 1,189 | ||||||||||||||||||
Diluted | 1,198 | 1,198 | 1,197 | 1,195 | 1,193 | 1,190 | ||||||||||||||||||
Statement of Financial Position Data: At December 31, | ||||||||||||||||||||||||
Cash and cash equivalents | 3,704 | 3,411 | 3,328 | 2,748 | 2,477 | 4,965 | ||||||||||||||||||
Total assets(3) | 44,945 | 41,390 | 38,565 | 27,091 | 26,306 | 23,227 | ||||||||||||||||||
Current financial liabilities(4) | 913 | 841 | 2,561 | 748 | 802 | 1,331 | ||||||||||||||||||
Non-current financial liabilities(4) | 9,427 | 8,681 | 8,980 | 3,758 | 4,446 | 2,925 | ||||||||||||||||||
Issued capital | 1,334 | 1,229 | 1,229 | 1,229 | 1,229 | 1,228 | ||||||||||||||||||
Total equity | 25,296 | 23,295 | 19,534 | 16,048 | 14,133 | 12,689 |
Item 3
SELECTED FINANCIAL DATA: IFRS(1) Amounts presented in US$ have been translated for the convenience of the reader at€1.00 to US$1.0859, the Noon Buying Rate for converting€1.00 into dollars on December 31, 2015. See “Item 3. Key Information – Exchange Rates” for recent exchange rates between the Euro and the dollar.
(2) Profit attributable to owners of parent is the numerator and weighted average number of shares outstanding is the denominator in the calculation of earnings per share. See Note (11) to our Consolidated Financial Statements for more information on earnings per share.
millions, unless otherwise stated | 2012(1) | 2012 | 2011 | 2010 | 2009 | 2008 | ||||||||||||||||||
US$ | € | € | € | € | € | |||||||||||||||||||
Income Statement Data: | ||||||||||||||||||||||||
Software and software-related service revenue | 17,359 | 13,165 | 11,319 | 9,794 | 8,198 | 8,457 | ||||||||||||||||||
Total revenue | 21,392 | 16,223 | 14,233 | 12,464 | 10,672 | 11,575 | ||||||||||||||||||
Operating profit | 5,360 | 4,065 | 4,881 | 2,591 | 2,588 | 2,701 | ||||||||||||||||||
Operating margin in %(2) | 25.1 | 25.1 | 34.3 | 20.8 | 24.3 | 23.3 | ||||||||||||||||||
Profit after tax | 3,722 | 2,823 | 3,439 | 1,813 | 1,750 | 1,848 | ||||||||||||||||||
Profit attributable to owners of parent | 3,722 | 2,823 | 3,438 | 1,811 | 1,748 | 1,847 | ||||||||||||||||||
Earnings per share(2) | ||||||||||||||||||||||||
Basic in € | 3.13 | 2.37 | 2.89 | 1.52 | 1.47 | 1.55 | ||||||||||||||||||
Diluted in € | 3.12 | 2.37 | 2.89 | 1.52 | 1.47 | 1.55 | ||||||||||||||||||
Other Data: | ||||||||||||||||||||||||
Weighted-average number of shares outstanding | ||||||||||||||||||||||||
Basic | 1,192 | 1,192 | 1,189 | 1,188 | 1,188 | 1,190 | ||||||||||||||||||
Diluted | 1,193 | 1,193 | 1,190 | 1,189 | 1,189 | 1,191 | ||||||||||||||||||
Statement of Financial Position Data: At December 31, | ||||||||||||||||||||||||
Cash and cash equivalents | 3,266 | 2,477 | 4,965 | 3,518 | 1,884 | 1,280 | ||||||||||||||||||
Total assets(3) | 35,385 | 26,835 | 23,227 | 20,839 | 13,374 | 13,900 | ||||||||||||||||||
Current financial liabilities(4) | 1,058 | 802 | 1,331 | 142 | 146 | 2,563 | ||||||||||||||||||
Non-current financial liabilities(4) | 5,862 | 4,446 | 2,925 | 4,449 | 729 | 40 | ||||||||||||||||||
Issued capital | 1,621 | 1,229 | 1,228 | 1,227 | 1,226 | 1,226 | ||||||||||||||||||
Total equity | 18,686 | 14,171 | 12,707 | 9,824 | 8,491 | 7,171 |
(3) The large increase in total assets from 2011 to 2012 was mainly due to the acquisitions of SuccessFactors and Ariba in 2012, whereas the large increase in total assets from 2013 to 2014 was mainly due to the acquisition of Concur.
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The balances include primarily bonds, private placements and bank loans. Current is defined as having a remaining life of one year or less; non-current is defined as having a remaining term exceeding one year. The significant increase in non-current |
Part I
Item 3
The sales prices for our ordinary shares traded on German stock exchanges are denominated in euro. Fluctuations in the exchange rate between the euro and the U.S. dollar affect the dollar equivalent of the euro price of the ordinary shares traded on the German stock exchanges and, as a result, may affect the price of the ADRs traded on the NYSE in the United States. See “Item 9. The Offer and Listing” for a description of the ADRs. In addition, SAP AGSE pays cash dividends, if any, in euro. As a result, any exchange rate fluctuations will also affect the dollar amounts received by the holders of ADRs on the conversion into dollars of cash dividends paid in euro on the ordinary shares represented by the ADRs. Deutsche Bank Trust Company Americas is the depositary (the Depositary) for SAP AG’sSE’s ADR program. The deposit agreement with respect to the ADRs requires the Depositary to convert any dividend payments from euro into dollars as promptly as practicable upon receipt. For additional information on the Depositary and the fees associated with SAP’s ADR program see “Item 1212. Description of Securities Other Than Equity Securities – American Depositary Shares.”
A significant portionFor details on the impact of our revenue and expense is denominated in currencies other than the euro. Therefore, fluctuations in the exchange rate between the euro and the respective currencies in which we conduct business could materially affect our business, financial position, income or cash flows. Seefluctuations see “Item 5. Operating and Financial Review and Prospects – Foreign Currency Exchange Rate Exposure” for details on the impact of these exchange rate fluctuations..
The following table sets forth (i) the average, high and low Noon Buying Rates for the euro expressed as U.S. dollars per €1.00€1.00 for the past five years on an annual basis and (ii) the high and low Noon Buying Rates on a monthly basis from July 20122015 through and including March 7, 2013.11, 2016.
Year | Average(1) | High | Low | Average(1) | High | Low | ||||||||||||||||||
2008 | 1.4695 | 1.6010 | 1.2446 | |||||||||||||||||||||
2009 | 1.3955 | 1.5100 | 1.2547 | |||||||||||||||||||||
2010 | 1.3216 | 1.4536 | 1.1959 | |||||||||||||||||||||
2011 | 1.4002 | 1.4875 | 1.2926 | 1.4002 | 1.4875 | 1.2926 | ||||||||||||||||||
2012 | 1.2909 | 1.3463 | 1.2062 | 1.2909 | 1.3463 | 1.2062 | ||||||||||||||||||
2013 | 1.3303 | 1.3816 | 1.2774 | |||||||||||||||||||||
2014 | 1.3210 | 1.3927 | 1.2101 | |||||||||||||||||||||
2015 | 1.1032 | 1.2015 | 1.0524 |
Month | High | Low | ||||||
2015 | ||||||||
July | 1.1150 | 1.0848 | ||||||
August | 1.1580 | 1.0868 | ||||||
September | 1.1358 | 1.1104 | ||||||
October | 1.1437 | 1.0963 | ||||||
November | 1.1026 | 1.0562 | ||||||
December | 1.1025 | 1.0573 | ||||||
2016 | ||||||||
January | 1.0964 | 1.0743 | ||||||
February | 1.1362 | 1.0868 | ||||||
March (through March 11, 2016) | 1.1180 | 1.0845 |
Month | High | Low | ||||||
2012 | ||||||||
July | 1.2620 | 1.2062 | ||||||
August | 1.2583 | 1.2149 | ||||||
September | 1.3142 | 1.2566 | ||||||
October | 1.3133 | 1.2876 | ||||||
November | 1.3010 | 1.2715 | ||||||
December | 1.3260 | 1.2930 | ||||||
2013 | ||||||||
January | 1.3584 | 1.3047 | ||||||
February | 1.3692 | 1.3054 | ||||||
March (through March 7, 2013) | 1.3098 | 1.2988 |
(1) The average of the applicable Noon Buying Rates on the last day of each month during the relevant period.
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The Noon Buying Rate on March 7, 201311, 2016 was US$1.30981.1180 per €1.00.€1.00.
Dividend Distribution Policy
Dividends are jointly proposed by SAP AG’sSE’s Supervisory Board (Aufsichtsrat) and Executive Board (Vorstand) based on SAP AG’sSE’s year-end stand-alone statutory financial statements, subject to approval by the Annual General Meeting of Shareholders. Dividends are officially declared for the prior year at SAP AG’sSE’s Annual General Meeting of Shareholders. SAP AG’sSE’s Annual General Meeting of Shareholders usually convenes during the second quarter of each year. Dividends are usually remitted to the custodian bank on behalf of the shareholder within one business day following the Annual General Meeting of Shareholders. Record holders of the ADRs on the dividend record date will be entitled to receive
Part I
Item 3
payment of the dividend declared in respect of the year for which it is declared. Cash dividends payable to such holders will be paid to the Depositary in euro and, subject to certain exceptions, will be converted by the Depositary into U.S. dollars.
Dividends paid to holders of the ADRs may be subject to German withholding tax. See “Item 8. Financial Information – Other Financial Information – Dividend Policy” and “Item 10. Additional Information – Taxation,” for further information.
Annual Dividends Paid and Proposed
The following table sets forth in euro the annual dividends paid or proposed to be paid per ordinary share in respect of each of the years indicated. One SAP ADR currently represents one SAP AGSE ordinary share.
Accordingly, the final dividend per ADR is equal to the dividend for one SAP AGSE ordinary share and is dependent on the euro/U.S. dollar exchange rate. The table does not reflect tax credits that may be available to German taxpayers who receive dividend payments. If you own our ordinary shares or ADRs and if you are a U.S. resident, refer to “Item 10. Additional Information – Taxation,” for further information.
Dividend Paid per Ordinary Share | ||||||||
Year Ended December 31, | € | US$ | ||||||
2008 | 0.50 | 0.68 | (1) | |||||
2009 | 0.50 | 0.60 | (1) | |||||
2010 | 0.60 | 0.85 | (1) | |||||
2011 | 1.10 | (2) | 1.38 | (1) | ||||
2012 (proposed) | 0.85 | (3) | 1.11 | (3),(4) |
Year Ended December 31, | Dividend Paid per Ordinary Share | |||||||
€ | US$ | |||||||
2011 | 1.10 | (2) | 1.38(1) | |||||
2012 | 0.85 | 1.11(1) | ||||||
2013 | 1.00 | 1.37(1) | ||||||
2014 | 1.10 | 1.22(1) | ||||||
2015(proposed) | 1.15 | (3) | 1.29(3 | ),(4) |
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(1) Translated for the convenience of the reader from euro into U.S. dollars at the Noon Buying Rate for converting euro into U.S. dollars on the dividend payment date. The Depositary is required to convert any dividend payments received from SAP as promptly as practicable upon receipt. (2) Thereof a special dividend of€0.35 per share to celebrate our 40th anniversary. (3) Subject to approval at the Annual General Meeting of Shareholders of SAP SE currently scheduled to be held on May 12, 2016. (4) Translated for the convenience of the reader from euro into U.S. dollars at the Noon Buying Rate for converting euro into U.S. dollars on March 11, 2016 of US$1.1180 per€1.00. The dividend paid may differ due to changes in the exchange rate. |
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The amount of dividends paid on the ordinary shares depends on the amount of profits to be distributed by SAP AG,SE, which depends in part upon our financial performance. In addition, the amount of dividends received by holders of ADRs may be affected by fluctuations in exchange rates (see “Item 3. Key Information – Exchange Rates”). The timing, declaration, amount and amountpayment of any future dividend payments will depend upon our future earnings, capital needs and other relevant factors, in each case as proposed by the Executive Board and the Supervisory Board of SAP AGSE and approved by the Annual General Meeting of Shareholders.
Economic, Political, Social, and Regulatory Risk
Uncertainty in the global economy, financial markets, or political conditions could have a negative impact on our business, financial position, profit, andas well as cash flows, and put pressure on our operating profit.
The ability ofOur business is influenced by multiple risk factors that are both difficult to predict and beyond our customers to invest in our products is dependent on current economic, financial,influence and political conditions. In the mid- to long-term, events such as a
control. These factors include global economic crisis, shifts in government policy,and business conditions, and fluctuations in national currencies, a potential euro area break-up, U.S.currencies. Other examples are political developments and general regulations as well as budgetary constraints or European recession,shifts in spending priorities of national governments.
Macroeconomic developments, such as financial market volatility episodes, global economic crises, chronic fiscal imbalances, slowing economic conditions, or increasing sovereign debts,disruptions in emerging markets, could negatively impactlimit our customers’ ability and willingness to make investmentsinvest in our productssolutions or delay purchases. In addition, changes in the euro conversion rates for particular currencies might have an adverse effect on business activities with local customers and services. partners. Furthermore, political instabilities in regions such as the Middle East and Africa, political crises (such as in Greece or Ukraine), natural disasters, pandemic diseases (such as Ebola in West Africa) and terrorist attacks (such as the attacks in Paris, France, in November 2015) could contribute to economic and political uncertainty.
These events could reduce the demand for SAP software and services, and lead to the following:to:
Delayed purchases, decreased deal size, or cancelations of proposed investments
– | Delays in purchases, decreased deal size, or cancellations of proposed investments |
– | Potential lawsuits from customers due to denied provision of service as a result of sanctioned-party lists or export control issues |
– | Higher credit barriers for customers, reducing their ability to finance software purchases |
– | Increased number of bankruptcies among customers, business partners, and key suppliers |
– | Increased default risk, which may lead to significant impairment charges in the future |
– | Market disruption from aggressive competitive behavior, acquisitions, or business practices |
– | Increased price competition and demand for cheaper products and services |
Any one or more of these developments could reduce our ability to financesell and deliver our software purchases
Increased number of bankruptcies among customers,and services which could have an adverse effect on our business, partners,financial position, profit, and key suppliers
Increased default risk, which may lead to significant impairment charges in the future
Market disruption from aggressive competitive behavior, acquisitions, or business practices
Increased price competition and demand for cheaper products and services
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Economic, financial, or political uncertainty could therefore cause a decline in our revenue and operating profit. As a result, we could fail to achieve our operating profit target.cash flows.
Our international business activities and processes expose us to numerous and potentiallyoften conflicting laws and regulations, policies, standards or other requirements and sometimes even conflicting regulatory requirements, and to risks whichthat could harm our business, financial position, profit, and cash flows.
We are a global company and currently market our products and services in more than 130180 countries and territories in the APJ, EMEA, LatinAmericas (Latin America and North AmericaAmerica); Asia Pacific Japan (APJ); China, Hong Kong, Macau, and Taiwan (Greater China); Europe, Middle East, and Africa (EMEA); and Middle and Eastern Europe (MEE) regions. SalesOur business in these countries areis subject
to numerous risks inherent in international business operations. Among others, these risks include:
Conflict and overlap among tax regimes
Possible tax constraints impeding business operations in certain countries
Expenses associated with the localization of our products and compliance with local regulatory requirements
Operational difficulties in countries with a high corruption perception index
Protectionist trade policies
Regulations for import and export
Works councils, labor unions, and immigration laws in different countries
Data protection and privacy in regard to access by foreign authorities to customer, partner, or employee data
Country-specific software certification requirements
– | Data protection and privacy regulation regarding access by government authorities to customer, partner, or employee data |
– | Data residency requirements (the requirement to store certain data only in and, in some cases, also to access such data only from within a certain jurisdiction) |
– | Conflict and overlap among tax regimes |
– | Possible tax constraints impeding business operations in certain countries |
– | Expenses associated with the localization of our products and compliance with local regulatory requirements |
– | Discriminatory or conflicting fiscal policies |
– | Operational difficulties in countries with a high corruption perceptions index |
– | Protectionist trade policies, import and export regulations, and trade sanctions and embargoes |
– | Works councils, labor unions, and immigration laws in different countries |
– | Difficulties enforcing intellectual property and contractual rights in certain jurisdictions |
– | Country-specific software certification requirements |
– | Challenges with effectively managing a large distribution network of third-party companies |
– | Compliance with various industry standards (such as Payment Card Industry Data Security Standard) |
As we expand further into new countries and markets, these risks could intensify. The application of these laws and regulations to our business is sometimes unclear, subject to change over time, and often conflict among jurisdictions. Additionally, these laws and government approaches to enforcement are continuing to change and evolve, just as our products and services continually evolve. Compliance with these varying laws and regulations could involve significant costs or require changes in products or business practices. Non-compliance could result in the imposition of penalties or cessation of orders due to alleged non-compliant activity. One or more of these factors could negatively impacthave an adverse effect on our operations globally or in one or more countries or regions. Overall, weregions, which could fail to achievehave an adverse effect on our revenue target.business, financial position, profit, and cash flows.
Social and political instability caused by state-based conflicts, terrorist attacks, civil unrest, war, or international hostilities, as well as pandemic disease outbreaks or natural disasters, may disrupt SAP’s business operations.
Terrorist attacks and(such as the attacks in Paris in November 2015) as well as other acts of violence or war, civil, religious, and political unrest (such as in Ukraine, Israel, Syria, and in other parts of the Middle East), orEast, Libya, and in other parts of Africa); natural disasters (such as “Superstorm Sandy”
hurricanes, flooding, or similar events); or pandemic diseases (such as Ebola in West Africa) could have a significant negative impactadverse effect on the relatedlocal economy orand beyond. AnSuch an event that results,could lead, for example, into the loss of a significant number of our employees, or into the disruption or disablement of operations at our locations, and could affect our ability to provide business services.services and maintain effective business operations. Furthermore, this could have a significant negative impactadverse effect on our partners as well as our customers and their investment decisions, which could prevent us from achievinghave an adverse effect on our future revenuereputation, business, financial position, profit, and operating profit target.cash flows.
Market Risks
Our established customers might not buy additional software solutions, subscribe to our cloud offerings, renew maintenance agreements, purchase additional professional services, or they might switch to other products or service offerings (including competitive products).
In 2012,2015, we offered a wide range of support services including SAP MaxAttention, SAP Enterprise Support, and SAP Product Support for Large Enterprises. We continuecontinued to depend materially on the success of our support portfolio and on our ability to deliver high-quality services. Traditionally, our large installed customer base generates additional new software, maintenance, consulting, and training revenue. Despite the high quality and service level of our transformed and expanded service offering in the area of premium support services, we may be unable to meet customer expectations with regards to delivery and value proposition. This may lead to a potentially adverse impact on customer experience. Existing customers might cancel or not renew their maintenance contracts, decide not to buy additional products and services, switchnot subscribe to subscription models,our cloud offerings, or accept alternative offerings from other vendors so that wevendors. In addition, the increasing volume in our cloud business as well as the conversion of traditional on-premise licenses to cloud subscriptions licenses could fail to achievehave a potential negative impact on our maintenance-relatedsoftware and maintenance revenue streams. This could have an adverse effect on our business, financial position, profit, and operating profit target.cash flows.
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The market forsuccess of our Cloud product portfoliocloud computing strategy depends on widespreadmarket perception and an increasing market adoption of our cloud solutions insteadand managed cloud services. Insufficient adoption of on-premise solutions. The market forour solutions and services could lead to a loss of SAP’s position as a leading cloud solutions is at a relatively early stage of development. As a result, if it does not develop or develops more slowly than we expect, our business could be harmed.company.
The market for cloud computing is at an early stageincreasing and shows strong growth relative to the market for our on-premise solutions. Cloud applications may not achieveTo offer a broad cloud service portfolio and sustain high levels of demandgenerate the associated business value for our customers, we have acquired cloud computing companies such as Ariba, Concur, Fieldglass, and market acceptance. Our success will depend on the willingness of organizationsSuccessFactors. Due to increase their use of software as a service. Many companies have invested ongoing contracts and previous
substantial personnel and financial resourcesinvestments to integrate traditional on-premise enterprise software into their businesses, as well as concerns about data protection, security capabilities, and therefore mayreliability, customers and partners might be reluctant or unwilling to migrate to the cloud. We have encountered customers who were unwilling to subscribe to our Cloud product portfolio because they could not install it on their premises.
Other factors that could affect the market acceptance of cloud solutions and services include:
Perceived security capabilities and reliability
Perceived concerns about the ability to scale operations for large enterprise customers
Concerns with entrusting a third party to store and manage critical employee or company-confidential data
The level of configurability or customizability of the software
– | Concerns with entrusting a third-party to store and manage critical employee or company confidential data |
– | Customer concerns about security capabilities and reliability |
– | Customer concerns about the ability to scale operations for large enterprise customers |
– | The level of configurability or customizability of the software |
– | Missing integration scenarios between on-premise products and cloud-to-cloud solutions |
– | Failure to securely and successfully deliver cloud services by any cloud service provider could have a negative impact on customer trust in cloud solutions |
– | Strategic alliances among our competitors in the cloud area could lead to significantly increased competition in the market with regards to pricing and ability to integrate solutions |
– | Failure to get the full commitment of our partners might reduce speed and impact in the market reach |
If organizations do not perceive the benefits of cloud computing, the market for our cloud business might not develop further, or it may develop more slowly than we expect, either of which would adversely affectcould have an adverse effect on our business.business, financial position, profit, reputation and cash flows.
Our market share and profit could decline due to intenseincreased competition, market consolidation and technological innovation as well as new business models in the software industry.
The software industry continues to evolve rapidly and is currently is undergoing a significant shift due to innovations in the areas of mobile,enterprise mobility, cybersecurity, Big Data, hyperconnectivity, the Internet of Things, digitization, supercomputing, cloud computing, and social media. While smaller innovative companies tend to create new markets continuously and expand their reach through mergers, large traditional IT vendors tend to enter such markets mostly through acquisitions.
In 2012, most merger and acquisition activities within the software industry were in cloud computing, social media, database and technology, and analytics. Therefore, SAP is facingfaces increased competition in itsour business environment from traditional as well as new competitors. This competition could result in increasedcause price pressure, cost increases, and loss of market share, which could have an adverse effect on our business, financial position, profit, and cash flows.
Additionally, related to our Applications, Technology, and Services segment, customers could negatively impactchange their buying behavior by accelerating their acceptance of cloud solutions to reduce their investments, which might have a temporary adverse effect on our operating results. Furthermore, the achievementtrend in the market to invest more in cloud solutions might lead to a risk of the potential loss of existing on-premise customers. It may also have a temporary adverse effect on our future operating profit target.revenue due to the number of conversions from on-premise licenses to cloud subscriptions from existing SAP customers in our installed base, as we recognize cloud subscriptions revenue over the respective service provision, and that typically ranges from one-to-three years with some up to five years.
Business Strategy Risks
Demand for our new solutions may not develop as planned and our strategy on new business models and flexible consumption models may not be successful.
Our business consists of new software licenses, software license updates, and support and maintenance fees as well as of cloud subscriptions. Our customers are lookingexpecting to take advantage of technological breakthroughs from SAP without compromising their previous IT investments. Thus, our customers might not realize the expected benefits from these previous investments. Additionally,However, the introduction of new SAP solutions, technologies, and business models areas well as delivery and consumption models is subject to uncertainties. Therefore,uncertainties as to whether customers mightwill be able to perceive the additional value and realize the expected benefits we deliver along our road maps. There is a risk that such uncertainties may lead customers to wait for proof of concept through reference customers or more mature versions first, which might lead toresult in a lower level of adoption of our new solutions, technologies, business models, and businessflexible consumption models, or no adoption at all.
Our Cloud organization recognizes subscription and support revenue from our customers over the term of their agreements, and This could have an adverse effect on our business, depends substantially on customers renewing their agreementsfinancial position, profit, and purchasing additional modules or users from us. Also, anycash flows.
Though downturns or upturns in cloud sales may not be immediately reflected in our operating results, and any decline in our customer renewals would harm the future operating results of theour cloud business.
We recognize cloud subscription and supportsubscriptions revenue overas we provide the duration of our cloud business customer agreements,respective services, which typically range from one to threeone-to-three years with some up to five years. AsThis revenue recognition and our increasing subscription revenues could have a result, most of the respective revenue recognized in a given period originates from agreements entered into in earlier periods. Consequently, a shortfall in demand fortemporary adverse effect on our Cloud portfolio in any period may not significantly impact our cloud subscriptionfinancial position, profit, and support
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revenue for that quarter, but could negatively affect targeted cloud subscription and support revenue in future periods.cash flows.
To maintain or improve our operating results in the cloud business, it is important that our customers renew their agreements with us when the initial contract term expires and purchase additional modules or additional users.
capacities. Our customers have no obligation to renew their subscriptions after the initial subscription period, and we cannot assure that customers will renew subscriptions at the same or at a higher level of service, ifor at all.
Our customers’ renewal rates may decline or fluctuate as a result of a number ofvarious factors, including their satisfaction or dissatisfaction with our cloud product portfolio,solution and services portfolio; our ability to efficiently provide cloud services according to customer expectations and meeting the service level agreements, service availability and provisioning, the integration capabilities of our cloud solutions into their existing IT environment (including hybrid solutions combining both cloud and on-premise solutions); our customer support,support; concerns regarding stable, efficient, and secure cloud operations and compliance with legal and regulatory requirements; our pricing,pricing; the pricespricing of competing products or services,services; mergers and acquisitions affecting our customer base, the effects ofbase; global economic conditions, orconditions; and reductions in our customers’ spending levels.
If our customers do not renew their subscriptions, renew on terms less favorable terms,to us, or fail to purchase additional modules or users, our revenue and billings maywill decline, and we may not realize significantly improved operating results from our customer base. This could have an adverse effect on our business, financial position, profit, and cash flows.
We might failIf we are unable to maintainscale and enhance an effective partner ecosystem.ecosystem, revenue might not increase as expected.
AAn open and vibrant and open partner ecosystem is a fundamental pillar of our success and growth strategy. We have entered into partnership agreements that drive co-innovation on our platforms, profitably expand all our routes-to-marketroutes to market to optimize market coverage, optimize cloud delivery, and provide high-quality services capacity in all market segments. Partners play a key role in driving market adoption of our entire solutions portfolio, by co-innovating on our platforms, embedding our technology, and reselling and/or implementing our software.
TheseIf partners consider our products or services model less strategic and/or financially less attractive compared to our competition and/or less appropriate for their respective channel and target market, if partners fear direct competition by SAP or if SAP fails to establish and enable a network of qualified partners meeting our quality requirements and the requirements of our customers, then, among other things, partners might not do the following:not:
Enable enough resources to promote, sell, and support to scale into targeted markets
Develop a sufficient number of new solutions and content on our platforms
Sufficiently embed our solutions to profitably drive “SAP everywhere” (OEM model)
– | Develop a sufficient number of new solutions and content on our platforms |
– | Provide high-quality products and services to meet customer expectations |
– | Drive growth of references by creating customer use cases and demo systems |
Provide high-quality products and services to our customers
Comply with applicable laws and regulations, resulting in delayed, disrupted, or terminated sales and services
Renew their agreements with us on terms acceptable to us or at all
– | Embed our solutions sufficiently enough to profitably drive product adoption, especially with innovations such as SAP S/4HANA and SAP HANA Cloud Platform |
– | Enable and train sufficient resources to promote, sell, and support to scale to targeted markets |
– | Comply with applicable laws and regulations, resulting in delayed, disrupted, or terminated sales and services |
– | Transform their business model in accordance with the transformation of SAP’s business model in a timely manner |
– | Renew their existing agreements with us or enter into new agreements on terms acceptable to us or at all |
– | Provide ability and capacity to meet customer expectations regarding service provisioning. |
If one or more of these risks materialize, this may have an adverse effect on the demand for our products and services may be adversely impacted,as well as the partner’s loyalty and ability to deliver. As a result, we may not be able to scale our business to compete successfully with other software vendors. As a result, we might not achievevendors, which could have an adverse effect on our revenue target.reputation, business, financial position, profit, and cash flows.
Human Capital Risks
If we do not effectively manage our geographically dispersed workforce, we may not be able to run our business efficiently and successfully.
Our success is dependent on appropriate alignment of our internal and external workforce planning processes and our location strategy with our general strategy. It is critical that we manage our internationally dispersed workforce effectively, taking shortshort- and long-term workforce and skill requirements into consideration. This applies to the management of our internal as well as our external workforce. Changes in headcount and infrastructure needs as well as local legal or tax regulations could result in a mismatch between our expenses and revenue. Failure to do somanage our geographically dispersed workforce effectively could hinder our ability to run our business efficiently and successfully.successfully and could have an adverse effect on our business, financial position, profit, and cash flows.
If we are unable to attract, develop, and retain leaders and employees with specialized knowledge and technology skills, or are unable to achieve internal gender diversity and inclusion objectives, we might not be able to manage our operations effectively and successfully, or develop successful new solutions and services.
Our highly qualified workforce providesis the foundation for our continued success. Competition in our industry for highly-skilled and specialized personnel and leaders, both male and female, is intense. In certain regions and specific technology and solution areas, we havecontinue to set ambitiousvery
high growth targets, specifically in countries and regions such as Brazil,Africa, China, Latin America, and Russia.the Middle East. In the execution of SAP’s strategic priorities, we depend on highly skilled and specialized personnel and leaders, both male and female. Successful maintenance and expansion of our highly skilled and specialized workforce in the area of cloud is a key success factor for our transition to be the leading cloud company. The availability of such personnel is limited and, as a result, competition in our industry is intense and could expose us to claims by other companies seeking to prevent their employees from working for a competitor. If we are unable to identify, attract, develop, motivate, adequately compensate, and retain well-qualified personnel, both male and female,engaged personnel, or if existing
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highly-skilled highly skilled and specialized personnel leave SAP and ready successors or adequate replacements are not available, we may not be able to manage our operations effectively, orwhich could have an adverse effect on our reputation, business, financial position, profit, and cash flows. Furthermore, we may not be able to develop, sell, or implement successful new solutions and services as planned. This is particularly true as we continue to introduce new and innovative technology offerings and expand our business in emerging markets. The lack of appropriate or inadequately executed benefit and compensation programs could limit SAP’s ability to attract or retain qualified employees and lead to financial losses. In addition, SAPwe might not be able to achieve itsour internal gender diversity objectives to increase the number of women in management from 18% in 2010 to 25% by 2017. Finally, hiring such personnel could expose us to claims by other companies seeking to prevent their employees from working for a competitor.
Organizational and Governance-Related Risks
Laws and regulatory requirements in Germany, the United States, and elsewhere have become much more stringent.
As a stock corporationEuropean company domiciled in Germany with securities listed in Germany and the United States, we are subject to European, German, U.S., and other governance-related regulatory requirements. The regulatoryChanges in laws and regulations and related interpretations, including changes in accounting standards and taxation requirements, and increased enforcement actions and penalties may alter the business environment in which we operate. Regulatory requirements have become significantly more stringent in recent years, and some legislation, such as the anticorruption legislation in Germany, the U.S. Foreign Corrupt Practices Act, and the UK Bribery Act, and other local laws prohibiting corrupt payments by employees, vendors, distributors, or agents, is being applied more rigorously. Emerging markets are a significant focus of our international growth strategy. The rules are highly complex. Anynature of these markets presents a number of inherent risks. A failure by usSAP to comply with applicable laws and regulations, or any related
allegations of wrongdoing against us, whether merited or not, could have a significant negative impactan adverse effect on our reputationbusiness, financial position, profit, cash flows and our stock price.reputation.
Non-compliance with applicable data protection and privacy laws or failure to adequately meet the requirements of SAP’s customers with respect to our products and services could lead to civil liabilities and fines, as well as loss of customers and damage to SAP’s reputation.
As a global software and service provider, SAP is required to comply with thelocal laws in the locations wherewherever SAP does business. SAPConsequently, we must ensure that any legal requirements in connection with the provision of products and its subsidiariesservices are facing a surge ofproperly implemented. With regards to data protection and privacy laws and regulations aroundrequirements, significant changes are expected subject to the world, with further changes to be expected in the future, for example, by theupcoming European Data Protection Regulation proposedRegulation. Furthermore, SAP is affected by the consequences of the decision of the European
Commission. Court of Justice (ECJ), which declared Safe Harbor invalid, so that data transfers from within the European Union (EU) to the United States are no longer permitted based on Safe Harbor. This means that acquired SAP affiliates that have not already implemented the requirements for data transfers based on the Standard Contractual Clauses will have to implement these requirements immediately. However, this will be ensured by the implementation of the new Intra Group Agreement that provides a data protection level at the Standard Contractual Clauses within the SAP Group. These laws and regulations amend and supplement existing requirements regarding the processing of personal data that SAP and SAP’sSAP customers need tomust fulfill and which SAPwe must consequently must address with itsour products and services.services, including cloud delivery. Failure to comply with applicable laws or to adequately address privacy concerns of customers, even if unfounded, could lead to investigations by supervisory authorities, civil liability, fines, (in the future, potentially calculated based on the Company’s annual turnover)revenue), loss of customers, damage to our reputation, and could have an adverse effect on our business, financial position, profit, and cash flows.
Further, recent landmark decisions by the ECJ on data protection matters, as well as official statements made by the European data protection supervisory authorities, require SAP to carefully review our globalized business practices. Most importantly, the ECJ on October 6, 2015, ruled that data transfers by European companies to data processors in the United States can no longer be based on Safe Harbor. While SAP has not widely relied upon Safe Harbor, the data protection supervisory authorities have challenged the legality of other transfer mechanisms, such as the Standard Contractual Clauses used by SAP, on the same grounds by which the ECJ has declared Safe Harbor invalid. The data protection
supervisory authorities have threatened to start enforcement activities as early as end of January 2016 against European companies that still transfer data to the United States (or grant U.S. companies remote access to systems containing personal data in the EU) based on a transfer mechanism that the authorities consider invalid. Enforcement activities against SAP or against SAP customers because of services and products that SAP provides with the help of our U.S.-based entities and/or U.S.-based suppliers could lead to fines, civil liability, loss of customers, and damage to SAP’sour reputation, and thereby harm SAP’s business.could have an adverse effect on our business, financial position, profit, and cash flows.
It is conceivable that data transfers to further countries that do not provide a level of data protection and privacy comparable to the European level may be challenged, too.
Failure to respond to meet customer, partner, or other stakeholder expectations or generally accepted standards on climate change, energy constraints, and our social investment strategy could negatively impact SAP’s business, results of operations, and reputation.
Energy and emissions management as well as our social investments are an integral component of our holistic management of social, environmental, and economic risks and opportunities. We have identified related risks in these major areas:
Our solutions and green IT
SAP’s own operations – energy management and other environmental issues such as carbon management, water use, and waste
Social investments focusing on education and entrepreneurship
– | Our solutions |
– | Our own operations – energy management and other environmental issues such as carbon management, water use, and waste |
Because SAP’sour customers, employees, and investors expect a reliable energy and carbon strategy, we have re-emphasizedreemphasized our previously communicated targets, especially our annual carbon2020 target of 480 kilotons for greenhouse gas emissions. If we do not achieve this target,In case these targets cannot be achieved, our customers might no longer recognize SAP for itsour environmental leadership and might buy other vendors’ products and services with the consequence thatservices. Consequently, we could fail to achieve our revenue target. If we do not meet stakeholder expectations in the areas identified, our rating in sustainable investment indexes might decrease, which could have an adverse effect on our reputation, business, financial position, profit, and cash flows.
Unethical behavior and non-compliance with our integrity standards due to intentional and fraudulent employee behavior could seriously harm our business, financial position, profit, and reputation.
SAP’s leadership position in the global market is founded on the long-term and sustainable trust of our stakeholders worldwide. Our heritage is one of corporate transparency, open communication with financial markets, and adherence to recognized standards of
business integrity. The SAP Code of Business Conduct, adopted by the Executive Board on January 29, 2003, and updated as necessary since then, memorialized and supplemented the already existing guidelines and expectations for the business behavior practiced at SAP.
However, we may encounter unethical behavior and non-compliance with our integrity standards due to intentional and fraudulent behavior of individual employees, possibly in collusion with external third parties. In addition to intentional behavior, problems could also arise due to negligence in the adherence to rules and regulations. Unethical behavior and misconduct attributable to SAP could not only lead to criminal charges, fines, and claims by injured parties, but also to financial loss, and severe reputational damage. This could have an adverse effect on our business, financial position, profit, and cash flows.
Principal shareholders may be able to exert control over our future direction and operations.
If SAP AG’sSE’s principal shareholders and the holdings of entities controlled by them vote in the same manner, this could delay, prevent or facilitate a change in control of SAP or other
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significant changes to SAP AGSE or its capital structure. See “Item 7. Major Shareholders and Related-Party Transactions – Major Shareholders” for further information.
U.S. judgments may be difficult or impossible to enforce against us or our Board members.
Currently, except for Bill McDermott Lars Dalgaard and Vishal Sikka,Robert Enslin, all members of SAP AG’sSE’s Executive Board and all members of the Supervisory Board are non-residents of the United States. A substantial portion of the assets of SAP and our Board members are located outside the United States. As a result, it may not be possible to effect service of process within the United States upon non-U.S. resident persons or SAP or to enforce against non-U.S. resident persons judgments obtained in U.S. courts predicated upon the civil liability provisions of the securities laws of the United States. In addition, awards of punitive damages in actions brought in the United States or elsewhere might be unenforceable in Germany.
Communication and Information Risks
Our controls and efforts to prevent the unauthorized disclosure of confidential information might not always be effective.
Information classified as “confidential” or “strictly confidential” that isConfidential information and internal information related to topics such as our strategy, new technologies, mergers and acquisitions, unpublished financial results, or personal data, could be prematurely or inadvertently disclosed. For some of these events, thisdisclosed and subsequently lead to market
misperception and volatility. This could require notification ofus to notify multiple regulatory agencies and comply with applicable regulatory requirements and, where appropriate, the data owner, which could result in a loss of reputation for SAP. For example, breachedleaked information during a merger or acquisition deal could cause the loss of our deal target, or our share price could declinereact significantly in case of prematurely published financial results. This could also negatively impacthave an adverse effect on our market position and lead to fines and penalties. In addition, this could prevent us from achievinghave an adverse effect on our operatingbusiness, financial position, profit, target.and cash flows.
Financial Risks
Our sales are subject to quarterly fluctuations and our sales forecasts may not be accurate.
Our revenue and operating results can vary and have varied in the past, sometimes substantially, from quarter to quarter. Our revenue in general, and in particular our software revenue in particular, is difficult to forecast for a number of reasons, including:
The relatively long sales cycles for our products
The large size, complexity, and extended timing of individual license transactions
The introduction of new licensing and deployment models such as cloud subscription models
The timing of the introduction of new products or product enhancements by SAP or our competitors
Changes in customer budgets
Decreased software sales that could have a significant negative impact on related maintenance and services revenue
Timing, size, and length of a customer’s services projects
Deployment models that require the recognition of revenue over an extended period of time
Seasonality of a customer’s technology purchases
Limited visibility into the ability of acquired companies to accurately predict their sales pipelines and the likelihood that the projected pipeline will convert favorably into sales
Other general economic, social, environmental, and market conditions, such as the global economic crisis and the current difficulties for countries with large debt
– | The relatively long sales cycles for our products |
– | The large size, complexity, and extended timing of individual customer transactions |
– | The introduction of licensing and deployment models such as cloud subscription models |
– | The timing of the introduction of new products or product enhancements by SAP or our competitors |
– | Changes in customer budgets |
– | Decreased software sales that could have an adverse effect on related maintenance and services revenue |
– | The timing, size, and length of customers’ services projects |
– | Deployment models that require the recognition of revenue over an extended period of time |
– | Adoption of, and conversion to, new business models leading to changed or delayed payment terms |
– | Seasonality of a customers’ technology purchases |
– | Limited visibility during the ongoing integration of acquired companies into their ability to accurately predict their sales pipelines and the likelihood that the projected pipeline will convert favorably into sales |
– | Other general economic, social, environmental, and market conditions, such as a global economic crisis and difficulties for countries with large debt |
Since many of our customers make their IT purchasing decisions near the end of calendar quarters, and with a significant percentage of those decisions being made during our fourth quarter, even a small delay in purchasing decisions for our on-premise software could have a significant negative impactan adverse effect on our revenue results for a given year. Our dependence on large transactions has decreased in recent years with a trend towards an increased number of transactions coupled with a decrease in
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deal size. However, the loss or delay of one
or a few large opportunities which are still characteristic of the large enterprise segment, could have a significant negative impactan adverse effect on our results in terms of failure to achieve our revenue target.business, financial position, profit, and cash flows.
External factors could impact our liquidity and increase the default risk associated with, and the valuation of, our financial assets.
AnMacroeconomic factors such as an economic downturn (for example, resulting from the euro area crisis) could have a significant negative impactan adverse effect on our future liquidity. We use a globally centralized financial management to control financial risk, such as liquidity, exchange rate, interest rate, counterparty, and equity price risks. The primary aim is to maintain liquidity in the SAP Group at a level that is adequate to meet our obligations at any time. Our total groupGroup liquidity was €2,492 million on December 31, 2012. This position is supported by our strong operating cash flows, of which a large part is recurring, and by credit facilities onfrom which we can draw if necessary. However, an economic downturnadverse macroeconomic factors could increase the default risk associated with the investment of our total group liquidity. ThatGroup liquidity including possible liquidity shortages limiting SAP’s ability to repay financial debt. This could have a significant negativean impact on the valuationvalue of our financial assets, includingwhich could have an adverse effect on our trade receivables. SAP’s investment policy with regard to total Group liquidity is set out in our internal treasury guideline document, which is a collection of uniform rules that apply globally to all companies in the Group. Among its stipulations, it requires that with limited exceptions we invest only in assetsbusiness, financial position, profit, and funds rated BBB flat or better. The weighted average rating of the investments of our total group liquidity is in the range A to A-. We continue to pursue a policy of cautious investment characterized by wide portfolio diversification with a variety of counterparties, predominantly short-term investments, and standard investment instruments.cash flows.
Management’sManagement use of estimates could negatively affect our business, financial position, profit, and cash flows.
To comply with IFRS, management is required to make manynumerous judgments, estimates, and assumptions.assumptions (among others for our major patent disputes) that affect the reported financial figures. The facts and circumstances, as well as assumptions on which management bases these estimates and judgments and management’s judgment regarding the facts and circumstances, may change from time to time and this could result in significant changes in the estimates.estimates and judgments and, consequently, in the reported financials. Such changes could have an adverse effect on our business, financial position, profit and cash flows.
Current and future accounting pronouncements and other financial reporting standards, especially but not only concerning revenue recognition, may negatively impact theour financial results we present.results.
We regularly monitor our compliance with applicable financial reporting standards and review new pronouncements and drafts thereof that are relevant to us. As a result of new standards, changes to existing standards (including the new IFRS 15 on revenue from contracts with customers that we will need to adopt in 2018) and changes in their interpretation, we might be required to change our accounting policies, particularly concerning revenue recognition, to alter our operational policypolicies so that it reflectsthey reflect new or amended financial reporting standards, or to restate our published financial
statements. Such changes may have an adverse effect on our reputation, business, financial position, and profit, or cause an adverse deviation from our revenue and operating profit target.
Because we conduct operations throughout the world, our business, financial position, profit, and cash flows may be affected by currency and interest rate fluctuations.
Our Group-wide management reporting and our external financial reporting are both in euros. Nevertheless, a significant portion of our business is conducted in currencies other than the euro. Approximately 72%74% of our revenue in 20122015 was attributable to operations outside the euro area and was translated into euros. Consequently, period-over-period changes in the euro rates for particular currencies can significantly affect our reported revenuerevenues, profits and income.cash flows. In general, appreciation of the euro relative to another currency has a negativean adverse effect while depreciation of the euro relative to another currency has a positive effect. Variable interest balance-sheet items are also subject to changes in interest rates. For more information aboutSuch changes may have an adverse effect on our currencybusiness, financial position, profit and interest-rate riskscash flows or cause an adverse deviation from our revenue and our related hedging activity, see the Notes to the Consolidated Financial Statements section, Notes (25) and (26).operating profit target.
The cost of using derivative instruments to hedge share-based payments may exceed the benefits of hedging them.
We use derivative instruments to reduce the impact of our share-based payments on our income statement and to limit future expense associated with those plans. We decide case by case whether and to what extentBased on a defined hedging strategy, we should hedge this risk.align the decision of individual hedging transactions with the Group CFO in the Treasury Committee. The expense of hedging the share-based payments could exceed the benefit achieved by hedging them. Additionally,On the other hand, a decision to leave the plans materially unhedged could prove disadvantageous. This could have an adverse effect on our business, financial position, profit and cash flows or cause an adverse deviation from our revenue and operating profit target.
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The market price for our ADRs and ordinary shares may be volatile.
The tradingmarket prices of our ADRs and ordinary shares have experienced and may continue to experience significant volatility in response to various factors including, but not limited to:
– | unauthorized or inadvertent premature disclosure of confidential information, including information concerning pending acquisition negotiations or acquisition rumors; |
the announcement of new products or product enhancements by us or our competitors;
technological innovation by us or our competitors;
quarterly variations in our results or our competitors’ results of operations or results that fail to meet market expectations;
the announcement of new products or product enhancements by us or our competitors;
changes in revenue and revenue growth rates on a consolidated basis or for specific geographic areas, business units, products or product categories;
changes in our externally communicated outlook;
changes in our capital structure, for example due to the potential future issuance of addition debt instruments;
general market conditions specific to particular industries;
litigation to which we are a party
general and country specific economic or political conditions (particularly wars, terrorist attacks, etc.);
proposed and completed acquisitions or other significant transactions by us or our competitors; and
general market conditions.
– | the announcement of new products or product enhancements by us or our competitors; |
– | technological innovation by us or our competitors; |
– | quarterly variations in our results or our competitors’ results of operations or results that fail to meet market expectations; |
– | changes in revenue and revenue growth rates on a consolidated basis or for specific geographic areas, business units, products or product categories; |
– | changes in our externally communicated outlook; |
– | changes in our capital structure, for example due to the potential future issuance of additional debt instruments; |
– | general market conditions specific to particular industries; |
– | litigation to which we are a party; |
– | general and country specific economic or political conditions (particularly wars, terrorist attacks, etc.); |
– | proposed and completed acquisitions or other significant transactions by us or our competitors; and |
– | general market conditions. |
Many of these factors are beyond our control. In the past, companies that have experienced volatility in the market price of their stock have been subject to shareholder lawsuits, including securities class action litigation. Any such lawsuits against us, with or without merit, could result in substantial costs and the diversion of management’s attention and resources, resulting in a decline in our results of operations and our stock price.
Project Risks
Implementation of SAP software often involves a significant commitment of resources by our customers and is subject to a number of significant risks over which we often have no control.
A core element of our business is the successful implementation of software solutions to enable our customers to makemaster complexity and help our customers’ business run at their business a best-run business.best. The implementation of SAP software is led by SAP, by partners, by customers, or by a combination thereof. Depending on various factors, such as the complexity of solutions, the customer’s implementation, integration and migration needs, or the resources required, SAP faces a number of different risks. For example, functional requirement changes, delays in timeline, or deviation from recommended best practices may occur during the course of a project. These scenarios have a direct impact on the project resource model and on securing adequate internal personnel or consultants in a timely manner and could therefore prove challenging.
As a result of these and other risks, SAP and/or some of our customers have incurred significant implementation
costs in connection with the purchase and installation of SAP software products. Also, some customers’Some customer implementations have taken longer than planned. We cannot guarantee that we can reduce or eliminate protracted installation or significant third-party consulting costs, for example, that trained consultants will be readily available, that our costs will not exceed the fees agreed in fixed-price contracts, or that customers will be satisfied with the implementation.implementation of our software and solutions. Unsuccessful, lengthy, or costly customer implementation and integration projects could result in claims from customers, harm SAP’s reputation, and cause a loss of futurecould have an adverse effect on our business, financial position, profit, as well as the failure of SAP to achieve its operating profit target.and cash flows.
Product and Technology Risks
There is a risk that undetectedUndetected security vulnerabilities shipped and deployed within our software products might cause customer damage.damage to SAP and our customers, and partners.
Customer systems or systems operated by SAP itself to provide services could potentially be compromised by vulnerabilities if they are
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exploited by hackers. This could lead to theft, destruction, or abuse of data, or systems could be rendered unusable (such as(for example, due to distributed denial of service attack)attacks). IfThe detection of security vulnerabilities in our software, our customers’ systems, or SAP systems used in the provision of services, to customers are exploited by hackers, thisespecially in case of exploitation, could prevent us from meeting our contractual obligations as well as harm our reputation, and adversely impactsubsequently might lead to customer claims and reputational damage, which might have an adverse effect on our business, financial position, profit, and cash flows.
Undetected defects or delays in the introduction of new products and product enhancements could increase our costs, and reduce customer demand.
To achieve market acceptanceOur development investment, including new product launches and high customer satisfaction, our new products and product enhancements, often require long development and testing periods. Development work and market introduction areis subject to risks. For example, software products and services might not completely meet our stringent qualityhigh-quality standards, including security standards; might not fulfill market needs or customer expectations,expectations; or might not comply with local standards and requirements. Furthermore, this risk also exists with respect to acquired companies’ technologies and products where we might not be able to manage these as quickly and successfully as expected. Therefore, market launches, entering new markets, or the introduction of new innovations could be delayed or not be successful.
Also,In addition, new products and cloud offerings, including third-party technologies we have licensed and open source software components we use in those products, could contain undetected defects or they might not be mature enough from the customer’s point of view for business-critical solutions. The detection and correction of any defects especially after delivery could be expensive and time-consuming and we might not be able to meet the expectations of customers regarding time and quality in the defect resolution process. In some circumstances, we might not be in a position to rectify such defects or entirely meet the expectations of customers, specifically as we are expanding our product portfolio towardsinto additional markets. As a result, we might be faced with customer claims for cash refunds, damages, replacement software, or other concessions. The risk of defects and their adverse consequences could increase as we seek to introduce a variety of new software products simultaneouslyand product enhancements at a higher innovation rate. This is especially relevant for cloud products as delivery cycles are even shorter (up to daily deliveries) and our complete cloud product customer base could receive undetected defects simultaneously. Furthermore, for products that use third-party (not SAP) cloud services, we cannot detect defects in advance. Significant undetected defects or delays in introducing new products or product enhancements could affect market acceptance of SAP software products and lead to failure of SAP to achievecould have an adverse effect on our future operatingreputation, business, financial position, profit, target.and cash flows.
The use of existing SAP software products by customers in business-critical solutions and processes and the relative complexity and technical interdependency of our software products and services create a risk that customers or third
parties may pursue warranty, performance, or other claims against us for actual or alleged defects in SAP software products, in our provision of services, or in our application hosting services. We have in the past been, and may in the future be, subject to warranty, performance, or other similar claims.
Although our contracts generally contain provisions designed to limit our exposure due to actual or alleged defects in SAP software products or in our provision of services, these provisions may not cover every eventuality or be effective under the applicable law. Regardless of its merits, any claim could entail substantial expense and require the devotion of significant time and attention by key management personnel. Publicity surrounding such claims could affect our reputation and the demand for our software.
Changes in our rights to use software, cloud services, and technologies we license from third parties whichthat are an integral part of SAP’s products could increaseslow down time to market and influence our license pricing and therefore the time required to developcompetitiveness with other software vendors. Furthermore, it could diminish our software’s or release products, diminish theircloud functional capabilities or require us to pay higher license fees.and therefore could jeopardize the stability of our solution portfolio offering.
WeThe numerous third-party solutions we have licensed numerous third-party technologies and we usecertain open source software which bothcomponents we use have become an integral part of our product and service portfolio. We depend on those technologiessolutions for the functionality of our software.software and cloud services. Changes to, or the loss of, third-party licenses as well as used open source licenses being construed could significantly increase in the cost of these licenses and significantly reduce software or cloud functionality and/or usability of SAP’s software products.or cloud offerings. As a result, we might incur additional development or license costs to ensure the continued functionality of our products, which could prevent us from meetinghave an adverse effect on our operatingbusiness, financial position, profit, target.and cash flows. This risk increases when we acquirewith each of our acquisitions of a company or a company’s intellectual property assets whichthat had been subject to third-party technologysolution licensing, open source software and product standards less rigorous than our own.
If we are unable to keep up with rapid technological, process and service innovations, and new business models andas well as changing market expectations, we might not be able to compete effectively.
Our future success continues to depend ondepends upon our ability to keep pace with technological and process innovations and new business models, as well as theour ability to
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develop new products and services, enhance and expand our existing products and services. It also depends on our ability to introduce new solutions, technologies,services portfolio, and integrate products and services thatwe obtain through acquisitions. To be successful, we are broadly accepted in the marketrequired to adapt our products and thatour go-to-market approach to a cloud-based delivery model to satisfy changing customer requirements.demand.
We might not be successful in bringing new business models, solutions, solution enhancements, and/or services to market before our competitors. We may also face increasing competition from open source software initiatives in which competitors may provide software and intellectual property free and/or under terms and conditions unfavorable for SAP. In addition, we might not be able to generate enough revenue to offset the significant research and development costs we incur.incur to deliver technological innovations or to offset the required infrastructure costs to deliver our solutions and services as part of our new business models. Moreover, we might not anticipate and develop technological improvements or succeed in adapting our products, services, processes, and business models to technological
change, changing regulatory requirements, emerging industry standards, and changing customer requirements.requirements of our customers and partners. Finally, we might not succeed in producing high-quality products, enhancements, and releases in a timely and cost-effective manner to compete with products, solutions, and other technologies offered by our competitors.competitors, which could have an adverse effect on our reputation, business, financial position, profit, and cash flows.
Our technology and/or product strategy mightmay not succeedbe successful or our customers and partners might not adopt our technology platform offering if we are unable to keep up with technologicalplatforms and other innovations or successfully compete in the market.accordingly.
We offer customers a broad portfolio of products, solutions, and services. Our technology strategy centers on the SAP HANA as a real-time in-memory computing platform, a real-time platform for analytics and applications. Itsapplications, the SAP S/4HANA suite as the digital core, the business network, and SAP HANA Cloud Platform as our platform-as-a-service offering. The success of our technology strategy depends on the convergence with SAP Mobile Platform, our cloud platform, and the SAP NetWeaver technology platform as well as the delivery of SAP solutions based on the SAP HANA platform.new digital framework, as our technology continues to deliver business value to meet changing customer expectations. Our technology strategy also relies on our ability to maintain a dynamic network of ISVspartner organizations developing their own business applications using our platform technology.technology platforms.
We might not be successful in integrating our platforms, enabling the complete product and cloud service portfolio, for SAP HANAharmonizing our user interface design and technology, integrating acquired technologies, or bringing new solutions based on the SAP HANA platform as well as SAP HANA Cloud Platform to the market as fast as expected.expected, in particular, innovative applications such as SAP S/4HANA. In addition, we may not be able to compete effectively in the area of cloud services and our new applications and services might not meet customer expectations. As a result, our partner organizations and customers might not adopt the SAP HANA platformour technology platforms, applications, or cloud services quickly enough or they might consider competitive solutions. This could have an adverse effect on our reputation, business, financial position, profit, and our competitors could introduce successful in-memory solutions to the market faster than us. As a result, we might not achieve our revenue target.cash flows.
Our cloud offerings might be subject to a security attack, become unavailable, or fail to perform properly.
The software used in our Cloudcloud portfolio is inherently complex and any defects in product functionality, data center operations, or system stability that cause interruptions in the availability of our application suiteportfolio could result in the following:
– | Lost or delayed market acceptance and sales |
– | Breach of warranty or other contract breach or misrepresentation claims |
Lost or delayed market acceptance and sales
Breach of warranty or other contract breach or misrepresentation claims
Sales credits or refunds to our customers
Loss of customers
Diversion of development and customer service resources
Injury to our reputation
– | Sales credits or refunds to our customers or partners |
– | Loss of customers and/or partners |
– | Diversion of development and customer service resources |
– | Breach of data protection and privacy laws and regulations |
– | Customers considering competitive cloud offerings |
– | Loss of customer satisfaction and brand reputation |
The costs incurred in correcting any defects or errors might be substantial and could adversely affecthave an adverse effect on our operating results.reputation, business, financial position, profit, and cash flows. The availability of our cloud applications could be interrupted by a number of factors, resulting in customers’ inability to access their cloud applications, system outages, failure of our network due to human or other errors, security breaches, or variability in user traffic for our cloud applications. Because of the large amount of data that we collect and manage, it is possible that hardware failures, defects in our software, or errors in our systems could result in data loss or corruption, or cause the information that we collect to be incomplete or contain inaccuracies that our customers regard as significant. Furthermore, the availability of our application suite could be interrupted by a number of factors, including customers’ inability to access the Internet, the failure of our network or software systems due to human or other error, and security breaches, or variability in user traffic for our application suite. Additionally, any loss of the right to use hardware purchased or leased from third parties could result in delays in our ability to provide our application suitecloud applications until equivalent technology is either developed by us or, if available, identified. Furthermore, our cooperation with partners in the area of cloud includes the co-location of data centers that might expose SAP to additional risks in the area of security and data protection, as well as the potential for breached service-level agreements by partners.
While weWe have administrative, technical, and physical security measures in place as well as contracts that require third partythird-party data centers to have appropriate security and data protection and privacy measures in place,place. In this context, customers might demand to use only specific and/or local data centers. However, if these security measures are breached as a result of third-party action, employee error or malfeasance, or otherwise, and if, as a result, someone obtains unauthorized access to our customers’ data, includingwhich may include personally identifiable information regarding users, our reputation could be damaged, our business may suffer, local data protection and privacy laws or regulations might be breached, and we could incur significant liability.
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In addition, our insurance coverage might not cover claims against us for loss or security breach of data or other indirect or consequential damages anddamages. Moreover, defending a suit, regardless of its merit, could be costly and time-consuming. In addition to potential liability, if we experience interruptions in the availability of our application suite,cloud applications, our reputation could be harmed and we could lose customers. As a result, we might not achieve our revenue and operating profit target.
Operational Risks
Third parties have claimed, and might claim in the future, that we infringe their intellectual property rights, which could lead to damages being awarded against us and limit our ability to use certain technologies in the future.
We continue to believe that we will increasingly be subject to intellectual property infringement claims as the number of products in our industry segment grows,solution portfolio grows; as we acquire companies with increased use of third-party code including open source code,code; as we expand into new industry segmentsindustries with our products,offerings, resulting in greater overlap in the functional scope of products,offerings; and as non-practicing entities that do not design, manufacture, or distribute products increasingly assert intellectual property infringement claims.
Any claims, with or without merit, and negotiations or litigation relating to such claims, could preclude us from utilizing certain technologies in our products, be time-consuming, result in costly litigation, and require us to pay damages to third parties, stop selling or reconfigure our products and, under certain circumstances, pay fines and indemnify our customers.customers, which could have an adverse effect on our business, financial profile, profit, cash flows, and reputation. They could also require us to enter into royalty and licensing arrangements on terms that are not favorable to us, cause product shipment delays, subject our products to injunctions, require a complete or partial redesign of products, result in delays to our customers’ investment decisions, and damage our reputation.
Software includes many components or modules that provide different features and perform different functions. Some of these features or functions may be subject to third-party intellectual property rights. The rights of another party could encompass technical aspects that are similar to one or more technologies in one or more of our products. Intellectual property rights of third
parties could preclude us from using certain technologies in our products or require us to enter into royalty and licensing arrangements on unfavorable or expensive terms.
The software industry is making increasing use of open source software in its development work on solutions. We also integrate certain open source software components from third parties into our software. Open source licenses may require that the software code in those components or the software into which they are integrated be freely accessible under open source terms. Third-party claims may require us to make freely accessible under open source terms a productone of oursour products or non-SAPthird-party (not SAP) software upon which we depend.
Claims and lawsuits against us could have a material negative impactan adverse effect on our business, financial position, profit, cash flows, and reputation.
Claims and lawsuits are brought against us, including claims and lawsuits involving businesses we have acquired. Adverse outcomes to some or all of the claims and lawsuits pending against us might result in the award of significant damages or injunctive relief against us that could hinder our ability to conduct our business.business and could have an adverse effect on our reputation, business, financial position, profit, and cash flows.
The outcome of litigation and other claims or lawsuits is intrinsically uncertain. Management’s view of the litigation may also change in the future. Actual outcomes of litigation and other claims or lawsuits could differ from the assessments made by management in prior periods.periods, which are the basis for our accounting for these litigations and claims under IFRS.
We might not acquire and integrate companies effectively or successfully and our strategic alliances might not be successful.
To expand our business, we have in the past made acquisitions ofacquire businesses, products, and technologies. Wetechnologies, and we expect to continue to make such acquisitions in the future. Management’sOver time certain of these acquisitions have increased in size and in strategic importance for SAP, Management negotiation of potential acquisitions and alliances and integration of acquired businesses, products, or technologies demands time, focus, and resources of management and of the workforce. Acquisitions of companies, businesses, and technology expose us to unpredictable operational difficulties, expenditures, and risks. These risks include, among others:
The selection of the wrong integration model for the acquired company
– | Selection of the wrong integration model for the acquired company and/or technology |
– | Failure to properly evaluate the acquired business and its different business and licensing models |
– | Failure to successfully integrate acquired technologies or solutions into SAP’s solution portfolio and strategy in a timely and profitable manner |
– | Failure to integrate the acquired company’s operations across SAP’s different cultures, languages, and local protocols, all within the constraints of applicable local laws |
– | Failure to meet the needs of the acquired company’s customers and partners in the combined company |
– | The diversion of management’s time and attention from daily operations |
– | Loss of key personnel of the acquired business |
– | Material unknown liabilities and contingent liabilities of acquired companies, including legal, tax, accounting, intellectual property, or other significant liabilities that may not be detected through the acquisition due diligence process |
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The failure to integrate the acquired business and its different business and licensing models
The failure to integrate the acquired technologies or products with our current products and technologies
The failure to integrate the acquired company’s operations across SAP’s different cultures, languages, and local protocols, all within the constraints of applicable local laws
The failure to meet the needs of the acquired company’s customers and partners in the combined company
The diversion of management’s time and attention from daily operations
The loss of key personnel of the acquired business
Material unknown liabilities and contingent liabilities of acquired companies, including legal, tax, accounting intellectual property, or other significant liabilities that may not be detected through the due diligence process
Legal and regulatory constraints (such as contract obligations, privacy frameworks and agreements, and so on)
Difficulties in implementing, restoring, or maintaining internal controls, procedures, and policies
Practices or policies of the acquired company that may be incompatible with our compliance requirements
Negative impact on relationships with existing customers, partners, or third-party providers of technology or products
Difficulties in integrating the acquired company’s accounting, human resource, and other administrative systems and coordination of the acquired company’s research and development (R & D), sales, and marketing functions
Debt incurrence or significant cash expenditures
– | Legal and regulatory constraints (such as contract obligations, privacy frameworks, and agreements) |
– | Difficulties in implementing, restoring, or maintaining internal controls, procedures, and policies |
– | Practices or policies of the acquired company that may be incompatible with our compliance requirements |
– | An adverse effect on relationships with existing customers, partners, or third-party providers of technology or products |
– | Difficulties in integrating the acquired company’s accounting, HR, and other administrative systems and coordination of the acquired company’s research and development (R&D), sales, and marketing functions |
– | Debt incurrence or significant cash expenditures |
– | Constraints in enforcing acquired companies’ compliance with existing SAP security standards in a timely manner |
– | Difficulties in customer implementation projects combining technologies and solutions from both SAP and the acquired company |
In addition, acquired businesses might not perform as anticipated, resulting in charges for the impairment of goodwill and other intangible assets on our statements of financial position. Such charges may have a significant negative
impactan adverse effect on operating profit.our business, financial position, profit, and cash flows. We have entered into, and expect to continue to enter into, alliance arrangements for a variety of purposes, including the development of new products and services. There can be no assurance that any such products or services will be successfully developed or that we will not incur significant unanticipated liabilities in connection with such arrangements. We may not be successful in overcoming these risks and we may therefore not benefit as anticipated from acquisitions or alliances.
We may not be able to obtain adequate title to, or licenses in, or to enforce, intellectual property.
Protecting and defending our intellectual property is crucial to our success. We use a variety of means to identify and monitor potential risks and to protect our intellectual property. These include applying for patents, registering trademarks and other marks and copyrights, implementing measures to stop copyright and trademark infringement, entering into licensing, confidentiality, and nondisclosurenon-disclosure agreements, and deploying protection technology. Despite our efforts, we might not be able to prevent third parties from obtaining, using, or selling without authorization what we regard as our proprietary technology and information. All of these measures afford only limited protection, and our proprietary rights could be challenged, invalidated, held unenforceable, or otherwise affected. Some intellectual property might be vulnerable to disclosure or
misappropriation by employees, partners, or other third parties. Also, thirdThird parties might independently develop technologies that are substantially equivalent or superior to our technology. Finally, third parties might reverse-engineer or otherwise obtain and use technology and information that we regard as proprietary. Accordingly, we might not be able to protect our proprietary rights against unauthorized third-party copying or utilization, which could have a material negative impactan adverse effect on our competitive position and our financial position,positions, and result in reduced sales. Any legal action we bring to enforce our proprietary rights could also involve enforcement against a partner or other third party, which may have a material negativean adverse effect on our ability, and our customers’ ability, to use that partner’s or other third parties’ products. In addition, the laws and courts of certain countries may not offer effective means to enforce our intellectual property rights. This could have an adverse effect on our reputation, business, financial position, profit, and cash flows.
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SAP’s business strategy focuses on certain business models that are highly dependent on a working cyberspace. A cyber-securitycybersecurity breach could have a significant negative impactan adverse effect on our customers, our reputation, and our business.
The key cyber-securitycybersecurity risks currently applicable to SAPus include state-driven economic espionage as well as competitor-driven industrial espionage, leakageand criminal activities including, but not limited to, cyberattacks and “mega breaches” against cloud services and hosted on-premise software. This might result in, for example, disclosure of confidential information and intellectual property, defective products, production downtimes, supply shortages, and compromised data and cyber-attacks against on-premise, hosted, and cloud services.(including personal data). A failure of SAP’sour cybersecurity measures could impact our compliance with legal demands (for example, Sarbanes-Oxley Act, Payment Card Industry Data Security Standard, data privacy) and expose SAP’sour business operations andas well as service delivery to the described risks, for example, virtual attack, disruption, damage, and/or unauthorized access. Additionally, SAPwe could be subject to recovery costs, for example, as well as significant contractual and legal claims by customers, partners, authorities, and third-party service providers for damages against us.us, which could have an adverse effect on our reputation, business, financial position, profit, and cash flows.
We may not be able to protect our critical information and assets or to safeguard our business operations against disruption.
SAP is highly dependent on the exchange of a wide range of information across our global operations and on the availability of our infrastructure. There is a danger ofWith regards to our physical environment, we face several key security risks such as industrial and/or economic espionage, serious
and organized crime, and other illegal activities, as well as violent extremism and terrorism. We might be endangered by threats including, but not limited to, social engineering, misuse, or theft of information or assets, or damage to assets by trespassers in our facilities or by people who have gained unauthorized physical access to our facilities, systems, or information. Therefore, we are required to implement several protection measures designed to ensure the security ofThese could have an adverse effect on our information, ITbusiness, financial profile, profit, and facility infrastructure, and other assets.cash flows.
Our insurance coverage might not be sufficient and we might be subject to uninsured losses may occur.losses.
We maintain insurance coverage to protect us against a broad numberrange of risks, at levels we believe are appropriate and consistent with current industry practice. Our objective is to exclude or minimize risk of financial loss at reasonable cost. However, we may incur losses that aremay be beyond the limits, or outside the scope, of coverage of suchour insurance and that may limit or prevent indemnification under our insurance policies. In addition, we might not be able to maintain adequate insurance coverage on commercially reasonable terms in the future.
Further, certain categories of risks are currently not insurable at reasonable cost.cost, which could have an adverse effect on our business, financial position, profit, and cash flows. Finally, there can be no assurance of the financial ability of the insurance companies to meet their claim payment obligations.
We could incur significant losses in connection with venture capital investments.
WeThrough Sapphire Ventures (formerly SAP Ventures), our consolidated venture investment funds, we plan to continue investing in new and promising technology businesses through our partnership with SAP Ventures.businesses. Many of thesesuch investments initially generate net losses and require additional capital outlayexpenditures from their investors. Changes to planned business operations have, in the past affected, and also may in the future affect, the performance of companies in which SAPSapphire Ventures holds investments, and that could negatively affecthave an adverse effect on the value of our investments in SAP Ventures. Moreover, forSapphire Ventures, which could have an adverse effect on our business, financial position, profit, and cash flows. Furthermore, tax purposes, the usedeductibility of capital losses and impairments ofimpairment in connection with equity securities isare often restricted which may adversely affectand could therefore have an adverse effect on our effective tax rate.
Our legal corporate name is SAP AG.SE. SAP AGSE is translated in English to SAP Corporation.European Company (Societas Europaea, or “SE”). SAP AG, formerly known as SAP Aktiengesellschaft Systeme, Anwendungen, ProdukteSE is organized in der Datenverarbeitung, was incorporated under the laws of the Federal Republic of Germany in 1972.under German and European law, see “Item 10. Additional Information.” Where the context requires in the discussion below, SAP AGSE also refers to our predecessors,predecessor or previous legal forms and names, as
the case may be, i.e. Systemanalyse und Programmentwicklung GbR (1972-1976) and, SAP Systeme, Anwendungen, Produkte in der Datenverarbeitung GmbH (1976-1988). SAP AG became a stock corporation (Aktiengesellschaft), “SAP Aktiengesellschaft Systeme, Anwendungen, Produkte in 1988.der Datenverarbeitung” (1988-2005) and “SAP AG” (2005-2014). Our principal executive offices, headquarters and registered office are located at Dietmar-Hopp-Allee 16, 69190 Walldorf, Germany. Our telephone number is +49-6227-7-47474.
As part of our activities to reduce the number of legal entities in the SAP group, in 20122015 we integrated certain subsidiaries into the following significant SAP subsidiaries: SAP (UK) Limited, SAP France S.A., SAP America Inc., SuccessFactors, Inc., SAP Deutschland AG &Japan Co. KGLtd., SAP Australia Pty Limited and SAP (Schweiz) AG.Nederland B.V.
For (i) a (i) description of our principal capital expenditures and divestitures and the amount invested (including interests in other companies) since January 1, 20102013 until the date of this report
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and (ii) information concerning our principal capital expenditures and divestitures currently in progress, including the distribution of these investments geographically and the method of financing, see “Item 4. Information About SAP – Description of Property – Capital Expenditures.”
VISION, MISSION, AND STRATEGYOVERVIEW OF THE SAP GROUP
SAP was foundedFounded in 1972, andSAP today is the worldglobal leader in enterprise applicationsbusiness application and analytics software in terms of software and software-related service revenue,market share and the world’s third-largest independent software manufacturer based on market capitalization. Withleader in digital commerce. Further, SAP is the enterprise cloud company with the greatest number of users and the fastest-growing major database company. Our continued growth over more than 232,000four decades is attributable to relentless innovation, a diverse portfolio, our ability to anticipate everchanging customer requirements, and a broad ecosystem of partners. With approximately 300,000 customers in over 180 countries, the SAP Group includes subsidiaries in everyall major countrycountries and employs more than 64,000approximately 77,000 people.
HelpingSAP is headquartered in Walldorf, Germany; our legal corporate name is SAP SE. Our ordinary shares are listed on the World Run Better
The world is experiencing dramatic shifts inFrankfurt Stock Exchange, the economy, technology, demographics,Berlin Stock Exchange and the environment,Stuttgart Stock Exchange. The principal trading market for the ordinary shares is Xetra, the electronic dealing platform of Deutsche Börse AG. American Depositary Receipts (ADRs) representing SAP SE ordinary shares are listed on the New York Stock Exchange (NYSE), and currently each ADR represents one ordinary share. As at December 31, 2015, our market capitalization was€90.1 billion on the DAX and US$97.2 billion on the NYSE. SAP is a member of Germany’s DAX, the Dow Jones EURO STOXX 50, and the rateDow Jones Sustainability Index.
Our company culture puts our customers’ success at the center of change is accelerating. The global middle class is expected to grow to five billion by 2030. This growing population is more connected than ever – an estimated 15 billion devices will be connected by 2015. There are more than one billion people engaged in social networks, and humankind is generating more data than ever. The rapid pace of change has brought wider availability of information, which has led to the consumerization of IT. These changes require companies to pay increasing attention to prudent management of resources and sustainable business models.
Around the globe, there is an ever growing need for people, organizations, institutions, and the world itself, to run better.
In a better-run world, businesses will anticipate and respond to sweeping changes, using knowledge as the key to competitiveness, profitability, and customer empowerment. Governments will be more responsive to their citizens and more transparent in their operations. Consumers will know more about the products they buy, so they can make decisions that fit their lifestyles and their values. And the environment will become a key decision factor.
Our Vision and Mission
SAP’severything we do. With our vision is to help the world run better and improve people’s lives. Our mission islives, and with Run Simple as our operating principle, we focus on helping our customers master complexity, and innovate and transform to help
every customer become a best-runsustainable digital business. We do this by delivering new technology innovations that we believe address today’s and tomorrow’s challenges without disrupting our customers’ business operations: Enterprise mobility will transform consumption of IT; in-memory technology will simplify the IT architecture in the enterprise and drive high-value applications; and the cloud delivery of IT solutions will simplify the consumption of technology and enable business networks. By leveraging our leadership in applications and analytics and combining them with new technology innovations, we can offer solutions that make our customers run better. To help our customers derive value from their SAP solutions in a fast, cost-effective, and predictable way, we also provide professional services and support.
Our Goal: Sustained Business Success
SAP has strong ambitions for sustained business success, both for itself and for its customers. By 2015, we expect to reach more than €20 billion in revenue, with a 35% non-IFRS operating margin. In addition, we aim to see one billion people interacting with our software. Our customers’ IT requirements are complex and ever changing and SAP helps meet this challenge. Consequently, we aim to build a €2 billion Cloud business and remain the fastest-growing database company to complement our market leading on-premise business. Furthermore, in 2013, we aim to increase the indicator for customer success by eight percentage points and the employee engagement index to 82% (2012: 79%), all while minimizing our environmental impact and positively impacting society. These goals affirm our focus on innovation and sustainability and help us deliver on our vision and mission.
Our Strategy: Innovative Solutions for Real-Time Business
SAP seeks to secure the growth of the company primarily through organic innovation of our portfolio product and solutions, focusing on market-leading innovation in five market categories – Applications, Analytics, Cloud, Mobile, and Database and Technology – powered by SAP HANA. We intend to increase SAP’s market leadership in the existing market categories of applications, analytics, and mobile, and to position SAP as a market leader in the new
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categories of cloud and database and technology. Our SAP HANA platform allows our customers to take advantage of real-time in-memory technology across all five market categories. Expanding our partner network offers additional opportunities to develop innovative products and solutions and significantly increases our potential sales channels. Our growth strategy is also supported by mergers and acquisitions to accelerate our innovation strategy.
The world is undergoing a technology-driven revolution in which knowledge is the currency of success. Technology is both a cause and the answer to this change. We believe that we have the right team of highly qualified and motivated employees, the right portfolio of innovative products and solutions, and the right strategy to turn this technology revolution into business evolution for our customers. What’s more, we believe we are well positioned to become known as a knowledge company. By providing end-to-end solutions to our customers, we continuously gain a great deal of business and technology knowledge as well as a deep understanding of industry best practices and value drivers. This knowledge is made available to our customers and partners to help generate business outcomes. The outcome of this strategy not only provides our customers a significant competitive advantage in this ever changing world, but it also helps them operate more sustainably.
For more information about SAP’s vision, mission, and strategy, visitwww.sap.com/corporate-en/our-company. For more information about SAP’s goals, see the Medium-Term Prospects section of the SAP Integrated Report.
BUSINESS ACTIVITY AND ORGANIZATION
Our legal corporate name is SAP AG. SAP is headquartered in Walldorf, Germany. Our management reporting breaks our activities down into two divisions, On-Premise and Cloud, which are further divided into operating segments. Our On-Premise division is comprised of two operating segments, On-Premise Products and On-Premise Services. Our Cloud division is also comprised of two operating segments, Cloud Applications and Ariba. For more information about our segments, see the Notes to the Consolidated Financial Statements section, Note (28).
We derive our revenue from fees charged to our customers for licensing of our on-premise software products, solutions, and the use of our cloud subscription solutions. We also derivesolutions, for licensing of on-premise software products and solutions, and transaction fees for activity on our business networks. Additional sources of revenue from ourare support, consulting,professional services, development, training, and other services.
As at December 31, 2015, SAP markets and distributes itsSE directly or indirectly controlled a worldwide group of 255 subsidiaries in more than 180 countries to distribute our products, solutions, and services primarily through a worldwide network of local subsidiaries, which are licensed to distribute SAP products to customers in defined territories.services. Distributorship agreements are in place with independent resellers in somemany countries.
As of December 31, 2012, SAP AG controlled directly or indirectly 267 subsidiaries. Our subsidiaries perform various tasks on a local basis such as providing sales and marketing, consulting, research and development, cloud delivery, customer support, training, andor administration.
For a complete list of subsidiaries, associates, and other equity investments, see the Notes to the Consolidated Financial Statements section, Note (33).
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The following table illustrates our most significant subsidiaries based on total revenues as of December 31, 2012:2015. All subsidiaries are wholly owned by SAP SE.
Name of Subsidiary | Country of Incorporation |
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Germany | ||||||
SAP Deutschland | Germany | |||||
Rest of EMEA | ||||||
SAP (UK) Limited, Feltham | Great Britain | |||||
SAP (Schweiz) AG, Biel | Switzerland | |||||
SAP France, | France | |||||
SAP Nederland B.V., ‘s-Hertogenbosch | ||||||
SAP Italia Sistemi Applicazioni Prodotti in Data Processing S.p.A., Vimercate | Italy | |||||
United States | ||||||
SAP America, Inc., Newtown Square | ||||||
SAP Industries, Inc., Newtown Square | USA | |||||
SuccessFactors, Inc., South San Francisco | ||||||
Ariba, Inc., Palo Alto | USA | |||||
Concur Technologies, Inc., Bellevue | USA | |||||
Rest of Americas | ||||||
SAP | ||||||
Japan | ||||||
SAP | Japan | |||||
Rest of APJ | ||||||
SAP Australia Pty | ||||||
SAP (Beijing) Software System Co. Ltd., Beijing |
PORTFOLIO OF STRATEGY AND BUSINESS MODEL
Helping our Customers Reimagine their Businesses
The world is experiencing unprecedented change that is transforming both our use of technology and society more broadly. People are connected in ways like never before. Entire industries have been disrupted by innovations that have brought the once unimaginable within reach. Technology trends such as hyperconnectivity, cloud computing, and Big Data go hand-in-hand with social and business trends that are changing how we live and work. Rapid urbanization, the sharing economy, enormous demographic change, and resource scarcity are demanding that leaders of tomorrow adapt to a world in which the pace of change continues to accelerate.
To remain competitive – and create a sustainable competitive advantage – businesses today must become
sustainable digital businesses. In fact, experts across industries know that in the new digital economy, only the most adaptive businesses will prevail. SAP provides what is needed to become a digital business. Our enduring vision is to help the world run better and improve people’s lives. Our vision is not just relevant in this time of change and disruption – it is essential.
Complexity has become a problem of staggering proportions and stands in the way of digital transformation and innovation. It is what keeps companies from turning the trends of our time – from the explosion of data to a rapidly growing middle class – into business opportunities. Becoming a digital business means that companies must first cut through this complexity, as simplicity is a prerequisite for innovation. Companies must make their digital strategy a core part of their business strategy.
We enable organizations to tackle complexity by unlocking their ability to Run Simple. This principle guides everything we do and powers our customers’ transformation into digital businesses. We offer what is required to support this transformation – our deep experience as a leader in enterprise software for more than 40 years; our solutions and services; and our global reach, which includes a base of approximately 300,000 customers across 25 distinct industries; and an ecosystem of thousands of partners.
Our digital approach is built on two critical elements – our SAP Cloud portfolio and the SAP HANA platform. And our strategy to become THE cloud company powered by SAP HANA refers not just to our own transformation but that of our customers – and their customers.
SAP Cloud powered by SAP HANA simplifies consumption and the user experience, while SAP HANA simplifies the IT landscape. SAP HANA enables business processes and analytics to run on the same platform, something that was simply not conceivable even five years ago.
With the release of SAP S/4HANA in 2015, our next-generation business suite, we have brought a new level of performance and simplicity to core business processes. And SAP HANA Cloud Platform is facilitating the development of a much broader and richer landscape of applications to support our customers’ needs.
With these capabilities, SAP partners with companies on every aspect of their digital transformation, helping them run better and improving people’s lives. As they become digital businesses, our customers are becoming more sustainable organizations by improving how they serve their customers, engaging and developing their workforce, increasing transparency of their suppliers’
social performance, using resources more efficiently, and interacting with local communities. Our global business networks expand the world that our customers operate in, connecting them with a vast ecosystem of partners that creates more efficient, powerful, and simpler ways of managing such key functions as procurement, travel, and workforce management.
Furthermore, we connect all of these realms to core business processes, such as finance and logistics, for a seamless and simplified customer experience. And we provide deep industry expertise to help our customers design an IT strategy that best supports their business strategy. While each of these capabilities would bring value on its own, together they set us apart – we are unique in our ability to guide customers on all essential elements of their digital transformation, enabling them to reimagine their business and then realize their vision for the future.
SAP has big ambitions. We measure our success across both financial and non-financial indicators: revenue growth, profitability, customer loyalty, and employee engagement. And we are creating value for our customers by helping them to navigate a changed world so that they can find business opportunities across social, environmental, and economic dimensions.
With our broad portfolio of solutions, we are convinced that we can position our customers for greater success in the digital world. SAP can help our customers better serve their customers with the sophisticated experiences they have come to expect; reach new markets as the world’s cities expand; find new customers as millions of people join the modern economy; and innovate in the face of resource scarcity and ever changing technologies. Most of all, we can help them understand and capitalize on the ways that technology and societal trends intersect, so that – along with SAP – they can not only become better organizations, but also help create a better world.
Creating Societal Impact by Enabling our Customers to Innovate
As a software company that serves many of the world’s leading organizations, we have enormous opportunity to impact people and society by helping our customers innovate, run more efficiently, improve their IT security, and offer new products and services. For example, when major manufacturers gain greater transparency into their energy usage and create more efficient supply chains, they create a more positive impact on society while minimizing impact on environment. When banks offer mobile banking services to people who lack opportunities, they address inequality and promote economic growth. When healthcare companies utilize data in new and faster ways, they help patients gain access to potentially life-saving treatments.
In addition, at SAP and within our ecosystem, we support job creation and economic prosperity through demand for highly qualified workers to develop, sell, implement, and enhance our software for our customers. As our customers grow their own businesses, they also create opportunities for others through new products and services as well as economic growth.
At the heart of realizing these possibilities is our ability to help our customers cut through complexity and direct their resources to the work that matters most: new innovations that help the world run better and improve people’s lives. We work to create long-term value by addressing future needs as well as current ones, with the goal of helping to transform how people use software, conduct business, and live their lives.
To achieve our vision, SAP provides solutions and services to customers throughout the world based on our deep expertise in business processes across industries. As leader of the enterprise software market, we must continually adapt to new technology and business trends. For this reason, we rely on the people of SAP to drive our success – their intellectual and social capital provide us with key knowledge, expertise, and business relationships. Along with the financial capital of our investors, an engaged, highly skilled, and agile workforce is at the core of our business model.
Our organization must be as adaptable as our employees – and in recent years, we have made important shifts to our sales model to accommodate enormous changes in how companies use technology. In the past, our approach was focused on charging a one-time, upfront fee for a perpetual license to our software that is typically installed at the customer site. In addition, the customer usually concludes a support contract covering support, services, and software updates. As we have seen customer preferences evolve, we are increasingly delivering our solutions in the cloud through a software-as-a-service (SaaS) model. Depending on the solution, the customer pays either usage-based or periodic fees to use our software, which is hosted in the cloud, and accesses it over the Internet. Further, we receive transaction fees from business conducted over our business networks.
Despite these shifts, we still rely on the strengths of our direct sales organizations to drive most business development. As a global company, we set our sales go-to-market strategies at the global level, with our regional subsidiaries then adapting and executing them. Our customer-facing employees, in close collaboration with sales support and marketing, drive demand, build pipeline, and enhance relationships with customers. Our marketing efforts cover large enterprises as well as small and midsize enterprises, with our broad portfolio of
solutions and services addressing the needs of customers of all sizes across industries. Additionale-commerce and digitally native offerings further enable a low-touch or no-touch customer journey.
Our business model aligns with and supports our business strategy and puts us in a strong position to drive future growth. By helping organizations transform into digital businesses, we see enormous potential to increase our share of their overall IT spend while providing them with greater value. As our technology unlocks simplicity for our customers, they, in turn, bring new advances to their customers in areas that directly impact people’s lives.
Our Goals for Sustained Business Success
We have strong ambitions for sustainable business success, both for our company and for our customers. We believe the most important indicators to measure this success comprise both financial and non-financial indicators: growth, profitability, customer loyalty, and employee engagement.
Growth: SAP uses various revenue metrics to measure growth. We expect full-year 2016 non-IFRS cloud subscriptions and support revenue to be in a range of€2.95 billion to€3.05 billion at constant currencies (2015:€2.30 billion). Further, we expect full-year 2016 non-IFRS cloud and software revenue to increase by 6% to 8% at constant currencies (2015:€17.23 billion). Looking beyond 2016, we have raised our 2017 ambition to reflect the current currency exchange rate environment and excellent business momentum. Assuming a stable exchange rate environment going forward, SAP now expects non-IFRS cloud subscriptions and support revenue in a range of€3.8 billion to€4.0 billion in 2017. By 2017, SAP continues to expect its rapidly growing cloud subscriptions and support revenue to be close to software license revenue and is expected to exceed software license revenue in 2018. Non-IFRS total revenue is expected to reach€23.0 billion to€23.5 billion in 2017. Our high-level 2020 ambitions remain unchanged, with 2020 non-IFRS cloud subscriptions and support revenue expected to reach€7.5 billion to€8.0 billion and total revenue is expected to be in a range of€26 billion to€28 billion.
Profitability: SAP expects full-year 2016 non-IFRS operating profit to be in a range of€6.4 billion to€6.7 billion at constant currencies (2015:€6.35 billion). We expect non-IFRS operating profit to be in a range of€6.7 billion to€7.0 billion in 2017 and to be in a range of€8.0 billion to€9.0 billion in 2020.
Customer loyalty: SAP uses the Customer Net Promoter Score (NPS) as a key performance indicator (KPI) to measure customer loyalty. We aim to
achieve a Customer NPS score of 25% in 2016 (2015: 22.4%). Due to changes in sampling, resulting from ongoing efforts to implement the survey process holistically in recently acquired entities, the 2015 score is not fully comparable with the prior year score.
Employee engagement: We use the employee engagement index to measure motivation and loyalty of our employees, how proud they are of our company, and how strongly they identify with SAP. We remain committed to achieving 82% employee engagement score in 2016 (2015: 81%).
These four corporate objectives affirm our commitment to innovation and sustainability, and help us deliver on our vision.
In addition to primary KPIs, which directly measure our performance on our four goals, we manage a number of secondary performance indicators, which influence the primary KPIs in a variety of ways.
Our main objectives are presented with more detail throughout the report. For more information on our strategic goals, see the Performance Management System section; Expected Developments section; Customers section; and Employees section.
Our business has historically experienced the highest revenue in the fourth quarter of each year, due primarily to year-end capital purchases by customers. Such factors have resulted in 2015, 2014, and 2013 first quarter revenue being lower than revenue in the prior year’s fourth quarter. We believe that this trend will continue in the future and that our total revenue will continue to peak in the fourth quarter of each year and decline from that level in the first quarter of the following year. Unlike our on-premise software revenues, our on-premise support revenues and cloud subscriptions and support revenues are less subject to seasonality.
PRODUCTS, SOLUTIONS,RESEARCH & DEVELOPMENT, AND SERVICES
Innovative SolutionsUnlocking the Potential of Digital Transformation
For leading companies, the question is no longer whether they need to become a digital business, but how. The role of software has moved beyond enabling the realization of business strategy to becoming an intrinsic part of that strategy. In an increasingly complex landscape – with the amount of stored data doubling every 18 months – speed, innovation, and agility are the new differentiators. It is not just about doing yesterday’s work faster. Companies in every industry must take a unified approach to managing every aspect of their business, and they need solutions whose innovation matches their own ambitions to grow and win in the market.
In 2015, we unveiled one of the most important products in our history: SAP S/4HANA, our next-generation business suite, designed to provide the digital core our customers need to run their entire business in the new digital world. We expect SAP S/4HANA to drive our business for Real-Time Business
SAP’syears to come, enabling companies to integrate their core business processes with running their key operations, from their supply chain to their workforce. With SAP S/4HANA, we provide companies a full business platform to reimagine their businesses and achieve the creation of their own next-generation products and services are packaged into end-to-end solutions that include innovations from
five market categories. These solutions aim to help customers run better by addressing complex business problems or opportunities and helping customers gain a competitive advantageso critical in an ever changing world.
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Productsthe digital economy.
SAP develops innovative products in five market categories: Applications, Analytics, Cloud, Mobile, and Database and Technology.
Applications
SAP’s leadership in enterprise applications has beenS/4HANA creates unique opportunities to simplify the core competence of our company, and continues to fuel our growth for the future.
SAP Business Suite is a business process platform thatIT landscape, helps companies run better and simpler every day.
The core software applications of SAP Business Suite are described below:
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SAP Business Suite powered by SAP HANA is the next generation of our business suite that captures and analyzes data in real time on a single in-memory platform. SAP Business Suite powered by SAP HANA empowers customers to run their business in real time within the window of opportunity to transact, analyze, and predict instantly and proactively in an unpredictable world. This gives companies the ability to translate real-time insights into action immediately, while removing the complexity of redundant system data. Customers can now manage all mission-critical business processes, such as planning, execution, reporting, and analysis, in real time using the same relevant live data.
Analytics
Analytics solutions from SAP enable decision makers at all levels of the business to have a more profound impact on their organizations, and include the following categories:
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Mobile
With SAP Mobile, our customers can deliver secure, real-time, business-critical information to their ecosystems of employees, partners, and customers – on mobile devices. Our mobile development platform creates many opportunities for our partners to develop their own applications for their employees and customers.
Our mobile solutions include:
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Cloud
SAP’s 2012 acquisitions of SuccessFactors and Ariba have allowed us to combine powerful assets from all three companies – including innovative solutions, content and analytics, process expertise, access to a robust business network, and enterprise mobility – to build a comprehensive cloud computing portfolio.
Our cloud applications and suites are delivered as software-as-a-service (SaaS), in which customers pay a subscription fee to use our software. Our cloud offerings are designed to optimize a company’s most critical assets:
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SAP HANA Cloud is a platform-as-a-service (PaaS) designed to help customers, independent software vendors (ISVs), and partners rapidly create innovative software applications to succeed in a world increasingly characterized by enterprise mobility, and social and collaborative business networks. SAP HANA Cloud is powered by SAP HANA, which means it helps customers analyze
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data at the speed necessary to sense and respond to changes in their business networks.
TheAriba portfolio combines cloud-based applications with the world’s largest Web-based business-to-business commerce network, and is used by companies around the globe. Businesses of all sizes use the Ariba Network to connect to their trading partners from any Internet-connected computer or mobile device to buy, sell, and manage their cash efficiently and effectively.
Database and Technology
Our database and technology portfolio provides a comprehensive approach to the orchestration of business applications, no matter how the applications are deployed. Furthermore, SAP harnesses the power of in-memory databases with SAP HANA, which is the data foundation for the next generation of high-performance in-memory computing solutions. The portfolio includes:
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In addition, ourSAP virtualization and cloud management offerings help SAP customers automate SAP systems and landscapes operation, improve business agility, and reduce the total cost of ownership (TCO).with SAP HANA, and provides a simple and role-based user experience. Enterprises can now reduce their data footprint and work with larger data sets in one system to save hardware costs, operational costs, and time as well as reduce complexity.
After launching in February 2015, over 2,700 customers have chosen SAP S/4HANA, with approximately 100 customers live at the end of 2015.
Driving Simplicity and Innovation through SAP HANA and SAP HANA Cloud Platform
Solutions
We combine products into end-to-end industry and line-of-business solutionsSAP HANA remains at the center of our strategy to enablehelp our customers transform their businesses. The SAP HANA platform combines database, data processing, integration, and application platform capabilities in-memory. By providing advanced capabilities such as predictive analytics on the same architecture, it further simplifies application development and processing across Big Data sources and structures.
The SAP HANA Vora engine adds a new dimension to these capabilities, allowing our customers to combine their business data with Big Data managed on Hadoop compute clusters. It simplifies ownership of Big Data and supports faster, interactive, and more precise decision making.
In addition to expanding our own portfolio, we are enabling others to develop a much broader landscape of applications through SAP HANA Cloud Platform, our strategic platform-as-a-service offering. Providing both ease and flexibility, this cloud platform allows our customers and partners to build, extend, run, and sell applications and services in the cloud. It includes infrastructure, data, and storage, as well as a toolbox of platform and application extension services. SAP HANA Cloud Platform also enables connectivity between SAP solutions, including on-premise software such as SAP Business Suite as well as software-as-a-service offerings such as SAP SuccessFactors solutions.
Building on our experience, we are developing a suite of SAP solutions for the Internet of Things (IoT). The functionalities of our SAP HANA Cloud Platform IoT services help accelerate development and deployment, as well as improve the ability to manage real-time IoT and machine-to-machine applications. To support the development of these new innovations, we continue to leverage our customer co-innovation framework, which helps us address the evolving digitization needs of our customers.
The road to becoming a digital business is unique to every organization. Our portfolio supports our customers wherever they are on their most pressingjourney. We want to offer the broadest integration in the industry, with customers seamlessly connecting SAP and third-party software across a range of environments to reduce IT complexity. At the same time, our user experience provides both elegance and ease-of-use across multiple devices and interfaces. Customers also have the benefits of efficiency and flexibility through a variety of deployment models.
Launching SAP S/4HANA
SAP S/4HANA represents a huge step forward in simplifying how applications are built, consumed, and deployed. It provides real-time, mission-critical industry-specific business issues. Our industry-specific solutions comprise productsprocesses across all five market categories – Applications, Analytics, Cloud, Mobile,organizations and Database and Technology. Our line-of-business solutions representlines of business. As a complete offeringbasis, enterprises can now support end-to-end operations across on-premise, on-demand, on-device, social, and analytics assets.key business functions through a fully digitized enterprise management solution named SAP S/4HANA Enterprise Management.
A prime example of our innovations is SAP S/4HANA Finance, a comprehensive solution for the poweroffice of this combination is the newCFO. This solution brings enhanced functionality to a range of key areas – from financial planning and analysis to collaborative finance operations. It also provides our customers with seamless flexibility, with deployment either on premise or in the cloud.
Beyond SAP 360 Customer solution. It harnessesS/4HANA Finance, the poweron-premise edition of in-memory computing, cloud, enterprise mobility, analytics,SAP S/4HANA drives business value in other areas such as materials management as well as sales and collaboration,distribution, among others, taking full advantage of a simplified data model and allows organizations to engage with their customersa responsive user experience.
Innovating for Industries and end consumers beyond the traditional SAP CRM.
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Solutions for Lines of Business
Our line-of-businessAs the market leader in enterprise application software, we offer end-to-end solutions are relevant across allspecific to 25 industries and include the following 1112 lines of business:business, localized by country and for companies of any size.
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Solutions for Industries
In 2012, SAP supported enterprises in 24 industries with solution portfolios that enable industry best-practice processes. In 2013, we will add sports and entertainment as another industry to our portfolio, and we are currently building up that portfolio of offerings, which includes the SAP Sports and Entertainment management solution, as well as an array of mobile apps used by athletes, coaches, and spectators for sailing, tennis, and professional team sports.
Industry Sector | Industry Portfolio | |
Consumer |
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SAP for Life Sciences | ||
SAP for Retail | ||
SAP for Wholesale Distribution | ||
Discrete manufacturing | SAP for Aerospace & Defense | |
SAP for Automotive | ||
SAP for High Tech | ||
SAP for Industrial Machinery & Components | ||
| SAP for Chemicals | |
SAP for Mill Products | ||
SAP for Mining | ||
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| SAP for Oil & Gas | |
SAP for Utilities | ||
| SAP for | |
SAP for | ||
Insurance | ||
Public services | SAP for Defense & Security | |
SAP for | ||
SAP for | ||
| SAP for | |
Public Sector | ||
Services | SAP for Engineering, Construction & Operations | |
SAP for Media | ||
SAP for Professional Services | ||
SAP for | ||
SAP for | ||
| SAP for |
Lines of Business
– | Asset Management |
– | Commerce |
– | Finance |
– | Human Resources |
– | Manufacturing |
– | Marketing |
– | R&D/Engineering |
– | Sales |
– | Service |
– | Sourcing and Procurement |
– | Supply Chain |
– | Sustainability |
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Human capital management (HCM): Our HCM solutions, including SAP Rapid Deployment Solutions
To enable companies to adopt innovations more quickly, SAP Rapid DeploymentSuccessFactors solutions, combine preconfigured software and predefined services with content, such as SAP best practices, templates, tools, and business user enablement.
By providing fixed price and scope implementation services, along with clear business outcomes based on proven best practices, SAP Rapid Deployment solutions deliver faster innovation to our customers and reduce implementation costs and risk.
Solutions for Small Businesses and Midsize Companies
SAP offers a number of targeted solutions for small businesses and midsize companies, including the SAP Business All-in-One solutions, the SAP Business One application, and Edge solutions, which combine business management and business intelligence software. For those who want the benefits of large-scale, integrated business management applications without a complex IT infrastructure, SAP Business ByDesign not only provides a cloud solution, but also a platform that customers can use to build their own solutions. SAP also offers solutions in the cloud, such as SuccessFactors Business Execution Suite, and Ariba’s procurement solutions and Business Network that are relevant for companies of all sizes, including small and midsize enterprises. Additionally, small businesses and midsize companies now have a new option in SAP Business One OnDemand, which is comprehensive, easy to consume, and available with transparent, predictable costs.
For more information about SAP’s portfolio of products, visitwww.sap.com/solutions.
For more information related specifically to our solutions for sustainability, see the SAP Integrated Report online.
SAP Services
SAP Services helps our customers maximizehelp organizations increase the value of their total workforce by developing, managing, engaging, and empowering their people. These solutions address the full range of HR needs, from hiring the right people and managing contingent workers to simplifying the way people work. We focus on delivering a simple and intuitive user experience through mobile device or desktop.
Customer engagement and commerce (CEC): Our CEC solutions comprise SAP investmentsand SAP Hybris software that serve the commerce, marketing, sales, and service lines of business, enabling business-to-business and business-to-consumer companies to provide real-time, consistent, contextual, and relevant experiences to their customers. Regardless of channel or device, these solutions deliver personalized engagement based on context and proven industry expertise and therefore go beyond traditional customer relationship management, which no longer meets the needs of today’s consumer-driven market.
Providing users with Freedom, Flexibility, and Elegant Design
We believe digital transformation must include a focus on the user experience, as expectations by offering higher value realization, faster adoptionour customers – and their customers – have risen enormously in recent years. For many, mobile has become the technology of innovation,choice, providing simple, always-on access to information, processes, and higher efficiencyservices. To that end, key mobile services such as app creation and management, security, and extensibility are available as part of SAP HANA Cloud Platform, giving our customers simple access to the technologies that support new business models.
Providing an elegant, intuitive user experience, SAP Fiori has evolved since its introduction in 2013 into the new user experience (UX) for SAP software. It reflects a broader shift in software design that puts as much focus on how people actually use technology as on specific features and functions. SAP Fiori offers innovative new features such as improved contextual interaction and action-oriented personal notifications. The updated design delivers improvements while staying consistent with our original UX principles of being role-based, responsive, simple, coherent, and delightful.
We were awarded the prestigious Red Dot Award for the SAP Fiori UX design concept in the implementationInteraction Category in September 2015.
Delivering Greater Value through the Power of Business Networks
In today’s hyperconnected business landscape, how companies interact with the outside world is undergoing profound change. At SAP, we are helping to lead this transformation through our business networks, which are helping drive innovation in key areas that impact an organization’s core operations. Our business network strategy is to bring the world’s vast network of partners, suppliers, and services to best-in-class solutions that fulfill the needs of specific lines of business – all within a few clicks. Moving far beyond basic automation, our network solutions are enabling new processes and outcomes for customers. They are also part of a new wave of solutions that are more consumer-friendly and business-ready than in the past.
We recognize that business applications today must deliver an effortless user experience while ensuring that information and data flow back into the business and across networks in a secure way. These applications serve to maintain compliance while enabling choice. They are designed for a more digital, highly mobile, and interconnected world, and help drive greater value for employees, organizations, and the vast networks of partners and individuals they rely on.
Today, our business network portfolio includes SAP Ariba, Concur, and SAP Fieldglass solutions. Each is a leading provider of cloud applications, services, and cloud networks through open platforms that connect internal business processes to a global ecosystem of partners.
The Ariba Network is a leading marketplace used by approximately two million companies to discover, connect, and collaborate over US$740 billion in commerce every year. The network connects companies across the full commerce process – from sourcing through payment settlement. It also provides insights and technology to help companies improve their operations – and to connect and collaborate in new ways that are only possible in a networked environment.
Concur Travel & Expense is the world’s leading travel and expense management system, with more than 32 million users. The Concur system goes beyond the basic automation of expense reports and provides visibility and insights that support better decision making for employee travel and spend, helping businesses to focus on what matters most.
SAP Fieldglass solutions simplify the process of procuring and managing external workforce services. They provide visibility into service providers and non-employee workers and help improve compliance and cost control. As a centralized, single point of access to engage with more than 1.9 million external workers in approximately 130 countries, SAP Fieldglass solutions connect consultancies, staffing firms, independent contractors, and other service providers, so business users can procure services from anywhere in the world with just a few clicks. As an open platform, SAP Fieldglass also connects to financial, HR, payroll, and procurement systems.
Each of these three cloud network companies has made connecting to partners, suppliers, and services through an open platform a core part of their architecture and approach. Ultimately, we aim to go further, connecting all the world’s networks. We are working to create platforms for networks and services that will further transform the business landscape – with the purpose of creating new outcomes, services and experiences that make businesses run more simply and with greater opportunities for innovation.
Providing Real-Time, Advanced Analytics to Drive Better Decision Making
The speed of the digital economy demands that companies make informed decisions faster than ever before, as data can become obsolete in a matter of seconds. SAP HANA has vastly increased the efficiency with which our customers can use analytics to drive decision making. With transactions and analytics combined into a single in-memory platform, our customers can access a “single source of truth” for real-time planning, execution, reporting, analysis, and predictive modeling on very large volumes of data.
In 2015, we further simplified our offering with the introduction of the SAP Cloud for Analytics solution, a software as a service that aims to bring all analytics capabilities together for a richer user experience.
Based on SAP Cloud for Analytics, we also launched SAP Digital Boardroom, a multifaceted solution that offers executive decision makers new ease and elegance in accessing company data in real time, and the ability to engage in what-if queries and create visualizations. Designed to provide far greater transparency to board members, executives, and other decision makers, fully automated business intelligence capabilities in the solution not only improve the quality and speed of reporting, but also facilitate greater trust through more effective collaboration and decision making.
Whether in the cloud, on premise, or a combination of the two, our analytics solutions enable our customers to access immediate, actionable intelligence. Even as data
volumes grow exponentially, companies can simplify their business processes and gain insights to better manage every aspect of their organization – from integrated planning to risk and compliance.
Among other features, key analytics solutions from SAP support:
– | Trusted data discovery and agile visualization to bring reliable data to life in real time through intuitive visualizations |
– | Advanced analytics to combine the power of predictive processing with intuitive modeling and advanced data visualization |
– | Corporate performance management to set and track measurable performance objectives through planning, budgeting, forecasting, and financial consolidation tools |
Research and Development
With businesses shifting at an ever-accelerating pace towards digitalization and the cloud, leading our customers through change is more important than ever before. We do this every day by empowering our employees and collaborating with our customers to develop world-class software and next-generation solutions. SAP Services coversfurther strengthened our global research and development (R&D) efforts in 2015 by investing in our SAP Labs network and the entire end-to-end application lifecycle, from a tight integrationnew SAP Innovation Center Network.
with our development organization, to accelerating innovation and continuous improvementNearly all of our software solutions,products are developed at our 15 SAP Labs locations in 13 countries across the globe. This global reach means that we have access to complete riskleading talent worldwide; in addition, we can collaborate with top universities throughout the world and quality management of a customer’s current installations.
Software-Related Services
SAP Custom Development
SAP Custom Development specializeshave access to major technology hubs as well as diverse and vibrant startup communities. By understanding trends in building individualized software solutions that addressdifferent regions, as well as the unique and mission-criticalspecific needs of our customers and that fit seamlessly with existingoperate there, SAP software. These offerings include custom development engagements, focused business solutions,has a major strategic advantage in developing products and repeatable customer solutions – predefined solutions for niche business needs, as derived from best practices.
Maintenance and Support
We offer a comprehensive tiered maintenance and support model to on-premise customers on a global basis. This support offering primarily includes SAP Standard Support and SAP Enterprise Support. The vast majority of customers choose SAP Enterprise Support.
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SAP’s support portfolio also contains two additional premium maintenance offerings:
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We offer standard support to every customer as part of their subscription to our cloud products. Standard support is designed to help our customers get real value out of SAP Cloud products. Furthermore, customers have the option of choosing premium and platinum support. In the premium and platinum offerings, customers have access to a dedicated support account manager who has an in-depth understanding of customer business processes and objectives.
Professional Services
Consulting Services
We offer consulting services for the planning, implementation, and optimization phase of our business solutions. We are able to provide our services with a strong industry focus and can also deliver solutions at functional or departmental levels. Our consultants engage in the following:
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Education Services
SAP Education offers a complete portfolio of multimodal learning that covers the learning needs of single individuals and organizations, including training-needs analysis, certification assessments, learning software, and tools. We provide a consistent curriculum for learners around the world and deliver these offerings through a number of delivery models, including online e-learning, virtual live classroom, learning on demand, and classroom training. Every year, more than 500,000 individuals are trained by SAP Education, making it one of the largest IT training organizations in the world.
For more information about SAP Services, visit www.sap.com/services-and-support.
For more information about how we handle security and privacy in our products and services, see the SAP Integrated Report online.
SALES, MARKETING, AND DISTRIBUTION
SAP’s primary engine of business development is our direct sales organizations. Sales go-to-market strategies are established at the global level and adapted and executed by the regional subsidiaries (see Business Activity and Organization) in a manner reflective of conditions in the individual countries. Customer-facing employees, in close collaboration with sales support and marketing employees, drive demand, build pipeline, and enhance relationships with customers within all of SAP’s target industries. An extension of its own sales organization, SAP’s extensive ecosystem of partners provides scalability to meet the demand for SAP innovation.future.
In addition we have developed an independent sales and support force through independent value-added resellers. We have also entered into partnerships with major system integration firms, telecommunication firms, and computer hardware providers to offer certain SAP Business Suite applications.
We establish partnerships with hardware and software suppliers, systems integrators, and third-party consultants with the goal of providing customers with a wide selection of third-party competencies. The role of the partner ranges from presales consulting for business solutions to the implementation of our software products to project management and end-user training for customers and, in the case of certain hardware and software suppliers, to technology support.
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Beyond these partnerships, a significant amount of consulting and training regarding SAP solutions is handled by third-party organizations that have no formal relationship or partnership with SAP.
Traditionally, our sales model has been to charge a one-time, upfront license fee for a perpetual license to our software (without any rightsSAP Labs, we also expanded from two SAP Innovation Center locations to future products), whichan SAP Innovation Center Network of 10 locations across four continents. This network is typically installed at the customer site. We now also offera dedicated unit within our solutions in the cloud under a subscription-based licensing modeldevelopment organization that entitles the customer to receive unspecified future software products.
Our marketing efforts cover large, multinational groups of companies as well as small and midsize enterprises. We believe our broad portfolio of solutions and services enables us to meet the needs of customers of all sizes and across industries.
Nothing is more essential to innovation than research and development. It is the source of discoveries that we believe will shape the futureresponsible for identifying new markets for SAP and its customers. And it is a global effort that is highly collaborative, sharply focused on customer value, and led bypioneering game-changing solutions using transformational technologies. Through the SAP Global ResearchInnovation Center Network, we can closely collaborate with customers, partners, and Development Network.academia to explore trends such as machine learning and block chain, among others.
ResearchWe have identified several key markets and opportunities that hold significant revenue potential and allow us to apply our unique capabilities. Currently, areas include future enterprise applications, personalized medicine,
By exploring emerging IT trends, SAP Global Research is
and smart cities. We are tackling a driverrange of innovationchallenges facing these areas, from designing the future of business software to developing new approaches to treating cancer and helping decrease traffic congestion.
Our revitalized research organization has become an applied research entity with its main focus on machine learning for SAPenterprise applications, personalized medicine, in-memory data management, and its ecosystem. The unit explores promising ideas and turns them into prototypes,security. Our new research approach focuses sharply on potential business impact while collaborating with the ultimate goalbest research institutions worldwide for selected topics.
Our innovation stems from many places, and we draw on the ideas of creating product enhancements and new solutions. In addition, it strives to co-innovate in new ways with our customers, partners, start-ups,startups, academia, and, entrepreneurs aroundmost importantly, our own employees. Our overarching goal is to foster organic innovation and support the worldtransformation of great ideas into profitable business. In support of this vision, we established a Company-wide “intrapreneurship” program that enables employees to leverage the diverse knowledge, ability, and expertise that exist outside SAP’sdevelop their ideas in an internal organizations.incubator at SAP.
Based on recent findings, SAP Global Research developed scenarios thatIn addition to our employees, our customers will likely experience in the future,provide us with unique insights about their business models and derived several new research programs from those scenarios. Their immediate focus includes programsdigitization challenges. We also work with customers on digital manufacturing, the trillion node network, social business networks,co-innovation and Big Data.
Contributing to talentcustom development at SAP, SAP Global Research runs its own doctoral program, which is attracting top candidates who wish to work onprojects. Our partners and their dissertationssolutions enhance these efforts in a real-world business context. Following graduation, individuals with PhDs have the opportunity to work in
academia or within SAP. This program has resulted in a numberrange of new patents forways, such as at our company.
Co-Innovation and Living Labs
To meet future challenges, SAP Global Research engages in co-innovation and applied research through a network of SAP Co-Innovation Labs and SAP Living LabsLab locations, on each continent.
SAP Co-Innovation Labs offer an innovative co-development platform for partners and customerswhich support engagements ranging from strategic alliances to collaborate with SAP product and field teams. Through these labs, SAP and key partners offer the latest engineering and system landscapes, fostering a varietyproofs of joint ecosystem projects.
SAP Living Labs are showcase centers attached to research hubs, and seek to provide hands-on, real-life settings to expand on trends in the market.concept.
Initiatives and Results
Significant initiatives by SAP Global Research in 2012 include the following:
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DevelopmentR&D Investment
Global Development, Local Focus
Most of SAP’s development personnel are located in one of 14 SAP Labs located in 12 countries across the world. Each lab consists of main locations that coordinate the activities of the smaller locations within the region. SAP Labs are situated in the major technology hubs in the world, providing SAP a strategic advantage by enabling us to innovate, address the needs of the local markets, scale operations, and attract a rich diversity of talents. In total, SAP has more than 100 locations where development takes place.
In 2012, SAP focused on further using design thinking techniques as an iterative innovation approach that focuses on the customer and supports the project teams during the development process. Design thinking complements the lean methodology by offering frameworks for collaboration and innovation. As a
result, SAP continues to reduce development complexity and improve the development-to-market time for new products (from 13.8 months in 2010 to 7.8 months in 2012). During the development cycles, teams are in constant contact with customers through programs and special events, as well as through customer interactions at our Executive Briefing Centers. Customers come to the centers to talk directly with SAP’s technology leaders and experts, who, in turn, learn how to better serve the needs of our customers.
The SAP Labs network organization fosters a healthy and meaningful communication channel for SAP’s global management. Each lab is designed to function independently and act as a best-run business with a clear mission tailored to the local ecosystem. Labs in fast-growth markets have an additional focus on producing market-relevant solutions that readily meet the needs of the dynamically changing environments.
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The following graphic depicts the SAP Global Research and Development Network and its main locations:
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Research and Development Expenditure
SAP’s strong commitment to research and development (R & D)R&D is also reflected in our expenditures: In 2012,2015, we increased our R & D&D expense (IFRS) by €314€515 million, or 16%, to
€2,2532,845 million (2011: €1,939(2014:€2,331 million). We spent 13.9%13.7% of total revenue on R & D&D in 2012 (2011: 13.6%2015 (2014: 13.3%). Our non-IFRS R & D&D expense as a portion of total operating expenses declined slightly from 19.9%18.5% to 19.2% year on year, which demonstrates an increase in our efficiency.
18.3% year-over-year.
The importance of R & D was also reflected in the breakdown of employee profiles. At the end of 2012,2015, our total full-time equivalent (FTE) count in development work was 18,012 (2011: 15,861)20,938 (2014: 18,908). Measured in FTEs, our R & D&D headcount was 28%27% of total headcount (2011: 28%(2014: 25%). Total R & D&D expense includes not only includes our own personnel costs but also the external cost of works and services from the providers and cooperation partners we work with to deliver and enhance our products. We also incur external costs for translating, localizing, and testing products, for obtaining certification for them in different markets, patent attorney services and fees, strategy consulting, and the professional development of our R & D&D workforce.
Research and Development (IFRS)
Patents
As a market leader in enterprise applications, SAP actively seeks intellectual property protection for innovations and proprietary information. Our software innovations continue to strengthen our market position in enterprisebusiness solutions and services. Our investment in R & D&D has resulted in numerous patents. As at December 31, 2015, SAP holds a total of more than 4,4007,224 validated patents worldwide. Of these, more than 750893 were granted and validated in 2012. Our portfolio includes patent families covering products across all of our five market categories Applications, Analytics, Cloud, Mobile, and Database and Technology.2015.
While our intellectual property is important to our success, we believe our business as a whole is not entirely dependent on any particular patent.
PARTNER ECOSYSTEMGuiding our Customers through Every Step of their Digital Transformation
TheIn addition to creating new solutions for the digital era, we recognize that we must partner with our customers to help them make the most of these innovations based on their unique needs and goals. Through our worldwide service and support, we guide companies at every stage of their digital transformation. We focus on creating and delivering strategies for our customers’ digital journey, accelerating innovation, driving simplification of business and IT, and ensuring that expected business value is realized and continuously optimized.
In 2015, we radically simplified how we engage with our customers and deliver services, greatly harmonizing our portfolio. Under the new SAP partner ecosystemONE Service approach, we also introduced a new commercial model providing one service portfolio, out of one global organization, and under one contract.
We see enormous potential for our customers to simplify their own businesses and seize new opportunities through SAP HANA, with SAP S/4HANA as their new digital core. For this reason, adoption of these innovations is a collaborative, innovative,key pillar in our service and interactive networksupport strategy. To ensure the expected customer outcomes, we offer high-value services tailored to the various customer scenarios supporting the adoption of partners, customers, and individuals.
Through our extensive global relationships, built over the course of four decades, customers have a wide range of providers and resources to choose from for software-related services and support. These include many of the largest names in technology consulting and implementation, as well as smaller firms that offer highly specialized applications and services.
In turn, SAP supports its partners through continual co-innovation, expansion of routes to market (channels), and services capacity.
With more than 12,000 partners as of the end of 2012, we are fueling innovation and providing choices to customers of all sizes, accelerating growth around our five key market categories. Recent examples of our interaction with the partner ecosystem include the following:S/4HANA:
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CollaborationIn mid-2015, we also introduced SAP Activate, an innovation adoption framework to further support the fast and Structureeffective implementation of SAP S/4HANA. Offering a unique combination of SAP Best Practices and guided configuration, the new methodology provides ready-to-run digitized business processes optimized for SAP S/4HANA. It allows customers to flexibly choose the approach for their business needs, from a new implementation to an integration to a migration scenario.
As they continue on their path to digitization, we work with large enterprise customers to forge a co-engineering and co-innovation relationship, so that they can influence and shape existing SAP offerssolutions while gaining early access to product innovation. We help define future software solution standards together with our customers in comprehensive engagements and serve as a numbertrusted advisor during delivery of partner programs to enhance co-innovation and help partners grow their businesses in new ways, while reaching customers through creative new channels. These programs includeinnovative solutions for the following:future.
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SAP views acquisitions as investments in people, technologies,Focusing on Organic Growth and sustained growth. In 2012, SAP made the following acquisitions:
CloudTargeting “Fill-in” Technology through Acquisitions
As SAP prepares itself for the new digital economy, we may make acquisitions that advance our strategic goals. In 2015, SAP acquired Multiposting, a French cloud-computing company with more than 80 employees that provides software for the automatic posting of jobs and internships on the Internet. Multiposting is based in Paris and is a European leader in job posting solutions. With this acquisition, SAP plans to offer customers the best end-to-end cloud recruiting suite on the market, including the ability to efficiently post jobs to a global network of thousands of channels. The Multiposting solution will be available as part of the existing recruiting offering in our human capital management portfolio as well as in all its current forms – as a stand-alone product, as a Web service, and through import.
In February,Organic growth is the primary driver of our growth strategy. We will invest in our own product development and technology innovation, improving the speed, number of projects, and innovations brought to market. We may also acquire targeted and “fill-in” technology and software to add to our broad solution offerings and improve coverage in key strategic markets. By doing so, we completedstrive to best support our customers’ needs for simplified operations. We do not anticipate significant acquisitions in 2016 or 2017.
For more information about our acquisitions, see the acquisition of SuccessFactors, Inc., which delivers innovative solutions, content and analytics, process expertise, and best-practices knowledgeNotes to drive business alignment, team execution, people performance, and learning management to organizations of all sizes across various industries.
In October, we acquired Ariba, Inc., which combines industry-leading cloud-based applications with the world’s largest Web-based
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Other Acquisitions
In February, we acquired software and relevant assets from datango AG, a leading provider of workforce performance support software. This acquisition broadens the SAP software portfolioInvesting in the education market, providing customers with powerful, easy-to-use software tools to help address their end-to-end user training, knowledge management, and performance support challenges. Together, SAP and datango plan to capitalize on a trend in education software toward creating applications that contain tools for authors, such as e-collaboration, along with self-help scenarios and auto-teaching functions.
In June, we acquired Syclo, L.L.C., a providerNext Generation of enterprise mobile apps and technologies. The addition of Syclo’s expertise in building and selling mobile solutions in industries such as utilities, oil and gas, life sciences, and manufacturing enhances SAP mobile solutions. It also accelerates the adoption and deployment of new mobile asset management and field service solutions on SAP Mobile Platform. Syclo offers mobile apps that help companies extend business systems to a wide range of mobile devices and users.
Technology Leaders through Venture Activities
For more than 15 years,Through investments in venture capital funds managed by Sapphire Ventures (formerly called SAP has partnered with renownedVentures), which comprises our consolidated investments in venture funds, SAP supports investments in entrepreneurs worldwide that aspire to build industry-leading businesses andbusinesses. Over the past 19 years, Sapphire Ventures has invested in doing so, we have supported more than one hundred130 companies on five continents. We seek provenSome of these companies have been acquired by third parties or have become publicly listed companies.
Sapphire Ventures aims to invest in the next generation of global category technology leaders as well as early-stage venture capital funds in enterprise and consumer technology. Specifically, Sapphire Ventures pursues opportunities in which it can help fuel their growth by adding our expertise, relationships, geographic reach, and capital. We investIt invests globally with a particular focus on emerging companies and early stage funds in Europe, India,Israel, and the United States, as well as in Brazil, China, and China.India.
SAP’s total commitment to Sapphire Ventures is US$1.4 billion for use over the lifetime of its respective funds. Investments through the funds are currently ongoing.
For more information about our consolidated investment funds, see the Notes to the Consolidated Financial Statements section, Note (33).
Working together to extend SAP’s Reach in the Marketplace
SAP proudly works with a network of more than 13,000 partners worldwide that helps companies of all sizes tackle complexity, grow their business, and Run Simple. SAP partners extend our reach in the marketplace and accelerate our Company’s growth, reaching thousands of new companies and millions of users each year. Our partner community plays an
important role in our success, delivering expertise through pioneering solutions to provide our mutual customers tools to succeed in the developing digital and services-based economy.
Partners add tremendous value to both SAP and customers. They sell our software and cloud services, develop complementary software and solutions, and provide a broad portfolio of implementation and professional services that support customers across all geographies and industries.
Last year we saw outstanding growth in SAP’s partnerships. For example, partners were responsible for nearly 90% of new SAP software customers. SAP Business One, one of our core ERP solutions for small and midsize enterprises (SMEs) and sold exclusively through partners, reached its 50,000th customer. Nearly 55% of all SAP S/4HANA software license deals were won by partners and our cloud revenue through partners reported triple-digit growth. Together with our strategic technology and service partners, we created a number of powerful and compelling joint solutions and services that help customers transform and run their businesses simpler.
In the past year, SAP made several transformational moves designed to increase our joint success in the market, including:
– | SAP SME Solutions: More than 80% of SAP customers are small and midsize enterprises (SMEs), and we support the majority through our partner networks and other channels. To boost our reach, we introduced this SME-specific portfolio marketing approach and a Run Simple advertising and demand generation campaign around our core ERP solutions for SMEs: SAP Business All-in-One, SAP Business ByDesign, and SAP Business One. As growing businesses transform in the digital economy, SAP has equipped partners with these and other tools, solutions, and programs they need to drive more demand in this important market. |
– | SAP Anywhere debut: Late in 2015, we launched SAP Anywhere, a revolutionary cloud solution that allows small businesses to connect with customers anytime, anywhere on any device. It is now available in China and is expected to be introduced in the United Kingdom and the United States in 2016. SAP Anywhere represents a new opportunity for partners. With our commitment to “SAP Anywhere, Everywhere,” our partners can resell a complete cloud-based solution that manages marketing, sales, and e-commerce activities in one complete front-office system using real-time analytics. |
– | SAP PartnerEdge program enhancements: To build stronger relationships and increased business |
opportunities, SAP introduced the next generation of its flagship partner program in 2015. Among the improvements, we reduced the number of partner engagement options from more than 30 to just four – Run, Build, Service, and Sell – making it easier for partners to engage with SAP. We streamlined processes and relaunched the SAP PartnerEdge Web site to give partners easier access to resources and real-time visibility into their SAP business. |
While reselling, implementation, and services are a large part of our ecosystem’s effort, SAP partner innovation on our technology platforms is also essential to market penetration. Partners develop their own applications and solutions called SAP Solution Extensions, which can then be sold to customers and other partners. These partner-developed solutions are tested, validated, approved, and supported by SAP.
In addition, the SAP PartnerEdge program for Application Development, which grew to more than 1,100 active members in 2015, encourages partners to build complementary solutions on top of our technology platforms – and quickly monetize those solutions through SAP e-commerce channels.
Partners also embed SAP technology within their offerings under an original equipment manufacturer (OEM) licensing agreement, giving customers SAP software functionality backed by partner industry knowledge and expertise.
2015 was a seminal year for our partner managed cloud business, where our partner recruitment and enablement success has expanded the number of customers benefiting from the flexibility, rapid time to value, and pay-as-you-go economics of a managed cloud with enterprise-class SAP solutions.
SAP will continue to drive business growth through partners in 2016, continuing to identify and recruit key partners and develop the innovative programs and initiatives that fuel our mutual success.
Helping Customers Run Simple
When SAP customers Run Simple, it improves their ability ultimately to become best-run businesses that create more sustainable business models – which, in turn, help us ensure our own long-term viability. That is why we strive to provide more than just software and services; we continually engage with our customers at every stage – not only during the sales and implementation phases, but also through the sharing of best practices and innovations.
One example of this strategy is our Customer Engagement Initiative. This program offers customers early insight into certain aspects of our planned innovations, so they can influence new developments. In addition, it offers customers the opportunity to network on topics of mutual interest. These networking opportunities take place at a variety of global events, including the SAPPHIRE NOW, SAP Select, SAP Forum, and SAP TechEd conferences, as well as virtual events.
Customer Focus Reflected in Customer Net Promoter Score
Customer loyalty is one of our four Company-wide strategic objectives, along with growth, profitability, and employee engagement. In 2015, our combined on-premise and cloud Customer NPS is 22.4% (2014: 19.1%). Due to changes in sampling, resulting from ongoing efforts to implement the survey process holistically in recently acquired entities, the 2015 score is not fully comparable with the prior year’s score.
Our goal continues to be to best support our customers’ success and the success of SAP. For example, we are expanding on the insights provided by our surveys through root cause analysis to gain a better understanding of customer problems, why they happened, and what needs to be done to prevent those problems from happening again.
Our combined on-premise and cloud NPS target for 2016 is 25%, 2.6 percentage points above our 2015 achievement.
For more information about the Customer NPS, see the Performance Management System section.
Strong Customer Demand
Our strategy focuses on offering solutions and services to help customers Run Simple today and tomorrow. To do so, we offer a spectrum, from complete suites to applications that are lean, focused, quick to implement, and highly mobile. In 2015, we saw customers embrace this strategy by licensing or subscribing to the full range of SAP software, from comprehensive solutions for large enterprises to the latest mobile apps.
Some examples by region include the following customers:
North America and Latin America (Americas) Region
– | Adobe, a multinational computer software company, has chosen the SAP Hybris Billing solution as its monetization and billing platform to support a new SaaS business model. Adobe seeks to support fast subscription-revenue growth on a flexible and scalable platform, while significantly reducing time to launch innovative and flexible offers and promotions. |
– | American Airlines, the world’s largest airline, has selected several SAP SuccessFactors solutions, as |
well as the SAP HANA Enterprise Cloud service and SAP HANA Cloud Platform. The company’s goal is to enhance service to its employees and reduce operating costs while remaining focused on its core business. |
– | Eastman Kodak, a technology company focused on imaging, selected the SAP S/4HANA suite to help reduce total cost of IT ownership. In addition, Kodak plans to establish an IT infrastructure to position its organization for future growth and innovation. |
– | Hewlett Packard Enterprise Company (HPE) has committed to and invested in implementing one of the largest installations of the SAP S/4HANA Finance solution for their internal foundational platform to support its digital transformation. With SAP S/4HANA, HPE aims to be better able to take advantage of real-time access to operational and financial data with the goal of improving the speed of decision making and operating more efficiently; reducing the time for financial close; and delivering actionable intelligence throughout its business. The aim is to ensure HPE becomes more competitive in the marketplace. |
– | Stara, a leader in agricultural machinery headquartered in Brazil, selected SAP HANA Cloud Portal, as well as SAP Cloud for Customer, SAP SuccessFactors Employee Central, and SAP SuccessFactors Talent Management solutions. Stara expects to simplify its business processes while improving sales efficiency through greater control of critical company information. |
Asia Pacific Japan (APJ) Region
– | Boryung Pharmaceutical, one of the leading pharmaceutical manufacturers in South Korea, selected SAP S/4HANA Finance for its simple user experience, simple business solution, simple data model, and shorter go-live time. |
– | La Trobe University in Australia went live with SAP S/4HANA Finance. As one of the first organizations globally to adopt SAP S/4HANA Finance, La Trobe University aims to benefit from instant insight across financial and operational processes to drive value through planning, analysis, prediction and simulation. They have a term for it; they call it “Brilliant Basics.” |
– | Lenovo Group, a multinational computer technology company, is expanding its HANA footprint by moving data from all systems to the SAP HANA platform. |
– | PetroChina, China’s largest oil producer, has implemented SAP Business Warehouse powered by SAP HANA and SAP BusinessObjects Business Intelligence solutions. Since the system went live in late July, HR reporting performance is three to ten times faster than before, which has empowered HR director-level management to make strategic decisions based on Big Data analysis. |
– | St Barbara, an Australian-based, ASX-listed gold producer and explorer, selected the SAP SuccessFactors Performance & Goals solution. The solution has enabled St Barbara to replace its paper-based performance management process with a cloud-based solution that also supports its offshore locations. |
Europe, Middle East, and Africa (EMEA) Region
– | ArcelorMittal, the world’s leading steel and mining company, selected SAP S/4HANA to streamline business processes, improve productivity, and decrease costs. The company seeks to enhance its position by serving an increasingly strong innovation agenda around the world. |
– | Bosch Group, a leading global supplier of technology and services, has chosen SAP S/4HANA to rebuild its IT infrastructure, seeking a simplified and harmonized landscape that helps them offer connected services to customers. |
– | City Football Group (CFG) is the owner of a number of soccer-related businesses including Manchester City Football Club and New York City Football Club. CFG and its clubs will implement a wide variety of cloud-based solutions powered by SAP HANA with the aim of simplifying their worldwide operations, scaling their business, increasing productivity, and enhancing the fan experience. |
– | E.ON Group has chosen the limited runtime edition of SAP HANA; SAP Mobile Platform; and SAP SuccessFactors HCM Suite. The company, which is splitting into two entities, seeks to streamline its system landscape, replace homegrown software, and reduce its on-premise footprint. |
– | Hydro, a global aluminium company based in Norway, selected SAP S/4HANA to “replatform” and renew its IT system landscape. With the suite, Hydro expects to have access to real time information, thereby running at optimal efficiency and safety, which are key elements of its strategic vision. |
Helping Customers Invest
To help companies invest in SAP solutions and associated services and hardware, SAP Payment services offers customers payment plans. SAP Payment services can help preserve liquidity, provide an alternative to credit from customers’ existing banking relationships, and balance their budgetary priorities, while giving them the flexibility to choose their preferred solution.
ENVIRONMENTAL PERFORMANCE: ENERGY AND EMISSIONS
In 2015, we made significant progress toward our goals for the reduction of greenhouse gas emissions, taking advantage of the digitalization and green technology trends that are driving transformational changes across the global economy. These trends can have a significant
impact on energy consumption and greenhouse gas emissions. We are applying these trends to our own business and helping our customers apply them to their businesses. For example, by enabling business model transformation, using advances such as smart grids and the Internet of Things, SAP is helping connected digital business networks reduce overall carbon footprints.
Strengthening our “Green Cloud”
We see that energy consumption in data centers is closely related to innovation and customer adoption of our solutions. As we create solutions foraccelerate our customersshift to better manage resources,the cloud, we must also lookhave tied our business strategy to ourselvesour environmental strategy by creating a completely “green cloud” at SAP, referring to carbon neutrality, by purchasing 100% renewable electricity certificates and improvecompensation by CO2 offsets. In assessing our own environmental performance. Doing so gives us critical insights into the challenges facing our customers as they navigate a resource-constrained world and helps us gain credibility in the market. To fulfill our vision to help the world run better,impact, we must be at the forefront of reducing our emissions and creating new efficiencies.
Our efforts have already benefitted us. We are now providing our customers with a number of solutions to enhance their efficiency,focus on energy usage throughout SAP, as well as track theirgreenhouse gas emissions and energy usage more effectively. We have also expandedacross our innovation to create new efficiencies that directly impact our bottom line: We calculated that, since the beginning of 2008, our sustainability initiatives have contributed to a cumulative cost avoidance of €220 million, compared to a business-as-usual extrapolation.
We assess our progress through four environmental performance indicators that reflect our adaptability, efficiency, and innovation. These indicators also reflect the success of our overall corporate strategy to solve business problems in a resource-constrained world.value chain.
Reducing Greenhouse Gas Emissions
SAP’sOur goal is to reduce its totalthe net greenhouse gas (GHG) emissions from our operations to levels of the year 2000 by 2020. This target includes all direct and indirect emissions from running our operations (scopesbusiness (GHG Protocol Scopes 1 and 2), as well as limiteda selected subset of other indirect (scope(Scope 3) emissions, such as those stemming from business travel. In addition to this long-term goal, SAP has set annual targets. In 2012,emissions. We do not include all of our totalScope 3 emissions decreased slightly to 485 kilotons (2011: 490 kilotons) despite significant growth in our business (revenue from software and software-related services increased 17%). Nonetheless,target because we narrowly missed our targetchoose to reduce ourfocus on those emissions over which we have direct control or ability to 480 kilotons. In addition to measuring our total emissions,influence. However, we also track emissions per employee and emissions per euro revenue. We continued to increase our efficiency based on the emissions per euro revenue for the sixth year in a row. Specifically, our greenhouse gas emissions decreased from 34.4 grams per euro in 2011 to 30.0 grams per euro in 2012. We also reduced our carbon emissions per employee by more than 10% in 2012.
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We also disclose our emissions along our entire value chain – meaning those that stem from the products and services that we buy and sell, in addition to those related to our own operations or business travel. We are actively working to reduceincreasingly addressing both our upstream and downstream emissions to support a comprehensive carbon strategy for SAP.
Specifically, we are working to reduce our emissions through three primary approaches: increasing our operational efficiency combined with innovative approaches to the way we do things; purchasing high-quality renewable electricity certificates; and investing in high-quality carbon credits.
In addition to our long-term commitment for 2020, we have derived annual targets for our internal operational steering. Despite integrating new acquisitions in 2015, our total net emissions decreased to 455 kilotons CO2 (2014: 500 kilotons). This decrease stems primarily from a reduction of business flights and compensation with carbon emission offsets. We are effectively compensating the emissions from those customer systems that have moved into our green cloud. Given the large size of our customers’ CO2 footprints and our growth strategy in the cloud, we see significant potential to reduce both our own and our customers’ environmental impact.
Since the beginning of 2008, our focus on carbon emissions has generated a cumulative cost avoidance of
€346 million, compared to a business-as-usual scenario. This leads to an avoidance of€124 million in the past three years, with€39.8 million avoided in 2015 alone.
Investing in Environmental Innovations
We are pursuing new strategies to contend with the ongoing tension between growth in our business and our goal to reduce our emissions. One such approach is the introduction of carbon emission offsets for business flights in 2015. In addition to avoiding and reducing overall business flights, we began, in the second half of 2015, to offset selected business flights in the United States, as this is the country with the greatest number of business flights. This offset effort resulted in a compensation of 35 kilotons of CO2.
SAP continues to invest in technology that enables virtual collaboration, supporting our efforts to reduce the need for employees to travel. In addition to our TelePresence and video conferencing platforms, new collaboration rooms based on the Skype for Business communications platform bring new features that enable teamwork across borders and time zones. More than 100 collaboration rooms have been installed throughout SAP with more planned for 2016. Because more employees adopt video chat as their preferred method of communication, more than 1,200 meeting spaces have been equipped with 360-degree cameras – giving remote participants a more interactive experience. Skype for Business also enables each employee to video chat from their computer.
To further decrease car-related emissions, we plan to increase the portion of electric vehicles (or alternatives) in our company car fleet from the current 1% to 20% by collaborating2020. At the end of 2015, we have 57 charging stations and 55 pure electric vehicles in our company car fleet at our headquarters in Walldorf, and approximately300 e-cars globally. Our company car initiatives address a dilemma that has grown in recent years. As a result of our business expansion, the number of SAP employees eligible for a company car has increased annually. We want to ensure that we do not undo our efficiency gains with our suppliersgrowing car fleet.
In keeping with our existing policy for office buildings and data centers, all our electric company cars charged at SAP are powered with 100% renewable sources. In Germany, for example, we provide employees with an incentive to switch to electric alternatives by offering a battery subsidy that offsets the costs of using an electric vehicle. We believe that our electric car initiative will play a critical role in helping achieve our 2020 carbon reduction goal.
In 2015, emissions caused by SAP products in use at the sites of more than 300,000 customers on new approacheswere almost
15 times larger than SAP’s own footprint, meaning these products caused approximately 6,800 kilotons of CO2. By using 100% renewable electricity, we dramatically broaden our sustainability efforts and align them with our cloud strategy, reducing the carbon emissions of our cloud solutions to reducing greenhouse gas emissions.zero.
We continued to realize the benefits of our investment in the Livelihoods Fund, a unique investment fund whose returns consist of high-quality carbon credits. Several years ago, we made a commitment to investing€3 million covering a 20-year participation in the fund, which supports the sustainability of agricultural and rural communities worldwide. Projects of this fund focus on ecosystem restoration, agriculture, agroforestry, and rural energy. In eastern India, for example, the fund helped communities plant fruit trees to diversify food sources and address the overcultivation of soil. Instead of a charitable donation, we have made a long-term investment that brings benefits to society, the environment, and SAP. In 2015, we received carbon credits from the fund, which helped us to offset our carbon footprint by 23 kilotons.
Another important program in 2015 was the further implementation of ISO 14001 in SAP locations throughout the world. This well-accepted environmental management system is now in place at 32 of our locations worldwide, including our North America headquarters in Newtown Square, Pennsylvania, as well as in Palo Alto, San Francisco, Sunnyvale, and Dublin, California, both in the United States; and other countries including Austria, Canada, Czech Republic, France, Germany, Israel, Italy, and South Africa. New sites in Singapore and Switzerland, as well as Rio de Janeiro and São Paulo in Brazil, were certified in 2015. To act more quickly and achieve consistency, we created a template to roll out in other sites, enabling us to efficiently build a large global network where different sites interact and share best practices. Our goal is to continually increase the number of certified locations; we aim for total full-time equivalent (FTE) coverage of 70% by 2018. By end of 2015, SAP had an environmental management system (ISO 14001) in place in 15 countries and 32 single sites. This represents a total FTE coverage of 22.2%.
Measuring our Total Energy Consumed
TheBecause our energy usage drives emissions, one of the most important measures for us is total energy consumed measureconsumed. This includes all energy that SAP producesgenerates or purchases – in other words, the energy whose production causes emissions that fall into scopes 1to run our facilities, data centers, company cars, and 2 of the Greenhouse Gas Protocol.corporate jets. Our total energy consumption remained stable at approximately 860increased to 965 gigawatt hours (GWh) in 20122015, compared to 2011. 920 GWh in 2014.
This increase is especially noteworthy given that we experienceddue to growth in our workforce and business. Our efficiency also improved. For example, althoughIn addition, as software usage shifts to the
cloud, we have significantly expandedare operating more of our employee basecustomers’ systems in our data centers, as well as other locations where we supplement our servers. This additional cloud operation, along with accompanying servers and thusfacilities, consumes more energy. At the numbersame time, we believe this shift has the opposite effect for our customers that are now able to simplify their technology and save energy through our shared infrastructure. This reduces overall IT-related energy consumption through our highly energy-efficient cloud provisioning.
Optimizing Efficiency in our Data Centers
Data centers are at the heart of company cars,how SAP provides solutions to our corporate car fleet is not using proportionately more fuel because it has become more efficient,customers and represents a significant part of our total greenhouse gas emissions. At the same time, with less energy consumed per car. So while our car fleet grew by 9%, we had efficiency gains of 8% across the entire fleet, offsetting the resulting increase in energy usage and emissions. As a result, our energy consumption decreasedrising as more of our business moves to the cloud, data centers have become a primary focus of our carbon reduction efforts and the adoption of our technology innovations and solutions towards our customers. We continue to drive efficiency and innovation around buildings, data center operations, and infrastructure. For example, in one of our largest data centers in St. Leon-Rot, Germany, we received an energy efficiency certificate from 15.7 megawatt hours per employee in 2011 to 14.0 megawatt hours per employee in 2012. We also reducedTÜV Rheinland, a leading provider of technical, safety, and certification services, with an efficiency score of 98.7%. One hundred percent of our energy usage that provides internal and external computation power comes from renewable sources. Our total data center electricity consumption per euro revenue by about 13% comparedat both our internal and external sites increased from 179 in 2014 to 2011.249 GWh in 2015. In 2012, we startedrecognition of the exemplary actions SAP has taken to improve our data collection methodscenters, we were awarded the European Datacentre Sustainability Award in 2015.
Reinforcing our Renewable Electricity Strategy
Our commitment to monitor100% renewable electricity in all of our internal and external data centers and facilities is one of the most significant steps toward making our operations more sustainable. In 2015, we mainly focused on wind and, to a lesser extent, on biomass. While we produce a small amount of renewable electricity through solar panels in some locations, we rely primarily on the purchase of renewable electricity certificates (RECs) to increase the renewable electricity in our energy usage worldwide.
Data Center Energy
mix. We focus on making data centers more energy efficient even as demand for IT-services rises. SAP has a comprehensive sustainable IT strategyprocure RECs regionally that includes working with customersadd value and hardware providers. We measure and manage data center energy consumption per employee. (The energy we consumedrive change in the electricity market, adopting high-quality standards in our data centersprocurement guidelines that are aligned with two non-governmental organizations (NGOs). For example, we consider renewable electricity from biomass only if it is part of our total energy consumed.) Whiledisconnected from coal or other fossil power plants and if the development of SAP HANA ledbiomass itself is not related to an increase in our servers and energy consumption in our data centers, the growth in the number of employees at SAP resulted in increased efficiency. Our data center energy intensity decreased from 2,824 kilowatt hours per FTE (2011) to 2,598 kilowatt hours per FTE in 2012. Over the past year, we have improved our global data center management system to better track our
efficiency, which is also influenced by increasing the number of virtual servers (in 2012, 67% of our servers were virtual).deforestation. In addition, we are working with our customersrequire that power plants must be no more than 10 years old, as we aim to devise solutions that would simplify their data centers, lower their costs, and reduce their energy consumption.
Renewable Energy
We continue to expand our usefoster new innovation in the production of renewable energy, both to decrease our reliance on fossil fuelselectricity. Furthermore, SAP is not considering RECs from power plants that are currently supported by governments. As a vintage
requirement, we define that renewable electricity must be produced in the same year or the year before the reporting period will be applied.
In 2015, SAP joined the green initiative RE100 and nuclear power and to support an emerging market that is crucial for both SAP and our customers. We purchase green electricity from local utility companies, buy renewable energy certificates on a global level, and produce our own energy using solar panels on our facilities. At the end of 2012, approximately 60% of our total electricity consumption stemmed from renewable sources, up from 47% in 2011. The shares of renewable energy used by SAP are calculated by adding the amount of renewable energy obtained through Renewable Energy Certificates (RECs) or via the grid (either through specific contracts or through the local energy mix).
For more information about the importance of energy and emissions to SAP’s innovation strategy and to learn more about our performance in 2012, see the Greenhouse Gas Emissions, Total Energy Consumed, Data Center Energy, and Renewable Energy sectionsnow one of the SAP Integrated Report online. For more information about how we manage wasteglobal corporations that have signed on to the RE100 initiative. RE100 is led by The Climate Group in partnership with CDP (formerly Carbon Disclosure Project) and water, see the Waste and Water sectiongoal of the SAP Integrated Report online.
Our business has historically experienced the highest revenue in the fourth quarter of each year, due primarilycampaign is to year-end capital purchases by customers. Such factors have resulted in 2012, 2011, and 2010 first quarter revenue being lower than revenue in the prior year’s fourth quarter. We believe that this trend will continue in the future and that our total revenue will continue to peak in the fourth quarter of each year and decline from that level in the first quarter100 of the following year. Unlike our on-premise revenues, our revenues from cloud applications are not subjectworld’s most influential businesses committed to seasonality.100% renewable electricity.
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INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS AND LICENSES
We rely on a combination of the protections provided by applicable statutory and common law rights, including trade secret, copyright, patent, and trademark laws, license and non-disclosure agreements, and technical measures to establish and protect our proprietary rights in our products. For further details on risks related to SAP’s intellectual property rights, see “Item 33. Key Information – Risk Factors – Other Operational Risks.”
We may be dependent in the aggregate on technology that we license from third parties that is embedded into our products or that we resell to our customers. We have licensed and will continue to license numerous third-party software products that we incorporate into and/or distribute with our existing products. We endeavor to protect ourselves in the respective agreements by obtaining certain rights in case such agreements are terminated.
We are a party to certain patent cross-license agreements with certainseveral third parties.
We are named as a defendant or plaintiff in various legal proceedings for alleged intellectual property infringements. See Note (23) to our Consolidated Financial Statements for a more detailed discussion relating to certain of these legal proceedings.
Our principal office is located in Walldorf, Germany, where we own and occupy approximately 430,000 square meters of office and datacenter space including our facilities in neighboring St. Leon-Rot. We also own and lease office space in various other locations in Germany, totaling approximately 120,000 square meters. In approximately 6570 countries worldwide, we occupy roughly 1,560,0001,615,000 square meters. The space in most locations other than our principal office in Germany is leased. We also own certain real properties in Newtown Square and Palo Alto (United States); Bangalore (India); Sao Leopoldo (Brazil),; London (UK) and a few other locations in and outside of Germany.
The office and datacenter space we occupy includes approximately 260,000305,000 square meters in the EMEA region, excluding Germany, approximately 465,000410,000 square meters in the
region North and Latin America, and approximately 285,000350,000 square meters in the APJ Region.
With the two major acquisitionsacquisition of Concur in 2012, SuccessFactors and Ariba,2014, we added approximately 140,00050,000 square meter were addedmeters to our real estate portfolio; 30,000 square meters from SuccessFactors and approximately 110,000 square meters from Ariba. Both portfolios, from Ariba and SuccessFactors, areportfolio. This portfolio is included in the group portfolio outlineddisclosed above.
The space is being utilized for various corporate functions including research and development, our data centers, customer support, sales and marketing, consulting, training, administration and messaging. Substantially all our facilities are being fully used or sublet. For a discussion on our non-current assets by geographic region see Note (28) to our Consolidated Financial Statements. Also see, “Item 6. Directors, Senior Management and Employees – Employees,” which discusses the numbers of our employees, in FTE’s, by business area and by geographic region, which may be used to approximate the productive capacity of our workspace in each region.
We believe that our facilities are in good operating condition and adequate for our present usage. We do not have any significant encumbrances on our properties. We do not believe we are subject to any environmental issues that may affect our utilization of any of our material assets. We are currently undertaking construction activities in various locations to increase our capacity for future expansion of our business. Our significant construction activities are described below, under the heading “Principal Capital Expenditures and Divestitures Currently in Progress.”
Capital Expenditures
Principal Capital Expenditures and Divestitures Currently in Progress
In 2012,2015, we commencedcontinued with various construction projects and started new construction activities in certainseveral locations. The expansion of our data centers is again an important aspect of our investments planned for 2016. We aim to extend our office buildings in Palo Alto, California, United States. The construction aims at optimizing work space conditions to support line of business requirements and the improvement of general building conditions. We estimate the total cost of this project to be approximately €12 million, of which we had paid approximately €11 million as of December 31, 2012. We expectable to complete the construction in these office buildings in 2013.
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In 2011, we began construction of a new building for a research center in Potsdam, Germany. The new research center will collaborate closely with universities in the Berlin/Brandenburg area in Germany, creating a total of 100 new jobs. The focus will be on the deployment of the new in-memory computing technology introduced by SAP, including SAP HANA. For the construction of the building, we expect to invest approximately €17 million, of which we had paid approximately €6 million as of December 31, 2012. We expect to finish the construction of our new research center in the second half of 2013.
In 2011, we also began to expand our facilities for our research center in São Leopoldo, Brazil, to accommodate up to 500 employees. For the construction of the building, we expect to invest approximately €19 million, of which we had paid approximately €5 million as of December 31, 2012. We expect to finish the construction of the building in 2013.
cover future growth. We plan to cover all of these projects in full from operating cash flow. Our most important projects are:
– | In Bangalore, India, we want to add additional capacity of roughly 2,500 employees. We estimate the total cost to be approximately€50 million, of which we had paid approximately€7 million as at December 31, 2015. We expect to complete the construction of this office building in 2017. |
– | In Ra’anana, Israel, we continued with the construction of a new building. We estimate the total |
cost of this project to be approximately€60 million, of which we had paid approximately€25 million as at December 31, 2015. We expect to complete the construction of this office building in 2016. |
– | In our research center in Potsdam, Germany, we started a third construction phase to realize additional capacity for approximately 150 employees. With the extension of our research center, we aim to create the general conditions for further teams contributing innovations to SAP products in miscellaneous fields. We estimate the total cost to be approximately€16 million, of which we had paid approximately€11 million as at December 31, 2015. We expect to complete the construction of this office building in 2016. |
– | In New York, New York, in the United States, we continued executing the leasehold improvements for our new office space. The project includes the consolidation of our New York City offices for approximately 450 employees. We estimate the total capital expenditures for this project to be approximately€34 million, of which we had paid approximately€3.5 million as at December 31, 2015. We expect to complete the leasehold improvements in 2016. |
– | In Dubai, United Arab Emirates, we continued with our office consolidation project including an expansion of office space adding additional capacity for 100 employees. We estimate the total cost to be approximately€11 million, of which we had paid approximately€0.9 million as at December 31, 2015. We expect to complete the leasehold improvements in 2016. |
– | In Walldorf, Germany, we started construction on a new office building for about 700 employees. We estimate the total cost to be approximately€71 million, of which we had paid approximately€0.5 million as of December 31, 2015. We expect to complete the construction in 2018. |
– | In Walldorf, Germany, we also started construction on a new data center as well as a new power station. We estimate the total cost to be approximately€58 million, of which we had paid approximately€0.7 million as at December 31, 2015. We expect to complete the construction for both projects in 2017. |
– | In Prague, Czech Republic, we started the expansion of an office building and began an office move. We estimate the total capital expenditures for this project to be approximately€19 million. We expect to complete the project in 2016. |
– | In Colorado Springs, Colorado, in the United States, we started construction on a new data center in 2015. We estimate the total cost of this project to be approximately€75 million. We expect to complete the construction of this data center in 2017. |
– | In San Ramon, California, in the United States, we began an office move. We estimate the total cost of this move to be approximately€22 million. We expect to complete this project in 2017. |
– | In Shanghai, China, we started an expansion of our office building. We estimate the total cost to be approximately€15 million, of which we had paid approximately€2 million as at December 31, 2015. We expect to complete the construction in 2016. |
For more information about planned capital expenditures, see the Investment Goals section.
There were no material divestitures within the reporting period.
Principal Capital Expenditures and Divestitures for the Last Three Years
Our principal capital expenditures for property, plant, and equipment amounted to €508€580 million for 2012 (2011: €372in 2015 (2014:€666 million; 2010: €2872013:€553 million). Principal capital expenditures in 20122015 for property, plant, and equipment increaseddecreased compared to 20112014 mainly due to increased replacementslower replacement investments in hardware. Furthermore, compared to 2014, SAP did not have material acquisitions in 2015, resulting in fewer additions. The increase from 2013 to 2014 was due to the acquisition of Concur, the replacement and purchasespurchase of computer hardware and vehicles. The increase from 2010 to 2011 was mainly due to an increasevehicles acquired in spending on IT hardware.the normal course of business and investments in data centers. Principal capital expenditures for property, plant and equipment for the period from January 1, 20132016 to the date of this report were €70€97 million. For a related discussion on our property, plant, and equipment see Note (16) to our Consolidated Financial Statements.
Our capital expenditures for intangible assets such as acquired technologies and customer relationships amounted to €1,794€70 million in 2012
from €1142015 compared to€1,954 million in 2011 (2010: €1,8142014 (2013:€419 million). TheCapital expenditures for intangible assets decreased from 2014 to 2015 because we only executed one small acquisition in 2015, while the increase from 20112013 to 20122014 was primarily attributabledue to the acquisitionacquisitions of SuccessFactorsConcur and AribaFieldglass in 2012, whereas in 2011 we only had a few small business combinations.2014. Our investments allocated to goodwill amounteddecreased to €4,639€27 million in 20122015 from €170€6,072 million in 2011 (2010: €3,3982014 (2013:€842 million). This significant increase was again due to the acquisition of SuccessFactors and Ariba in 2012 compared to the few small business combinations in 2011. The decrease from 20102014 to 2011 (in2015 in the additionadditions to goodwill and intangible assets) was primarily attributable to executing only one small acquisition in 2015 compared to 2014 when we acquired Concur and Fieldglass. These 2014 acquisitions also caused the acquisition of Sybasesignificant increase from 2013 to 2014 as we executed only a few small acquisitions in 2010.2013. For further details on acquisitions and related capital expenditures, see Note (4) and Note (15) to our Consolidated Financial Statements.
For further information regarding the principal markets in which SAP competes,conducts business, including a breakdown of total revenues by category of activity and geographic market for each of the last three years, see “Item 5. Operating and Financial Review and Prospects – Operating Results”Results (IFRS)” of this report.
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
We derive our revenue from fees charged to our customers for (a) licenses to our on-premise software products, (b) the use of our cloud subscription software offerings and (c) support, consulting, development, training, and other services. The majority of our software arrangements include support services, and many also include professional services and other elements.
Depending on the product or service provided we classify our revenues either as software and software-related services revenue or professional services and other service revenue.
For more information on our principal sources of revenue and how the different types of revenue
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are classified in our income statement refer to Note (3b) to our Consolidated Financial Statements, section Revenue Recognition.
See “Item 4. Information about SAP – Portfolio of SoftwareProducts, Research & Development, and Services” for a more detailed description of the products and services we offer.
The following discussion is provided to enable a better understanding of our operating results for the periods covered, including:
the factors that we believe impacted our performance in 2012;
our outlook for 2012 compared to our actual performance (non-IFRS);
a discussion of our operating results for 2012 compared to 2011 and for 2011 compared to 2010;
the factors that we believe will impact our performance in 2013; and
our operational targets for 2013 (non-IFRS).
– | the factors that we believe impacted our performance in 2015; |
– | our outlook for 2015 compared to our actual performance (non-IFRS); |
– | a discussion of our operating results for 2015 compared to 2014 and for 2014 compared to 2013; |
– | the factors that we believe will impact our performance in 2016; and |
– | our operational targets for 2016 (non-IFRS). |
The preceding overview should be read in conjunction with the more detailed discussion and analysis of our financial condition and results of operations in this Item 5, “Item 3. Key Information – Risk Factors” and “Item 18. Financial Statements.”
ECONOMIC CONDITIONSECONOMY AND THE MARKET
Global Economic Trends
The global recovery lost some ofIn its momentum in 2012 according tomost recent report, the European Central Bank (ECB).1) Particularly, the sovereign debt crisis in Europe impacted concludes that the global economy grew gradually and unevenly in 2015. The ECB finds that low oil prices, favorable financing conditions, and improving labor markets helped advanced economies perform better than in previous years. However, growth in emerging markets and developing economies remained relatively weak, according to the ECB. It cites tight global financing conditions and declining commodity prices as the year progressed,causes.
For the economic slowdown in advanced economies spilled over into emerging markets. Tighter fiscal policies slowedEurope, Middle East, and Africa (EMEA) region, the ECB reports contrasting developments. According to its calculations, the gross domestic product growth even further. Nevertheless, the economies of the emerging countries performed much better in 2012 than those of industrialized countries.
In the EMEA region, gross domestic product in the euro area saw a slight declinegrew 1.5% in 2012, but managed to stabilize at a low level toward the end
of the year, boosting consumer and investor confidence in the financial markets. Given the positive developments in the labor market, Germany’s economy – according to the International Monetary Fund (IMF) – grew faster than the euro area average. Yet here too, economic growth failed to reach the previous year’s level. The European Union (EU) countries outside the euro area experienced relatively weak economic growth. By contrast, expansionary fiscal and monetary policies in Africa and the Middle East, as well as the private sector’s high confidence in economic growth, strengthened the resilience of most economies.
The economy of the Americas region picked up in 2012. Although the U.S. economy continued to grow slowly overall, it managed to surpass its 2011 results toward year-end. This2015. It finds that this recovery was mainly due to unexpectedly resilient foreign tradeincreasing domestic demand. The economies of Central and Eastern European countries were robust, according to the ECB, while Russia was in significant recession.
The economic performance of the countries in the Americas region was also uneven. According to the ECB, the United States economy firmed in 2015, and weakened slightly only in the third quarter. However, a rise in consumer and government spending. Growthnumber of countries in Latin America onslipped into recession; notably Brazil, where the other hand, decelerated, particularly in the first half of the year,downturn was mainly due to a drop in demand from abroad and weak domestic demand.political uncertainty.
In the APJAsia Pacific Japan (APJ) region, Japan’s economy struggled to gain momentum in 2015, the ECB notes. However, the ECB also points to a slight recovery in the third quarter and signs of growth at the end of the year. China refocused its economy in 2015, easing its monetary policy and introducing a new exchange rate regime in the summer, the ECB reports. This increased political uncertainty and economic growth rates were less contrary thanslowed. The ECB writes that business-friendly reforms in past years. FollowingIndia boosted investment and, after a temporary decline in the setbacks of 2011, the Japanese economy once again saw positivesecond quarter, led to an increase in economic growth although export levels and consumer spending remained low. In September, for the first time in more than 25 years, Japan even imported more than it exported. Economic activity in emerging countries, especially China, continued its positive trend in 2012 but grew slower than in previous years. A decrease in demand from Europe weakened export growth, and domestic demand, though robust, could offset this only partially. Growth rates remained considerably lower than in previous years, with China recording only single-digit growth.mid-year onwards.
The IT Market
Based on IDC analyses, SAP estimated the market for enterprise software (Enterprise Application Market, EAM) to be approximately US$110 billionGrowth in the fourthglobal IT market slowed from the second quarter of 2012 (on a rolling four-quarter basis). In 2012, SAP was able2015, U.S. market research firm International Data Corporation (IDC) reports. It attributes this development to further extendthe contracting PC market, the encroachment on traditional IT business by cloud services, and weak economic performance in countries such as Brazil, China, and Russia. IDC lowered its lead over its closest competitors Oracle and Microsoft and to increase its market share.
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Part I
Item 5
Global IT spending grew according to IDC in the middle single-digit percentage range in 2012 and thus twice as fast as the overall global economy. Spending on smartphones, tablet PCs, data storage devices, and application software was well above this average. In line with the global economic trend, the emerging countries spent more on IT in 2012 than did the industrialized countries.
The economic crisis in Europe had a negative impact onforecast for IT market growth in 2015, and at the EMEA region.end of the year it expected the global IT market to have grown 4.9% year over year – still ahead of the economy as a whole.
However, according to IDC, IT spending did not grow evenly across the segments. It pointed to strong growth in cloud, mobile, and Big Data, with service providers increasing investment in server and data storage hardware. IDC reports that smartphone market expansion, which had been rapid in the previous year, slowed significantly in 2015 due to saturation. In 2015, the rate of smartphone market growth was closer to that of the IT market as a whole. Even the tablet market was unable to make up for this loss of momentum, IDC notes.
By contrast, worldwide spending on business software increased significantly, at 6.8% in 2015, according to IDC. The austerity measuresshare of many governmentsinvestment in cloud, mobile, and Big Data solutions continued to increase. However, according to IDC, this had a detrimentalan adverse effect especially on corporate investments. As a result,services, which grew only 2.8%.
IDC reports that IT spending in the Europe, Middle East, and Africa region (EMEA) increased 1.5% in 2015, and by as much as 5% in Western Europe only increased by valuesdue to the economic recovery there. In Germany, the IT market grew even more strongly at over 6%. In Russia, though, low oil
prices, depreciation of the ruble, and economic sanctions had a significant negative impact, IDC reports. It expects the Russian IT market declined 15% in the lower single-digit percentage range. This growth rate nevertheless surpassed the growth rate for the global economy in 2012. Spending remained stable for smartphones and tablet PCs only.2015.
In the Americas region, the U.S. IT market grew 4.6% according to IDC. In its view, the U.S. market remained largely stable. It grew 3% overall, somewhat less than in the previous year, mainly due to the weakening market for smartphones and tablets. Software, on the other hand, grew strongly at 7% in the same pace asUnited States, according to IDC. In Brazil, IT investment increased 11% in 2011. Spending figures, as well as2015, though this increase has to be seen in the context of high inflation. IDC put growth rate forin the entire U.S. economy, were belowMexican IT market at almost 13%.
In the global average. ButAsia Pacific Japan (APJ) region, IDC reports that the remainingIT market there grew almost 6% in 2015. The IT markets in individual countries in this region were able to counterbalance this result, so thatperformed very differently. In Japan, IT spending forremained constant year over year. In China, growth in the entire region exceeded the global average.
The IT market slowed to 8% (2014: 12%). In India, however, in the APJ region offered up a contradictory scenario. The Japanese IT market in particular proved to be weak. After gaining momentum from reconstruction efforts following the natural disasters in 2011, the economy began to slow as the year went on. As a result,2015 IT spending in Japan only rose by values in the lower single-digit percentage range. The IT market in developing Asian countries, however, grew steadily. Even though China’s gross domestic product grew less than 10% in 2012, its IT market once again recorded double-digit growth. However, this IT growth was considerably slower than in 2011. Drivers of the Chinese IT market were primarily software, services, and infrastructure.very strongly at 11%, according to IDC.
Impact on SAP
TheOnce again, growth in the overall global economy and in the IT industry werewas relatively slow in a volatile market environment in 2015. This confronted SAP with considerable challenges. But our tremendous 2015 results validate our strategy of innovating across the core, the cloud, and business networks to help our customers become true digital enterprises. We once again characterized by uncertaintysucceeded in significantly expanding our business and risks in 2012. SAP business, however, was not affected: In 2012, SAP’s growth rate surpassed that ofoutperformed the IT industry and the global economy. We owe this success first and foremost to our innovations in our core areas Applications and Analytics as well as our three new categories
Mobile, Cloud, and Database and Technology (based on our in-memory platform SAP HANA).
In this volatile economic environment, companies find themselves forced to streamline their business processes – which are now exposed more than ever to fluctuations and risks – and to predict and analyze what-if scenarios. These companies had to deal with rapidly increasing and ever more complex data volumes, and needed to be able to access real-time evaluations at any time and from anywhere. SAP met this need with its comprehensive range of standard software offerings.
In the EMEA region, however, we were not able to withdraw from the effects of the euro crisis entirely. At the beginning of the year, our revenues in a number of European markets lagged behind the annual average, but picked up pace as the year progressed and even went on to outperform the global economy and the rest of the IT industry. Especially noteworthy was the double-digit growth in revenue from software and cloud subscriptions in the EMEA region.
Our Americas region likewise outperformed theoverall global economy and IT market. The factindustry in all regions in 2015 with regards to revenue growth.
Our non-IFRS cloud and software revenue increased 12% at constant currencies in 2015. Both our core business and our cloud business contributed substantially to the increase. Our core business grew with non-IFRS software and support revenue increasing 6% at constant currencies. This was driven by a 4% year-over-year increase in our non-IFRS software revenue at constant currencies, while our resilient constant currency non-IFRS support revenue grew 7%. Support revenue is a robust feature of our core business model because a maintenance contract generally continues for as long as the customer uses the software. Our cloud business growth was strong as well. Non-IFRS cloud subscriptions and support revenue grew 82% over the year at constant currencies.
For more details about our regional performance, see the Revenue by Region section below.
In 2015, we again demonstrated that we wereare consistently pursuing our strategy for innovation and growth – and that globally we are able to win customers in key industries for our innovative solutions was a key factor to this success. This was mainly reflected in thegenerate growth rate of our software and cloud subscription revenues in the Americas region, which grew at a double-digit rate in 2012.that few other IT companies can match.
The APJ region reported record revenue results compared to the figures for the global economy and IT market. We benefited greatly from the fact that Asian companies, for example, in Japan, were very open-minded and interested in being early adopters of our new technologies and solution categories.
PERFORMANCE AGAINST OUTLOOK FOR 20122015 (NON-IFRS)
Performance Against Outlook for 2012 (Non-IFRS)
Our 20122015 operating profit-related internal management goals and published outlook were based on our non-IFRS financial measures. For this reason, in thisthe next section we discuss performance against our outlook referring solely to these non-IFRS financial measures. All discussion in the Operating Results (IFRS) section, however, isonly in terms of measuresnon-IFRS numbers derived from IFRS measures. The subsequent section about IFRS operating results discusses numbers only in accordance
Part I
Item 5
withterms of the International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB), and(IFRSs). So the numbers in that section are not explicitlyexpressly identified as IFRS measures.numbers.
We acquired Concur Technologies in December 2014, so Concur results are incorporated in our 2014 results only for December. We acquired Fieldglass in May 2014, so Fieldglass results are incorporated in our 2014 results only from May to December. Similarly, because we acquired hybris in August 2013, hybris results are incorporated in our 2013 results only from August to December.
Guidance for 2015 (Non-IFRS)
Outlook for 2012 (Non-IFRS)
At the beginning of 2012,2015, we forecastedprojected, based on the strong momentum in our cloud business, that our non-IFRS cloud subscriptions and support revenue would end between€1.95 billion and€2.05 billion at constant currencies (2014:€1.10 billion). The upper end of this range represents a growth rate of 86% at constant currencies. The acquired companies Concur and Fieldglass were expected to contribute approximately 50 percentage points to this growth. SAP expected full-year 2015 non-IFRS cloud and software and software-related service revenue (non-IFRS) for 2012 wouldto increase by 8% to 10% to 12% on aat constant currency basis (2011: €11,346 million)currencies (2014:€14.33 billion). SuccessFactors was anticipated to account for two percentage points of this increase.
We also expected our full-year operating profit (non-IFRS) for 20122015 to be in the range of €5.05end between€5.6 billion to €5.25and€5.9 billion (2011: €4.71(2014:€5.64 billion) at constant currencies. We expected our operating profit (non-IFRS) excluding the SuccessFactors business to be in a similar range.
We anticipated an IFRS effective tax rate (IFRS) of between 25.0% and 26.0% (2014: 24.7%) and an effective tax rate (non-IFRS) of between 26.5% and 27.5% in 2012 (2011: 27.9%) and a non-IFRS effective tax rate of between 27.0% and 28.0% (2011: 26.6%(2014: 26.1%).
In July 2012, we confirmed the outlook we published in January 2012. In October 2012, we changed our forecast for revenue growth to take into account the acquisition of Ariba.
Provided that the economic environment did not deteriorate, we anticipated our software and software-related service revenue (non-IFRS) for 2012, including Ariba, would reach the upper end of the 10.5% to 12.5% range on a constant currency basis. This would include a total contribution from SuccessFactors and Ariba of around 2.5 percentage points. In line with our forecast at the beginning of 2012, we continued to expect our operating profit (non-IFRS) excluding the SuccessFactors and Ariba business to be in a similar range.
To assist in understanding our 20122015 performance as compared to our 20122015 outlook a reconciliation from our IFRS financial measures to our non-IFRS financial measures is provided below. These IFRS financial measures reconcile to the nearest non-IFRS equivalents as follows:
€ millions, except | IFRS Financial Measure | Support Revenue Not Recorded Under IFRS | Acquisition- Related Charges | Share- based compensation | Restruc- turing | Discon- tinued Activities | Non-IFRS Financial Measure | Currency Effect on the Non-IFRS Financial Measure | Non-IFRS Financial Measure at Constant Currency | |||||||||||||||||||||||||||
Software and software-related service revenue | 13,165 | 81 | n.a. | n.a. | n.a. | n.a. | 13,246 | –441 | 12,806 | |||||||||||||||||||||||||||
Total revenue(1) | 16,223 | 81 | n.a. | n.a. | n.a. | n.a. | 16,304 | –553 | 15,751 | |||||||||||||||||||||||||||
Operating profit(1) | 4,065 | 81 | 537 | 522 | 8 | 0 | 5,214 | –191 | 5,023 | |||||||||||||||||||||||||||
Operating margin in % | 25.1 | 0.4 | 3.3 | 3.2 | 0 | 0 | 32.0 | –0.1 | 31.9 |
€ millions, except operating margin | IFRS Financial Measure | Recurring Revenue not Recorded Under IFRS | Acqui- sition- Related Charges | Share- Based | Restruc- turing | Non-IFRS Financial Measure | Currency Effect on the Non- IFRS Financial Measure | Non-IFRS Financial Measure at Constant Currency | ||||||||||||||||||||||||
Cloud subscriptions and support | 2,286 | 10 | NA | NA | NA | 2,296 | –297 | 1,999 | ||||||||||||||||||||||||
Software licenses and support | 14,928 | 2 | NA | NA | NA | 14,930 | –933 | 13,997 | ||||||||||||||||||||||||
Cloud and software | 17,214 | 11 | NA | NA | NA | 17,226 | –1,230 | 15,996 | ||||||||||||||||||||||||
Total revenue(1) | 20,793 | 11 | NA | NA | NA | 20,805 | –1,505 | 19,299 | ||||||||||||||||||||||||
Operating profit(1) | 4,252 | 11 | 738 | 724 | 621 | 6,348 | –443 | 5,904 | ||||||||||||||||||||||||
Operating margin (in %) | 20.5 | 0 | 3.5 | 3.5 | 3.0 | 30.5 | 0.1 | 30.6 |
(1) Operating profit is the numerator and total revenue is the denominator in the calculation of our IFRS operating margin and the comparable non-IFRS operating margin, and is included in this table for the convenience of the reader.
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2012 Actual Performance Compared to Outlook (Non-IFRS)Guidance 2015
In 2012,(Non-IFRS)
We achieved or exceeded the amended outlook guidance for revenue and operating profit we increased our softwarepublished at the beginning of the year.
Comparison of Forecast and software-related service revenue (non-IFRS) by 13% to €12,806 million on a constant currency basis
(2011: €11,346 million), clearly exceeding our expectations of 10% to 12% as announced in January 2012 as well as our revised forecast in October.
Part I
Item 5
Target-Performance ComparisonResults for 20122015
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Forecast for 2015 | Results for 2015 | |||||||
Cloud subscriptions and support revenue | €1.95 billion | €2.00 billion | ||||||
(non-IFRS, at constant currencies) | to €2.05 billion | |||||||
Cloud and software revenue | +8% | +12% | ||||||
(non-IFRS, at constant currencies) | to +10% | |||||||
Operating profit | €5.6 billion | €5.90 billion | ||||||
(non-IFRS, at constant currencies) | to €5.9 billion | |||||||
Effective tax rate (IFRS) | 25.0% | 23.4% | ||||||
to 26.0% | ||||||||
Effective tax rate (non-IFRS) | 26.5% | 26.1% | ||||||
to 27.5% |
Despite the partially uncertainongoing economic situation in 2012,uncertainty throughout 2015, our new and existing customers continued to show a highstrong willingness to invest in our solutions:solutions.
TheAt constant currency-based increase in software revenue was largely due to strong growth in the APJ and EMEA regions and steady growth in the Americas region. However, growth was slower in 2012 than in 2011. We also recorded a significant increase incurrencies, non-IFRS cloud subscriptionsubscriptions and support revenue thanksgrew from€1.1 billion in 2014 to€2.0 billion in 2015. That represents an increase of 82% at constant currencies. The increase includes effects relating to acquisitions not included, or not included in full, in the 2014 amount. Besides these positive acquisition effects our cloud line of business also continued to benefit from strong organic growth (32% at constant currencies), which surpassed our long-term growth expectations for 2015.
Starting with the reporting for the first quarter of 2015, SAP reports a new cloud related measure called “new cloud bookings.” This measure is an order entry measure that is determined by including all order entry of a given period that meets all of the following conditions:
– | The revenue from the orders is expected to be classified as cloud subscriptions and support revenue. |
– | It results from purchases by new customers and incremental purchases by existing customers. Consequently, orders to renew existing contracts are not included. |
– | The order amount is contractually committed (that is, variable amounts from pay-per-use and similar arrangements are not included). Consequently, due to their uncommitted pay-per-use nature, transaction- |
based fees from SAP Ariba and SAP Fieldglass solutions are not reflected in the new cloud bookings metric. |
– | Amounts are annualized. That is, for contracts with durations of more than one year, the average annual order entry amount is included in the number. |
Thus, the new cloud bookings measure is an indicator for our cloud-related sales success in a given period and for future cloud subscriptions revenue. New cloud bookings increased 100% in 2015 to€874 million (2014:€436 million). Concur contributed€169 million to new cloud bookings. In addition to the acquisitionsstrong growth of SuccessFactorsthe new cloud bookings the combination of our cloud backlog (unbilled future revenue based on existing customer contracts) and Ariba. As a result, our softwaredeferred cloud revenue that together reflect the committed future cloud subscriptions and cloud subscriptionsupport revenue for 2012 increased 21% (17% at constant currencies)climbed by 53% to €5 billion. Our software and software-related service revenue increased 17% to €13.25€4.6 billion (2011: €11.35(2014:€3.0 billion). At constant currencies, this increase was 13%. SuccessFactors and Ariba contributed to theThis committed business will drive cloud growth in 2016 and beyond.
Besides the cloud business also our core on-premise business showed an exceptional growth in 2015. Cloud and software and software-related service revenue at 2.7% (on(non-IFRS) was€17.2 billion (2014:€14.3 billion). On a constant currency basis).basis, the increase was 12% and based on that result significantly above the forecast for 2015.
In 2012, we achieved an operating profitOur total revenue (non-IFRS) of €5,023 million onrose 18% in 2015 to€20.8 billion (2014:€17.6 billion). On a constant currency basis, the increase was 10%.
Operating expenses (non-IFRS) in 2015 were€14.5 billion (2014:€11.9 billion), an increase of 21%. On a constant currency basis the increase was 12%.
Our expense base in 2015 was impacted by the transformation to a fast-growing cloud business resulting in a significant higher share of more predictable revenue. The gross margins of our cloud offerings made good progress throughout 2015. Our gross margin (Non-IFRS) in our business network segment resulted in ~75% for 2015, already close to our long-term ambition of ~80%. This good result is based on an overall improved profitability as well as related to positive effects of the Concur acquisition. The revenue growth of our private cloud offering was more positive than expected. At the same time, the profitability of our private cloud offering could also be improved further; it is still negative but based on the good progress we saw throughout 2015, we expect break even in the course of 2016. Profitability in our public cloud offering was ~70% for 2015 compared to our long-term ambition of ~80%. Our overall cloud gross margin improved year over year from 64.3% in 2014 to 65.6% in 2015, despite incremental investments in the cloud infrastructure. These investments were necessary so as to be able in future periods to satisfy the increased
basis. Thus, operating profit (non-IFRS) at constant currencies for 2012 was slightly lower thancustomer demand that can be seen in the range of €5.05 billion to €5.25 billion that SAP had projected. This reduction in operating profit is mainly due to the continued investment in key innovations,significantly higher cloud backlog as well as the expansionincreased cloud bookings.
Efficiency improvements in both our core and our cloud business drove absolute operating profit growth. Non-IFRS operating profit in 2015 was€5.904 billion, an increase of SAP’s sales activities worldwide.5% at constant currencies. The growth in our operating profit in 2015 reflects the continued success of our business transformation in combination with the strong top-line growth. In 2015, we had a positive impact from our Company-wide transformation program in the triple-digit million euro range. On the other hand, we had a net increase of more than 2,500 employees in 2015 as we continued to invest in innovation and growth markets. Thus, constant currency non-IFRS operating profit amounting to€5.904 billion slightly exceeded the range (€5.6 billion to€5.9 billion) we had expected in our outlook.
We achieved an effective tax rate (IFRS) of 26.2% (IFRS)23.4% and 27.5%an effective tax rate (non-IFRS) of 26.1%, which is lower thanbelow the effective tax rateoutlook of 25.0% to 26.0% (IFRS) and 26.5% to 27.5% (IFRS) but in the range of 27.0% to 28.0% (non-IFRS) projected. The reduction mainly results from taxes for 2012. This decrease in the effective tax rate (IFRS) in comparison to the outlook mainly arises from the regional allocation of income.prior years.
Operating ResultsOPERATING RESULTS (IFRS)
ThisOperating Results section on operating results (IFRS)section discusses results exclusivelyonly in terms of IFRS measures, so the IFRS financial measuresnumbers are not explicitlyexpressly identified as such.
Our 20122015 Results Compared to Our 20112014 Results (IFRS)
Revenue
Revenue
€ millions | 2012 | 2011 | Change in % 2012 vs 2011 | |||||||||
Software | 4,658 | 4,107 | 13 | % | ||||||||
Cloud subscriptions and support | 270 | 18 | 1400 | % | ||||||||
Software and cloud subscriptions | 4,928 | 4,125 | 19 | % | ||||||||
Support | 8,237 | 7,194 | 14 | % | ||||||||
Software and software-related service revenue | 13,165 | 11,319 | 16 | % | ||||||||
Consulting | 2,442 | 2,341 | 4 | % | ||||||||
Other services | 616 | 573 | 8 | % | ||||||||
Professional services and other service revenue | 3,058 | 2,914 | 5 | % | ||||||||
Total revenue | 16,223 | 14,233 | 14 | % |
Part I
Item 5
€ millions | 2015 | 2014 | Change in % 2015 vs 2014 | |||||||||
Cloud subscriptions and support | 2,286 | 1,087 | 110% | |||||||||
Software licenses | 4,835 | 4,399 | 10% | |||||||||
Software support | 10,093 | 8,829 | 14% | |||||||||
Software licenses and support | 14,928 | 13,228 | 13% | |||||||||
Cloud and software | 17,214 | 14,315 | 20% | |||||||||
Services | 3,579 | 3,245 | 10% | |||||||||
Total revenue | 20,793 | 17,560 | 18% |
Total Revenue
OurTotal revenue increased from €14,233€17,560 million in 20112014 to €16,223€20,793 million in 2012,2015, representing an increase of €1,990€3,233 million, or 14%18%. This total revenue growth reflects a 10% increase from changes in volumes and pricesnew business and a 4%9% increase from currency effects. The growth in revenue growth is dueresulted primarily to an increasefrom a€1,264 million rise in softwaresupport revenue, of €551a€1,199 million an increase in cloud subscriptions and
support revenue, of €252software license revenue increased€436 million and services revenue grew by€334 million. Cloud and software revenue climbed to€17,214 million in 2015, an increase in support revenue of €1,043 million. In 2012,20%. Cloud and software and software-related service revenue totaled €13,165 million as a result of this increase. Software and software-related service revenue represented 81%83% of total revenue in 2012 (2011: 80%2015 (2014: 82%). In 2012, professional services and other serviceService revenue contributed €3,058increased 10% from€3,245 million in 2014 to our€3,579 million, which was 17% of total revenue, representing an increase of 5% compared to 2011.in 2015.
For an analysismore information about the breakdown of our total revenue by region and industry, see the Revenue by Region and Revenue by Industry sections.section below.
Cloud and Software and Software-Related Service Revenue
Software licenses revenue representsresults from the fees earned from the saleselling or license oflicensing software to customers. CloudRevenue from cloud subscriptions and support revenue relatesrefers to the income earned from contracts whichthat permit the customer to useaccess specific SAP-hosted software functionssolutions hosted by SAP during the term of its contract period, and which impose significant contractual penalty if the customer cancels the contract or permanently uses the software on the customer’s own systems.with SAP. Support revenue represents fees earned from providing customers with technical support services and unspecified software upgrades, updates, and enhancements.enhancements to customers.
Software and software-related service revenue increased from €11,319 million in 2011 to €13,165 million in 2012, representing an increase of 16%. The software and software-related service revenue growth reflects a 12% increase from changes in volumes and prices and a 4% increase from currency effects.
Software and cloud subscriptions revenue increased from €4,125 million in 2011 to €4,928 million in 2012, representing an increase of €803 million or 19%. This growth consists of a 16% increase from changes in volumes and prices and a 3% increase from currency effects.
Software revenue increased from €4,107 million in 2011 to €4,658 million in 2012, representing an increase of €551 million or 13%. This growth consists of a 10% increase from changes in volumes and prices and a 3% increase from currency effects. SAP HANA contributed €392 million to software revenue in 2012, while mobile solutions accounted for €222 million.
Cloud subscriptions and support revenue increased from €18€1,087 million in 20112014 to €270€2,286 million in 2012. This growth is largely due2015.
Despite a combination of a challenging macroeconomic and political environment and the accelerating industry shift to the acquisitions of SuccessFactorscloud, we achieved a€436 million increase in software license revenue. This increase, from€4,399 million in 2014 to€4,835 million in 2015, reflects a 4% increase from new license business and Ariba.a 6% increase from currency effects.
Our customer base continued to expand in 2012.2015. Based on the number of contracts concluded, 19%13% of the orders we received for software in 20122015 were from new customers (2011: 19%(2014: 12%). The total value of software orders received grew 20% year over year.increased 16% year-over-year. The total number of software license contracts signed for new software decreased 4%increased 6% to 59,289 contracts (2011: 61,47457,439 (2014: 54,120 contracts), whereaswhile the average order value went up 25%increased by 9%. Of all our software orders received in 2015, 27% were attributable to deals worth more than€5 million (2014: 22%), while 40% were attributable to deals worth less than€1 million (2014: 44%).
Our stable customer baserelations and the continued investment in new software licenses by new and existing customers throughout 20122015 and the previous year resulted in an increase in software support revenue from €7,194€8,829 million in 20112014 to €8,237€10,093 million in 2012.2015. The SAP Enterprise Support serviceoffering was the largest contributor to our software support revenue. The €1,043€1,264 million, or 14% increase, growth in software support revenue reflects a 10%7% increase from changes in volumesnew support business and prices and a 4%an 8% increase from currency effects. This growth is primarily attributable to our premium offeringsSAP Product Support for Large Enterprises and SAP
Enterprise Support. According to that, theThe acceptance rate for SAP Enterprise Support acceptance rate for net-newamong new customers slightly increased from 88%to 99% in 2011 to 96% in 2012.2015 (2014: 98%).
Professional ServicesSoftware licenses and Other Service Revenue
Professional services and other servicesoftware support revenue consists primarily of consulting and other service revenue. We generate most of our consulting revenuerose€1,700 million, or 13%, from the implementation of our software products. Other service revenue consists mainly of revenue from the messaging services acquired from Sybase, as well as training revenue from providing educational services to customers and partners on the use of our software products and related topics.
Professional services and other service revenue increased from €2,914€13,228 million in 20112014 to
Part I
Item 5
€3,05814,928 million in 2012, representing2015. This growth breaks down into a 6% increase from new software licenses and software support business and a 7% increase from currency effects.
Cloud and software revenue grew from€14,315 million in 2014 to€17,214 million in 2015, an increase of €144 million or 5%20%. This growth reflects a 1%12% increase from changes in volumesnew cloud and pricessoftware business and a 4%9% increase from currency effects.
ConsultingServices Revenue
Services Revenue combines revenue from professional services, premium support services, training services, messaging services and payment services. Professional services primarily relate to the installation and configuration of our cloud subscriptions and on-premise software products. Our premium support offering consists of high-end support services tailored to customer requirements. Messaging services are primarily transmission of electronic text messages from one mobile phone provider to another. Payment services are primarily delivered in connection with our travel and expense management offerings.
Services revenue increased€334 million, or 10%, from €2,341€3,245 million in 20112014 to €2,442€3,579 million in 2012, representing2015. This increase reflects a 2% increase from new services business and an 8% increase from currency effects.
A solid market demand led to an 8% increase of €101€222 million or 4%. The growth resulted entirelyin consulting revenue and premium support revenue from€2,634 million in 2014 to€2,856 million in 2015. This increase reflects a 0% increase from new business and an 8% increase from currency effects. Consulting and premium support revenue contributed 80% of professional services
and otherthe total service revenue (2011: 80%(2014: 81%). Consulting and premium support revenue contributed 15%14% of total revenue in 2012 (2011: 16%2015 (2014: 15%).
Other service revenueRevenue from other services increased from €573€112 million, or 18%, to€723 million in 2011 to €616 million in 2012, representing an increase of 8%2015 (2014:€611 million). This growth reflects a 5%9% increase from changes in volumes and pricesnew business and a 3%10% increase from currency effects. The increase is due mainly to higher revenues from messaging services.changes.
Revenue by Region and Industry
Revenue by Region
€ millions | 2012 | 2011 | Change in % 2012 vs 2011 | |||||||||
Germany | 2,380 | 2,347 | 1 | % | ||||||||
Rest of EMEA | 5,106 | 4,644 | 10 | % | ||||||||
EMEA | 7,486 | 6,991 | 7 | % | ||||||||
United States | 4,461 | 3,699 | 21 | % | ||||||||
Rest of Americas | 1,639 | 1,392 | 18 | % | ||||||||
Americas | 6,100 | 5,091 | 20 | % | ||||||||
Japan | 789 | 652 | 21 | % | ||||||||
Rest of APJ | 1,848 | 1,499 | 23 | % | ||||||||
APJ | 2,637 | 2,151 | 23 | % | ||||||||
SAP Group | 16,223 | 14,233 | 14 | % |
Revenue by Industry
Revenue by Region | ||||||||||||
€ millions | 2015 | 2014 | Change in % 2015 vs 2014 | |||||||||
Germany | 2,771 | 2,570 | 8% | |||||||||
Rest of EMEA | 6,409 | 5,813 | 10% | |||||||||
EMEA | 9,181 | 8,383 | 10% | |||||||||
United States | 6,750 | 4,898 | 38% | |||||||||
Rest of Americas | 1,678 | 1,591 | 5% | |||||||||
Americas | 8,428 | 6,489 | 30% | |||||||||
Japan | 667 | 600 | 11% | |||||||||
Rest of APJ | 2,517 | 2,088 | 21% | |||||||||
APJ | 3,185 | 2,688 | 18% | |||||||||
SAP Group | 20,793 | 17,560 | 18% |
Revenue by Industry | ||||||||||||||||||||||||
€ millions | 2012 | 2011 | Change in % 2012 vs 2011 | 2015 | 2014 | Change in % 2015 vs 2014 | ||||||||||||||||||
Energy & Natural Resources | 4,834 | 4,158 | 16% | |||||||||||||||||||||
Discrete Manufacturing | 3,110 | 2,617 | 19 | % | 3,672 | 3,051 | 20% | |||||||||||||||||
Process Manufacturing | 1,684 | 1,461 | 15 | % | ||||||||||||||||||||
Consumer Products | 1,516 | 1,433 | 6 | % | ||||||||||||||||||||
Energy & Natural Resources | 2,241 | 2,001 | 12 | % | ||||||||||||||||||||
Consumer | 4,934 | 4,045 | 22% | |||||||||||||||||||||
Public Services | 2,174 | 1,786 | 22% | |||||||||||||||||||||
Financial Services | 1,881 | 1,697 | 11% | |||||||||||||||||||||
Services | 2,484 | 2,190 | 13 | % | 3,298 | 2,824 | 17% | |||||||||||||||||
Financial Services | 1,444 | 1,196 | 21 | % | ||||||||||||||||||||
Public Services | 1,437 | 1,399 | 3 | % | ||||||||||||||||||||
Retail & Wholesale | 1,541 | 1,300 | 19 | % | ||||||||||||||||||||
Healthcare & Life Sciences | 766 | 636 | 20 | % | ||||||||||||||||||||
Total revenue | 16,223 | 14,233 | 14 | % | 20,793 | 17,560 | 18% |
Revenue by Region
We break our operations down into three regions: the Europe, Middle East, and Africa (EMEA) region, the Americas region, and the Asia Pacific Japan (APJ) region. We allocate revenue amounts to
each region based on where the customer is located. For more information about revenue by geographic region, see the Notes to the Consolidated Financial Statements section, Note (28).
Part I
Item 5
The EMEA Region
In 2012,2015, the EMEA region generated €7,486€9,181 million in revenue, (2011: €6,991 million) or 46%which was 44% of total revenue (2011: 49%(2014:€8,383 million; 48%). This represents a year-over-year increase of 7%10%. Total revenueRevenue in Germany increased 1%8% to €2,380€2,771 million in 2012 (2011: €2,3472015 (2014:€2,570 million). Germany contributed 32% (2011: 34%30% (2014: 31%) of all EMEA region revenue. The remaining revenue in the EMEA region was primarily generated in France, Italy, the Netherlands, Russia, Switzerland, and the United Kingdom. SoftwareCloud and software-related servicesoftware revenue generated in the EMEA region in 20122015 totaled €6,106€7,622 million (2011: €5,529(2014:€6,819 million). SoftwareCloud and software-related servicesoftware revenue represented 82%83% of totalall revenue in 2012 (2011: 79%the region in 2015 (2014: 81%). Software and cloud subscriptionCloud subscriptions revenue increased 13%rose 83% to€507 million in 2012 to €2,107 million (2011: €1,8642015 (2014:€277 million). This growth reflects a 12%69% increase from changesnew cloud business and a 14% increase from currency effects. Software licenses and software support revenue rose 9%
to€7,115 million in volumes2015 (2014:€6,542 million). This growth reflects an 8% increase from new software license and pricessoftware support business and a 1% increase from currency effects.
The Americas Region
In 2012, 38%2015, 41% of our total revenue was generated in the Americas region (2011: 36%(2014: 37%). Total revenue in the Americas region increased 20%30% to €6,100€8,428 million; revenue generated in the United States increased 21%38% to €4,461€6,750 million. This growth reflects a 12%16% increase from changes in volumes and pricesnew business and a 9%22% increase from currency effects. The United States contributed 73% (2011: 73%80% (2014: 75%) of all revenue generated in the Americas region revenue.region. In the remaining countries of the Americas region, revenue increased 18%5% to €1,639€1,678 million. This growth reflects a 17%3% increase from changes in volumes and pricesnew business and a 1%2% increase from currency effects. This revenue was principallyprimarily generated in Brazil, Canada, and Mexico. SoftwareCloud and software-related service software
revenue generated in the Americas region in 20122015 totaled €4,820€6,929 million (2011: €3,958(2014:€5,276 million). SoftwareCloud and software-related servicesoftware revenue represented 79%82% of all revenue in the Americas region in 2012 (2011: 78%2015 (2014: 81%). Cloud subscriptions revenue rose by 123% to€1,579 million in 2015 (2014:€709 million); currency effects were 34%, growth in new cloud business was 89%. Software licenses and cloud subscriptionsoftware support revenue increased 25%rose 17% to€5,350 million in 2012 to €1,920 million (2011: €1,5402015 (2014:€4,566 million). This growth reflects a 19%2% increase from changes in volumes and prices and a 6% increase fromnew business; currency effects.effects were 15%.
The APJ Region
In 2012, 16% (2011:2015, 15% (2014: 15%) of our total revenue was generated in the APJ region, with Japan recording the largeststrongest revenue increase.growth being achieved in India. Total revenue in the APJ region increased 23%18% to €2,637€3,185 million. In Japan, total revenue increased 11% to€667 million. Revenue from Japan was 21% to €789 million in 2012, representing a 30% contribution to(2014: 22%) of all revenue generated acrossin the APJ region (2011: 30%).region. The revenue risegrowth in Japan reflectswas attributable to a 13%6% increase due to changes in volumesfrom new business and prices and an 8%a 5% increase from currency effects. In the remaining countries of the APJ region, revenue increased 23%21%. Revenue in the remaining countries of the APJ region was generated primarily in Australia, China, and India. SoftwareCloud and software-related servicesoftware revenue generated in the APJ region totaled
€2,663 million in 2012 totaled €2,239 million (2011: €1,8322015 (2014:€2,221 million). In 2012, as in the prior year, software and software-related service revenue represented 85%That was 84% of all revenue. Software and cloud subscription revenue increased 25%from the region (2014: 83%). Cloud subscriptions revenue grew 98% to€200 million in 2012 to €901 million (2011: €7222015 (2014:€101 million). This growth reflects a 20%an 82% increase from changes in volumes and pricesnew cloud business and a 5%17% increase from currency effects. Software licenses and software support revenue increased 16% to€2,463 million in 2015 (2014:€2,120 million). This increase reflects an 8% increase from new business and an 8% increase from currency effects.
Revenue by Industry
We allocate our customers to one of our industries at the outset of an initial arrangement. All subsequent revenue from a particular customer is recorded under that industry sector.
In 2012,2015, we achieved above-average growth in the following industry sectors, measured by changes in total revenue: Financial services (€1,444Public Services (€2,174 million, at a growth rate of 21%22%); healthcareConsumer (€4,934 million, at a growth rate of 22%); and life sciences (€766Discrete Manufacturing (€3,672 million, at a growth rate of 20%); discrete manufacturing (€3,110. Revenue from the other industry sectors was Services (€3,298 million, at a growth rate of 19%17%); retail and wholesale (€1,541Energy & Natural Resources (€4,834 million, at a growth rate of 19%16%); and process manufacturing (€1,684Financial Services (€1,881 million, at a growth rate of 15%11%).
Results from the other sectors were as follows: services (€2,484 million, at a growth rate of 13%); energy and natural resources (€2,241 million, at a growth rate of 12%); consumer products (€1,516 million, at a growth rate of 6%); and public services (€1,437 million, at a growth rate of 3%).
Part I
Item 5
Operating Profit and Margin
Total Operating Expenses
€ millions | 2012 | % of total revenue(1) | 2011 | % of total revenue(2) | Change in % 2012 vs 2011 | |||||||||||||||
Cost of software and software-related services | –2,551 | 16% | –2,107 | 15% | 21% | |||||||||||||||
Cost of professional services and other services | –2,514 | 15% | –2,248 | 16% | 12% | |||||||||||||||
Research and development | –2,253 | 14% | –1,939 | 14% | 16% | |||||||||||||||
Sales and marketing | –3,907 | 24% | –3,081 | 22% | 27% | |||||||||||||||
General and administration | –947 | 6% | –715 | 5% | 32% | |||||||||||||||
Restructuring | –8 | 0% | –4 | 0% | n.a. | |||||||||||||||
TomorrowNow litigation | 0 | 0% | 717 | 5% | n.a. | |||||||||||||||
Other operating income/expense, net | 23 | 0% | 25 | 0% | –8% | |||||||||||||||
Total operating expenses | –12,158 | 75% | –9,352 | 66% | 30% |
|
|
Operating Profit and Operating Margin
€ millions, except for operating margin | 2012 | 2011 | Change in % 2012 vs 2011 | |||||||||
Operating profit | 4,065 | 4,881 | –17% | |||||||||
Operating margin in % | 25.1% | 34.3% | –9.2pp |
Total Operating Expenses | ||||||||||||||||||||
€ millions | 2015 | % of total revenue(1) | 2014 | % of total revenue(2) | Change in % 2015 vs 2014 | |||||||||||||||
Cost of cloud and software | –3,313 | 16% | –2,557 | 15% | 30% | |||||||||||||||
Cost of services | –3,313 | 16% | –2,716 | 15% | 22% | |||||||||||||||
Research and development | –2,845 | 14% | –2,331 | 13% | 22% | |||||||||||||||
Sales and marketing | –5,401 | 26% | –4,304 | 25% | 25% | |||||||||||||||
General and administration | –1,048 | 5% | –892 | 5% | 17% | |||||||||||||||
Restructuring | –621 | 3% | –126 | 1% | >100% | |||||||||||||||
TomorrowNow and Versata litigation | 0 | 0% | –309 | 2% | <–100% | |||||||||||||||
Other operating income/expense, net | 1 | 0% | 4 | 0% | –86% | |||||||||||||||
Total operating expenses | –16,541 | 80% | –13,230 | 75% | 25% |
(1) Total revenue for 2015:€ 20,793 million.
(2) Total revenue for 2014:€ 17,560 million.
Operating profit Operating margin (in %)Operating Profit and Operating Margin € millions, except for operating margin 2015 2014 Change in % 2015
vs 2014 4,252 4,331 –2% 20.5% 24.7% –4.2pp
Operating ProfitSAP continued to invest in innovation and Operating Margin
In 2012,its cloud business and generated record turnover in 2015. The strong growth in revenue, however, also led to an increase in compensation payments to our employees, while the climbing stock price translated into higher share-based payment expenses. As a result, our operating profit totaled €4,065declined slightly by 2% to€4,252 million (2011: €4,881(2014:€4,331 million), a significant year-over-year decrease. A year-on-year comparison of operating profit is only possible to a limited extent, because of the release of the TomorrowNow litigation provision in the amount of €717 million in 2011. Increased expenses relating to the share-based payments in the amount of €522 million (2011: €68 million) as well as acquisition-related expenses of €537 million (2011: €448 million) reduced.
In 2015, our operating profitexpenses increased€3,311 million or 25% to€16,541 million (2014:€13,230 million). The main contributors to that increase were our acquisition of Concur in 2012. Share-based payment expenses rose considerablyDecember 2014, our greater investment- and revenue-related cloud subscriptions and support costs, our continued investment in 2012 as a result of new plans and an increase in the price of SAP stock.
Our operating profit for 2012 was also impacted by continued investments in global sales activities, and higher restructuring expenses.
The effect of acquisition-related expenses, which were€738 million (2014:€562 million), of restructuring expenses, which were€621 million (2014:€126 million), and of a€724 million expense for share-based payments (2014:€290 million) weighed more heavily on operating profit than in the previous year. The record revenue generated increased the cost of bonus payments, and the improving performance of the share price in 2015 pushed share-based payment expenses higher. Continuing investment in the cloud computing. The number of SAP employees (expressedinfrastructure, in sales activities around the world, and in research and development also affected operating profit. Our employee headcount (measured in full-time equivalents, or FTEs) rose yearincreased by 2,579 year-over-year.
These short-term, negative effects on yearoperating profit largely represent investments in the future and were in part offset by almost 8,700 persons, including more than 4,800 employees from acquisitions.the increase in revenue.
AllThe overall result of the above factors causedthese effects on operating profit was a 4.2 percentage point narrowing of our operating margin in 20122015 to drop 9.2 percentage points20.5% (2014: 24.7 %).
Changes to 25.1% (2011: 34.3%).
In 2012, operating expenses increased €2,806 million or 30% to €12,158 million (2011: €9,352 million). This increase is due primarily to acquisition-related expenses, share-based payments, continued investmentsthe individual elements in sales activities, an increase in personnel costsour cost of revenue were as a result of acquisitions, and cloud computing activity.
The sections that follow discuss our costs of sales by line item.follows:
Cost of SoftwareCloud and Software-Related ServicesSoftware
Cost of softwarecloud and software-related servicessoftware consists primarily of customer support costs, cost of developing custom solutions that address customers’ specific business requirements, costs for deploying and operating cloud solutions, amortization of intangible assets, expenses relating to intangibles,
and license fees and commissions paid to third parties for databases and the other complementary third-party products sublicensed by us to our customers.
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In 2012, our2015, the cost of cloud and software and software-related services grew 21%increased 30% to €2,551€3,313 million (2011: €2,107(2014:€2,557 million). The main cost factors were increased
Significant costs included an additional€539 million year-over-year to extend our cloud business in response to the sustained strength of customer support expenses totaling €184 million anddemand, with an acquisition-relatedassociated increase in expenses for providingthe expense of delivering and operating our cloud solutions. Theapplications, a€164 million revenue-related increase in the license fees that we pay to third parties, also roseand a€74 million rise in parallel with the cost of providing custom development projects. These investments contributed to revenue growth. Our margin on cloud subscriptions and support narrowed 0.4 percentage points to 55.3% (2014: 55.8%). This decrease was primarily due to increasing expenses related to the extension of our cloud infrastructure. These expenses represent an investment in our fast-growing cloud business of the future, and were in part already offset by a significant increase in softwarecloud subscriptions and support revenue.
The gross margin on ourcloud and software, and software-related services, defined as softwarecloud and software-related servicessoftware profit as a percentage of cloud and software revenue, narrowed to 80.8% in 2015 (2014: 82.1%). This change is driven by the revenue mix effect with a rising cloud subscriptions and software-related servicessupport revenue remained constant year over year in 2012 at 81% (2011: 81%).share while both cloud subscriptions and support margin as well as software license and support margin only changed marginally.
Cost of Professional Services and Other Services
Cost of professional services and other services consists primarily of the cost of consulting, premium services and training personnel and the cost of bought-in third-party consulting and training resources. This item also includes sales and marketing expenses for our professional services and other services resulting from sales and marketing efforts where those efforts cannot be clearly distinguished from providing the professional services and other services.
Costs for professional and other services rose 12% from €2,248Although we were able to increase our service revenue by 10% year-over-year to€3,579 million in 20112015 (2014:€3,245 million), our service business continues to €2,514be greatly affected as we trend away from classic software licensing and consulting revenue toward more subscription revenue from cloud solutions. We are also
investing in our SAP ONE Service organization. As a result, cost of service rose 22% to€3,313 million in 2012. The(2014:€2,716 million). Our gross margin on our professional and other services, defined as professional and other services profit as a percentage of professional and other services revenue, decreasednarrowed to 18% in 2012 (2011: 23%7.4% (2014: 16.3%). The disproportionately high growth in spending compared to professional services and other service revenue is mainly due to increased costs in a limited number of customer projects.
Research and Development Expense
Our research and development (R & D) expense consists primarily of the personnel cost of our R & D employees, costs incurred for independent contractors we retain to assist in our R & D activities, and amortization of the computer hardware and software we use for our R & D activities.
In 2012, R & D costs rose 16% to €2,253 million. This increase primarily resulted from the increase in personnel costs related to the acquisitions of SuccessFactors and Ariba.
In 2012, R & D expense as a percentage of total revenue increased slightly to 13.9% (2011: 13.6%). Total revenue increased at the same rate as R & D expense, resulting in a nearly constant R & D ratio. For more information, see the Research and Development section.
Sales and Marketing Expense
Sales and marketing expense consists mainly of personnel costs and direct sales expense to support our sales and marketing teams in selling and marketing our products and services.
Sales and marketing costs rose 27% from €3,081 million in 2011 to €3,907 million in 2012. The increase was due primarily to the increased personnel costs of our expanded sales teams in new growth markets, among others, and to increased employee headcount as a result of acquisitions. Travel and marketing costs rose as a result of increased business operations. The ratio of sales and marketing costs to total revenue, expressed as a percentage, increased 24% year over year (2011: 22%). This was because expenses grew disproportionately to revenue.
General and Administration Expense
Our general and administration (G&A) expense consists mainly of personnel costs to support our finance and administration functions.
Our G&A expense rose from €715 million in 2011 to €947 million in 2012, representing an increase of 32%. This was due mainly to share-based payments and the increase in personnel costs as a result of the acquisition-related rise in headcount. The ratio of general and administration costs to total revenue in 2012 thus rose 1% year over year to 6%.
Segment Results
Following SAP’s increased focus on the cloud business, in 2012 we changed both the structure of the components that the SAP management uses to make decisions about operating matters, and the main profit measure used for the purposes of allocating resources to these components and measuring their performance. The segment information for earlier periods has been restated to conform with these changes. A detailed description of segment information is included in Note (28) of our Notes to the Consolidated Financial Statements.
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We have two divisions – On-Premise and Cloud, which are further divided into operating segments. Our On-Premise division is comprised of two operating segments: On-Premise Products and On-Premise Services. Our Cloud division is comprised of two operating segments: Cloud Applications and Ariba.
Total revenue and profit figures for each of our operating segments differ from the respective
revenue and profit figures classified in our Consolidated Statements of Income because of several differences between our internal management reporting and our external IFRS reporting. For more information about our segment reporting and a reconciliation from our internal management reporting to our external IFRS reporting, see the Notes to the Consolidated Financial Statements section, Note (28).
€ millions, unless otherwise stated | 2012 | 2011 | Change in % 2012 vs 2011 | |||||||||
On Premise Product Segment | ||||||||||||
External revenue | 12,881 | 11,325 | 14 | |||||||||
Cost of revenue | –1,990 | –1,762 | 13 | |||||||||
Gross profit | 10,891 | 9,564 | 14 | |||||||||
Sales and marketing costs | –3,410 | –2,919 | 17 | |||||||||
Operating segment profit/loss | 7,481 | 6,644 | 13 | |||||||||
Segment profitability | 58% | 59% | ||||||||||
On Premise Services Segment | ||||||||||||
External revenue | 2,967 | 2,901 | 2 | |||||||||
Cost of revenue | –2,298 | –2,201 | 4 | |||||||||
Gross profit | 669 | 700 | –4 | |||||||||
Sales and marketing costs | 0 | 0 | 0 | |||||||||
Operating segment profit/loss | 669 | 700 | –4 | |||||||||
Segment profitability | 23% | 24% | ||||||||||
Cloud Applications Segment | ||||||||||||
External revenue | 336 | 29 | >100 | |||||||||
Cost of revenue | –158 | –66 | >100 | |||||||||
Gross profit | 178 | –37 | <–100 | |||||||||
Sales and marketing costs | –231 | –32 | >100 | |||||||||
Operating segment profit/loss | –53 | –69 | –23 | |||||||||
Segment profitability | –16% | –238% | ||||||||||
Ariba Segment | ||||||||||||
External revenue | 120 | 4 | >100 | |||||||||
Cost of revenue | –75 | –9 | >100 | |||||||||
Gross profit | 45 | –5 | <–100 | |||||||||
Sales and marketing costs | –43 | –2 | >100 | |||||||||
Operating segment profit/loss | 2 | –7 | <–100 | |||||||||
Segment profitability | 2% | –175% |
On-Premise Division
The On-Premise division derives its revenue primarily from the sale of on-premise software (that is, software designed for use on hardware at the customer’s premises) and mobile software (that is, software designed for use on mobile devices) as well as services relating to such software.
On-Premise Products Segment
The On-Premise Products segment is primarily engaged in marketing and licensing our on-premise and mobile software products and providing support services for these software products.
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In 2012, revenue in the On-Premise Products segment increased 14% to €12,881 million (2011: €11,325 million). This growth reflects a 10% increase from changes in volumes and prices and a 4% increase from currency effects. The reason for this growth was the rise in software license sales, which, in turn, led to an increase in support revenue. Software revenue, which is added to revenues in the On-Premise Products segment, rose by 13% to €4,656 million (2011: €4,105 million). This growth reflects a 10% increase from changes in volumes and prices and a 3% increase from currency effects. Support revenue increased by 14% to €8,226 million (2011: €7,220 million). This growth reflects a 10% increase from changes in volumes and prices and a 4% increase from currency effects.
In 2012, cost of revenue increased 13% to €1,990 million (2011: €1,762 million) and sales and marketing costs increased by 17% to €3,410 million (2011: €2,919 million). The increased expenses in the On-Premise Products segment are the result of increased business operations following the rise in demand in 2012.
The operating segment profit of the On-Premise Products segment rose by 13% to €7,481 million (2011: €6,644 million), representing segment profitability of 58% (2011: 59%).
On-Premise Services Segment
The On-Premise Services segment primarily performs various professional services, mainly implementation services of our software products and educational services on the use of our software products.
In 2012, revenue in the On-Premise Services segment increased 2% to €2,967 million (2011: €2,901 million). This growth reflects a 1% decrease from changes in volumes and prices and a 3% increase from currency effects.
In 2012, cost of revenue in the On-Premise Services segment increased 4% to €2,298 million (2011: €2,201 million). The increased expenses in the On-Premise Services segment are the result of constant business operations and increased costs in a limited number of customer projects.
The operating segment profit of the On-Premise Services segment decreased by 4% to €669 million (2011: €700 million), representing segment profitability of 23% (2011: 24%).
Cloud Division
The Cloud division derives its revenues primarily from the sale of cloud software (that is, software designed for delivery through the cloud) and services relating to such software.
Driven by the acquisition of SuccessFactors in the first quarter of 2012, SAP showed a strong cloud momentum in 2012: Derived from the total revenue of SAP’s two Cloud segments (Cloud Applications and Ariba), the annual cloud revenue run rate in the fourth quarter approached €850 million. For the Cloud Applications segment alone, 12-month new and upsell subscription billings increased nineteenfold in the fourth quarter. Even when including SuccessFactors in SAP’s 2011 numbers, the growth is triple digit at 102%. For SuccessFactors on a stand-alone basis, 12-month new and upsell subscription billings grew 95% compared to the previous year.
The annualized revenue run rate is derived from the total revenue of SAP’s two Cloud segments (Cloud Applications and Ariba) in the fourth quarter of 2012 and includes Ariba (before any future growth). The annual run rate is calculated by multiplying the fourth-quarter Cloud division revenue by 4.
The year-over-year growth rate in 12-month new and upsell subscription billings relates to SAP’s Cloud Applications business (excluding Ariba). The growth rate is a pro forma growth rate that assumes that the acquisition of SuccessFactors was completed as of January 1, 2011.
Cloud Applications Segment
The Cloud Applications segment is primarily engaged in marketing and selling subscriptions to the cloud software offerings developed by SAP and SuccessFactors.
In 2012, revenue in the Cloud Applications segment increased to €336 million (2011: €29 million).
In 2012, cost of revenue increased to €158 million (2011: €66 million) and sales and marketing costs increased to €231 million (2011: €32 million). The increased expenses in the Cloud Applications segment were largely driven by the acquisition of SuccessFactors in the first quarter of 2012.
The operating segment loss of the Cloud Applications segment increased by 23% to
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€–53 million (2011: €–69 million), representing segment profitability of –16% (2011: –238%).
Ariba Segment
The Ariba segment primarily markets and sells the cloud software offerings developed by Ariba. While this segment is named Ariba, it is not identical to the acquired Ariba business since certain SAP activities are now in our Ariba segment. For 2011, the numbers for the Ariba segment reflect the SAP activities that were allocated to the Ariba segment upon its establishment.
In 2012, revenue in the Ariba segment increased to €120 million (2011: €4 million).
In 2012, cost of revenue increased to €75 million (2011: €9 million) and sales and marketing costs increased by 2150% to €43 million (2011: €2 million). The increased expenses in the Ariba segment were largely driven by the acquisition of Ariba at the end of 2012.
The operating segment loss of the Ariba segment turned into a segment profit of €2 million (2011: €–7 million), representing segment profitability of 2% (2011: –175%).
Financial Income
Finance income, net, decreased to €–68 million (2011: €–38 million). Our finance income was €107 million (2011: €123 million) and our finance costs were €175 million (2011: €161 million).
Finance income mainly consists of interest income from loans and financial assets (cash, cash equivalents, and current investments), which was €50 million in 2012 (2011: €64 million). This decrease is attributable mainly to a lower average liquidity and lower interest rates than in 2011.
Finance costs mainly consist of interest expense on financial liabilities (€130 million in 2012 compared to €123 million in 2011). This year-over-year increase resulted mainly from the financial debt incurred in connection with the SuccessFactors and Ariba acquisitions. For more information about these financing instruments, see the Notes to the Consolidated Financial Statements section, Note (17b).
Another factor in financial income in 2012 was the derivatives we utilize to execute our financial risk management strategy. The associated time value effects from derivatives were reflected in interest income of €27 million (2011: €37 million) and interest expenses of €28 million (2011: €37 million).
Income Tax
Our effective tax rate decreased to 26.2% in 2012 (2011: 27.9%). The increased effective tax rate 2011 mainly resulted from the reduction of the TomorrowNow litigation provision. For more information, see the Notes to the Consolidated Financial Statements section, Note (10).
Our 2011 Results Compared to Our 2010 Results (IFRS)
Revenue
Revenue
€ millions | 2011 | 2010 | Change in % 2011 vs 2010 | |||||||||
Software | 4,107 | 3,410 | 20 | % | ||||||||
Cloud subscriptions and support | 18 | 14 | 29 | % | ||||||||
Software and cloud subscriptions | 4,125 | 3,424 | 20 | % | ||||||||
Support | 7,194 | 6,370 | 13 | % | ||||||||
Software and software-related service revenue | 11,319 | 9,794 | 16 | % | ||||||||
Consulting | 2,341 | 2,197 | 7 | % | ||||||||
Other services | 573 | 473 | 21 | % | ||||||||
Professional services and other service revenue | 2,914 | 2,670 | 9 | % | ||||||||
Total revenue | 14,233 | 12,464 | 14 | % |
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Total Revenue
Total revenue increased from €12,464 million in 2010 to €14,233 million in 2011, representing an increase of €1,769 million or 14%. This total revenue growth reflects a 16% increase from changes in volumes and prices and a 2% decrease from currency effects. The revenue growth is due primarily to an increase in software revenue of €697 million and an increase in support revenue of €824 million. In 2011, software and software-related service revenue totaled €11,319 million as a result of this increase. Software and software-related service revenue represented 80% of all revenue in 2011 compared with 79% in 2010. In 2011, professional services and other service revenue contributed €2,914 million to our total revenue, representing an increase of 9% compared to 2010.
For an analysis of our total revenue by region and industry, see the Revenue by Region and Revenue by Industry sections.
Software and Software-Related Service Revenue
Software revenue represents fees earned from the sale or license of software to customers. Cloud subscriptions and support revenue represents revenues from our cloud offerings. Support revenue represents fees earned from providing customers with technical support services and unspecified software upgrades, updates, and enhancements.
Software and software-related service revenue increased from €9,794 million in 2010 to €11,319 million in 2011, representing an increase of 16%. The software and software-related service revenue growth reflects a 17% increase from changes in volumes and prices and a 2% decrease from currency effects.
Software revenue increased from €3,410 million in 2010 to €4,107 million in 2011, representing an increase of €697 million or 20%. This increase reflects growth of 23% from changes in volumes and prices and a 3% decrease from currency effects.
SAP Business Suite software contributed the greatest share of growth in software revenue, followed by SAP HANA and mobile solutions.
In 2011, our customer base again expanded. Based on the number of contracts concluded,
20% of the orders we received for software in 2011 were from new customers (2010: 23%). The value of orders received for software grew 16% year over year. The total number of contracts signed for new software increased 17% to 59,059 contracts (2010: 50,439 contracts).
Cloud subscriptions and support revenue increased by €4 million or 22% to €18 million (2010: €14 million). This increase reflects changes in volume and prices of 24% and a 2% decrease from currency effects.
Our stable customer base and the continued investment in software by new and existing customers throughout 2011 and the previous year resulted in an increase in support revenue from €6,370 million in 2010 to €7,194 million in 2011. Our SAP Enterprise Support offering generated most of the support revenue. The €824 million or 13% increase in support revenue reflects growth of 14% from changes in volumes and prices and a 1% decrease from currency effects. Our premium offerings and strong growth in revenue from SAP Enterprise Support were among the factors accounting for the increase in support revenue.
Professional Services and Other Service Revenue
Professional services and other service revenue consists primarily of consulting and other service revenue. We generate most of our consulting revenue from the implementation of our software products. Other service revenue consists mainly of training revenue from providing educational services to customers and partners on the use of our software products and related topics, and revenue from the messaging services business acquired from Sybase.
Professional services and other service revenue increased from €2,670 million in 2010 to €2,914 million in 2011, representing an increase of €244 million or 9%. This growth reflects an 11% increase from changes in volumes and prices and a 2% decrease from currency effects.
Consulting revenue increased from €2,197 million in 2010 to €2,341 million in 2011, representing 8% growth from changes in volumes and prices and a 1% decrease from currency effects. Consulting revenue contributed 80% of professional services and other service revenue (2010: 82%). Consulting revenue contributed 16% of total revenue in 2011 (2010: 18%).
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Other service revenue increased from €473 million in 2010 to €573 million in 2011, representing an increase of 21%. This growth reflects a 23% increase from changes in volumes
and prices and a 2% decrease from currency effects. The increase is due mainly to revenues from messaging services and training revenue.
Revenue by Region and Industry
Revenue by Region
€ millions | 2011 | 2010 | Change in % 2011 vs 2010 | |||||||||
Germany | 2,347 | 2,195 | 7 | % | ||||||||
Rest of EMEA | 4,644 | 4,068 | 14 | % | ||||||||
EMEA | 6,991 | 6,263 | 12 | % | ||||||||
United States | 3,699 | 3,243 | 14 | % | ||||||||
Rest of Americas | 1,392 | 1,192 | 17 | % | ||||||||
Americas | 5,091 | 4,435 | 15 | % | ||||||||
Japan | 652 | 513 | 27 | % | ||||||||
Rest of APJ | 1,499 | 1,253 | 20 | % | ||||||||
APJ | 2,151 | 1,766 | 22 | % | ||||||||
SAP Group | 14,233 | 12,464 | 14 | % |
Revenue by Industry
€ millions | 2011 | 2010 | Change in % 2011 vs 2010 | |||||||||
Discrete Manufacturing | 2,617 | 2,190 | 19 | % | ||||||||
Process Manufacturing | 1,461 | 1,255 | 16 | % | ||||||||
Consumer Products | 1,433 | 1,243 | 15 | % | ||||||||
Energy & Natural Resources | 2,001 | 1,796 | 11 | % | ||||||||
Services | 2,190 | 1,959 | 12 | % | ||||||||
Financial Services | 1,196 | 1,058 | 13 | % | ||||||||
Public Services | 1,399 | 1,246 | 12 | % | ||||||||
Retail & Wholesale | 1,300 | 1,124 | 16 | % | ||||||||
Healthcare & Life Sciences | 636 | 593 | 7 | % | ||||||||
Total revenue | 14,233 | 12,464 | 14 | % |
Revenue by Region
We break our operations down into three regions: the Europe, Middle East, and Africa (EMEA) region; the Americas region, which comprises North and Latin America; and the Asia Pacific Japan (APJ) region, which includes Japan, Australia, and other parts of Asia. We allocate revenue amounts to each region based on customers’ locations. For more information about revenue by geographic region, see the Notes to the Consolidated Financial Statements section, Note (28).
The EMEA Region
In 2011, the EMEA region generated €6,991 million in revenue (2010: €6,263 million)
or 49% of total revenue (2010: 50%). This represents a year-over-year increase of 12%. Total revenue in Germany increased 7% to €2,347 million in 2011 (2010: €2,195 million). Germany contributed 34% of all EMEA region revenue (2010: 35%). The remaining revenue in the EMEA region was primarily generated in the UK, France, Switzerland, the Netherlands, Russia, and Italy. Software and software-related service revenue generated in the EMEA region in 2011 totaled €5,529 million (2010: €4,883 million). Software and software-related service revenue represented 79% of all revenue in 2011 compared with 78% in 2010.
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The Americas Region
In 2011, 36% of our total revenue was generated in the Americas region (2010: 36%). Total revenue in the Americas region increased 15% to €5,091 million. Revenue generated in the United States increased 14% to €3,699 million. This growth reflects a 20% increase from changes in volumes and prices and a 6% decrease from currency effects. The United States contributed 73% of all Americas region revenue (2010: 73%). Revenue increased 17% to €1,392 million in the remaining countries of the Americas region. This growth reflects a 20% increase from changes in volumes and prices and a 3% decrease from currency effects. This revenue was principally generated in Canada, Brazil, and Mexico. Software and software-related service revenue generated in the Americas region in 2011 totaled €3,958 million (2010: €3,427 million). Software and software-related service revenue represented 78% of all revenue (2010: 77%).
The APJ Region
In 2011, 15% of our total revenue was generated in the APJ region (2010: 14%); most of the revenue was from Japan. Total revenue in the APJ region increased 22% to €2,151 million. In Japan, total revenue increased 27% to €652 million in 2011, representing a 30% contribution to all revenue generated across the APJ region (2010: 29%). This growth in revenue reflects a 22% increase from changes in volumes and prices and a 5% increase from currency effects. Revenue increased 20% in the remaining countries of the APJ region. Revenue in the remaining countries of the APJ region was generated primarily in Australia, India and China. Software and software-related service revenue generated in the APJ region in 2011 totaled €1,832 million (2010: €1,484 million). Software and software-related service revenue represented 85% of all revenue in 2011 compared with 84% in 2010.
Revenue by Industry
To help us better meet the requirements of existing and potential customers, we restructured
our industry groups in 2011, and now serve nine sectors rather than six as in 2010.
The first of our three new sectors, healthcare and life sciences, incorporates healthcare, medicine, and pharmaceuticals, which were previously distributed across our public services and manufacturing process industry groups. The new energy and natural resources sector combines our oil and gas, mining, utilities, and waste management segments. These were previously in our manufacturing process and services industry segments. We have defined our new retail and wholesale sector to focus more strongly on two areas that we had previously included in our consumer products industry sector. We restructured two further sub-areas to reflect changing customer needs. Engineering, construction, and operations, which previously belonged to our manufacturing discrete industry sector, is now included in our services sector. The postal industry has been assigned to the public services industry sector.
We allocate our customers to an industry sector at the outset of an initial arrangement. All subsequent revenue from a particular customer is recorded under that sector.
In 2011, we achieved above-average growth in the following sectors, measured by changes in total revenue: Manufacturing discrete (€2,617 million, at a growth rate of 19%), manufacturing process (€1,461 million, at a growth rate of 16%), retail and wholesale (€1,300 million, at a growth rate of 16%) and consumer products (€1,433 million, at a growth rate of 15%).
Results from the other sectors were as follows: Financial services: €1,196 million, at a growth rate of 13%; public services: €1,399 million, at a growth rate of 12%; services: €2,190 million, at a growth rate of 12%; energy and natural resources: €2,001 million, at a growth rate of 11%; and healthcare and life sciences: €636 million, at a growth rate of 7%.
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Operating Profit and Margin
Total Operating Expenses
€ millions | 2011 | % of total revenue(1) | 2010 | % of total revenue(2) | Change in % 2011 vs 2010 | |||||||||||||||
Cost of software and software-related services | –2,107 | 15% | –1,823 | 15% | 16% | |||||||||||||||
Cost of professional services and other services | –2,248 | 16% | –2,071 | 17% | 9% | |||||||||||||||
Research and development | –1,939 | 14% | –1,729 | 14% | 12% | |||||||||||||||
Sales and marketing | –3,081 | 22% | –2,645 | 21% | 16% | |||||||||||||||
General and administration | –715 | 5% | –636 | 5% | 12% | |||||||||||||||
Restructuring | –4 | 0% | 3 | 0% | <–100% | |||||||||||||||
TomorrowNow litigation | 717 | 5% | –981 | 8% | <–100% | |||||||||||||||
Other operating income/expense, net | 25 | 0% | 9 | 0% | 178% | |||||||||||||||
Total operating expenses | –9,352 | 66% | –9,873 | 79% | –5% |
|
|
Operating Profit and Operating Margin
€ millions, except for operating margin | 2011 | 2010 | Change in % 2011 vs 2010 | |||||||||
Operating profit | 4,881 | 2,591 | 88% | |||||||||
Operating margin in % | 34.3% | 20.8% | 13.5pp |
Operating Profit and Operating Margin
In 2011, our operating profit totaled €4,881 million (2010: €2,591 million), a significant year-over-year improvement. A contributor to the increased operating profit in 2011 was a €717 million reduction of the TomorrowNow litigation provision. We had increased this provision in 2010, which resulted in a €981 million negative impact on operating profit in that year. For more information about the TomorrowNow litigation, see the Notes to the Consolidated Financial Statements section, Note (23). Overall, revenue increased in 2011 while operating expenses decreased.
Our operating margin widened 13.5 percentage points to 34.3% in 2011 (2010: 20.8%). The reduction of the TomorrowNow litigation provision had a 5.0 percentage point positive effect on operating margin in 2011; in 2010, we had significantly increased the provision, which had a negative impact of 7.9 percentage points on operating margin.
In 2011, operating expenses decreased €521 million or 5% to €9,352 million (2010: €9,873 million). This reduction is due primarily to the reduction of the TomorrowNow litigation provision, which we had significantly increased in the previous year.
The sections that follow discuss our costs by line item.
Cost of Software and Software-Related Services
Cost of software and software-related services consists primarily of various customer support costs, the cost of developing custom solutions to address individual customers’ business requirements, and license fees and commissions we pay to third parties for database software and the other complementary third-party products that we sublicense to our customers.
In 2011, costs for software and software-related services rose 16% to €2,107 million (2010: €1,823 million). The main cost driver was an
Part I
Item 5
increase in personnel to cover the growing demand for SAP Enterprise Support in 2011, which in turn had a positive effect on support revenue. The license fees and the commissions that we pay to third parties for database software also rose in parallel with the increase in software revenue. The margin on our software and software-related services, defined as software and software-related services profit as a percentage of software and software-related services revenue, remained constant year over year in 2011 at 81% (2010: 81%).
Cost of Professional Services and Other Services
Cost of professional services and other services consists primarily of the cost of consulting and training personnel and the cost of bought-in third-party consulting and training resources. This item also includes sales and marketing expenses for our professional services and other services resulting from sales and marketing efforts where those efforts cannot be clearly distinguished from providing the professional services and other services.
Costs for professional and other services rose 9% from €2,071 million in 2010 to €2,248 million in 2011. The margin on our professional and other services, defined as professional and other services profit as a percentage of professional and other services revenue widened to 23% in 2011 (2010: 22%). The increase in profitability is due mainly to the positive trend in consulting.
Research and Development Expense
Our research and development (R&D) expense consists primarily of the personnel cost of our R&D employees, costs incurred for independent contractors we retain to assist in our R&D activities, and amortization of the computer hardware and software we use for our R&D activities.
In 2011,Due to growing personnel costs because of the 11% increase in our headcount by the end of the year, and the revenue-related year-over-year increase in compensation payments, our R&D costs rose 12%expense increased by 22% to €1,939 million. This increase primarily results€2,845 million in 2015 from the increase€2,331 million in personnel costs.
In 2011,2014. R&D expense as a percentage of total revenue was unchanged at 14% because R&D costs increased year over year at the same rate as sales.to 13.7% (2014: 13.3%). For more information, see “Item 4. Information About SAP – Products, Research & Development, and Services.”
Sales and Marketing Expense
Sales and marketing expense consists mainly of personnel costs, and direct sales expense incurred to support our salescosts, and marketing teams in selling andthe cost of marketing our products and services.
SalesOur sales and marketing costsexpense rose 16%25% from €2,645€4,304 million in 20102014 to €3,081€5,401 million in 2011.2015. The increase was due primarily tomainly the increasedresult of greater personnel costs ofas we expanded our expandedglobal sales teams in new growth markets among othersforce, and to increased variable remuneration as a result of surpassing our corporate goals. Travel and marketing costs rose as a result of increased business operations. The increase inexpenditure for bonus payments prompted by the number of employees in sales and marketing led to acceleratedstrong revenue growth. At the same time, theThe ratio of sales and marketing costsexpense to total revenue, expressed as a percentage, increased 22% year over year (2010: 21%). This was because expenses grew disproportionately to revenue.26.0% year-over-year (2014: 24.5%), an increase of 1.5 percentage points.
General and Administration Expense
Our general and administration expense consists mainly of the cost of personnel working incosts to support our finance and administration functions.
Our generalGeneral and administration expense roseincreased 17% from €636€892 million in 20102014 to €715€1,048 million in 2011, representing a 12% increase. This was due mainly to2015. That this expense grew less rapidly than revenue is primarily the increase in personnel costs. Theresult of careful cost management. Consequently, the ratio of general and administration costsexpense to total revenue dropped slightly in 2011 remained constant year over year at 5%2015 to 5.0% (2014: 5.1%).
Segment DiscussionsInformation (Non-IFRS)
We haveIn 2015, SAP had two divisions – On Premisereportable segments: the Applications, Technology, and Cloud whichServices segment; and the SAP Business Network segment. These are further divided into operating segments. Our On Premise division is comprisedthe components of two operating segments: On Premise ProductSAP that our Executive Board regularly reviews to assess the performance of our Company and On Premise Services. Our Cloud division is comprised of two operating segments: Cloud Applications and Ariba.to make resource allocation decisions.
Total revenueRevenue and profit figures for each of our operating segments are calculated in line with our internal management reporting and therefore differ from the respectivecorresponding revenue and profit figures classified in our Consolidated Statements of Income prepared according to IFRS. For more information about our segment reporting, the activities that our two segments derive their revenues from, financial performance measures, and reconciliation from our internal management reporting to our external IFRS reporting, see the Notes to the Consolidated Financial Statements section, Note (28), and the Performance Management System section.
The financial data presented for 2015 contain all revenues and expenses from Concur and Fieldglass, whereas the prior year’s comparison figures only include their financial data as of their respective acquisition dates. Fieldglass was acquired on May 2, 2014; Concur on December 4, 2014.
Applications, Technology & Services Segment
€ millions, unless otherwise stated | 2015 | 2014 | Change in % | Change in % (Constant Currency) | ||||||||||||
(Non-IFRS) | ||||||||||||||||
Segment revenue | 19,126 | 16,871 | 13% | 6% | ||||||||||||
Gross margin (in %) | 72% | 73% | –1pp | –1pp | ||||||||||||
Cloud subscription and support margin (in %) | 53% | 55% | –2pp | –5pp | ||||||||||||
Segment profit | 7,918 | 7,099 | 12% | 4% | ||||||||||||
Segment margin (in %) | 41% | 42% | –1pp | –1pp |
In 2015, the Applications, Technology & Services segment revenue increased 13% (6% at constant currencies) to€19,126 million (2014:€16,871 million).
This increase was driven mainly by strong growth in software support revenue, which increased 14% (7% at constant currencies) to€10,061 million and a 10%
increase in software licenses (5% at constant currencies) to€4,836 million. As a consequence of continuous strong demand in the human capital management, customer engagement and commerce, and SAP HANA Enterprise Cloud business, cloud subscriptions and support revenue in the Applications, Technology & Services segment grew 64% (45% at constant currencies) to€961 million.
The increase of cloud subscriptions and support revenue and software support revenue results in an increasing revenue share of more predictable revenue streams in this segment of 2 percentage points from 56% in 2014 to 58% in 2015. Software license revenue attributable to this segment increased 10% (5% at constant currencies) to€4,835 million (2014:€4,381 million).
The segment’s cost of revenue during the same time period increased 17% (9% at constant currencies) to
€5,343 million (2014:€4,564 million). This increase in expenses was primarily the result of greater investment in expanding our cloud infrastructure and in providing and operating our cloud applications, as well as additional personnel expenses to support the growth of the SAP HANA Enterprise Cloud service. The cloud subscriptions and support margin for the segment, therefore, decreased by 2.2 percentage points to 52.9% (50.4% at constant currencies). Segment gross profit increased 12% in 2015 (5% at constant currencies) to€13,784 million (2014:€12,307 million), which resulted in a decrease of the segment gross margin from 72.9% to 72.1% (72.1% at constant currencies). Segment profit increased 12% (4% at constant currencies) to€7,918 million (2014:€7,099 million), while the segment margin decreased by 0.7 percentage points to 41.4% (41.3% at constant currencies).
SAP Business Network Segment
€ millions, unless otherwise stated
(Non-IFRS) | 2015 | 2014 | Change in % | Change in % (Constant Currency) | ||||||||||||
Segment revenue | 1,614 | 644 | 150% | 116% | ||||||||||||
Gross margin (in %) | 67% | 66% | 1pp | 0pp | ||||||||||||
Cloud subscription and support margin (in %) | 75% | 75% | –0pp | –1pp | ||||||||||||
Segment profit | 312 | 105 | 199% | 139% | ||||||||||||
Segment margin (in %) | 19% | 16% | 3pp | 2pp |
In 2015, revenue from the SAP Business Network segment, which combines all of our business network solutions, increased 150% (116% at constant currencies) to€1,614 million (2014:€644 million). Concur and Fieldglass, which were acquired in 2014, together contributed€909 million (2014:€107 million) to the segment’s revenue. SAP internal analyses show that more than US$740 billion in commerce is conducted on the network annually.
The segment’s cost of revenue increased 144% in 2015 (114% at constant currencies) to€530 million (2014: €217 million), of which€299 million in expenses are attributable to Concur and SAP Fieldglass (2014: €28 million). The cloud subscriptions and support margin for the segment decreased by 0.4 percentage points to 74.9% (74.5% at constant currencies). The SAP Business Network segment achieved a segment gross profit of€1,084 million in 2015 (2014:€427 million), an increase of 154% (117% at constant currencies). This resulted in an increase of the segment gross margin from 66.3% to 67.2% (66.5% at constant currencies). Segment profit increased 199% year on year
(139% at constant currencies) to€312 million (2014:€105 million), resulting in an increase in the segment margin of +3.1 percentage points to 19.4% (18.0% at constant currencies).
Financial Income, Net
Financial income, net, changed to–€5 million (2014:–€25 million). Our finance income was€241 million (2014: €127 million) and our finance costs were€246 million (2014:€152 million).
Finance income mainly consists of gains from disposal of equity securities and interest income from loans and receivables, financial assets (cash, cash equivalents, and current investments), and income of derivatives.
Finance costs mainly consist of interest expense on financial liabilities (€135 million in 2015 compared to€93 million in 2014) due to higher average indebtedness and negative effects from derivatives (€72 million in 2015 compared to€28 million in 2014). For more information about financing instruments, see the Notes to the Consolidated Financial Statements section, Note (17b).
Income Tax
Our effective tax rate decreased to 23.4% in 2015 (2014: 24.7%). The year-over-year decrease in the effective tax rate mainly resulted from changes in taxes for prior
years. For more information on income taxes, see the Notes to the Consolidated Financial Statements section, Note (10).
Our 2014 Results Compared to Our 2013 Results (IFRS)
Revenue
€ millions | 2014 | 2013 | Change in % 2014 vs 2013 | |||||||||
Cloud subscriptions and support | 1,087 | 696 | 56% | |||||||||
Software licenses | 4,399 | 4,516 | –3% | |||||||||
Software support | 8,829 | 8,293 | 6% | |||||||||
Software licenses and support | 13,228 | 12,809 | 3% | |||||||||
Cloud and software | 14,315 | 13,505 | 6% | |||||||||
Services | 3,245 | 3,310 | –2% | |||||||||
Total revenue | 17,560 | 16,815 | 4% |
Total Revenue
Total revenue increased from€16,815 million in 2013 to€17,560 million in 2014, representing an increase of€746 million, or 4%. This growth reflects a 5% increase from changes in volumes and prices and a 1% decrease from currency effects. The growth in revenue resulted primarily from a€391 million increase in cloud subscriptions and support revenue and a€536 million rise in software support revenue. Services revenue declined€65 million and software licenses revenue declined€117 million. Cloud and software revenue climbed to€14,315 million in 2014, an increase of 6%. Cloud and software revenue represented 82% of total revenue in 2014 (2013: 80%). Services revenue declined 2% from€3,310 million in 2013 to€3,245 million, which was 18% of total revenue in 2014.
For more information about the breakdown of total revenue by region and industry, see the Revenue by Region and Industry section below.
Cloud and Software Revenue
Software licenses revenue results from the fees earned from selling or licensing software to customers. Revenue from cloud subscriptions and support refers to the income earned from contracts that permit the customer to access specific software solutions hosted by SAP during the term of its contract with SAP. Software support revenue represents fees earned from providing technical support services and unspecified software upgrades, updates, and enhancements to customers.
Cloud subscriptions and support revenue increased from€696 million in 2013 to€1,087 million in 2014.
A combination of a challenging macroeconomic and political environment in Russia, Ukraine, and some Latin American markets and the accelerating industry shift to the cloud resulted in a€117 million decline in software licenses revenue. That decline, from€4,516 million in 2013 to€4,399 million in 2014, reflects a 3% decrease in new software business.
Our customer base continued to expand in 2014. Based on the number of contracts concluded, 12% of the orders we received for software in 2014 were from new customers (2013: 16%). The total value of software orders received declined 3% year-over-year. The total number of software license contracts decreased 3% to 54,120 (2013: 55,909 contracts), while the average order value increased by 1%. Of all our software orders received in 2014, 22% were attributed to deals worth more than€5 million (2013: 24%), while 44% were attributed to deals worth less than€1 million (2013: 44%).
Our stable customer base, continued investment in software by customers throughout 2014 and the previous year, resulted in an increase in software support revenue from€8,293 million in 2013 to€8,829 million in 2014. The SAP Enterprise Support services offering was the largest contributor to our support revenue. The€536 million, or 6%, growth in software support revenue reflects an 8% increase from new support business and a 1% decrease from currency effects. This growth is primarily attributable to SAP Product Support for Large Enterprises and SAP Enterprise Support. The acceptance rate for SAP Enterprise Support among new customers remained high at 98% in 2014.
Software licenses and support revenue rose€419 million, or 3%, from€12,809 million in 2013 to€13,228 million in 2014. This growth breaks down into a 4% increase from new business and a 1% decrease from currency effects.
Cloud and software revenue grew from€13,505 million in 2013 to€14,315 million in 2014, an increase of 6%. This reflects a 7% increase from new cloud and software business and a 1% decrease from currency effects.
Services Revenue
Services Revenue combines revenue from professional services, premium support services, training services, messaging services and payment services.
Professional services primarily relate to the installation and configuration of our cloud subscriptions and on-premise software products. Our premium support offering consists of high-end support services tailored to customer requirements. Messaging services are primarily transmission of electronic text messages from one mobile phone provider to another. Payment services are delivered in connection with our travel and expense management offerings.
Services revenue decreased€65 million, or 2%, from€3,310 million in 2013 to€3,245 million in 2014. This decline reflects a 1% decrease in new services business and a 1% decrease from currency effects.
Revenue by Region and Industry
Revenue by Region | ||||||||||||
€ millions | 2014 | 2013 | Change in % 2014 vs 2013 | |||||||||
Germany | 2,570 | 2,513 | 2% | |||||||||
Rest of EMEA | 5,813 | 5,462 | 6% | |||||||||
EMEA | 8,383 | 7,975 | 5% | |||||||||
United States | 4,898 | 4,487 | 9% | |||||||||
Rest of Americas | 1,591 | 1,746 | –9% | |||||||||
Americas | 6,489 | 6,233 | 4% | |||||||||
Japan | 600 | 631 | –5% | |||||||||
Rest of APJ | 2,088 | 1,975 | 6% | |||||||||
APJ | 2,688 | 2,606 | 3% | |||||||||
SAP Group | 17,560 | 16,815 | 4% |
Revenue by Industry | ||||||||||||
€ millions | 2014 | 2013 | Change in % 2014 vs 2013 | |||||||||
Energy & Natural Resources | 4,158 | 4,077 | 2% | |||||||||
Discrete Manufacturing | 3,051 | 2,987 | 2% | |||||||||
Consumer | 4,045 | 3,778 | 7% | |||||||||
Public Services | 1,786 | 1,691 | 6% | |||||||||
Financial Services | 1,697 | 1,633 | 4% | |||||||||
Services | 2,824 | 2,649 | 7% | |||||||||
Total revenue | 17,560 | 16,815 | 4% |
Revenue by Region
We break our operations down into three regions: the Europe, Middle East, and Africa (EMEA) region, the Americas region, and the Asia Pacific Japan (APJ) region.
We allocate revenue amounts to each region based on where the customer is located. For more information about revenue by geographic region, see the Notes to the Consolidated Financial Statements section, Note (28).
EMEA Region
In 2014, the EMEA region generated€8,383 million in revenue, which was 48% of total revenue (2013:€7,975; 47%). This represents a year-over-year increase of 5%. Revenue in Germany increased 2% to€2,570 million in 2014 (2013:€2,513 million). Germany contributed 31% (2013: 32%) of all EMEA region revenue. The remaining revenue in the EMEA region was primarily generated in France, Italy, the Netherlands, Russia, Switzerland, and the United Kingdom. Cloud and software revenue generated in the EMEA region in 2014 totaled€6,819 million (2013:€6,428 million). Cloud and software revenue represented 81% of all revenue in the region in 2014 (2013: 81%). Cloud subscriptions and support revenue rose 58% to€277 million in 2014 (2013:€176 million). This growth reflects a 57% increase from new cloud business and a 1% increase from currency effects. Software licenses and support revenue rose 5% to€6,542 million in 2014 (2013:€6,252 million). This growth reflects a 5% increase from new business and a 1% decrease from currency effects.
Americas Region
In 2014, 37% of our total revenue was generated in the Americas region (2013: 37%). Total revenue in the Americas region increased 4% to€6,489 million; revenue generated in the United States increased 9% to€4,898 million. This growth reflects an 8% increase from new business and a 1% increase from currency effects. The United States contributed 75% (2013: 72%) of all revenue generated in the Americas region. In the remaining countries of the Americas region, revenue declined 9% to€1,591 million. This reflects a 5% decrease in new business and a 4% decrease from currency effects. This revenue was principally generated in Brazil, Canada, and Mexico. Cloud and software revenue generated in the Americas region in 2014 totaled€5,276 million (2013:€4,922 million). Cloud and software revenue represented 81% of all revenue in the Americas region in 2014 (2013: 79%). Cloud subscriptions and support revenue rose by 55% to€709 million in 2014 (2013:€457 million); currency effects were 0%. Software licenses and support revenue rose 2% to€4,566 million in 2014 (2013:€4,465 million). This growth reflects a 3% increase from new business; currency effects were almost 0%.
APJ Region
In 2014, 15% (2013: 15%) of our total revenue was generated in the APJ region, with the strongest revenue growth being achieved in Australia. Total revenue in the APJ region increased 3% to€2,688 million. In Japan, revenue decreased 5% to€600 million. Revenue from Japan was 22% (2013: 24%) of all revenue generated in the APJ region. The decline in revenue from Japan was attributable to a 2% increase from new business and a 7% decrease from currency effects. In the remaining countries of the APJ region, revenue increased 6%. Revenue in the remaining countries of the APJ region was generated primarily in Australia, China, and India. Cloud and software revenue in the APJ region totaled€2,221 million in 2014 (2013:€2,155 million). That was 83% of all revenue from the region (2013: 83%). Cloud subscriptions and support revenue grew 59% to€101 million in 2014 (2013:€64 million). This growth reflects a 60% increase from new cloud business and a 1% decrease from currency effects. Software licenses and support revenue increased 1% to€2,120 million in 2014 (2013:€2,092 million). This increase reflects a 4% increase from new business and a 2% decrease from currency effects.
Revenue by Industry
We allocate our customers to one of our industries at the outset of an initial arrangement. All subsequent revenue from a particular customer is recorded under that industry sector.
In 2014 we achieved above-average growth in the following industry sectors, measured by changes in total revenue: Services (€2,824 million, at a growth rate of 7%); Consumer (€4,045 million, at a growth rate of 7%); Public Services (€1,786 million, at a growth rate of 6%); and Financial Services (€1,697 million, at a growth rate of 4%). Revenue from the other industry sectors: Energy and Natural Resources (€4,158 million, at a growth rate of 2%); and Discrete Manufacturing (€3,051 million, at a growth rate of 2%).
Operating Profit and Operating Margin
Total Operating Expenses | ||||||||||||||||||||
€ millions | 2014 | % of total revenue(1) | 2013 | % of total revenue(2) | Change in % 2014 vs 2013 | |||||||||||||||
Cost of cloud and software | –2,557 | 15% | –2,370 | 14% | 8% | |||||||||||||||
Cost of services | –2,716 | 15% | –2,660 | 16% | 2% | |||||||||||||||
Research and development | –2,331 | 13% | –2,282 | 14% | 2% | |||||||||||||||
Sales and marketing | –4,304 | 25% | –4,131 | 25% | 4% | |||||||||||||||
General and administration | –892 | 5% | –866 | 5% | 3% | |||||||||||||||
Restructuring | –126 | 1% | –70 | 0% | 80% | |||||||||||||||
TomorrowNow and Versata litigation | –309 | 2% | 31 | 0% | <–100% | |||||||||||||||
Other operating income/expense, net | 4 | 0% | 12 | 0% | –65% | |||||||||||||||
Total operating expenses | –13,230 | 75% | –12,336 | 73% | 7% |
(1) Total revenue for 2014:€17,560 million.
(2) Total revenue for 2013:€16,815 million.
Operating Profit and Operating Margin | ||||||||||||
€ millions, except for operating margin | 2014 | 2013 | Change in % 2014 vs 2013 | |||||||||
Operating profit | 4,331 | 4,479 | –3% | |||||||||
Operating margin (in %) | 24.7% | 26.6% | –2.0pp |
In 2014, SAP continued to invest in innovation and made substantial advances in the cloud business. In addition and among other influences, negative currency effects and the difficult economic situation in Latin America and Russia affected our profitability. As a result, our operating profit in 2014 was€4,331 million, a little less than in the previous year (2013:€4,479 million).
In 2014, our operating expenses increased€894 million or 7% to€13,230 million (2013:€12,336 million). The increase relates primarily to an expense in connection with the TomorrowNow and Versata litigation, restructuring costs, continuing investment in our sales organization, and a rise in personnel and infrastructure costs, especially for our cloud business.
The effect of acquisition-related expenses, which were€562 million (2013:€555 million), of restructuring expenses, which were€126 million (2013:€70 million), and of a€309 million expense relating to the TomorrowNow and Versata litigation weighed more heavily on operating profit than in the previous year. Continuing investment in sales activities around the world and in the cloud also affected operating profit. Our
employee headcount (measured in full-time equivalents, or FTEs) increased 7,834 year-over-year. Acquisitions accounted for more than 5,500 of the added FTEs.
Those negative effects on operating profit were in part offset by the reduced cost of share-based compensation programs totaling€290 million (2013:€327 million) resulting from the declining year-over-year performance of the stock and by savings in general administration costs.
The overall result of these effects on operating profit was a 2.0 percentage point narrowing of our operating margin in 2014 to 24.7% (2013: 26.6%).
Changes to the individual elements in our cost of revenue were as follows:
Cost of Cloud and Software
Cost of cloud and software consists primarily of customer support costs, cost of developing custom solutions that address customers’ specific business requirements, costs for deploying and operating cloud solutions, amortization expenses relating to intangibles,
and license fees and commissions paid to third parties for databases and the other complementary third-party products sublicensed by us to our customers.
In 2014, the cost of cloud and software increased 8% to€2,557 million (2013:€2,370 million).
Significant costs included an additional€180 million to extend our cloud business, especially outside the United States, with an associated increase in the expense of delivering and operating cloud applications, and a€34 million rise in the cost of providing customer support. They both represent investments that contributed to revenue growth. Our margin on cloud subscriptions and support widened 0.9 percentage points to 55.8% (2013: 54.8%). This improvement in margin was achieved primarily through strong growth in our cloud subscriptions and support revenue despite the increased expense we incurred to extend our cloud infrastructure. At the same time, the license fees we pay to third parties decreased by€49 million.
The gross margin on our cloud and software, defined as cloud and software profit as a percentage of cloud and software revenue, remained constant year-over-year at 82% in 2014 (2013: 82%).
Cost of Services
Cost of services consists primarily of the cost of consulting, premium services and training personnel and the cost of bought-in consulting and training resources. This item also includes sales and marketing expenses for our services resulting from sales and marketing efforts where those efforts cannot be clearly distinguished from providing the services.
Our consulting business is being greatly affected as we trend away from classic software licensing and consulting revenue toward more subscription revenue from cloud solutions. As a result, our services revenue decreased while our services expense increased by 2% from€2,660 million in 2013 to€2,716 million in 2014. Our gross margin on services, defined as services profit as a percentage of services revenue, narrowed to 16% (2013: 20%).
Research and Development Expense
Our research and development (R&D) expense consists primarily of the personnel cost of our R&D employees, costs incurred for independent contractors we retain to assist in our R&D activities, and amortization of the computer hardware and software we use for our R&D activities.
Although our personnel costs grew because of several differences betweenthe 6% increase in our headcount by the end of the year, our R&D expense increased only 2% to€2,331 million in
2014 from€2,282 million in 2013. R&D expense as a percentage of total revenue was slightly less year-over-year at 13.3% (2013: 13.6%). For more information, see “Item 4. Information About SAP – Products, Research & Development, and Services.”
Sales and Marketing Expense
Sales and marketing expense consists mainly of personnel costs, direct sales costs, and the cost of marketing our products and services.
Our sales and marketing expense rose 4% from€4,131 million in 2013 to€4,304 million in 2014. The increase was mainly the result of greater personnel costs as we expanded our global sales force and of the reallocation and re-tasking of employees to sales-related work. By increasing our sales force we accelerated our revenue growth. The ratio of sales and marketing expense to total revenue, expressed as a percentage, decreased slightly to 24.5% year-over-year (2013: 24.6%) because costs grew less rapidly than revenue.
General and Administration Expense
Our general and administration expense consists mainly of personnel costs to support our finance and administration functions.
General and administration expense increased 3% from€866 million in 2013 to€892 million in 2014. That this increase was modest compared to the growth in our revenue is primarily the result of careful cost management. The ratio of general and administration expense to total revenue was unchanged in 2014 at 5% (2013: 5%).
Segment Information (Non-IFRS)
The segment information below for 2014 and 2013 is presented based on the reportable segments created in 2015 (Applications, Technology & Services segment and the SAP Business Network Segment). These segments are the components of SAP that our Executive Board regularly reviews to assess the performance of our company and to make resource allocation decisions.
Revenue and profit figures for each of our operating segments are calculated in line with our internal management reporting and therefore differ from the corresponding revenue and profit in our external IFRS reporting.Consolidated Statements of Income prepared according to IFRS. For further details ofmore information about our segment reporting, the activities that our two segments derive their revenues from, the financial performance measures, and a reconciliation from our internal management reporting to our external IFRS reporting, see the Notes to the Consolidated Financial Statements section, Note (28), and the Performance Management System section.
The financial data presented for 2014 contains the revenue and expenses from Concur and SAP Fieldglass as of their respective acquisition dates. Their financial data is not included in the prior-year amounts, as Concur and SAP Fieldglass were acquired on December 4, 2014, and May 2, 2014, respectively.
Applications, Technology & Services Segment
| ||||||||||||||||
€ millions, unless otherwise stated
(Non-IFRS) | 2014 | 2013 | Change in % | Change in % (Constant Currency) | ||||||||||||
Segment revenue | 16,871 | 16,386 | 3% | 4% | ||||||||||||
Gross margin (in %) | 73% | 74% | –1pp | –1pp | ||||||||||||
Cloud subscriptions and support margin (in %) | 55% | 70% | –15pp | –15pp | ||||||||||||
Segment profit | 7,099 | 7,056 | 1% | 1% | ||||||||||||
Segment margin (in %) | 42% | 43% | –1pp | –1pp |
In 2014, Applications, Technology & Services segment revenue increased 3% (4% at constant currencies) to€16,871 million (2013:€16,386 million). This increase was mainly driven by strong growth in software support revenue, which increased 6% (8% at constant currencies) to€8,806 million, offset by a decrease in software licenses of 3% (3% at constant currencies) to€4,381 million. As a consequence of a continuous strong demand in the human capital management, Customer Engagement and Commerce, and SAP HANA Enterprise Cloud lines of business, cloud subscriptions and support revenue in the Applications, Technology & Services segment grew 42% (42% at constant currencies) to€585 million (2013:€ 413 million).
The increase of cloud and software revenue did mainly result from a strong increase in cloud subscriptions and support revenue and software support revenue, whereas software licenses revenue slightly decreased. This overall results in an increase in the revenue share of more predictable revenue streams in this segment of three percentage points from 53% in 2013 to 56% in 2014. Software licenses revenue attributable to this segment decreased 3% (3% at constant currencies) to€4,381 million (2013:€4,519 million). This decline was
due to a combination of challenging macroeconomic and political environments in Russia, Ukraine, and some Latin American markets and the accelerating industry shift to the cloud.
The segment’s cost of revenue during the same time period increased 6% (7% at constant currencies) to€4,564 million (2013:€4,312 million). This increase in expenses was the result of greater investment in expanding our cloud infrastructure and in providing and operating our cloud applications. The cloud subscriptions and support margin for the segment, therefore, decreased by 15 percentage points to 55.1% (55.1% at constant currencies). Segment gross profit increased 2% in 2014 (3% at constant currencies) to€12,307 million (2013:€12,074 million) which resulted in a decrease of the segment gross margin of–0.7 percentage points to 72.9% (–0.8 percentage points to 72.9% in constant currencies). Segment profit increased 1% year on year to€7,099 million (2013:€7,056 million) and was unchanged on a constant currency basis, resulting in a narrowing of the segment margin by one percentage point to 42.1% (41.9% at constant currencies).
Part I
Item 5
€ millions, unless otherwise stated | 2011 | 2010 | Change in % 2011 vs 2010 | |||||||||
On Premise Product Segment | ||||||||||||
External revenue | 11,325 | 9,853 | 15 | |||||||||
Cost of revenue | –1,762 | –1,569 | 12 | |||||||||
Gross profit | 9,564 | 8,284 | 15 | |||||||||
Sales and marketing costs | –2,919 | –2,520 | 16 | |||||||||
Operating segment profit/loss | 6,644 | 5,764 | 15 | |||||||||
Segment profitability | 59% | 58% | ||||||||||
On Premise Services Segment | ||||||||||||
External revenue | 2,901 | 2,663 | 9 | |||||||||
Cost of revenue | –2,201 | –2,041 | 8 | |||||||||
Gross profit | 700 | 622 | 13 | |||||||||
Sales and marketing costs | 0 | 0 | 0 | |||||||||
Operating segment profit/loss | 700 | 622 | 13 | |||||||||
Segment profitability | 24% | 23% | ||||||||||
Cloud Applications Segment | ||||||||||||
External revenue | 29 | 21 | 38 | |||||||||
Cost of revenue | –66 | –60 | 10 | |||||||||
Gross profit | –37 | –39 | –5 | |||||||||
Sales and marketing costs | –32 | –29 | 10 | |||||||||
Operating segment profit/loss | –69 | –68 | 1 | |||||||||
Segment profitability | –238% | –324% | ||||||||||
Ariba Segment | ||||||||||||
External revenue | 4 | 0 | n.a. | |||||||||
Cost of revenue | –9 | –4 | >100 | |||||||||
Gross profit | –5 | –4 | 25 | |||||||||
Sales and marketing costs | –2 | –1 | 100 | |||||||||
Operating segment profit/loss | –7 | –5 | 40 | |||||||||
Segment profitability | –175% | n.a. |
€ millions, unless otherwise stated
(Non-IFRS) | 2014 | 2013 | Change in % | Change in % (Constant Currency) | ||||||||||||
Segment revenue | 644 | 460 | 40% | 39% | ||||||||||||
Gross margin (in %) | 66% | 65% | 1pp | 1pp | ||||||||||||
Cloud subscriptions and support margin (in %) | 75% | 76% | –0pp | –0pp | ||||||||||||
Segment profit | 105 | 99 | 5% | 2% | ||||||||||||
Segment margin (in %) | 16% | 22% | –5pp | –6pp |
On Premise Division
The On Premise division derives its revenues primarilyIn 2014, revenue from the saleSAP Business Network segment, which combines all of on premise software (i.e. software designed for use on hardware on the customer’s premises) and mobile software (i.e, software designed for use on mobile devices) and services relatingour business network solutions, increased 40% (39% at constant currencies) to such software.
On Premise Product Segment€
The Product segment is primarily engaged in marketing and licensing our on premise and mobile software products and providing support services for these software products.
In 2011, revenue in the Product segment increased 15% to €11,325644 million (2010: €9,853(2013:€460 million). This growth reflects a 17% increase from changesfigure includes€107 million in volumessegment revenue attributable to SAP Fieldglass and pricesConcur, which were acquired in 2014 and are reflected in these results for the first time.
a 2% decrease from currency effects. The reason for this growth was the rise in software license sales, which in turn led to an increase in support revenue. Software revenue, which is added to revenues in the Product segment, rose by 20% to €4,105 million (2010: €3,409 million). This growth reflects a 23% increase from changes in volumes and prices and a 3% decrease from currency effects. Support revenue increased by 12% to €7,220 million (2010: €6,444 million). This growth reflects a 13% increase from changes in volumes and prices and a 1% decrease from currency effects.
In 2011,segment’s cost of revenue increased 12%36% in 2014 (37% at constant currencies) to €1,762€217 million, (2010: €1,569 million)of which€28 million in expenses are attributable to Concur and sales & marketing costs increased by 16% to €2,919 million (2010: €2,520 million).SAP Fieldglass. The increased expenses in the Product segment are the result of increased business operations following the rise in demand in 2011.
Part I
Item 5
The operating segment profit of the Product segment rose by 15% to €6,644 million (2010: €5,764 million), representing segment profitability of 59% (2010: 58%).
On Premise Services Segment
The Services segment primarily performs various professional services, mainly implementation services of our software productscloud subscriptions and educational services on the use of our software products.
In 2011, revenue in the Services segment increased 9% to €2,901 million (2010: €2,663 million). This growth reflects a 10% increase from changes in volumes and prices and a 1% decrease from currency effects.
In 2011, cost of revenue in the Services segment increased 8% to €2,201 million (2010: €2,041 million). The increased expenses in the Services segment are the result of increased business operations following the rise in demand in 2011.
The operating segment profit of the Services segment rose by 13% to €700 million (2010: €622 million), representing segment profitability of 24% (2010: 23%).
Cloud Division
The Cloud division derives its revenues primarily from the sale of cloud software (i.e. software designed for delivery through the Cloud) and services relating to such software.
Cloud Applications Segment
The Cloud Applications segment is primarily engaged in marketing and selling subscriptions to the cloud software offerings developed by SAP and Successfactors.
In 2011, revenue in the Cloud Applications segment increased 38% to €29 million (2010: €21 million). This growth reflects a 40% increase from changes in volumes and prices and a 2% increase from currency effects.
In 2011, cost of revenue increased 10% to €66 million (2010: €60 million) and sales & marketing costs increased by 10% to €32 million (2010: €29 million). The increased expenses in the Cloud Applications segment are the result of increased business operations following the rise in demand in 2011.
The operating segment loss of the Cloud Applications segment increased by 1% to €–69 million (2010: €–68 million), representing segment profitability of –238% (2010: –324%).
Ariba Segment
The Ariba segment primarily markets and sells the cloud software offerings developed by Ariba. While this segment is named Ariba, it is not identical to the acquired Ariba business since parts of the acquired business are now integrated with and thus reported in other segments, and certain SAP activities are now in our Ariba segment. For 2011, the numberssupport margin for the Ariba segment reflect the SAP activities that were allocated to the Ariba segment upon its establishment.
In 2011, revenue in the Ariba segment increased to €4 million (2010: €0 million).
In 2011, cost of revenue increased to €9 million (2010: €4 million) and sales & marketing costs increased by 100% to €2 million (2010: €1 million). The increased expenses in the Ariba segment are largely driven by the acquisition of Crossgate at the end of 2011.
The operating segment loss of the Ariba segment decreased by 40%0.5 percentage points to €–775.2% (–0.4 percentage points to 75.3% in constant currencies). The SAP Business Network segment thus achieved a gross profit of€427 million (2010: €–5in 2014, an increase of 42% (41% at constant currencies) which resulted in an increase of the segment gross margin of 1.0 percentage points to 66.3% (0.7 percentage points to 66.0% in constant currencies). Segment profit increased year-over-year by 5% (2% at constant currencies) to€105 million (2013:€ 99 million), representingresulting in a narrowing of the segment profitability of –175%margin by 5 percentage points to 16.2% (15.8% at constant currencies).
Financial Income, Net
In 2011, financialFinancial income, improvednet, changed to €–38–€25 million (2010:
(2013:–€–6766 million). Our finance income was €123€127 million (2010: €73(2013:€115 million) and our finance costs were €161€152 million (2010: €140(2013:€181 million).
Finance income mainly consists of interest income from loans, and receivablesfinancial assets (cash, cash equivalents, and current investments), which was €64 million in 2011 (2010: €34 million). and income of derivatives. This increase is attributable mainly to thea higher average liquidity and slightly higher interest rates than in 2010.2013.
Finance costs mainly consist of interest expense on financial liabilities (€123(€93 million in 20112014 compared to €77€131 million in 2010)2013). ThisThe decrease year-over-year increase resultedis mainly due to positive effects from the financial debt incurred in connection with the Sybase acquisition. We used bank loans, bonds,interest rate derivatives and private placementsdue to finance this acquisition.lower average indebtedness. For more information about these financing instruments, see the Notes to the Consolidated Financial Statements section, Note (17b).
Part I
Item 5
Another factor in financial income in 2011 was the derivatives we utilize to execute our financial risk management strategy. The associated fair value effects were reflected in interest income of €37 million (2010: €25 million) and interest expenses of €37 million (2010: €31 million).
Income Tax
Our effective tax rate increased slightly to 27.9%24.7% in 2011 (2010: 22.5%2014 (2013: 24.4%). The main reason for this significant year-over-year difference is the change in the measurement of the TomorrowNow litigation provision. While 2010 saw a tax rate reduction of almost 5 percentage points as a result of the significant increase of the TomorrowNow litigation provision, in 2011 we experienced an effective tax rate increase resulting from the reduction of the same provision. However, this increase was offset by tax effects related to intercompany financing. For more information, see the Notes to the Consolidated Financial Statements section, Note (10).
FOREIGN CURRENCY EXCHANGE RATE EXPOSURE
Although our reporting currency is the euro, a significant portion of our business is conducted in currencies other than the euro. Since the Group’s entities usually conduct
their business in their respective functional currencies, our risk of exchange rate fluctuations from ongoing ordinary operations is not considered significant. However, occasionally we generate foreign-currency-denominated receivables, payables, and other monetary items by transacting in a currency other than the functional currency; to mitigate the extent of the associated foreign currency exchange rate risk, the majority of these transactions are hedged as described in Note (25) to our Consolidated Financial Statements. Also see Notes (3) and (24) for additional information on foreign currencies.
Approximately 72% and 69%74% of our total revenue 2012 and 2011, respectively,in 2015 (2014: 71%) was attributable to operations in non-euro participating countries. As a result, those revenuesThat revenue had to be translated into euros for financial reporting purposes. Fluctuations in the exchange value of the euro had a
favorable impact on our total revenue of €548 million for 2012. Regarding 2011 the euro had an unfavorable impact on our total revenue of €195 million, while for 2010 the euro had a favorable impact of €705 million.€1,504 million on our total revenue for 2015, an unfavorable impact of€143 million on our total revenue for 2014 and an unfavorable impact of€734 million on our total revenue for 2013.
The impact of foreign currency exchange rate fluctuations discussed in the preceding paragraph is calculated by translating current period figures in local currency to euros at the monthly average exchange rate for the corresponding month in the prior year. Our revenue analysis, included within the “Operating Results,”Results” section of this Item 5, discusses at times increases and decreases due tothe effect of currency effects,movements which are calculated in the same manner.
OUTLOOKLIQUIDITY AND CAPITAL RESOURCES
Overview
Global Financial Management
We use global centralized financial management to control liquid assets and monitor exposure to interest rates and currencies. The primary aim of our financial management is to maintain liquidity in the Group at a level that is adequate to meet our obligations. Most SAP companies have their liquidity managed centrally by the Group, so that liquid assets across the Group can be consolidated, monitored, and invested in accordance with Group policy. High levels of liquid assets help keep SAP flexible, sound, and independent. In addition, various credit facilities are currently available for additional liquidity, if required. For more information about these facilities, see the Credit Facilities section.
We manage credit, liquidity, interest rate, equity price, and foreign exchange rate risks on a Group-wide basis. We use selected derivatives exclusively for this purpose and not for speculation, which is defined as entering into a derivative instrument for which we do not have a corresponding underlying transaction. The rules for the use of derivatives and other rules and processes
concerning the management of financial risks are collected in our treasury guideline document, which applies globally to all companies in the Group. For more information about the management of each financial risk and about our risk exposure, see the Notes to the Consolidated Financial Statements section, Notes (24) to (26).
Liquidity Management
Our primary source of cash, cash equivalents, and current investments is funds generated from our business operations. Over the past several years, our principal use of cash has been to support operations and our capital expenditure requirements resulting from our growth, to quickly repay financial debt, to acquire businesses, to pay dividends on our shares, and to buy back SAP shares on the open market. On December 31, 2015, our cash, cash equivalents, and current investments were primarily held in euros and U.S. dollars. We generally invest only in the financial assets of issuers or funds with a minimum credit rating of BBB, and pursue a policy of cautious investment characterized by wide portfolio diversification with a variety of counterparties, predominantly short-term investments, and standard investment instruments. We rarely invest in the financial assets of issuers with a credit rating lower than BBB, and such investments were not material in 2015.
We believe that our liquid assets combined with our undrawn credit facilities are sufficient to meet our present operating needs and, together with expected cash flows from operations, will support debt repayments and our currently planned capital expenditure requirements over the near term and medium term. It may also be necessary to enter into
financing transactions when additional funds are required that cannot be wholly sourced from free cash flow (for example, to finance large acquisitions).
To expand our business, we have made acquisitions of businesses, products, and technologies. Depending on our future cash position and future market conditions, we might issue additional debt instruments to fund acquisitions, maintain financial flexibility, and limit repayment risk. Therefore, we continuously monitor funding options available in the capital markets and trends in the availability of funds, as well as the cost of such funding. In recent years, we were able to repay additional debt within a short period of time due to our persistently strong free cash flow. For more information about the financial debt, see the Cash Flows and Liquidity section.
Capital Structure Management
The primary objective of our capital structure management is to maintain a strong financial profile for investor, creditor, and customer confidence, and to support the growth of our business. We seek to maintain a capital structure that will allow us to cover our funding requirements through the capital markets at reasonable conditions, and in so doing, ensure a high level of independence, confidence, and financial flexibility.
The long-term credit rating for SAP SE is “A” by Standard and Poor’s and “A2” by Moody’s, both with stable outlook. Since their initial assignment in September 2014, the ratings and outlooks have not changed.
Our general intention is to remain in a position to return liquidity to our shareholders by distributing annual dividends totaling more than 35% of our profit after tax. There are currently no plans for future share buybacks.
Capital Structure
2015 | 2014 | |||||||||||||||||||
€ millions | % of Total equity and liabilities | € millions | % of Total equity and liabilities | D in % | ||||||||||||||||
Equity | 23,295 | 56 | 19,534 | 51 | 19 | |||||||||||||||
Current liabilities | 7,867 | 19 | 8,574 | 22 | –8 | |||||||||||||||
Non-current liabilities | 10,228 | 25 | 10,457 | 27 | –2 | |||||||||||||||
Liabilities | 18,095 | 44 | 19,031 | 49 | –5 | |||||||||||||||
Total equity and liabilities | 41,390 | 100 | 38,565 | 100 | 7 |
In 2015, we repaid€1,270 million in bank loans that we had taken to finance the Concur acquisition and refinanced another part of this loan through the issuance of a three-tranche Eurobond of€1.75 billion in total with maturities of two to ten years. We also repaid a
€550 million Eurobond and a US$300 million U.S. private placement tranche at their maturity. Thus, the ratio of total financial debt to total equity and liabilities decreased by 7 percentage points to 22% at the end of 2015 (29% as at December 31, 2014).
Total financial debt consists of current and non-current bank loans, bonds, and private placements. For more information about our financial debt, see the Notes to the Consolidated Financial Statements section, Note (17).
As part of our financing activities in 2016, the Company intends to repay a US$600 million U.S. private placement tranche when it matures and a further substantial portion of our outstanding bank loan.
Total liabilities on December 31, 2015, mainly comprised financial liabilities of€9,522 million (of which€8,681 million are non-current). Financial liabilities on
December 31, 2015, consisted largely of financial debt, which included amounts in euros (€6,994 million) and U.S. dollars (€2,202 million). On December 31, 2015, approximately 64% of financial debt was held at variable interest rates, partially swapped from fixed into variable using interest rate swaps. Total liabilities on December 31, 2015, also comprised non-financial liabilities. Most of these non-financial liabilities result from employee-related obligations.
For more information about financial and non-financial liabilities, see the Notes to the Consolidated Financial Statements section, Note (18).
Cash Flows and Liquidity
Group liquidity on December 31, 2015, primarily comprised amounts in euros and U.S. dollars. Current investments are included in other financial assets in the statement of financial position. Financial debts are included within financial liabilities in the statement of financial position.
Group Liquidity of SAP Group
€ millions | 2015 | 2014 | D | |||||||||
Cash and cash equivalents | 3,411 | 3,328 | 83 | |||||||||
Current investments | 148 | 95 | 53 | |||||||||
Group liquidity | 3,559 | 3,423 | 136 | |||||||||
Current financial debt | –567 | –2,157 | 1,590 | |||||||||
Net liquidity 1 | 2,992 | 1,266 | 1,726 | |||||||||
Non-current financial debt | –8,607 | –8,936 | 329 | |||||||||
Net liquidity 2 | –5,615 | –7,670 | 2,055 |
Group liquidity consists of cash and cash equivalents (for example, cash at banks, money market funds, and time deposits with original maturity of three months or less) and current investments (for example, investments with
original maturities of greater than three months and remaining maturities of less than one year) as reported in our Consolidated Financial Statements.
Group Liquidity Development
Net liquidity is Group liquidity less total financial debt as defined above.
The increase in Group liquidity compared to 2014 was mainly due to cash inflows from our operations and financing activities in issuing bonds. They were offset by cash outflows for dividend payments and repayments of borrowings.
For information about the impact of cash, cash equivalents, current investments, and our financial liabilities on our income statements, see the analysis of our financial income, net, in the Operating Results (IFRS) section.
Analysis of Consolidated Statements of Cash Flows
€ millions | Years ended December 31, | |||||||||||||||||||
2015 | 2014 | 2013 | Change in % 2015 vs. 2014 | Change in % 2014 vs. 2013 | ||||||||||||||||
Net cash flows from operating activities | 3,638 | 3,499 | 3,832 | 4% | –9% | |||||||||||||||
Net cash flows from investing activities | –334 | –7,240 | –1,781 | –95% | >100% | |||||||||||||||
Net cash flows from financing activities | –3,356 | 4,298 | –1,589 | <–100% | <–100% |
Analysis of Consolidated Statements of Cash Flows: 2015 compared to 2014
Net cash provided by operating activities increased 4% year-over-year to€3,638 million in 2015 (2014:€3,499 million). Payments in connection with the restructuring of€204 million to employees and€272 million to insurance policies have offset partly the non-recurring effect from litigations in 2014. In 2015, days’ sales outstanding (DSO) for receivables, defined as the average number of days from the raised invoice to cash receipt from the customer, increased six days to 71 days (2014: 65 days).
Cash outflows from investment activities decreased significantly to€334 million in 2015 (2014:€7,240 million). Cash outflows from purchase of intangible assets and property, plant, and equipment remained stable. Cash outflows in 2014 had resulted mainly from business combinations of Concur and Fieldglass. For more information about current and planned capital expenditures, see the Investment Goals section.
Net cash outflows from financing activities were€3,356 million in 2015, compared to net cash inflows of€4,298 million in 2014. The 2015 cash outflows had resulted from repayments of€1,270 million bank loans,€550 million Eurobonds and US$300 million private placements. We refinanced another part of the bank loan through the issuance of a three-tranche Eurobond of€1,750 million in total. Cash inflows in 2014 were the result of issuing a€2,750 million Eurobond and drawing two tranches (of€1,270 million and€3,000 million) of a bank loan. Cash outflows in 2014 arose chiefly from repayments of€1,086 million borrowings and US$1,160 million convertible bonds that we assumed in connection with our acquisition of Concur.
The dividend payment of€1,316 million made in 2015 exceeded the amount of€1,194 million in the prior year resulting from the increased dividend paid per share from€1.00 to€1.10.
Analysis of Consolidated Statements of Cash Flows: 2014 Compared to 2013
Net cash provided by operating activities decreased 9% year-over-year to€3,499 million in 2014 (2013:€3,832 million). Payments in connection with the TomorrowNow and Versata litigation had a€555 million negative effect on net cash provided by operating activities. A€61 million increase to€1,356 million in our income tax payments also negatively affected net cash provided by operating activities. In 2014, days’ sales outstanding (DSO) for receivables, defined as the average number of days from the raised invoice to cash receipt from the customer, increased three days to 65 days (2013: 62 days).
Cash outflows from investment activities increased significantly to€7,240 million in 2014 (2013:€1,781 million). The increase resulted principally from the Concur, Fieldglass, and SeeWhy acquisitions. For more information about current and planned capital expenditures, see the Investment Goals section.
Net cash inflows from financing activities were€4,298 million in 2014, compared to net cash outflows of€1,589 million in 2013. Cash inflows in 2014 were the result of issuing a€2,750 bond and drawing two tranches (of€1,270 million and€3,000 million) of a loan. Cash outflows arose chiefly from repayments of borrowings (€1,086 million) and the repayment of convertible bonds that we assumed in connection with our acquisition of Concur (US$1,160 million). The 2013 cash outflows had resulted chiefly from dividends paid and the repayment of a€600 million bond.
The dividend payment of€1,194 million made in 2014 was greater than that of€1,013 million in the prior year because the dividend paid per share increased from€0.85 to€1.00.
Credit Facilities
Other sources of capital are available to us through various credit facilities, if required.
We are party to a revolving€2.0 billion credit facility contract with maturity in November 2020. The credit line may be used for general corporate purposes. A possible future withdrawal is not subject to any financial covenants. Borrowings under the facility bear interest at the Euro Interbank Offered Rate (EURIBOR) or London Interbank Offered Rate (LIBOR) for the respective optional currency plus a margin ranging from 0.3% to 0.525%. We pay a commitment fee of 0.079% per annum on unused amounts of the available credit facility. So far, we have not used and do not currently foresee any need to use, this credit facility.
As at December 31, 2015, SAP SE had additional available credit facilities totaling€471 million. Several of our foreign subsidiaries have credit facilities available that allow them to borrow funds at prevailing interest rates. As at December 31, 2015, approximately€49 million was available through such arrangements. There were immaterial borrowings outstanding under these credit facilities from our foreign subsidiaries as at December 31, 2015.
OFF-BALANCE SHEET ARRANGEMENTS
Several SAP entities have entered into operating leases for office space, hardware, cars and certain other equipment. These arrangements are sometimes referred to as a form of off-balance sheet financing. Rental expenses under these operating leases are set forth below under “Contractual Obligations.” We do not believe we have forms of material off-balance sheet arrangements that would require disclosure other than those already disclosed.
The table below presents our on- and off-balance sheet contractual obligations as of December 31, 2015:
Contractual obligations | Payments due by period | |||||||||||||||||||
€ millions | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | |||||||||||||||
Financial liabilities(1) | 10,127 | 863 | 3,759 | 1,822 | 3,683 | |||||||||||||||
Derivative financial liabilities(1) | 132 | 74 | 29 | 29 | 0 | |||||||||||||||
Operating lease obligations(3) | 1,347 | 294 | 410 | 246 | 396 | |||||||||||||||
Purchase obligations(3) | 872 | 428 | 260 | 118 | 66 | |||||||||||||||
Capital contribution commitments(3) | 111 | 111 | 0 | 0 | 0 | |||||||||||||||
Other non-current non-financial liabilities(2) | 331 | 0 | 201 | 36 | 94 | |||||||||||||||
Total | 12,920 | 1,770 | 4,660 | 2,251 | 4,239 |
(1) For more information on financial liabilities and derivative financial liabilities see Note (24) to our Consolidated Financial Statements.
(2) For more information on other non-current non-financial liabilities see Note (17c) to our Consolidated Financial Statements.
(3) See Note (22) to our Consolidated Financial Statements for additional information about operating lease obligations, purchase obligations, and capital contribution commitments. Our expected contributions to our pension and other post-employment benefit plans are not included in the table above. For more information on these contributions see Note (18a) to our Consolidated Financial Statements.
We expect to meet these contractual obligations with our existing cash, our cash flows from operations and our financing activities. The timing of payments for the above contractual obligations is based on payment schedules for those obligations where set payments exist. For other obligations with no set payment schedules, estimates as to the most likely timing of cash payments have been made. The ultimate timing of these future cash flows may differ from these estimates.
Obligations under Indemnifications and Guarantees
Our software license agreements and our cloud subscription agreements generally include certain provisions for indemnifying customers against liabilities if our software products infringe a third party’s intellectual property rights. In addition, we occasionally provide function or performance guarantees in routine consulting contracts and development arrangements. We also generally provide a six to twelve month warranty
on our software. Our warranty liability is included in other provisions. For more information on other provisions see Note (18b) to our Consolidated Financial Statements. For more information on obligations and contingent liabilities refer to Note (3) and Note (22) in our Consolidated Financial Statements.
For information on our R&D activities see “Item 4. Information about SAP – Products, Research & Development, and Services.” For information on our R&D costs see “Item 5. Operating and Financial Review and Prospects – Operating Results (IFRS)” and for information related to our R&D employees see “Item 6. Directors, Senior Management and Employees – Employees.”
Our Consolidated Financial Statements are prepared based on the accounting policies described in Note (3) to our Consolidated Financial Statements in this report. The application of such policies requires management to make judgments, estimates and assumptions that affect the application of policies and the reported amounts of assets, liabilities, revenues and expenses in our Consolidated Financial Statements. We base our judgments, estimates and assumptions on historical and forecast information, as well as regional and industry economic conditions in which we or our customers operate, changes to which could adversely affect our estimates. Although we believe we have made reasonable estimates about the ultimate resolution of the underlying uncertainties, no assurance can be given that the final outcome of these matters will be consistent with what is reflected in our assets, liabilities, revenues and expenses. Actual results could differ from original estimates.
The accounting policies that most frequently require us to make judgments, estimates, and assumptions, and therefore are critical to understanding our results of operations, include the following:
– | revenue recognition; |
– | valuation of trade receivables; |
– | accounting for share-based payments; |
– | accounting for income tax; |
– | accounting for business combinations; |
– | subsequent accounting for goodwill and other intangible assets; |
– | accounting for legal contingencies; and |
– | recognition of internally generated intangible assets from development. |
Our management periodically discusses these critical accounting policies with the Audit Committee of the Supervisory Board. See Note (3c) to our Consolidated Financial Statements for further discussion on our critical accounting estimates and critical accounting policies.
NEW ACCOUNTING STANDARDS NOT YET ADOPTED
See Note (3e) to our Consolidated Financial Statements for our discussion on new accounting standards not yet adopted.
Future Trends in the Global Economy
Given the growing demand and the financial markets’ increasing confidence in a positive future, the global economy is expected to recover gradually in 2013 according toIn its most recent report, the European Central Bank (ECB).2) Growth momentum forecasts moderate growth in the world economy and it expects that this growth will nevertheless be moderate, withvary across regions and countries in 2016. It foresees more favorable prospects for advanced economies than for emerging countries expected to grow more strongly than industrialized countries.markets and developing economies. Geopolitical risks, especially of heightened tensions in the Middle East, could undermine global economic performance, the ECB warns.
In the Europe, Middle East, and Africa (EMEA) region, the ECB expects the euro-area economy ofto recover slightly more rapidly in 2016 than in the euro areaprevious year. It suggests that low oil prices, increased publicsector spending on assistance for refugees, and its own monetary measures may encourage that acceleration. In Central and Eastern Europe, the ECB expects economic activity to remain stable but for performance to vary from country to country. The European Union’s structural funds and strong consumer spending may be principal factors behind such growth. In Russia, on the other hand, the economic situation is expected to haveremain difficult. The ECB expects further cuts in public spending as a slow start to 2013, chiefly becauseconsequence of the ongoing debt crisisdeclining oil revenue.
The ECB’s forecasts for 2016 for a number of major countries in southern European countries, a low level of investor and consumer confidence, and dampened export demand. A gradual recovery is expected later in the year if consumer spending and export demand are strong enough to restore confidence to the financial markets. Economic progress will be uneven in the Middle East and Africa because the political situation in the various countries is so different.
Looking at the Americas region it is anticipatedare cautious. For the United States, the ECB expects that economic growth may slow following the U.S. economy willFederal Reserve’s move on interest rates in December 2015. The ECB expects political uncertainty, a tightening of monetary policy, and more restrictive financing conditions to continue its moderate recovery in 2013. Domestic demand is expected to bounce back andweigh on Brazil’s economy.
For the situation in the labor market will brighten. Latin America is also expected to enjoy rapid growth again in 2013. It is likely to benefit from the gradual improvement in the global economic outlook as well as from the less stringent monetary policies applied by some governments.
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In the Asia-Pacific-JapanAsia Pacific Japan (APJ) region, the Japanese economy is expected toECB expects that wage increases and low oil prices will improve consumer spending in Japan. Japan’s exports should also pick up. For China, though, the ECB expects that economic growth will continue to recover graduallyslow following the refocusing of its economy. It believes that the prospects for India’s economy are positive in 2013, helped by rising global demand. China and other emerging economies will likewise see stronger markets, supported by stable domestic spending, various stimulus measures, and improving conditions for exporters.2016.
Economic Trends – Year-Over-Year GDP Growth
In % | 2014e | 2015p | 2016p | |||||||||
World | 3.4 | 3.1 | 3.4 | |||||||||
Advanced economies | 1.8 | 1.9 | 2.1 | |||||||||
Developing and emerging economies | 4.6 | 4.0 | 4.3 | |||||||||
Europe, Middle East, and Africa (EMEA) | ||||||||||||
Euro area | 0.9 | 1.5 | 1.7 | |||||||||
Germany | 1.6 | 1.5 | 1.7 | |||||||||
Central and Eastern Europe | 2.8 | 3.4 | 3.1 | |||||||||
Middle East and North Africa | 2.8 | 2.5 | 3.6 | |||||||||
Sub- Saharan Africa | 5.0 | 3.5 | 4.0 | |||||||||
Americas | ||||||||||||
United States | 2.4 | 2.5 | 2.6 | |||||||||
Canada | 2.5 | 1.2 | 1.7 | |||||||||
Central and South America, Caribbean | 1.3 | –0.3 | –0.3 | |||||||||
Asia Pacific Japan (APJ) | ||||||||||||
Japan | 0.0 | 0.6 | 1.0 | |||||||||
Asian developing economies | 6.8 | 6.6 | �� | 6.3 | ||||||||
China | 7.3 | 6.9 | 6.3 |
e = estimate; p = projection
Source: International Monetary Fund (IMF), World Economic Outlook Update January 2016, Subdued Demand, Diminished Prospects, as of January 19, 2016, p. 6.
IT Market: The Outlook for 20132016
The worldwide IT market is at the dawn of a new era, according to U.S. market research firm IDC. It expects IT market growth to decline in a number of emerging economies, notably Brazil, China, and Russia. For a decade, these countries were the driving force in all segments of the global IT market while the advanced economies were already focusing on the transition from traditional technologies to innovations such as cloud and mobile computing. IDC expects that the growth in traditional IT will also slow in the emerging markets and developing economies in the years ahead. It believes that cloud, mobile, and Big Data will offer the main opportunities for growth. In view of that prediction, IDC expects the worldwide IT market to grow just 2.8% in 2016. Hardware spending is expected to continueincrease by about 1%, and software spending by almost 7% (mainly due to expandsoftware-as-a-service and platform-as-a-service solutions).
In the Europe, Middle East, and Africa (EMEA) region, IDC expects overall IT market growth to decelerate to 2% in 2013 at about2016. Notably, the same pace asIT market in the previous year, according to IDC, outpacing growth in the global economy. Markets for PCs, servers, and IT services are Western Europe is
expected to grow more stronglyjust 1% to 2% in 2013 than in 2012, and software spending is likely to remain stable.the coming years. The IT market like the economy,in Germany is not expected to expand moregrow much above these rates either, according to IDC. The institute believes that IT spending in Russia might recover as early as 2016 and grow 6% as a result of short-term government stimulus measures.
IDC expects the emerging countries thanAmericas region IT spending to increase 3.7% in the industrialized countries.
Because the economy of the euro area is expected to be sluggish, in 20132016. It believes the IT market in the EMEA region is expectedUnited States will grow at a similar rate and that, with 7% growth, the software segment will again be the fastest to grow relatively slowly in comparison withexpand there. For Brazil, IDC expects that the world IT market but to outperform the region’s economy asgovernment will pursue a whole once again. Expectations for the IT services segmentstrict program of economic reform in the EMEA region are modest, while software revenues are likely to outperformnext few years, which could slow growth in the IT market average.
The economic crisisto a rate of 3% or 4%. IDC forecasts that the IT market in Europe is expected to have an effectMexico will also grow by about 3% annually in the Americasnext few years.
In the Asia Pacific Japan (APJ) region, in 2013 as well, and again impairIDC believes growth in the IT market for IT. Butmight reach 2.5%. However, growth rates in the market for ITagain are expected to still be higher invary from country to country. IDC expects the Americas region than elsewhere. The U.S. IT market is expected to recover in 2013 and to achieve high single-digit percentage growth, driven by an upswing in the PC market and a continuing high level of demand for smartphones and software.
IT spending in the APJ region is expected to grow at a noticeably slower pace in 2013 than in 2012, but still faster than the economy as a whole. The IT market in Japan is expected to reach just positive growth rates, although the hardware segment is expected to contractwill grow by a percentageabout 3% in 2016. It anticipates that China’s IT market
will expand only in the lowerlow to middle single-digit range. Spending on software,percentage range in the years ahead. The IT market in
India, on the other hand, is expected to increase at a similar pace as in 2012, while spending on IT services is expectedmight continue to grow more strongly. Growthby rates at or above 10% a year, according to IDC.
Trends in the IT spending in China is expected to continue to slow in 2013. The software and services segments are expected to expand slightly quicker than in 2012.Market –
Increased IT Spending Year-Over-Year
| ||||||||||||
In % | 2014e | 2015p | 2016p | |||||||||
World | ||||||||||||
Total IT | 4.5 | 4.9 | 2.8 | |||||||||
Hardware | 5.2 | 5.5 | 1.1 | |||||||||
Packaged software | 5.6 | 6.8 | 6.8 | |||||||||
Applications | 6.9 | 7.3 | 7.1 | |||||||||
IT services | 3.0 | 2.8 | 3.0 | |||||||||
Europe, Middle East, and Africa (EMEA) | ||||||||||||
Total IT | 3.9 | 4.6 | 2.0 | |||||||||
Packaged software | 4.0 | 4.8 | 5.2 | |||||||||
Applications | 4.5 | 5.4 | 5.6 | |||||||||
IT services | 2.2 | 1.9 | 2.6 | |||||||||
Americas | ||||||||||||
Total IT | 4.2 | 4.6 | 3.7 | |||||||||
Packaged software | 6.8 | 8.4 | 7.3 | |||||||||
Applications | 8.5 | 8.9 | 7.8 | |||||||||
IT services | 2.8 | 2.8 | 2.6 | |||||||||
Asia Pacific Japan (APJ) | ||||||||||||
Total IT | 5.9 | 5.9 | 2.5 | |||||||||
Packaged software | 4.5 | 4.9 | 8.0 | |||||||||
Applications | 5.6 | 5.1 | 7.7 | |||||||||
IT services | 5.3 | 4.6 | 4.6 |
e = estimate, p = projection
Source: IDC Worldwide Black Book Pivot V3.1, 2015
Impact on SAP
SAP expects to outperform the global economy and the IT industry again in 2013. Thanks2016 in terms of revenue growth.
Our 2015 results validate our strategy of innovating across the core, the cloud, and business networks to help our customers become true digital enterprises.
Our innovation cycle for SAP S/4HANA is well underway and the innovation strategycompleteness of our vision in the cloud has distinguished SAP from both legacy players and point solution providers. We have beaten our guidance for 2015 on cloud and software as well as on operating income.
In 2015, we have puttransformed our Company and made it leaner by shifting investments from non-core activities to strategic growth areas enabling us to capture the growth opportunities in placethe market.
We are well-positioned for the future as reflected in the increase of our ambition for 2017.
We plan to continue to invest in countries in which we expect significant growth, helping us reach our ambitious 2016 outlook targets and our clear customer focus, wemedium-term aspirations for 2017 and 2020.
We are confident we can achieve theour medium-term targets we have set short-term for 20132017 and medium-term for 2015 – as long as2020, assuming that the economic
environment and IT industry develop as currently forecast. Diversifiedforecasted. Balanced in terms of regions as well as industries, we are well positionedwell-positioned with our product offering to absorb the occasional minor fluctuationoffset smaller individual fluctuations in the global economy and IT market.
A comparison of our planned performancebusiness outlook with forecasts for the global economy and IT industry shows that with our five market categories – Applications, Analytics, Cloud, Mobile, and Database and Technology – we arecan be successful even in a tough economic environment. Ourenvironment and will further strengthen our position as the market and thus the demandsleader of our customers, are changing rapidly. We anticipated these changes at an early date, and realigned our business with our innovation strategy in time to meet the needs of our customers. In addition, SAP will continue to invest in countries in which we expect significant growth and we aim to expand our market share in those countries. Such countries include Brazil, China, India, Russia, as well as countries in Africa and the Middle East. We therefore expect to see further future growth potential helping us to reach our ambitious 2013 outlook and medium-term aspirations for 2015. For more information, see the Operational Targets for 2013 (Non-IFRS) section.
Forecast for SAP
Strategy for Profitable Growth
SAP seeks profitable growth across its portfolio of products and services. Our goal is to double our addressable market to US$230 billion and increase the number of people who use and benefit from SAP solutions to one billion by 2015. Our ability to deliver software-based innovation and value in target growth areas of applications, analytics, mobile, cloud, and database and technology, positions us favorably in segments of the enterprise market that offer a higher growth potential than is forecast for the overall IT market, or indeed the global gross domestic product (GDP) growth rates. SAP continues to invest and increase its presence and market share in countries experiencing higher than average growth, such as Brazil, China, India, and Russia, and in the Middle East and Africa.
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SAP’s continued growth depends on our ability to deliver innovative solutions to market and drive ongoing value for our customers. We continue to improve our research and development effectiveness, working in leaner teams to accelerate innovation cycles and engage more closely with our customers. We are also investing in our go-to-market channels to expand capacity and drive greater volume sales, while expanding our technology partner ecosystem to foster co-innovation as a force multiplier for creating additional business value for our customers.
The success of SAP and our customers depends on our people – whom we consider our most important asset. Our employees spark our innovation, deliver value to our customers, and drive our sustainable growth and profitability. The correlation between our continued business success and our ability to attract, retain, and engage top talent is so strong that the latter is a continuous focus area for improvement. Therefore, we continue to execute our people strategy to set us apart in vital areas such as leadership development, career advancement, workforce diversity, and human resources processes. These areas drive our employees to be at their very best. This high level of performance is essential if we are to realize our ambitious growth strategy and further enhance our ability to innovate.
Go-to-Market Investment Delivers Customer Value
SAP goes to market by region, customer segment, and industry. In each region, we concentrate our sales efforts on the fastest-growing markets with the most business and revenue potential. We evolve and invest in our go-to-market coverage model to effectively sell industry-specific solutions while increasing our engagement with customers in line-of-business functions (for example, human resources, sales, and marketing) and users of analytics. We continue to provide companies of any size – small, midsize, and large – with choice-offering new software solution options that align to their specific budgetary, resource, and deployment requirements.
Greater Volume and Co-Innovation Through an Open Ecosystem
SAP continues to engage an expanding partner ecosystem to increase market coverage, enhance
our solutions portfolio, and spur innovation. SAP and its vibrant partner ecosystem offer greater choice and business value through the power of co-innovation, appealing to customers that want to avoid being “locked in” to a single vendor. SAP channel partners offer customers knowledgeable local delivery of solutions across industries and lines of business. SAP technology partners continue to drive our research agenda, enhance the SAP solution portfolio, and monetize new technology breakthroughs.
Organic Growth and Targeted Acquisitions
Organic growth remains the primary driver of SAP’s strategy. We continue to invest in our own product development and technology innovation, improving the speed, number of projects, and innovations brought to market. Our open ecosystem strategy enables us to better leverage our innovation by extending it to our partners to drive additional customer value, based on their own domain expertise. Also, we intend to continue to acquire targeted, strategic, and “fill-in” technology to add to our broad solution offerings and improve our coverage in key strategic markets to best support our customers’ needs. From time to time we also consider larger acquisitions that expand our business into new markets. On that front, we will be concentrating on successfully integrating SuccessFactors and Ariba with the goal of accelerating our cloud business in 2013 and beyond.application software.
Operational Targets for 20132016 (Non-IFRS)
Revenue and Operating Profit Outlook
The Executive Board isWe are providing the following outlook for the full year 2013 from today’s perspective:
The Company expects full-year 2013 non-IFRS software and cloud subscription2016:
– | Based on the continued strong momentum in SAP’s cloud business the Company expects full year 2016 non-IFRS cloud subscriptions and support revenue to be in a range of€2.95 billion to€3.05 billion at constant currencies (2015:€2.30 billion). The upper end of this range represents a growth rate of 33% at constant currencies. |
– | SAP expects full year 2016 non-IFRS cloud and software revenue to increase by 6% to 8% at constant currencies (2015:€17.23 billion). |
– | SAP expects full-year 2016 non-IFRS operating profit to be in a range of€6.4 billion to€6.7 billion at constant currencies (2015:€6.35 billion). |
We expect our headcount to experience an increase similar to the increase in a range of 14% to 20%2015.
While our full-year 2016 business outlook is at constant currencies, (2012: €5.00 billion). The full year 2013 non-IFRS cloud subscription and support revenue contributing to this growth isactual currency reported figures are expected to be around €750 million at constant currencies (2012: €343 million).
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The Company expects full-year 2013 non-IFRS software and software-related service revenue to increase in a range of 11% to 13% at constant currencies (2012: €13.25 billion).
The Company expects full-year 2013 non-IFRS operating profitcontinue to be in a range of €5.85 billion to €5.95 billion at constant currencies (2012: €5.21 billion).
The Company projects a full-year 2013 IFRS effective taximpacted by currency exchange rate of 25.5% to 26.5% (2012: 26.2%) and a non-IFRS effective tax rate of 27.0% to 28.0% (2012: 27.5%).
We expect our professional services and other service revenue to grow in the low single-digit percentages range. But we also believe that the anticipated rise in software and software-related service revenue will bring about a significant increase in total revenue in 2013.fluctuations.
We expect that non-IFRS total revenue (non-IFRS) will continue to depend largely on the revenues from the On-Premise Products segment. The expected growth in revenue from cloud and software.
However, the revenue growth we expect from this segment, however, is below the outlook provided for non-IFRS cloud subscriptions and support revenue. We expect the software license revenue in 2016 to be at the same level as in 2015 with SAP gaining market share against our main on-premise license competitors.
We expect that most of the total revenue growth (non-IFRS) will come from the Applications, Technology, and cloud subscriptionServices segment, equally distributed into software licenses and support revenue (non-IFRS). Keeping in line
with the growth rate for professional services and other service revenue, we do not expect to see strong growth in the On-Premise Services segment.
Looking at our above forecast for cloud subscriptions and support revenue (non-IFRS, at constant currencies),growth. Nevertheless, we anticipate our SAP Business Network segment will outpace the Applications, Technology, and Services segment with a similar level ofsignificantly higher total revenue growth for segment revenues in the Cloud division (combining the Cloud Applicationsrate at lower absolute levels. As such, we expect we will seize a huge market opportunity with continued strong mid- and Ariba segments). Particularly stronglong-term growth results are expected in the Ariba segment, since we only began including Ariba figures in the 2012 segment revenues at the beginning of the fourth quarter following the first consolidation.potential.
We continuously strive for profit expansion in all our segments, therefore, we expect an increase in both segments’ profits. The vast majority of the profit expansion comes from our Applications, Technology, and Services segment. Overall, in the SAP Business Network segment, operating profit growth is higher than in our On-Premise division with the On-Premise Products segment profit growing faster than the On-PremiseApplications, Technology, and Services segment, but at significantly lower volume.
Across all segments we expect our 2016 non-IFRS cloud subscriptions and support gross margin to be at least stable or to slightly increase compared to 2015. For SAP’s managed-cloud offerings, we still expect negative margins in 2016 which isby 2017 are expected to only experience a slight profit improvement. break even.
The Cloud division is expected to achieve, forfollowing table shows the first time, a positive segment profit resulting from a reduced segment loss inestimates of the cloud application segment and a strong increase initems that represent the Ariba segment profit.
We expect that software revenue from SAP HANA will rangedifferences between €650 million to €700 million (2012: €392 million) in 2013.
We present the following reconciliation from our 2012 IFRS software and cloud subscription revenue, IFRS software and software-related service revenue, IFRS total revenue, and IFRS operating profit to the non-IFRS equivalents to facilitate comparison between IFRS financial measures and the non-IFRSour IFRS financial measures in our 2013 outlook:measures.
Reconciliations of IFRS to Non-IFRS Financial Measures for 2012
€ millions, unless otherwise stated | IFRS Financial Measure | Support Revenue Not Recorded Under IFRS | Operating Expenses(1) | Discontinued Activities(3) | Non-IFRS Financial Measure | |||||||||||||||
Software and cloud subscription revenue | 4,928 | 73 | n.a. | n.a. | 5,001 | |||||||||||||||
Software and software-related service revenue | 13,165 | 81 | n.a. | n.a. | 13,246 | |||||||||||||||
Total revenue(2) | 16,223 | 81 | n.a. | n.a. | 16,304 | |||||||||||||||
Operating profit(2) | 4,065 | 81 | 1,067 | 0 | 5,214 |
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Non-IFRS Measures
€ millions | Estimated Amounts for | Actual Amounts for | ||||||
| ||||||||
| ||||||||
Share-based payment expenses | ||||||||
Acquisition-related charges | ||||||||
Restructuring |
We do not expect any Company-wide restructuring programs in 2016.
The Company expects a full-year 2016 effective tax rate (IFRS) of 22.5% to 23.5% (2015: 23.4%) and an effective tax rate (non-IFRS) of 24.5% to 25.5% (2015: 26.1%).
Goals for Liquidity and Finance
On December 31, 2015, we had a negative net liquidity. We believe that our liquid assets combined with our undrawn credit facilities are sufficient to meet our present operating financing needs also in 20132016 and, together with expected cash flows from operations, will support debt repayments and our currently planned capital expenditure requirements over the near term and medium term.
In 2016, we expect a positive development of our operating cash flow mainly due to lower restructuring related payments.
We intend to reduce our financial debt as and when the debt falls due. We will consider issuing new debt, such as bonds orrepay a US$600 million U.S. private placements, on an as-needed basis only and if market conditionsplacement when it matures in June. Additionally, we are advantageous. We currentlyplanning to further repay our outstanding€1.25 billion bank loan.
By the time of this report, we have no concrete plans for future share buybacks.
Based on this planning, at this point in time we expect we will noticeably reduce our net debt in 2016 and gradually return to a positive net liquidity in subsequent years.
Investment Goals
Excepting acquisitions, ourOur planned capital expenditures for 20132016 and 20142017, other than from business combinations, mainly comprise the construction activities described in “Item 4. Information About SAP – Description of Property – Capital Expenditures”. We expect investments from these activities of approximately€450 million during the next two years. These investments can be covered in full by operating cash flowflow.
SAP does not plan any significant acquisitions in 2016 and 2017 but will chiefly be spentrather focus on increasing data center capacity in our locations in Newtown Square, Pennsylvania, United States, and St. Leon-Rot, Germany, and on renovating our office building in Vancouver, Canada, with a planned investment of approximately €59 million.
As part of our growth and innovation strategy, we plan to spend around US$2 billion in China by 2015. This demonstrates our long-term strategic commitment to China, the world’s second-largest economy. SAP continues to invest and increase its presence and market share in countries experiencing highorganic growth.
Proposed Dividend
We planintend to continue our dividend policy in 2017 as well, which is that the payout ratio should beto pay a dividend totaling more than 30%.35% of the prior year’s profit after tax.
Premises on Which Our Outlook Is Based
In preparing our outlook guidance, 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.
Among the premises on which this outlook is based are those presented concerning economic development and the economyassumption that there will be no effects from major acquisitions in 2016 and our expectation that we will not benefit from any effects in 2013 from a major acquisition.2017.
Medium-Term ProspectsCash Flows and Liquidity
We expect our business, our revenue, and our profit to grow, assuming there is a sustained recovery in the global economy. Our strategic objectives are focusedGroup liquidity on the following targets: Increasing customer success, employee motivation, software and software-related service revenue, and our operating profit through greater efficiency and employee productivity by utilizing lean and design-thinking principles.
From today’s perspective, we are aiming to increase our total revenue to more than €20 billion by 2015. In the same period, we aim to widen our non-IFRS operating margin to 35%.
To achieve these goals, we want to further strengthen our position in our five market categories and have one billion users by 2015.
We want to extend our leadership in the applications segment.
We want to extend our market share in analytics.
We want to extend our leadership in mobile computing.
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We want to become a profitable market leader in cloud computing, generating around €2 billion total revenue in this segment by 2015.
Our plan is for indirect sales (partner revenue) to contribute up to 40% of software revenue by 2015.
In addition to our financial goals, we are focusing on two non-financial targets: Customer success and employee engagement. We believe it is essential that our employees are engaged, drive our success, and support our strategy. Therefore, we plan to increase our employee engagement index score to 82% by 2015 (2012: 79%). In addition, we can only be successful if our customers are successful. Their satisfaction with the solutions we offer them builds trust in our innovation capabilities. We measure customer loyalty with the Net Promoter Score (NPS). For 2013, we have set a target for increasing the NPS by 8 percentage points (2012: 8.9%). As we have been measuring our NPS since 2012 only, we have not yet defined a target for 2015.
SAP’s vision to help the world run better and improve people’s lives comes to life in product innovation that drives business value for our customers. By delivering on our product road map, SAP is powering a market-wide transformation in how people and organizations work together and run better. Building on a track record of innovation, SAP is again at the forefront of a major shift in the IT sector, away from commoditized hardware and lower value services, toward renewed investment in differentiating IT – business software that drives efficiency and business transformation.
LIQUIDITY AND CAPITAL RESOURCES
Overview
Global Financial Management
We use global centralized financial management to control liquid assets and monitor exposure to interest rates and currencies. The primary aim of our financial management is to maintain liquidity in the Group at a level that is adequate to meet our obligations. Most SAP companies have their liquidity managed by the Group, so that liquid assets across the Group can be consolidated, monitored, and invested in accordance with Group policy. High levels of liquid assets help keep SAP
flexible, sound, and independent. In addition, various credit facilities are currently available for additional liquidity, if required. For more information about these facilities, see the Credit Facilities section.
We manage credit, liquidity, interest rate, equity price, and foreign exchange rate risks on a Group-wide basis. We use selected derivatives exclusively for this purpose and not for speculation, which is defined as entering into a derivative instrument for which we do not have a corresponding underlying transaction. The rules for the use of derivatives and other rules and processes concerning the management of financial risks are collected in our treasury guideline document, which applies globally to all companies in the Group. For more information about the management of each financial risk and about our risk exposure, see the Notes to the Consolidated Financial Statements section, Notes (24) to (26).
Liquidity Management
Our primary source of cash, cash equivalents, and current investments is funds generated from our business operations. Over the past several years, our principal use of cash has been to support operations and our capital expenditure requirements resulting from our growth, to acquire businesses, to pay dividends on our shares, and to buy back SAP shares on the open market. On December 31, 2012, our cash, cash equivalents, and current investments were2015, primarily heldcomprised amounts in euros and U.S. dollars. Current investments are included in other financial assets in the statement of financial position. Financial debts are included within financial liabilities in the statement of financial position.
Group Liquidity of SAP Group
€ millions | 2015 | 2014 | D | |||||||||
Cash and cash equivalents | 3,411 | 3,328 | 83 | |||||||||
Current investments | 148 | 95 | 53 | |||||||||
Group liquidity | 3,559 | 3,423 | 136 | |||||||||
Current financial debt | –567 | –2,157 | 1,590 | |||||||||
Net liquidity 1 | 2,992 | 1,266 | 1,726 | |||||||||
Non-current financial debt | –8,607 | –8,936 | 329 | |||||||||
Net liquidity 2 | –5,615 | –7,670 | 2,055 |
Group liquidity consists of cash and cash equivalents (for example, cash at banks, money market funds, and time deposits with original maturity of three months or less) and current investments (for example, investments with
original maturities of greater than three months and remaining maturities of less than one year) as reported in our Consolidated Financial Statements.
Group Liquidity Development
Net liquidity is Group liquidity less total financial debt as defined above.
The increase in Group liquidity compared to 2014 was mainly due to cash inflows from our operations and financing activities in issuing bonds. They were offset by cash outflows for dividend payments and repayments of borrowings.
For information about the impact of cash, cash equivalents, current investments, and our financial liabilities on our income statements, see the analysis of our financial income, net, in the Operating Results (IFRS) section.
Analysis of Consolidated Statements of Cash Flows
€ millions | Years ended December 31, | |||||||||||||||||||
2015 | 2014 | 2013 | Change in % 2015 vs. 2014 | Change in % 2014 vs. 2013 | ||||||||||||||||
Net cash flows from operating activities | 3,638 | 3,499 | 3,832 | 4% | –9% | |||||||||||||||
Net cash flows from investing activities | –334 | –7,240 | –1,781 | –95% | >100% | |||||||||||||||
Net cash flows from financing activities | –3,356 | 4,298 | –1,589 | <–100% | <–100% |
Analysis of Consolidated Statements of Cash Flows: 2015 compared to 2014
Net cash provided by operating activities increased 4% year-over-year to€3,638 million in 2015 (2014:€3,499 million). Payments in connection with the restructuring of€204 million to employees and€272 million to insurance policies have offset partly the non-recurring effect from litigations in 2014. In 2015, days’ sales outstanding (DSO) for receivables, defined as the average number of days from the raised invoice to cash receipt from the customer, increased six days to 71 days (2014: 65 days).
Cash outflows from investment activities decreased significantly to€334 million in 2015 (2014:€7,240 million). Cash outflows from purchase of intangible assets and property, plant, and equipment remained stable. Cash outflows in 2014 had resulted mainly from business combinations of Concur and Fieldglass. For more information about current and planned capital expenditures, see the Investment Goals section.
Net cash outflows from financing activities were€3,356 million in 2015, compared to net cash inflows of€4,298 million in 2014. The 2015 cash outflows had resulted from repayments of€1,270 million bank loans,€550 million Eurobonds and US$300 million private placements. We refinanced another part of the bank loan through the issuance of a three-tranche Eurobond of€1,750 million in total. Cash inflows in 2014 were the result of issuing a€2,750 million Eurobond and drawing two tranches (of€1,270 million and€3,000 million) of a bank loan. Cash outflows in 2014 arose chiefly from repayments of€1,086 million borrowings and US$1,160 million convertible bonds that we assumed in connection with our acquisition of Concur.
The dividend payment of€1,316 million made in 2015 exceeded the amount of€1,194 million in the prior year resulting from the increased dividend paid per share from€1.00 to€1.10.
Analysis of Consolidated Statements of Cash Flows: 2014 Compared to 2013
Net cash provided by operating activities decreased 9% year-over-year to€3,499 million in 2014 (2013:€3,832 million). Payments in connection with the TomorrowNow and Versata litigation had a€555 million negative effect on net cash provided by operating activities. A€61 million increase to€1,356 million in our income tax payments also negatively affected net cash provided by operating activities. In 2014, days’ sales outstanding (DSO) for receivables, defined as the average number of days from the raised invoice to cash receipt from the customer, increased three days to 65 days (2013: 62 days).
Cash outflows from investment activities increased significantly to€7,240 million in 2014 (2013:€1,781 million). The increase resulted principally from the Concur, Fieldglass, and SeeWhy acquisitions. For more information about current and planned capital expenditures, see the Investment Goals section.
Net cash inflows from financing activities were€4,298 million in 2014, compared to net cash outflows of€1,589 million in 2013. Cash inflows in 2014 were the result of issuing a€2,750 bond and drawing two tranches (of€1,270 million and€3,000 million) of a loan. Cash outflows arose chiefly from repayments of borrowings (€1,086 million) and the repayment of convertible bonds that we assumed in connection with our acquisition of Concur (US$1,160 million). The 2013 cash outflows had resulted chiefly from dividends paid and the repayment of a€600 million bond.
The dividend payment of€1,194 million made in 2014 was greater than that of€1,013 million in the prior year because the dividend paid per share increased from€0.85 to€1.00.
Credit Facilities
Other sources of capital are available to us through various credit facilities, if required.
We are party to a revolving€2.0 billion credit facility contract with maturity in November 2020. The credit line may be used for general corporate purposes. A possible future withdrawal is not subject to any financial covenants. Borrowings under the facility bear interest at the Euro Interbank Offered Rate (EURIBOR) or London Interbank Offered Rate (LIBOR) for the respective optional currency plus a margin ranging from 0.3% to 0.525%. We pay a commitment fee of 0.079% per annum on unused amounts of the available credit facility. So far, we have not used and do not currently foresee any need to use, this credit facility.
As at December 31, 2015, SAP SE had additional available credit facilities totaling€471 million. Several of our foreign subsidiaries have credit facilities available that allow them to borrow funds at prevailing interest rates. As at December 31, 2015, approximately€49 million was available through such arrangements. There were immaterial borrowings outstanding under these credit facilities from our foreign subsidiaries as at December 31, 2015.
OFF-BALANCE SHEET ARRANGEMENTS
Several SAP entities have entered into operating leases for office space, hardware, cars and certain other equipment. These arrangements are sometimes referred to as a form of off-balance sheet financing. Rental expenses under these operating leases are set forth below under “Contractual Obligations.” We do not believe we have forms of material off-balance sheet arrangements that would require disclosure other than those already disclosed.
The table below presents our on- and off-balance sheet contractual obligations as of December 31, 2015:
Contractual obligations | Payments due by period | |||||||||||||||||||
€ millions | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | |||||||||||||||
Financial liabilities(1) | 10,127 | 863 | 3,759 | 1,822 | 3,683 | |||||||||||||||
Derivative financial liabilities(1) | 132 | 74 | 29 | 29 | 0 | |||||||||||||||
Operating lease obligations(3) | 1,347 | 294 | 410 | 246 | 396 | |||||||||||||||
Purchase obligations(3) | 872 | 428 | 260 | 118 | 66 | |||||||||||||||
Capital contribution commitments(3) | 111 | 111 | 0 | 0 | 0 | |||||||||||||||
Other non-current non-financial liabilities(2) | 331 | 0 | 201 | 36 | 94 | |||||||||||||||
Total | 12,920 | 1,770 | 4,660 | 2,251 | 4,239 |
(1) For more information on financial liabilities and derivative financial liabilities see Note (24) to our Consolidated Financial Statements.
(2) For more information on other non-current non-financial liabilities see Note (17c) to our Consolidated Financial Statements.
(3) See Note (22) to our Consolidated Financial Statements for additional information about operating lease obligations, purchase obligations, and capital contribution commitments. Our expected contributions to our pension and other post-employment benefit plans are not included in the table above. For more information on these contributions see Note (18a) to our Consolidated Financial Statements.
We expect to meet these contractual obligations with our existing cash, our cash flows from operations and our financing activities. The timing of payments for the above contractual obligations is based on payment schedules for those obligations where set payments exist. For other obligations with no set payment schedules, estimates as to the most likely timing of cash payments have been made. The ultimate timing of these future cash flows may differ from these estimates.
Obligations under Indemnifications and Guarantees
Our software license agreements and our cloud subscription agreements generally investinclude certain provisions for indemnifying customers against liabilities if our software products infringe a third party’s intellectual property rights. In addition, we occasionally provide function or performance guarantees in routine consulting contracts and development arrangements. We also generally provide a six to twelve month warranty
on our software. Our warranty liability is included in other provisions. For more information on other provisions see Note (18b) to our Consolidated Financial Statements. For more information on obligations and contingent liabilities refer to Note (3) and Note (22) in our Consolidated Financial Statements.
For information on our R&D activities see “Item 4. Information about SAP – Products, Research & Development, and Services.” For information on our R&D costs see “Item 5. Operating and Financial Review and Prospects – Operating Results (IFRS)” and for information related to our R&D employees see “Item 6. Directors, Senior Management and Employees – Employees.”
Our Consolidated Financial Statements are prepared based on the accounting policies described in Note (3) to our Consolidated Financial Statements in this report. The application of such policies requires management to make judgments, estimates and assumptions that affect the application of policies and the reported amounts of assets, liabilities, revenues and expenses in our Consolidated Financial Statements. We base our judgments, estimates and assumptions on historical and forecast information, as well as regional and industry economic conditions in which we or our customers operate, changes to which could adversely affect our estimates. Although we believe we have made reasonable estimates about the ultimate resolution of the underlying uncertainties, no assurance can be given that the final outcome of these matters will be consistent with what is reflected in our assets, liabilities, revenues and expenses. Actual results could differ from original estimates.
The accounting policies that most frequently require us to make judgments, estimates, and assumptions, and therefore are critical to understanding our results of operations, include the following:
– | revenue recognition; |
– | valuation of trade receivables; |
– | accounting for share-based payments; |
– | accounting for income tax; |
– | accounting for business combinations; |
– | subsequent accounting for goodwill and other intangible assets; |
– | accounting for legal contingencies; and |
– | recognition of internally generated intangible assets from development. |
Our management periodically discusses these critical accounting policies with the Audit Committee of the Supervisory Board. See Note (3c) to our Consolidated Financial Statements for further discussion on our critical accounting estimates and critical accounting policies.
NEW ACCOUNTING STANDARDS NOT YET ADOPTED
See Note (3e) to our Consolidated Financial Statements for our discussion on new accounting standards not yet adopted.
Future Trends in the Global Economy
In its most recent report, the European Central Bank (ECB) forecasts moderate growth in the world economy and it expects that this growth will vary across regions and countries in 2016. It foresees more favorable prospects for advanced economies than for emerging markets and developing economies. Geopolitical risks, especially of heightened tensions in the Middle East, could undermine global economic performance, the ECB warns.
In the Europe, Middle East, and Africa (EMEA) region, the ECB expects the euro-area economy to recover slightly more rapidly in 2016 than in the previous year. It suggests that low oil prices, increased publicsector spending on assistance for refugees, and its own monetary measures may encourage that acceleration. In Central and Eastern Europe, the ECB expects economic activity to remain stable but for performance to vary from country to country. The European Union’s structural funds and strong consumer spending may be principal factors behind such growth. In Russia, on the other hand, the economic situation is expected to remain difficult. The ECB expects further cuts in public spending as a consequence of declining oil revenue.
The ECB’s forecasts for 2016 for a number of major countries in the Americas region are cautious. For the United States, the ECB expects that economic growth may slow following the Federal Reserve’s move on interest rates in December 2015. The ECB expects political uncertainty, a tightening of monetary policy, and more restrictive financing conditions to continue to weigh on Brazil’s economy.
For the Asia Pacific Japan (APJ) region, the ECB expects that wage increases and low oil prices will improve consumer spending in Japan. Japan’s exports should also pick up. For China, though, the ECB expects that economic growth will continue to slow following the refocusing of its economy. It believes that the prospects for India’s economy are positive in 2016.
Economic Trends – Year-Over-Year GDP Growth
In % | 2014e | 2015p | 2016p | |||||||||
World | 3.4 | 3.1 | 3.4 | |||||||||
Advanced economies | 1.8 | 1.9 | 2.1 | |||||||||
Developing and emerging economies | 4.6 | 4.0 | 4.3 | |||||||||
Europe, Middle East, and Africa (EMEA) | ||||||||||||
Euro area | 0.9 | 1.5 | 1.7 | |||||||||
Germany | 1.6 | 1.5 | 1.7 | |||||||||
Central and Eastern Europe | 2.8 | 3.4 | 3.1 | |||||||||
Middle East and North Africa | 2.8 | 2.5 | 3.6 | |||||||||
Sub- Saharan Africa | 5.0 | 3.5 | 4.0 | |||||||||
Americas | ||||||||||||
United States | 2.4 | 2.5 | 2.6 | |||||||||
Canada | 2.5 | 1.2 | 1.7 | |||||||||
Central and South America, Caribbean | 1.3 | –0.3 | –0.3 | |||||||||
Asia Pacific Japan (APJ) | ||||||||||||
Japan | 0.0 | 0.6 | 1.0 | |||||||||
Asian developing economies | 6.8 | 6.6 | �� | 6.3 | ||||||||
China | 7.3 | 6.9 | 6.3 |
e = estimate; p = projection
Source: International Monetary Fund (IMF), World Economic Outlook Update January 2016, Subdued Demand, Diminished Prospects, as of January 19, 2016, p. 6.
IT Market: The Outlook for 2016
The worldwide IT market is at the dawn of a new era, according to U.S. market research firm IDC. It expects IT market growth to decline in a number of emerging economies, notably Brazil, China, and Russia. For a decade, these countries were the driving force in all segments of the global IT market while the advanced economies were already focusing on the transition from traditional technologies to innovations such as cloud and mobile computing. IDC expects that the growth in traditional IT will also slow in the emerging markets and developing economies in the years ahead. It believes that cloud, mobile, and Big Data will offer the main opportunities for growth. In view of that prediction, IDC expects the worldwide IT market to grow just 2.8% in 2016. Hardware spending is expected to increase by about 1%, and software spending by almost 7% (mainly due to software-as-a-service and platform-as-a-service solutions).
In the Europe, Middle East, and Africa (EMEA) region, IDC expects overall IT market growth to decelerate to 2% in 2016. Notably, the IT market in Western Europe is
expected to grow just 1% to 2% in the coming years. The IT market in Germany is not expected to grow much above these rates either, according to IDC. The institute believes that IT spending in Russia might recover as early as 2016 and grow 6% as a result of short-term government stimulus measures.
IDC expects the Americas region IT spending to increase 3.7% in 2016. It believes the IT market in the United States will grow at a similar rate and that, with 7% growth, the software segment will again be the fastest to expand there. For Brazil, IDC expects that the government will pursue a strict program of economic reform in the next few years, which could slow growth in the IT market to a rate of 3% or 4%. IDC forecasts that the IT market in Mexico will also grow by about 3% annually in the next few years.
In the Asia Pacific Japan (APJ) region, IDC believes growth in the IT market might reach 2.5%. However, growth rates again are expected to vary from country to country. IDC expects the IT market in Japan will grow by about 3% in 2016. It anticipates that China’s IT market
will expand only in the financial assetslow to middle single-digit percentage range in the years ahead. The IT market in
India, on the other hand, might continue to grow by rates at or above 10% a year, according to IDC.
Trends in the IT Market –
Increased IT Spending Year-Over-Year
| ||||||||||||
In % | 2014e | 2015p | 2016p | |||||||||
World | ||||||||||||
Total IT | 4.5 | 4.9 | 2.8 | |||||||||
Hardware | 5.2 | 5.5 | 1.1 | |||||||||
Packaged software | 5.6 | 6.8 | 6.8 | |||||||||
Applications | 6.9 | 7.3 | 7.1 | |||||||||
IT services | 3.0 | 2.8 | 3.0 | |||||||||
Europe, Middle East, and Africa (EMEA) | ||||||||||||
Total IT | 3.9 | 4.6 | 2.0 | |||||||||
Packaged software | 4.0 | 4.8 | 5.2 | |||||||||
Applications | 4.5 | 5.4 | 5.6 | |||||||||
IT services | 2.2 | 1.9 | 2.6 | |||||||||
Americas | ||||||||||||
Total IT | 4.2 | 4.6 | 3.7 | |||||||||
Packaged software | 6.8 | 8.4 | 7.3 | |||||||||
Applications | 8.5 | 8.9 | 7.8 | |||||||||
IT services | 2.8 | 2.8 | 2.6 | |||||||||
Asia Pacific Japan (APJ) | ||||||||||||
Total IT | 5.9 | 5.9 | 2.5 | |||||||||
Packaged software | 4.5 | 4.9 | 8.0 | |||||||||
Applications | 5.6 | 5.1 | 7.7 | |||||||||
IT services | 5.3 | 4.6 | 4.6 |
e = estimate, p = projection
Source: IDC Worldwide Black Book Pivot V3.1, 2015
Impact on SAP
SAP expects to outperform the global economy and the IT industry again in 2016 in terms of issuers or fundsrevenue growth.
Our 2015 results validate our strategy of innovating across the core, the cloud, and business networks to help our customers become true digital enterprises.
Our innovation cycle for SAP S/4HANA is well underway and the completeness of our vision in the cloud has distinguished SAP from both legacy players and point solution providers. We have beaten our guidance for 2015 on cloud and software as well as on operating income.
In 2015, we have transformed our Company and made it leaner by shifting investments from non-core activities to strategic growth areas enabling us to capture the growth opportunities in the market.
We are well-positioned for the future as reflected in the increase of our ambition for 2017.
We plan to continue to invest in countries in which we expect significant growth, helping us reach our ambitious 2016 outlook targets and medium-term aspirations for 2017 and 2020.
We are confident we can achieve our medium-term targets for 2017 and 2020, assuming that the economic
environment and IT industry develop as currently forecasted. Balanced in terms of regions as well as industries, we are well-positioned with our product offering to offset smaller individual fluctuations in the global economy and IT market.
A comparison of our business outlook with forecasts for the global economy and IT industry shows that we can be successful even in a tough economic environment and will further strengthen our position as the market leader of enterprise application software.
Operational Targets for 2016 (Non-IFRS)
Revenue and Operating Profit Outlook
We are providing the following outlook for the full-year 2016:
– | Based on the continued strong momentum in SAP’s cloud business the Company expects full year 2016 non-IFRS cloud subscriptions and support revenue to be in a range of€2.95 billion to€3.05 billion at constant currencies (2015:€2.30 billion). The upper end of this range represents a growth rate of 33% at constant currencies. |
– | SAP expects full year 2016 non-IFRS cloud and software revenue to increase by 6% to 8% at constant currencies (2015:€17.23 billion). |
– | SAP expects full-year 2016 non-IFRS operating profit to be in a range of€6.4 billion to€6.7 billion at constant currencies (2015:€6.35 billion). |
We expect our headcount to experience an increase similar to the increase in 2015.
While our full-year 2016 business outlook is at constant currencies, actual currency reported figures are expected to continue to be impacted by currency exchange rate fluctuations.
We expect that non-IFRS total revenue will continue to depend largely on the revenue from cloud and software.
However, the revenue growth we expect from this is below the outlook provided for non-IFRS cloud subscriptions and support revenue. We expect the software license revenue in 2016 to be at the same level as in 2015 with SAP gaining market share against our main on-premise license competitors.
We expect that most of the total revenue growth (non-IFRS) will come from the Applications, Technology, and Services segment, equally distributed into software licenses and support revenue growth and cloud subscriptions and support revenue growth. Nevertheless, we anticipate our SAP Business Network segment will outpace the Applications, Technology, and Services segment with a minimum credit ratingsignificantly higher total revenue growth rate at lower absolute levels. As such, we expect we will seize a huge market opportunity with continued strong mid- and long-term growth potential.
We continuously strive for profit expansion in all our segments, therefore, we expect an increase in both segments’ profits. The vast majority of BBB,the profit expansion comes from our Applications, Technology, and pursue a policy of cautious investment characterized by wide portfolio diversification with a variety of counterparties, predominantly short-term investments, and standard investment instruments. We rarely investServices segment. Overall, in the SAP Business Network segment, operating profit growth is higher than in the Applications, Technology, and Services segment, but at significantly lower volume.
Across all segments we expect our 2016 non-IFRS cloud subscriptions and support gross margin to be at least stable or to slightly increase compared to 2015. For SAP’s managed-cloud offerings, we still expect negative margins in 2016 which by 2017 are expected to break even.
The following table shows the estimates of the items that represent the differences between our non-IFRS financial assetsmeasures and our IFRS financial measures.
Non-IFRS Measures
€ millions | Estimated Amounts for 2016 | Actual Amounts for 2015 | ||||||
Revenue adjustments | < 20 | 11 | ||||||
Share-based payment expenses | 590 to 630 | 724 | ||||||
Acquisition-related charges | 690 to 740 | 738 | ||||||
Restructuring | 40 to 60 | 621 |
We do not expect any Company-wide restructuring programs in 2016.
The Company expects a full-year 2016 effective tax rate (IFRS) of issuers with22.5% to 23.5% (2015: 23.4%) and an effective tax rate (non-IFRS) of 24.5% to 25.5% (2015: 26.1%).
Goals for Liquidity and Finance
On December 31, 2015, we had a credit rating lower than BBB, and such investments were not material in 2012.
negative net liquidity. We believe that our liquid assets combined with our undrawn credit facilities are sufficient to meet our present operating financing needs also in 2016 and, together with expected cash flows from operations, will support debt repayments and our currently planned capital expenditure requirements over the near term and medium term. It may also be necessary to enter into financing transactions when additional funds are required that cannot be wholly sourced from free cash flow (for example, to finance large acquisitions).
Part I
Item 5
The persistently strong free cash flow of recent years enabled us to pay back additional debts withinIn 2016, we expect a short period of time. Furthermore, a balanced maturity profile prevents repayment peaks from occurring in any particular year.
To expand our business, we have made acquisitions of businesses, products, and technologies. For more information about our financial debt, mainly in connection with the acquisitions of SuccessFactors and Ariba, see the Cash Flows and Liquidity section. Depending on our future cash position and future market conditions, we might issue additional debt instruments to fund acquisitions, maintain financial flexibility, and limit repayment risk. Therefore, we continuously monitor funding options available in the capital markets and trends in the availability of funds, as well as the cost of such funding.
Capital Structure Management
The primary objective of our capital structure management is to maintain a strong financial
profile for investor, creditor, and customer confidence and to support the growth of our business. We seek to maintain a capital structure that will allow us to cover our funding requirements through the capital markets at reasonable conditions, and in doing so, ensure a high level of independence, confidence, and financial flexibility.
We currently do not have a credit rating with any agency. We do not believe that a rating would have a substantial effect on our borrowing conditions and financing options.
Our general intention is to remain in a position to return excess liquidity to our shareholders by distributing annual dividends and repurchasing shares. The amount of future dividends and the extent of future purchases of treasury shares are closely aligned to thepositive development of our liquid assets and further liquidity planning.
operating cash flow mainly due to lower restructuring related payments.
Capital Structure
2012 | 2011 | % Change | ||||||||||||||||||
€ millions | % of Equity and liabilities | € millions | % of Equity and liabilities | |||||||||||||||||
Equity | 14,171 | 53 | 12,707 | 55 | 12 | |||||||||||||||
Current liabilities | 6,641 | 25 | 6,266 | 27 | 6 | |||||||||||||||
Non-current liabilities | 6,023 | 22 | 4,254 | 18 | 42 | |||||||||||||||
Liabilities | 12,664 | 47 | 10,520 | 45 | 20 | |||||||||||||||
|
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|
| |||||||||||
Equity and liabilities | 26,835 | 100 | 23,227 | 100 | 16 |
In 2012, we took out short-term bank loansWe intend to finance the acquisitions of SuccessFactors and Ariba. Additionally, we issuedrepay a two-tranche Eurobond and aUS$600 million U.S. private placement consistingwhen it matures in June. Additionally, we are planning to further repay our outstanding€1.25 billion bank loan.
By the time of several tranches with maturitiesthis report, we have no concrete plans for future share buybacks.
Based on this planning, at this point in time we expect we will noticeably reduce our net debt in 2016 and gradually return to a positive net liquidity in subsequent years.
Investment Goals
Our planned capital expenditures for 2016 and 2017, other than from business combinations, mainly comprise the construction activities described in “Item 4. Information About SAP – Description of threeProperty – Capital Expenditures”. We expect investments from these activities of approximately€450 million during the next two years. These investments can be covered in full by operating cash flow.
SAP does not plan any significant acquisitions in 2016 and 2017 but will rather focus on organic growth.
Proposed Dividend
We intend to 15 yearscontinue our dividend policy in 2017 as well, which further optimized and extendedis to pay a dividend totaling more than 35% of the prior year’s profit after tax.
Premises on Which Our Outlook Is Based
In preparing our existing maturity profile. We used inflows from the newly issued bonds and private placementoutlook guidance, we have taken into account all events known to repay the short-term bank loans.
These financing activities changed our debt ratio (defined as the ratio of total liabilities to equity and liabilities) to 47%us at the end of 2012 (as compared to 45% attime we prepared this report that could influence SAP’s business going forward.
Among the end of 2011). These financing activities were partially offset bypremises on which this outlook is based are those presented concerning economic development and the operating cash flowassumption that there will be no effects from major acquisitions in 2012. As far as financing
activities in 2013 are concerned, a €600 million bond that will mature in August 2013 is intended to be repaid. We currently do not plan to refinance this bond at maturity.
Total liabilities on December 31, 2012, mainly comprised financial liabilities of €5,248 million (of which €4,446 million are non-current). Financial liabilities on December 31, 2012, consisted largely of financial debt, which included amounts in euros (€2,986 million)2016 and U.S. dollars (€2,008 million). Financial debt is held at fixed interest rates only. For more information about financial liabilities, see the Notes to the Consolidated Financial Statements section, Note (17).2017.
Part I
Item 5
Cash Flows and Liquidity
Group liquidity on December 31, 2012,2015, primarily comprised amounts in euros and U.S. dollars (€941 million) and euros (€473 million).dollars. Current investments are included in other financial assets in the statement of financial position. Bank loans, private placement transactions, and bondsFinancial debts are included within financial liabilities in the statement of financial position.
AnalysisGroup Liquidity of Net LiquiditySAP Group
€ millions | 2012 | 2011 | Change | 2015 | 2014 | D | ||||||||||||||||||
Cash and cash equivalents | 2,477 | 4,965 | –2,488 | 3,411 | 3,328 | 83 | ||||||||||||||||||
Current investments | 15 | 636 | –621 | 148 | 95 | 53 | ||||||||||||||||||
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| ||||||||||||||||||||||
Group liquidity | 2,492 | 5,601 | –3,109 | 3,559 | 3,423 | 136 | ||||||||||||||||||
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Current bank loans | 0 | 101 | –101 | |||||||||||||||||||||
Current private placement transaction | 0 | 423 | –423 | |||||||||||||||||||||
Current bond | 600 | 600 | 0 | |||||||||||||||||||||
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| ||||||||||||||||||||||
Current financial debt | –567 | –2,157 | 1,590 | |||||||||||||||||||||
Net liquidity 1 | 1,892 | 4,477 | –2,585 | 2,992 | 1,266 | 1,726 | ||||||||||||||||||
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Non-current bank loans | 0 | 1 | –1 | |||||||||||||||||||||
Non-current private placement transaction | 2,094 | 1,240 | 854 | |||||||||||||||||||||
Non-current bond | 2,300 | 1,600 | 700 | |||||||||||||||||||||
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Non-current financial debt | –8,607 | –8,936 | 329 | |||||||||||||||||||||
Net liquidity 2 | – | 2,502 | 1,636 | –4,138 | –5,615 | –7,670 | 2,055 | |||||||||||||||||
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Group liquidity consists of cash and cash equivalents (for example, cash at banks, money market funds, and time deposits with original maturity of three months or less) and current investments (for example, investments with
original maturities of greater than three months and remaining maturities of less than one year) as reported in our IFRS Consolidated Financial Statements.
Group Liquidity Development
Total financial debt consists of current financial liabilities (for example, overdrafts, current bank loans, bonds or private placements) and non-current financial liabilities (for example, bonds, or private placements) as reported in our IFRS Consolidated Financial Statements. For more information about our financial debt, see the Notes to the Consolidated Financial Statements section, Note (17).
Net liquidity is Group liquidity less total financial debt as defined above. Net liquidity should be
considered in addition to, and not as a substitute for, cash and cash equivalents, other financial assets, and financial liabilities included in our IFRS Consolidated Financial Statements.
The decreaseincrease in Group liquidity from 2011compared to 2014 was mainly due to cash outflows for the acquisition of SuccessFactors and Ariba, as well as dividend payments, which were partly offset by positive cash inflows from our operations.
operations and financing activities in issuing bonds. They were offset by cash outflows for dividend payments and repayments of borrowings.
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Item 5
For information about the impact of cash, cash equivalents, current investments, and our financial liabilities on our income statements, see the
analysis of our financefinancial income, net, in the Operating Results (IFRS) section.
Analysis of Consolidated Statements of Cash Flows
Years ended December 31, | Change in % 2012 vs. 2011 | Change in % 2011 vs. 2010 | ||||||||||||||||||||||||||||||||||||||
€ millions | 2012 | 2011 | 2010 | Years ended December 31, | ||||||||||||||||||||||||||||||||||||
2015 | 2014 | 2013 | Change in % 2015 vs. 2014 | Change in % 2014 vs. 2013 | ||||||||||||||||||||||||||||||||||||
Net cash flows from operating activities | 3,822 | 3,775 | 2,922 | 1 | 29 | 3,638 | 3,499 | 3,832 | 4% | –9% | ||||||||||||||||||||||||||||||
Net cash flows from investing activities | –5,964 | –1,226 | –3,994 | >100 | –69 | –334 | –7,240 | –1,781 | –95% | >100% | ||||||||||||||||||||||||||||||
Net cash flows from financing activities | –194 | –1,176 | 2,520 | –84 | <–100 | –3,356 | 4,298 | –1,589 | <–100% | <–100% |
Analysis of Consolidated Statements of Cash Flow: 2012Flows: 2015 compared to 20112014
Net cash provided by operating activities increased slightly by €47 million or 1%4% year-over-year to €3,822€3,638 million in 2012 (2011: €3,7752015 (2014:€3,499 million). Payments in connection with the restructuring of€204 million to employees and€272 million to insurance policies have offset partly the non-recurring effect from litigations in 2014. In 2012,2015, days’ sales outstanding (DSO) for receivables, defined as the average number of days from the raised invoice to cash receipt from the customer, was 59increased six days a one-day decrease compared to 2011 (6071 days (2014: 65 days).
Cash outflows from investment activities totaled €5,964decreased significantly to€334 million in 2012, much increased2015 (2014:€7,240 million). Cash outflows from the 2011 figurepurchase of €1,226 million. In 2012, cashintangible assets and property, plant, and equipment remained stable. Cash outflows werein 2014 had resulted mainly driven by acquisitionsfrom business combinations of consolidated companies such as SuccessFactorsConcur and Ariba, for which we paid €6,094 million in total.Fieldglass. For more information about current and planned capital expenditures, see the Assets and Investment Goals sections. In contrast, the 2011 figure was mainly driven by investments in time deposits and German government bonds.section.
CashNet cash outflows from financing activities totaled €194were€3,356 million in 2012,2015, compared to €1,176net cash inflows of€4,298 million in 2011. In 2012,2014. The 2015 cash inflows were mainly driven by a successfully placed two-tranche Eurobond transaction totaling €1.3 billionoutflows had resulted from repayments of€1,270 million bank loans,€550 million Eurobonds and a U.S.US$300 million private placement transactionplacements. We refinanced another part of US$1.4 billion consisting of several tranches. This was partly offset by repaymentsthe bank loan through the issuance of a three-tranche Eurobond tranche (€600 million)of€1,750 million in total. Cash inflows in 2014 were the result of issuing a€2,750 million Eurobond and severaldrawing two tranches (€611(of€1,270 million and€3,000 million) of the promissory notesa bank loan. Cash outflows in 2014 arose chiefly from repayments of€1,086 million borrowings and US$1,160 million convertible bonds that we issued in 2009. In the previous year, cash outflows were driven mainly by repayments of a credit facility we drew onassumed in connection with our acquisition of Sybase.Concur.
The increasedividend payment of€1,316 million made in total dividends paid to €1,3102015 exceeded the amount of€1,194 million was due to an increase in the prior year resulting from the increased dividend from €0.60paid per share in the previous yearfrom€1.00 to €1.10 per share, of which €0.35 per share was an extraordinary payout to celebrate our 40€th anniversary in the reporting year (total dividend payout in 2011: €713 million). In 2012, we repurchased shares in the amount of €53 million (2011: €246 million) in connection with our share-based payments.1.10.
Analysis of Consolidated Statements of Cash Flow: 2011Flows: 2014 Compared to 20102013
Net cash provided by operating activities improved €853 million or 29%decreased 9% year-over-year to €3,775€3,499 million in 2011 (2010: €2,9222014 (2013:€3,832 million). The year’s good sales figures were the factorPayments in connection with the greatestTomorrowNow and Versata litigation had a€555 million negative effect on net cash provided by operating activities. A€61 million increase to€1,356 million in our income tax payments also negatively affected net cash flow in 2011. By effective management of working capital, we were again able to reduce theprovided by operating activities. In 2014, days’ sales outstanding (DSO) for receivables, defined as the average number of days from revenue recognitionthe raised invoice to cash receipt from the customer. In 2011, we reduced DSO by fivecustomer, increased three days to 6065 days (2010: 65(2013: 62 days).
Cash outflows from investment activities totaled €1,226increased significantly to€7,240 million in 2011, much reduced2014 (2013:€1,781 million). The increase resulted principally from the 2010 figure of €3,994 million. In 2011,Concur, Fieldglass, and SeeWhy acquisitions. For more information about current and planned capital expenditures, see the Investment Goals section.
Net cash outflows were mainly driven by investments in time deposits and German government bonds, and also by our business and infrastructure following the acquisition of tangible and intangible assets. In 2011, we paid €188 million for the acquisition of consolidated companies compared to €4,194 million in 2010. Much of the 2010 outflow was attributable to the purchase price paid for the acquisition of Sybase.
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Cash outflowsinflows from financing activities totaled €1,176were€4,298 million in 2011,2014, compared to net cash inflowsoutflows of €2,520€1,589 million in 2010. Our 2011 cash2013. Cash inflows in 2014 were the result of issuing a€2,750 bond and drawing two tranches (of€1,270 million and€3,000 million) of a loan. Cash outflows were mainly due toarose chiefly from repayments of borrowings (€1,086 million) and the repayment of a credit facilityconvertible bonds that we entered intoassumed in connection with our acquisition of Sybase. ThisConcur (US$1,160 million). The 2013 cash outflows had resulted chiefly from dividends paid and the repayment of a€600 million bond.
The dividend payment of€1,194 million made in 2014 was partly offset by a private placement completedgreater than that of€1,013 million in the United States on June 1, 2011, which led to a cash inflow of US$750 million. In the previousprior year cash inflows were driven mainly by the incoming payments from our financing activities related to the acquisition of Sybase.
The increase in total dividend to €713 million was due to an increase inbecause the dividend paid from €0.50 per share in the previous yearincreased from€0.85 to €0.60 in the reporting year (total dividend payout in 2010: €594 million). In 2011, we repurchased shares for treasury in the amount of €246 million (2010: €220 million).€1.00.
Credit Facilities
Other sources of capital are available to us through various credit facilities, if required.
We are party to a revolving €1.5€2.0 billion syndicated credit facility agreementcontract with an initial term of five years endingmaturity in December 2015.November 2020. The use of the facility is not restricted by any financial covenants. Potential proceeds arecredit line may be used for general corporate purposes. A possible future withdrawal is not subject to any financial covenants. Borrowings under the facility bear interest at the euro interbank offered rateEuro Interbank Offered Rate (EURIBOR) or London interbank offered rateInterbank Offered Rate (LIBOR) for the respective optional currency plus a margin
ranging from 0.45%0.3% to 0.75% that depends on the amount drawn.0.525%. We pay a commitment fee of 0.1575%0.079% per annum on unused amounts of the available credit facility. So far, we have not used and do not currently foresee any need to use, this credit facility.
As at December 31, 2012,2015, SAP AGSE had additional available credit facilities totaling approximately €489€471 million. As at December 31, 2012, there were no borrowings outstanding under these credit facilities. Several of our foreign subsidiaries have credit facilities available that allow them to borrow funds in their local currencies at prevailing interest rates, generally to the extent SAP AG has guaranteed such amounts.rates. As at December 31, 2012,2015, approximately €48€49 million was available through such arrangements. There were noimmaterial borrowings outstanding under these credit facilities from any of our foreign subsidiaries as at December 31, 2012.2015.
OFF-BALANCE SHEET ARRANGEMENTS
Several SAP entities have entered into operating leases for office space, hardware, cars and certain other equipment. These arrangements are sometimes referred to as a form of off-balance sheet financing. Rental expenses under these operating leases are set forth below under “Contractual Obligations.” We do not believe we do not have forms of material off-balance sheet arrangements that would require disclosure other than those already disclosed.
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The table below presents our on- and off-balance sheet contractual obligations as of December 31, 2012:2015:
Contractual obligations | Payments due by period | Payments due by period | ||||||||||||||||||||||||||||||||||||||
€ millions | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | ||||||||||||||||||||||||||||||
Debt obligations(1) | 5,885 | 881 | 1,599 | 1,457 | 1,948 | |||||||||||||||||||||||||||||||||||
Other non-current obligations on the statement of financial position(2) | 98 | 3 | 9 | 3 | 83 | |||||||||||||||||||||||||||||||||||
Financial liabilities(1) | 10,127 | 863 | 3,759 | 1,822 | 3,683 | |||||||||||||||||||||||||||||||||||
Derivative financial liabilities(1) | 132 | 74 | 29 | 29 | 0 | |||||||||||||||||||||||||||||||||||
Operating lease obligations(3) | 923 | 238 | 356 | 171 | 158 | 1,347 | 294 | 410 | 246 | 396 | ||||||||||||||||||||||||||||||
Purchase obligations(3) | 588 | 317 | 144 | 74 | 53 | 872 | 428 | 260 | 118 | 66 | ||||||||||||||||||||||||||||||
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Capital contribution commitments(3) | 111 | 111 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||
Other non-current non-financial liabilities(2) | 331 | 0 | 201 | 36 | 94 | |||||||||||||||||||||||||||||||||||
Total | 7,494 | 1,439 | 2,108 | 1,705 | 2,242 | 12,920 | 1,770 | 4,660 | 2,251 | 4,239 | ||||||||||||||||||||||||||||||
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(1) For more information on financial liabilities and derivative financial liabilities see Note (24) to our Consolidated Financial Statements.
(2) For more information on other non-current non-financial liabilities see Note (17c) to our Consolidated Financial Statements. (3) See Note (22) to our Consolidated Financial Statements for additional information about operating lease obligations, purchase obligations, and capital contribution commitments. Our expected contributions to our pension and other post-employment benefit plans are not included in the table above. For more information on these contributions see Note (18a) to our Consolidated Financial Statements. |
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We expect to meet these contractual obligations with our existing cash, our cash flows from operations and our financing activities. The timing of payments for the above contractual obligations is based on payment schedules for those obligations where set payments exist. For other obligations with no set payment schedules, estimates as to the most likely timing of cash payments have been made. The ultimate timing of these future cash flows may differ from these estimates.
Obligations under Indemnifications and Guarantees
Our software license agreements and our cloud subscription agreements generally include certain provisions for indemnifying customers against liabilities if our software products infringe a third party’s intellectual property rights. In addition, we occasionally provide function or performance guarantees in routine consulting contracts and development arrangements. We also generally provide a six to twelve month warranty
on our software. Our warranty liability is included in other provisions. For more information on other provisions see Note (18b) to our Consolidated Financial Statements. For more information on obligations and contingent liabilities refer to Note (3) and Note (22) in our Consolidated Financial Statements.
For information on our R&D activities see “Item 4. Information about SAP – Products, Research & Development, and Development.Services.” For information on our R&D costs see “Item 5. Operating and Financial Review and Prospects – Operating Results”Results (IFRS)” and for information related to our R&D employees see “Item 6. Directors, Senior Management and Employees – Employees.”
Our Consolidated Financial Statements are prepared based on the accounting policies described in Note (3) to our Consolidated Financial Statements in this report. The application of such policies requires management to make judgments, estimates and assumptions that affect the application of policies and the reported amounts of assets, liabilities, revenues and expenses in our Consolidated Financial Statements. We base our judgments, estimates and assumptions on historical and forecast information, as well as regional and industry economic conditions in which we or our customers operate, changes to which could adversely affect our estimates. Although we believe we have made reasonable estimates about the ultimate resolution of the
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Item 5
underlying uncertainties, no assurance can be given that the final outcome of these matters will be consistent with what is reflected in our assets, liabilities, revenues and expenses. Actual results could differ from original estimates.
The accounting policies that most frequently require us to make judgments, estimates, and assumptions, and therefore are critical to understanding our results of operations, include the following:
revenue recognition;
valuation of trade receivables;
accounting for share-based payment;
accounting for income tax;
accounting for business combinations;
– | revenue recognition; |
– | valuation of trade receivables; |
– | accounting for share-based payments; |
– | accounting for income tax; |
– | accounting for business combinations; |
– | subsequent accounting for goodwill and other intangible assets; |
– | accounting for legal contingencies; and |
– | recognition of internally generated intangible assets from development. |
subsequent accounting for goodwill and other intangibles;
accounting for legal contingencies; and
recognition of internally generated intangible assets from development.
Our management periodically discusses these critical accounting policies with the Audit Committee of the Supervisory Board. See Note (3c) to our Consolidated Financial Statements for further discussion on our critical accounting estimates and critical accounting policies.
NEW ACCOUNTING STANDARDS NOT YET ADOPTED
See Note (3e) to our Consolidated Financial Statements for our discussion on new accounting standards not yet adopted.
Future Trends in the Global Economy
In its most recent report, the European Central Bank (ECB) forecasts moderate growth in the world economy and it expects that this growth will vary across regions and countries in 2016. It foresees more favorable prospects for advanced economies than for emerging markets and developing economies. Geopolitical risks, especially of heightened tensions in the Middle East, could undermine global economic performance, the ECB warns.
In the Europe, Middle East, and Africa (EMEA) region, the ECB expects the euro-area economy to recover slightly more rapidly in 2016 than in the previous year. It suggests that low oil prices, increased publicsector spending on assistance for refugees, and its own monetary measures may encourage that acceleration. In Central and Eastern Europe, the ECB expects economic activity to remain stable but for performance to vary from country to country. The European Union’s structural funds and strong consumer spending may be principal factors behind such growth. In Russia, on the other hand, the economic situation is expected to remain difficult. The ECB expects further cuts in public spending as a consequence of declining oil revenue.
The ECB’s forecasts for 2016 for a number of major countries in the Americas region are cautious. For the United States, the ECB expects that economic growth may slow following the Federal Reserve’s move on interest rates in December 2015. The ECB expects political uncertainty, a tightening of monetary policy, and more restrictive financing conditions to continue to weigh on Brazil’s economy.
For the Asia Pacific Japan (APJ) region, the ECB expects that wage increases and low oil prices will improve consumer spending in Japan. Japan’s exports should also pick up. For China, though, the ECB expects that economic growth will continue to slow following the refocusing of its economy. It believes that the prospects for India’s economy are positive in 2016.
Economic Trends – Year-Over-Year GDP Growth
In % | 2014e | 2015p | 2016p | |||||||||
World | 3.4 | 3.1 | 3.4 | |||||||||
Advanced economies | 1.8 | 1.9 | 2.1 | |||||||||
Developing and emerging economies | 4.6 | 4.0 | 4.3 | |||||||||
Europe, Middle East, and Africa (EMEA) | ||||||||||||
Euro area | 0.9 | 1.5 | 1.7 | |||||||||
Germany | 1.6 | 1.5 | 1.7 | |||||||||
Central and Eastern Europe | 2.8 | 3.4 | 3.1 | |||||||||
Middle East and North Africa | 2.8 | 2.5 | 3.6 | |||||||||
Sub- Saharan Africa | 5.0 | 3.5 | 4.0 | |||||||||
Americas | ||||||||||||
United States | 2.4 | 2.5 | 2.6 | |||||||||
Canada | 2.5 | 1.2 | 1.7 | |||||||||
Central and South America, Caribbean | 1.3 | –0.3 | –0.3 | |||||||||
Asia Pacific Japan (APJ) | ||||||||||||
Japan | 0.0 | 0.6 | 1.0 | |||||||||
Asian developing economies | 6.8 | 6.6 | �� | 6.3 | ||||||||
China | 7.3 | 6.9 | 6.3 |
e = estimate; p = projection
Source: International Monetary Fund (IMF), World Economic Outlook Update January 2016, Subdued Demand, Diminished Prospects, as of January 19, 2016, p. 6.
IT Market: The Outlook for 2016
The worldwide IT market is at the dawn of a new era, according to U.S. market research firm IDC. It expects IT market growth to decline in a number of emerging economies, notably Brazil, China, and Russia. For a decade, these countries were the driving force in all segments of the global IT market while the advanced economies were already focusing on the transition from traditional technologies to innovations such as cloud and mobile computing. IDC expects that the growth in traditional IT will also slow in the emerging markets and developing economies in the years ahead. It believes that cloud, mobile, and Big Data will offer the main opportunities for growth. In view of that prediction, IDC expects the worldwide IT market to grow just 2.8% in 2016. Hardware spending is expected to increase by about 1%, and software spending by almost 7% (mainly due to software-as-a-service and platform-as-a-service solutions).
In the Europe, Middle East, and Africa (EMEA) region, IDC expects overall IT market growth to decelerate to 2% in 2016. Notably, the IT market in Western Europe is
expected to grow just 1% to 2% in the coming years. The IT market in Germany is not expected to grow much above these rates either, according to IDC. The institute believes that IT spending in Russia might recover as early as 2016 and grow 6% as a result of short-term government stimulus measures.
IDC expects the Americas region IT spending to increase 3.7% in 2016. It believes the IT market in the United States will grow at a similar rate and that, with 7% growth, the software segment will again be the fastest to expand there. For Brazil, IDC expects that the government will pursue a strict program of economic reform in the next few years, which could slow growth in the IT market to a rate of 3% or 4%. IDC forecasts that the IT market in Mexico will also grow by about 3% annually in the next few years.
In the Asia Pacific Japan (APJ) region, IDC believes growth in the IT market might reach 2.5%. However, growth rates again are expected to vary from country to country. IDC expects the IT market in Japan will grow by about 3% in 2016. It anticipates that China’s IT market
will expand only in the low to middle single-digit percentage range in the years ahead. The IT market in
India, on the other hand, might continue to grow by rates at or above 10% a year, according to IDC.
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Increased IT Spending Year-Over-Year
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In % | 2014e | 2015p | 2016p | |||||||||
World | ||||||||||||
Total IT | 4.5 | 4.9 | 2.8 | |||||||||
Hardware | 5.2 | 5.5 | 1.1 | |||||||||
Packaged software | 5.6 | 6.8 | 6.8 | |||||||||
Applications | 6.9 | 7.3 | 7.1 | |||||||||
IT services | 3.0 | 2.8 | 3.0 | |||||||||
Europe, Middle East, and Africa (EMEA) | ||||||||||||
Total IT | 3.9 | 4.6 | 2.0 | |||||||||
Packaged software | 4.0 | 4.8 | 5.2 | |||||||||
Applications | 4.5 | 5.4 | 5.6 | |||||||||
IT services | 2.2 | 1.9 | 2.6 | |||||||||
Americas | ||||||||||||
Total IT | 4.2 | 4.6 | 3.7 | |||||||||
Packaged software | 6.8 | 8.4 | 7.3 | |||||||||
Applications | 8.5 | 8.9 | 7.8 | |||||||||
IT services | 2.8 | 2.8 | 2.6 | |||||||||
Asia Pacific Japan (APJ) | ||||||||||||
Total IT | 5.9 | 5.9 | 2.5 | |||||||||
Packaged software | 4.5 | 4.9 | 8.0 | |||||||||
Applications | 5.6 | 5.1 | 7.7 | |||||||||
IT services | 5.3 | 4.6 | 4.6 |
e = estimate, p = projection
Source: IDC Worldwide Black Book Pivot V3.1, 2015
Impact on SAP
SAP expects to outperform the global economy and the IT industry again in 2016 in terms of revenue growth.
Our 2015 results validate our strategy of innovating across the core, the cloud, and business networks to help our customers become true digital enterprises.
Our innovation cycle for SAP S/4HANA is well underway and the completeness of our vision in the cloud has distinguished SAP from both legacy players and point solution providers. We have beaten our guidance for 2015 on cloud and software as well as on operating income.
In 2015, we have transformed our Company and made it leaner by shifting investments from non-core activities to strategic growth areas enabling us to capture the growth opportunities in the market.
We are well-positioned for the future as reflected in the increase of our ambition for 2017.
We plan to continue to invest in countries in which we expect significant growth, helping us reach our ambitious 2016 outlook targets and medium-term aspirations for 2017 and 2020.
We are confident we can achieve our medium-term targets for 2017 and 2020, assuming that the economic
environment and IT industry develop as currently forecasted. Balanced in terms of regions as well as industries, we are well-positioned with our product offering to offset smaller individual fluctuations in the global economy and IT market.
A comparison of our business outlook with forecasts for the global economy and IT industry shows that we can be successful even in a tough economic environment and will further strengthen our position as the market leader of enterprise application software.
Operational Targets for 2016 (Non-IFRS)
Revenue and Operating Profit Outlook
We are providing the following outlook for the full-year 2016:
– | Based on the continued strong momentum in SAP’s cloud business the Company expects full year 2016 non-IFRS cloud subscriptions and support revenue to be in a range of€2.95 billion to€3.05 billion at constant currencies (2015:€2.30 billion). The upper end of this range represents a growth rate of 33% at constant currencies. |
– | SAP expects full year 2016 non-IFRS cloud and software revenue to increase by 6% to 8% at constant currencies (2015:€17.23 billion). |
– | SAP expects full-year 2016 non-IFRS operating profit to be in a range of€6.4 billion to€6.7 billion at constant currencies (2015:€6.35 billion). |
We expect our headcount to experience an increase similar to the increase in 2015.
While our full-year 2016 business outlook is at constant currencies, actual currency reported figures are expected to continue to be impacted by currency exchange rate fluctuations.
We expect that non-IFRS total revenue will continue to depend largely on the revenue from cloud and software.
However, the revenue growth we expect from this is below the outlook provided for non-IFRS cloud subscriptions and support revenue. We expect the software license revenue in 2016 to be at the same level as in 2015 with SAP gaining market share against our main on-premise license competitors.
We expect that most of the total revenue growth (non-IFRS) will come from the Applications, Technology, and Services segment, equally distributed into software licenses and support revenue growth and cloud subscriptions and support revenue growth. Nevertheless, we anticipate our SAP Business Network segment will outpace the Applications, Technology, and Services segment with a significantly higher total revenue growth rate at lower absolute levels. As such, we expect we will seize a huge market opportunity with continued strong mid- and long-term growth potential.
We continuously strive for profit expansion in all our segments, therefore, we expect an increase in both segments’ profits. The vast majority of the profit expansion comes from our Applications, Technology, and Services segment. Overall, in the SAP Business Network segment, operating profit growth is higher than in the Applications, Technology, and Services segment, but at significantly lower volume.
Across all segments we expect our 2016 non-IFRS cloud subscriptions and support gross margin to be at least stable or to slightly increase compared to 2015. For SAP’s managed-cloud offerings, we still expect negative margins in 2016 which by 2017 are expected to break even.
The following table shows the estimates of the items that represent the differences between our non-IFRS financial measures and our IFRS financial measures.
Non-IFRS Measures
€ millions | Estimated Amounts for 2016 | Actual Amounts for 2015 | ||||||
Revenue adjustments | < 20 | 11 | ||||||
Share-based payment expenses | 590 to 630 | 724 | ||||||
Acquisition-related charges | 690 to 740 | 738 | ||||||
Restructuring | 40 to 60 | 621 |
We do not expect any Company-wide restructuring programs in 2016.
The Company expects a full-year 2016 effective tax rate (IFRS) of 22.5% to 23.5% (2015: 23.4%) and an effective tax rate (non-IFRS) of 24.5% to 25.5% (2015: 26.1%).
Goals for Liquidity and Finance
On December 31, 2015, we had a negative net liquidity. We believe that our liquid assets combined with our undrawn credit facilities are sufficient to meet our present operating financing needs also in 2016 and, together with expected cash flows from operations, will support debt repayments and our currently planned capital expenditure requirements over the near term and medium term.
In 2016, we expect a positive development of our operating cash flow mainly due to lower restructuring related payments.
We intend to repay a US$600 million U.S. private placement when it matures in June. Additionally, we are planning to further repay our outstanding€1.25 billion bank loan.
By the time of this report, we have no concrete plans for future share buybacks.
Based on this planning, at this point in time we expect we will noticeably reduce our net debt in 2016 and gradually return to a positive net liquidity in subsequent years.
Investment Goals
Our planned capital expenditures for 2016 and 2017, other than from business combinations, mainly comprise the construction activities described in “Item 4. Information About SAP – Description of Property – Capital Expenditures”. We expect investments from these activities of approximately€450 million during the next two years. These investments can be covered in full by operating cash flow.
SAP does not plan any significant acquisitions in 2016 and 2017 but will rather focus on organic growth.
Proposed Dividend
We intend to continue our dividend policy in 2017 as well, which is to pay a dividend totaling more than 35% of the prior year’s profit after tax.
Premises on Which Our Outlook Is Based
In preparing our outlook guidance, 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.
Among the premises on which this outlook is based are those presented concerning economic development and the assumption that there will be no effects from major acquisitions in 2016 and 2017.
Medium-Term Prospects
In this section, all discussion of the medium-term prospects is based exclusively on non-IFRS measures.
We expect to grow our more predictable revenue business while steadily increasing operating profit. Our strategic objectives are focused primarily on the following financial and non-financial objectives: growth, profitability, customer loyalty, and employee engagement.
We are raising our 2017 ambition compared to our outlook previously communicated in 2015 to reflect both the current exchange rate environment and our excellent business momentum.
Assuming a stable exchange rate environment going forward, SAP now expects non-IFRS cloud subscriptions and support revenue in a range of€3.8 billion to€4.0 billion in 2017. The upper end of this range represents a 2015 to 2017 compound annual growth rate (CAGR) of 32%. Non-IFRS total revenue is expected to be in a range of€23.0 billion to€23.5 billion in 2017. We now expect our 2017 non-IFRS operating profit to be in a range of€6.7 billion to€7.0 billion.
We continue to anticipate that the fast-growing cloud business along with growth in support revenue will drive a higher share of more predictable revenue. Given the current software license revenue momentum, we now expect the total of cloud subscriptions and support revenue and software support revenue to be in a range of 63% to 65% of total revenue in 2017.
By 2017, we continue to expect the rapidly growing cloud subscriptions and support revenue to be close to software license revenue and they are expected to exceed software license revenue in 2018. At that time, SAP expects to reach a scale in its cloud business that will clear the way for accelerated operating profit expansion.
In 2015, we communicated our long term, high-level ambitions for the year 2020. We are not adjusting this long-term ambition at this time. Thus, we continue to strive for reaching the following by 2020:
– | €7.5 billion to€8.0 billion non-IFRS cloud subscriptions and support revenue |
– | €26 billion to€28 billion non-IFRS total revenue |
– | €8.0 billion to€9.0 billion non-IFRS operating profit |
– | 70% to 75% share of more predictable revenue (defined as the total of cloud subscriptions and support revenue and software support revenue) |
By 2020, we expect our business network offering to generate the largest portion of the cloud subscriptions and support revenue. The share of this portion of revenue is expected to be followed by our public cloud offerings. Both of these offerings are expected to each generate, in 2020, cloud subscriptions and support revenues that are significantly higher than the cloud subscriptions and support revenue generated from our private cloud offerings.
We also strive for significantly improving, over the next few years, the profitability of our cloud business. We expect that the flat or slightly increasing cloud subscriptions and support margin development in 2016 will be followed by further margin increases in the following years until we reach our envisioned long-term cloud subscriptions and support margin targets in 2020. These will continue to increase at different rates: We expect the gross margin from our public cloud to reach approximately 80% (2015: approximately 70%) in 2020. Likewise, we expect our business network gross margin to reach approximately 80% (2015: approximately 75%) in 2020. The gross margin for our private cloud is expected to break even in 2016 and reach about 40% in 2020.
In a mature state of our cloud business, we expect that approximately 80% of the cloud subscription business will be generated from existing contracts and their renewals and approximately 20% from new business. This is compared to approximately 60% from existing contracts and renewals and 40% from new business in the fast-growth phase of our cloud business.
We also communicated in 2015 that we aim at further improving the profitability of our on-premise software
business. It is our target, from that point in time, to grow, until 2020, our gross profit from software licenses and support by a compound annual growth rate of approximately 3%, leading to an improvement in the software licenses and support gross margin of approximately 2 percentage points.
Non-Financial Goals 2016
In addition to our financial goals, we also focus on two non-financial targets: customer loyalty and employee engagement.
We believe it is essential that our employees are engaged, drive our success, and support our strategy. We remain committed to achieving an 82% employee engagement score in 2016 (2015: 81%).
Further, our customers’ satisfaction with the solutions we offer is very important to us. We want our customers not only to be satisfied, but also to see us as a trusted partner for innovation. We measure this customer loyalty metric using the Customer Net Promoter Score (NPS). For 2016, we aim to achieve a Customer NPS of 25% (2015: 22.4%).
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
The current members of the Supervisory Board of SAP AG,SE, each member’s principal occupation, the year in which each was first elected and the year in which the term of each expires, respectively, are as follows:
Name | Age | Principal Occupation | Year First Elected | Year Term Expires | ||||||||||
Prof. Dr. h.c. mult. Hasso Plattner, Chairman(1)(2)(5)(6)(7)(10) |
| 69 |
| Chairman of the Supervisory Board |
| 2003 |
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| 2017 |
| ||||
Pekka Ala-Pietilä(1)(6)(7)(10) | 56 | Chairman of the Board of Directors, SolidiumOy | 2002 | 2017 | ||||||||||
Prof. Anja Feldmann(1)(6) | 47 | Professor at the Electrical Engineering and Computer Science Faculty at the Technische Universität Berlin | 2012 | 2017 | ||||||||||
Prof. Dr. Wilhelm Haarmann(1)(2)(4)(10) | 62 | Attorney at Law, Certified Public Auditor and Certified Tax Advisor; HAARMANN Partnerschaftsgesellschaft, Rechtsanwälte, Steuerberater, Wirtschaftsprüfer | 1988 | 2017 | ||||||||||
Bernard Liautaud(1)(2)(6)(7) | 50 | General Partner, Balderton Capital | 2008 | 2017 | ||||||||||
Dr. h.c. Hartmut Mehdorn(1)(4)(5) | 70 | Independent Management Consultant | 1998 | 2017 | ||||||||||
Dr. Erhard Schipporeit(1)(3)(9)(10) | 64 | Independent Management Consultant | 2005 | 2017 | ||||||||||
Prof. Dr.-Ing. Dr.-Ing. E.h. Klaus Wucherer(1)(3)(6) |
| 68 |
| Managing Director of Dr. Klaus Wucherer Innovations- und Technologieberatung GmbH |
| 2007 |
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| 2017 |
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Christiane Kuntz-Mayr, Vice Chairperson(2)(5)(8)(10) |
| 50 |
| Employee, Deputy Chairperson of the Works Council of SAP AG |
| 2009 |
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| 2017 |
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Panagiotis Bissiritsas(2)(4)(8) | 44 | Employee, Support Expert | 2007 | 2017 | ||||||||||
Margret Klein-Magar(2)(8)(10) | 48 | Employee, Vice President SAP Transformation | 2012 | 2017 | ||||||||||
Lars Lamadé(2)(8)(10) | 41 | Employee, Project Manager OPD COO | 2002 | 2017 | ||||||||||
Dr. Kurt Reiner(4)(6)(8) | 54 | Employee, Development Expert | 2012 | 2017 | ||||||||||
Mario Rosa-Bian(5)(6)(8) | 56 | Employee, Project Principal Consultant | 2012 | 2017 | ||||||||||
Stefan Schulz(3)6)(8) | 43 | Employee, Development Manager | 2002 | 2017 | ||||||||||
Inga Wiele(3)(6)(8) | 42 | Employee, Senior Internal Strategic Consultant | 2012 | 2017 |
Name | Age | Principal Occupation | Year First Elected | Year Term Expires | ||||||||||
Prof. Dr. h.c. mult. Hasso Plattner, Chairman(1)(2)(5)(6)(9)(10) | �� | 72 | Chairman of the Supervisory Board | 2003 | 2019 | |||||||||
Pekka Ala-Pietilä(1)(4)(5)(6)(9) | 59 | Chairman of the Board of Directors, Solidium Oy | 2002 | 2019 | ||||||||||
Prof. Anja Feldmann(1)(5)(10) | 50 | Professor at the Electrical Engineering and Computer Science Faculty at the Technische Universität Berlin | 2012 | 2019 | ||||||||||
Prof. Dr. Wilhelm Haarmann(1)(2)(4)(9)(10) | 65 | Attorney at Law, Certified Public Auditor and Certified Tax Advisor; Linklaters LLP, Rechtsanwälte, Notare, Steuerberater | 1988 | 2019 | ||||||||||
Prof. Dr. Gesche Joost(1)(5)(10) | 41 | Professor for Design Research and Head of the Design Research Lab, University of Arts Berlin | 2015 | 2016 | ||||||||||
Bernard Liautaud(1)(2)(5)(6) | 53 | General Partner, Balderton Capital | 2008 | 2019 | ||||||||||
Dr. Erhard Schipporeit(1)(3)(8)(9) | 67 | Independent Management Consultant | 2005 | 2019 | ||||||||||
Jim Hagemann Snabe(1)(2)(4) | 49 | Supervisory Board Member | 2014 | 2019 | ||||||||||
Prof. Dr.-Ing. Dr.-Ing. E.h. Klaus Wucherer(1)(3) | 71 | Managing Director of Dr. Klaus Wucherer Innovations- und Technologieberatung GmbH | 2007 | 2019 | ||||||||||
Margret Klein-Magar, Vice Chairperson(2)(4)(5)(7) | 51 | Employee, Vice President Head of People Principles | 2012 | 2019 | ||||||||||
Panagiotis Bissiritsas(3)(4)(5)(7) | 47 | Employee, Support Expert | 2007 | 2019 | ||||||||||
Martin Duffek(3)(7)(10) | 40 | Employee, Product Manager | 2015 | 2019 | ||||||||||
Andreas Hahn(2)(5)(7) | 45 | Employee, Product Expert, Industry Standards & Open Source | 2015 | 2019 | ||||||||||
Lars Lamadé(2)(7)(9)(10) | 44 | Employee, Head of Customer & Events GSS COO | 2002 | 2019 | ||||||||||
Christine Regitz(5)(7)(10) | 50 | Employee, Vice President User Experience, Chief Product Expert | 2015 | 2019 | ||||||||||
Robert Schuschnig-Fowler(7)(10) | 56 | Employee, Account Manager, Senior Support Engineer | 2015 | 2019 | ||||||||||
Dr. Sebastian Sick(2)(4)(7)(9) | 43 | Head of Company Law Unit, Hans Boeckler Foundation | 2015 | 2019 | ||||||||||
Pierre Thiollet(5)(7) | 54 | Employee, Webmaster | 2015 | 2019 |
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Part I
Item 6
(1) Elected by SAP SE’s shareholders on May 20, 2015.
(2) Member of the General and Compensation Committee.
(3) Member of the Audit Committee.
(4) Member of the Finance and Investment Committee.
(5) Member of the Technology and Strategy Committee.
(6) Member of the Nomination Committee.
(7) Appointed by the SAP SE Works Council Europe on May 6, 2015.
(8) Audit Committee financial expert.
(9) Member of the Special Committee.
(10) Member of the People and Organization Committee
For detailed information on the Supervisory Board committees and their tasks, including the Audit Committee and the General and Compensation Committee, please refer to “Item 10 Additional Information – Corporate Governance.”
Pursuant to the German Co-determination ActArticles of 1976 (Mitbestimmungsgesetz),Incorporation of SAP SE and the Agreement on the Involvement of Employees in SAP SE, members of the Supervisory Board of SAP AGSE consist of eightnine representatives of the shareholders and eightnine representatives of the European employees. Of the eight employeeThe current nine employees’ representatives two must be nominatedwere appointed by the trade unions. The elected employees must be at least 18 years of age and must have been in the employment of SAP AG or one of its German subsidiaries for at least one year. They must also fulfill the other qualifications for election codified in Section 8 of the GermanSE Works Council Constitution Act. These qualifications include, among other things, not having been declared ineligible or debarred from holding public office by a court.Europe on May 6, 2015.
Certain current members of the Supervisory Board of SAP AGSE were members of supervisory boards and comparable governing bodies of enterprises other than SAP AGSE in Germany and other countries as of December 31, 2012.2015. See Note (29) to our Consolidated Financial Statements for more detail. Apart from pension obligations towardsfor employees, SAP AGSE has not entered into contracts with any member of the Supervisory Board that provide for benefits upon a termination of the employment or service of the member.
The current members of the Executive Board, the year in which each member was first appointed and the year in which the term of each expires, respectively, are as follows:
Name | Year First Appointed | Year Current Term Expires | ||||||
Bill McDermott, Co-CEO | 2008 | 2017 | ||||||
Jim Hagemann Snabe, Co-CEO | 2008 | 2017 | ||||||
Dr. Werner Brandt | 2001 | 2014 | ||||||
Lars Dalgaard | 2012 | 2015 | ||||||
Luisa Deplazes Delgado | 2012 | 2015 | ||||||
Gerhard Oswald | 1996 | 2014 | ||||||
Dr. Vishal Sikka | 2010 | 2017 |
Name | Year First Appointed | Year Current Term Expires | ||||||
Bill McDermott, CEO | 2008 | 2021 | ||||||
Robert Enslin | 2014 | 2021 | ||||||
Michael Kleinemeier | 2015 | 2018 | ||||||
Bernd Leukert | 2014 | 2021 | ||||||
Luka Mucic | 2014 | 2021 | ||||||
Gerhard Oswald | 1996 | 2016 |
The following changes occurred in the Executive Board in 2012:
2015:
In April 2012, Lars Dalgaard became a member ofOn October 8, 2015, the SAP Supervisory Board appointed Michael Kleinemeier to the SAP Executive Board.
In September 2012, Luisa Deplazes Delgado became a member of the Executive Board.Board, effective November 1, 2015.
A description of the management responsibilities and backgrounds of the current members of the Executive Board are as follows:
Bill McDermott, Co-CEOCEO (Vorstandssprecher), 5154 years old, holds a master’s degree in business administration from Northwestern University’s Kellogg School of Management.administration. He joined SAP in 2002 and became a member of theits Executive Board on July 1, 2008. On February 7, 2010 he
became Co-CEO alongside Jim Hagemann Snabe. Besides the dutiesSnabe and when Jim Hagemann Snabe concluded his current role as Co-CEO in May 2014, Bill McDermott became sole CEO. As CEO he is responsibleleading SAP with organizational responsibility for strategy, and business development, corporate development, communications, marketing communications, corporate audit, board governance, sustainability, solutions, global sales and global partnerinternal audit. In addition he assumed responsibility for human resources and channel management.is the Labor Relations Director. With the acquisition of Concur, he is also responsible for SAP’s Business Network. He represents SAP as a member of the European Roundtable of Chief Executive Officers, the U.S. Business Council and the World Economic Forum. Prior to joining SAP, he served as a global executive in several technology companies.
Jim Hagemann Snabe, Co-CEORobert Enslin, (Vorstandssprecher), 4753 years old, holds a master’s degreediplomas in operational research.data science as well as computer science and data management. He joined SAP in 19901992 and became a member of the Executive Board in May 2014. He is president of Global Customer Operations and is responsible for global sales, industry & line of business (LoB) solutions sales, services sales, sales operations as well as the Global Customer Office. Before joining SAP, Robert Enslin spent 11 years in various roles in the IT industry.
Michael Kleinemeier, 59 years old, holds a degree in commercial management from the University of Paderborn. He first joined SAP in 1989 and became a member of the Executive Board in November 2015. He leads the Global Service & Support organization including global consulting delivery, all global and regional support and premium engagement functions, maintenance go-to-market, global user groups, and mobile services.
Bernd Leukert, 48 years old, holds a master’s degree in business administration with an emphasis on July 1, 2008. On February 7, 2010 heengineering and information technology. He joined SAP in 1994 and became Co-CEO alongside Bill McDermott. Besidesa member of the duties as Co-CEO,Executive Board in May 2014. As SAP’s Chief Technology Officer he is responsible for the board area Products & Innovation including the global development organization, innovation & cloud delivery, product strategy, development services, and SAP Global Security. In addition, Bernd Leukert heads strategic innovation initiatives at SAP and is responsible for leading design and user experience for SAP.
Luka Mucic, 44 years old, holds master’s degrees in law and business development, corporate development, marketing, communications, corporate audit, board governance, sustainability, solutions, global R&D portfolio, processes, and IT.
Werner Brandt, 59 years old, business administration graduate. Werner Brandtadministration. He joined SAP in early 2001 as the1996 and became Chief Financial Officer (CFO), Chief Operating Officer (COO) and a member of the Executive Board.Board in July 2014. He is responsible for finance and administration including investor relations and data protection and privacy. Prior to joining SAP, Werner Brandt was CFO and memberIn addition, as the company’s COO, Luka Mucic is responsible for the Process Office of the Executive Board of Fresenius Medical Care AG since 1999. In this role, he was also responsiblecompany and for labor relations. Before joining Fresenius Medical Care AG, Werner Brandt headed the finance function of the European operations of Baxter International Inc.Business Innovation & IT.
Part I
Item 6
Lars Dalgaard, 45 years old, holds a master’s degree from Stanford Graduate School of Business and a Bsc. (Ha) from Copenhagen Business School. Lars is CEO of SuccessFactors, the company he founded in 2001 which went public in 2007, and joined SAP in 2012 when SAP acquired SuccessFactors. He became a member of SAP’s Executive Board on April 12, 2012. Lars is responsible for SAP’s cloud business including strategy, product development, and all go-to-market related capabilities.
Luisa Deplazes Delgado, 46 years old, holds a master’s degree in law from the University of London’s King’s College and London School of Economics and a licence en droit from the University of Geneva. On September 1, 2012 Luisa joined SAP as the Chief Human Resources Officer and member of the Executive Board. She also serves as Labor Relations Director of SAP AG. She is responsible for all human resources activities at SAP globally. Prior to joining SAP, she spent 22 years with Procter and Gamble, the last five as CEO of Procter and Gamble Nordic based in Stockholm, Sweden, previously as VP of HR for Western Europe based in Geneva, Switzerland, and before in diverse roles in Belgium, UK, and Portugal.
Gerhard Oswald,, 59 62 years old, economics graduate. Gerhard Oswald joined SAP in 1981 and became a member of the Executive Board in 1996. He is responsible for the On Premise Delivery Boardboard area including application development, installed base maintenanceProduct Quality & Enablement covering quality governance & validation, scale, enablement & transformation, logistics services, and support, end to end services, active global support, and onpremise delivery COO.
Vishal Sikka, 45 years old, holds a PH. D. degree in computer science from Stanford University. He joined SAP in 2002 and became a member of the Executive Board on February 7, 2010 leading technology and innovation. He is responsible for technology and platform products development including SAP HANA, analytics, mobile, application platform and middleware, as well as SAP Research, SAP Labs Network and SAP Ventures. Before joining the Executive Board, he has been the first Chief Technology Officer at SAP since 2007, and prior to that was SAP’s Chief Software Architect. Before joining SAP, he was area vice president for platform technologies at Peregrine Systems, and prior to that he founded and led two start-ups – Bodha, Inc. and IBrain Software.special tasks.
The members of the Executive Board of SAP AGSE as of December 31, 20122015 that are members on other supervisory boards and comparable
governing bodies of enterprises, other than SAP, in Germany and other countries, are set forth in Note (29) to our Consolidated Financial Statements. SAP AGSE has not entered into contracts with any member of the Executive Board that provide for benefits upon a termination of the employment of service of the member, apart from pensions, benefits payable in the event of an early termination of service, and abstention compensation for the postcontractual noncompete period.
To our knowledge, there are no family relationships among the Supervisory Board and Executive Board members.
Compensation for Executive and Supervisory Board Members
This compensation report outlines the criteria that we applied for the year 20122015 to determine compensation for Executive Board and Supervisory Board members, discloses the amount of compensation paid, and describes the compensation systems. It also contains information about Executive Board members’ share-based payment plans for Executive Board members, shares held by Executive Board and Supervisory Board members, and the directors’ dealings required to be disclosed in accordance with the German Securities Trading Act.
Compensation for Executive Board Members
Compensation System for 20122015
The compensation for 2015 for Executive Board members’ compensation for 2012members is intended to reflect SAP’s company size and global presence as well as our economic and financial standing. The compensation level is internationally competitive to reward committed, successful work in a dynamic business environment.
The Executive Board compensation package is performance-based. In 2012, it hadIt has three elements:
– | A fixed annual salary element |
– | A variable short-term incentive (STI) element to reward performance in the plan year |
– | A variable long-term incentive (LTI) element tied to the price of SAP shares to reward performance over multiple years |
A variable short-term incentive (STI) plan to reward performance in the plan year
A Restricted Share Unit-based long-term incentive (LTI) plan tied to the price of SAP shares (RSU Milestone Plan 2015)
Part I
Item 6
The Supervisory Board setsets a compensation target for the sum of the fixed and the variable elements. It reviews, and if appropriate, revises, this compensation target every year. The review takes into account SAP’s business performance and the compensation paid to board members at comparable companies on the international stage. The amount of variable compensation depends on SAP’s performance against performance targets that the Supervisory Board sets for each plan year. The performance targets are key performance indicator (KPI) values aligned to the SAP budget for the plan year.
The following criteria apply to the elements of Executive Board compensation for 2012:2015:
– | The fixed annual salary element is paid as a monthly salary. |
– | The variable STI element was determined under the STI 2015 plan. Under this plan, the STI compensation depends on the SAP Group’s performance against the predefined target values for three KPIs: non-IFRS constant currency cloud and software growth; non-IFRS constant currency operating margin increase; and non-IFRS constant currency new and upsell bookings. In addition, the STI 2015 plan provides for a discretionary element that allows the Supervisory Board, after the end of the fiscal year 2015, to address not only an Executive Board member’s individual performance, but also SAP’s performance in terms of market position, innovative power, customer satisfaction, employee satisfaction, attractiveness as an employer and the performance in our Business Network Group. |
The fixed element is paid as a monthly salary.
The variable compensation under the STI 2012 plan depends on the SAP Group’s performance against the KPI target values for constant currency software revenue growth and non-IFRS constant currency operating margin as well as non-IFRS constant currency cloud subscription and support revenue. In addition, the STI element has a discretionary component that allows the Supervisory Board, at the end of the period in question, to address not only an Executive Board member’s individual performance, but also SAP’s performance in terms of market position, innovative power, customer satisfaction, employee satisfaction, and attractiveness as an employer. Moreover, if there has been any extraordinary and unforeseeable event, the Supervisory Board can, at its reasonable discretion, retroactively adjust payouts up or down in the interest of SAP. For 2014, this discretion was applied.
On February 14, 2013,18, 2016, the Supervisory Board assessed SAP’s performance against the agreed targets and determined the amount of compensation payable under the STI payable.2015 plan. The STI 2015 plan pays out after the Annual General Meeting of Shareholders in June 2013.May 2016.
– | The variable LTI element was determined under the RSU Milestone Plan 2015. “RSU” stands for “restricted share unit.” This originally four-year plan was established in 2012 and focuses on the SAP share price and on certain objectives derived from our Company strategy for the years through 2015. For each of the four years, the members of the Executive Board are allocated a certain number of RSUs for the respective year based on a budget amount that was granted to each Executive Board member in 2012 already for each of the years 2012 through 2015. The number of RSUs allocated to each member for a given year is their target amount (an amount in euros) for |
The long-term incentive element is called the RSU Milestone Plan 2015. “RSU” stands for “restricted share unit.” This four-year plan focuses on the SAP share price and on certain objectives derived from our Company strategy for the years through 2015. For each of the four years, the members of the Executive Board are allocated a certain number of SAP RSUs for the respective year based on a budget amount that was granted and paid out to each Executive Board member in 2012 already for the years 2012 through 2015. The number of RSUs allocated to each member for a given year is his or her target amount (an amount in euros) for
that year divided by the SAP share price over a reference period (defined in the RSU Milestone Plan 2015 terms) at the beginning of the |
The number of RSUs an Executive Board member actually earns in respect of a given year could be greater or smaller than the initial allocation. It depends on Company performance against the objectives for that year (a year is a “performance period” in the plan). The objectives derive from SAP’s strategy for the period to 2015. The plan objectives relate to two key performance indicators (KPIs): Our non-IFRS total revenue and our non-IFRS operating profit. The KPI targets have already been set for the entire life of the RSU Milestone Plan 2015 for the years 2012 to 2015 and will merely be adjusted for the effects of key acquisitions.
After the end of each fiscal year, the Supervisory Board assesses the Company’s performance against the objectives set for that year and determines the number of RSUs to be finally allocated to (and which then vest in)and vested in each Executive Board member. ThereNo RSUs vest if minimum performance levels of 60%, predefined for each of the two KPIs, are objective-based performance hurdles to clear each year before any RSUs can vest.not achieved. There is also a cap:cap. Normally, the quantity of vested RSUs a member can attain in respect of a plan year is capped at 150% of his or hertheir initial RSU allocation for that year.
The Company strategy underlying the RSU Milestone Plan 2015 focuses on where SAP aimsaimed to be by the end of 2015, so the plan givesgave greater weight to performance against the KPI targets for 2015 (the final year of the plan) than against the targets for 2012 through 2014. AfterDue to the end of 2015,adjustment factor, the number of vested RSUs a member of the Executive Board actually receives for that year is revised. In circumstances where the targets for the individual years are not achieved but the 2015 targets are achieved, the outcome of this revision would be that a member would receive as many vested RSUsreceived for 2015 as would make up for any that he or she did not receive in the earlier years by reason of failurehas been revised according to achieve targets. On the other hand, if the Company underachieves against the 2015 objectives, Executive Board members may in the worst case lose all of the vested RSUs allocated to them for 2015.plan terms.
Part I
Item 6
All vested RSUs are subject to a three-year holding period. The holding period commences at the end of the year for which the RSUs were allocated. The amount an RSU eventually pays out depends on the SAP share price at the end of the holding period. A member who leaves the Executive Board before the end of the plan retains his or hertheir vested RSUs for completed plan years but does not retain any allocated but unvested RSUs for the year during which he or she leaves.they leave. If a member leaves the Executive Board before the beginning of the subsequent year, no RSUs are finally allocated.
Each vested RSU entitles its holder to a (gross) payout corresponding to the price of one SAP share after the end of the three-year holding period. The applicable share price is measured over a reference period defined in the RSU Milestone Plan 2015 terms.
Subject to the requirements in the German Stock Corporation Act, section 87 (1), the Supervisory Board is entitled to revise the STI and the LTI in extraordinary and unforeseeable circumstances.
The LTI component consists of the issue of RSUs under the terms of the RSU Milestone Plan 2015. For the terms and details of the RSU Milestone Plan 2015, see the Notes to Consolidated Financial Statements section, Note (27). The number of RSUs issued initially to each member of the Executive Board under the RSU Milestone Plan 2015 for 2015 was decided by the Supervisory Board on February 12, 2015. The number of RSUs allocated finally to each member of the Executive Board under the RSU Milestone Plan 2015 for 2015 was determined by the Supervisory Board on February 18, 2016.
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The contracts of Executive Board members Bill McDermott Lars Dalgaard, and Vishal SikkaRobert Enslin require that compensation payments are made in U.S. dollars. The contracts include clauses that determine the exchange rates for the translation of euro-denominated compensation into U.S. dollars.
In prior years,Changes to Compensation System in 2016
As the RSU Milestone Plan 2015 expired at the end of 2015, the Supervisory Board developed a new LTI 2016 plan for the Executive Board effective January 1, 2016 with the first grant occurring in March 2016. The purpose of the LTI 2016 is to reflect the operating profit target achievement, to ensure long-term retention of our Executive Board members were granted a variable medium-term incentive (MTI) planand to reward performancea share price outperformance by SAP as compared to a group of its peers (Peer Group).
The LTI 2016 is an annual revolving remuneration element that is linked to the price of the SAP share. A grant amount determined by the Supervisory Board is converted into virtual shares, referred to as Share Units, by dividing the grant amount by the price of the SAP share (calculated on the basis of a defined average value). The grant amount is determined by the Supervisory Board in its discretion for each financial year at a level of between 80% and 120% of the plan year andcontractual target amount; taking into account the two subsequent years. The variable compensation underachievement of the MTI 2010 grantedoperating profit targets set for the fiscal year 2010preceding financial year.
The Share Units granted comprise 40% Retention Share Units (RSUs) and 60% Performance Share Units (PSUs). Both types of Share Units have a vesting period of four years. Each share unit that finally vests entitles its holder to a (gross) payout corresponding to the price of one SAP share after the end of the four-year holding period, but capped at three times the SAP share price applied for the conversion of the grant amount into Share Units.
The number of PSUs, that finally vests depends on the performance of the SAP Group’s performanceshare. If the increase of price of the SAP share over the three years 2010four-year vesting period of the PSUs exceeds the increase of a defined Peer Group Index over the same period, the number of PSUs will be increased by a percentage equal to 2012 against the KPI target values for software and software-related service revenue growth and earnings peroutperformance expressed as percentage points. This percentage will be doubled if, in addition to the outperformance over the Peer Group Index, the price of the SAP share (both of which are non-IFRS, constant currency values). In addition, the MTI element has a discretionary component that is assessed by the Supervisory Board at the end of the planvesting period of the PSUs is higher than the price at the start of this period. The closenumber of vested PSUs a member can attain in respect of a plan year is capped at 150% of their initial PSU allocation for that year. Conversely, if the increase of price of the fiscal year 2012 representsSAP share over the endfour-year vesting period of the plan period forPSUs underperforms the MTI 2010, and thereforePeer Group Index, the corresponding entitlement under the MTI 2010 is included in the compensation for the fiscal year 2012. The paymentnumber of PSUs will be due afterreduced by a percentage equal to the Annual General Meetingunderperformance expressed as percentage points. No PSUs vest if the underperformance exceeds 50%.
Amount of Shareholders in June 2013. MTI 2011 will pay out in 2014 respectively.Compensation for 2015
We present separately Executive Board compensation disclosures under three different compensation disclosure approaches:
– | Compensation disclosures under a management view that follows the requirements of sections 314 and 315 of the German Commercial Code (Handelsgesetzbuch, or “HGB”) as specified in the German Accounting Standards (“GAS 17”) except that it allocates share-based compensation to the periods to which this compensation economically belongs |
– | Compensation disclosures fully in accordance the requirements of sections 314 and 315 of the HGB as specified in GAS 17 |
– | Compensation disclosures in accordance with the recommendations of the German Corporate Governance Code (“Code”) |
I. Executive Board Members’ Compensation – Management View
Executive Board Members’ Compensation for the Financial Year 20122015 – Management View
€ thousands | Fixed Elements | Performance- Related Elements | Compensation for 2012(1) | |||||||||||||||||||||
Short-Term and Medium-Term Incentive Elements | Long-Term Incentive Element | |||||||||||||||||||||||
Salary | Other(2) | STI | MTI 2010 | Share-Based Payment (RSU Milestone Plan 2015)(1),(3) | ||||||||||||||||||||
Bill McDermott (co-CEO)(4) | 1,203.3 | 415.9 | 1,581.5 | 1,259.6 | 4,318.4 | 8,778.7 | ||||||||||||||||||
Jim Hagemann Snabe (co-CEO) | 1,150.0 | 163.8 | 1,545.7 | 1,067.6 | 4,318.4 | 8,245.5 | ||||||||||||||||||
Dr. Werner Brandt | 700.0 | 26.7 | 935.5 | 645.1 | 1,549.1 | 3,856.4 | ||||||||||||||||||
Lars Dalgaard | 528.9 | 0 | 690.4 | 0 | 1,156.2 | 2,375.5 | ||||||||||||||||||
Luisa Deplazes Delgado | 233.3 | 96.4 | 193.9 | 0 | 414.4 | 938.0 | ||||||||||||||||||
Gerhard Oswald | 700.0 | 16.5 | 935.5 | 645.1 | 1,549.1 | 3,846.2 | ||||||||||||||||||
Dr. Vishal Sikka(5) | 733.4 | 143.9 | 957.2 | 635.1 | 1,549.1 | 4,018.7 | ||||||||||||||||||
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Total | 5,248.9 | 863.2 | 6,839.7 | 4,252.5 | 14,854.7 | 32,059.0 | ||||||||||||||||||
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€ thousands | Fixed Elements | Performance- Related Element | Compensation for 2015 | |||||||||||||||||
Short-Term Incentive Element | Long-Term Incentive Element | |||||||||||||||||||
Salary | Other1) | STI | Share-Based Payment (RSU Milestone Plan 2015)2) | |||||||||||||||||
Bill McDermott (CEO) | 1,150.0 | 1,258.0 | 2,743.5 | 4,127.5 | 9,279.0 | |||||||||||||||
Robert Enslin | 700.0 | 103.3 | 1,660.5 | 1,480.6 | 3,944.4 | |||||||||||||||
Michael Kleinemeier (from November 1, 2015) | 116.7 | 0 | 277.5 | 315.0 | 709.2 | |||||||||||||||
Bernd Leukert | 700.0 | 11.7 | 1,660.5 | 1,480.6 | 3,852.8 | |||||||||||||||
Luka Mucic | 700.0 | 12.1 | 1,660.5 | 1,480.6 | 3,853.2 | |||||||||||||||
Gerhard Oswald | 700.0 | 22.4 | 1,660.5 | 1,480.6 | 3,863.5 | |||||||||||||||
Total | 4,066.7 | 1,407.5 | 9,663.0 | 10,364.9 | 25,502.1 |
Executive Board Members’ Compensation for 2014 – Management View
2) | Compensation attributable to |
Part I
Item 6
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In 2012, in addition to the LTI grant for 2012, Executive Board members have already received the LTI grants for the years 2013 to 2015, which are dependent on their uninterrupted tenure as Executive Board member in the years in question. Although these allocations are tied to the respective years and thus – from an economic perspective – represent compensation for the Executive Board members in the respective years, for the purpose of disclosure in the Compensation Report the grants must be included in the total compensation for Executive Board members for the respective year, in whichincluding the grants were allocated pursuant to section 314 of the German Commercial Code. Vesting of arespective year’s plan tranche is dependentof LTI 2015 based on the respective Executive Board member’s continuous service for the Company in the respective fiscal year. The contractsgrant value at time of Werner Brandt and Gerhard Oswald are currently set to expire in mid-2014, while the contracts of Lars Dalgaard and Luisa Deplazes Delgado are set to expire in mid-2015. As a result, the LTI allocations for the years 2014 to 2015 (for Werner Brandt
and Gerhard Oswald) and the LTI allocations for the year 2015 (for Lars Dalgaard and Luisa Deplazes Delgado) had not yet been allocated with legally binding force in 2012.
Assuming uninterrupted service on the Executive Board during the period in question, additional grants for Executive Board members for future years shall be €4,390,000 for each co-CEO and €1,574,800 for each regular Executive Board member, in each of 2013, 2014, and 2015 (except Luisa Deplazes Delgado, who shall receive €1,291,600 for the year 2013). The total compensation for 2012 pursuant to section 314 of the German Commercial Code, in other words, including this additional compensation as well as the long-term compensation tranches granted but not yet earned, amounts to €72,288,800, thereof: Bill McDermott: €21,948,700, Jim Hagemann Snabe €21,415,500, Werner Brandt €5,431,200, Lars Dalgaard €5,524,900, Luisa Deplazes Delgado €3,804,400, Gerhard Oswald €5,421,000, Vishal Sikka €8,743,100.
Assuming 100% target achievement, the amounts the MTI 2011 will pay out in 2014 are as follows:
MTI Target Payoutsgrant.
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Part I
Item 6
The share-based payment amounts included in 2012the 2015 and 2014 compensation result from the following RSUs under the RSU Milestone Plan 2015.
Share-Based Payment Under RSU Milestone Plan 2015 (Grants for 2015)
Grants for 2012 | ||||||||||||
Quantity | Grant Value per Unit at Time of Grant | Total Grant Value at Time of Grant | ||||||||||
€ | € thousands | |||||||||||
Bill McDermott (co-CEO) | 95,414 | 45.26 | 4,318.4 | |||||||||
Jim Hagemann Snabe (co-CEO) | 95,414 | 45.26 | 4,318.4 | |||||||||
Dr. Werner Brandt | 34,226 | 45.26 | 1,549.1 | |||||||||
Lars Dalgaard (from April 12, 2012) | 24,594 | 47.01 | 1,156.2 | |||||||||
Luisa Deplazes Delgado (from September 1, 2012) | 8,332 | 49.73 | 414.4 | |||||||||
Gerhard Oswald | 34,226 | 45.26 | 1,549.1 | |||||||||
Dr. Vishal Sikka | 34,226 | 45.26 | 1,549.1 | |||||||||
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Total | 326,432 | 14,854.7 | ||||||||||
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Bill McDermott (CEO) Robert Enslin Michael Kleinemeier (from November 1, 2015) Bernd Leukert Luka Mucic Gerhard Oswald TotalTotal Executive Board Payment in 2011 Grants for 2015 Quantity Grant Value
per Unit at
Time of Grant Total Grant
Value at Time
of Grant € €thousands 77,099 53.53 4,128 27,656 53.53 1,481 4,622 68.16 315 27,656 53.53 1,481 27,656 53.53 1,481 27,656 53.53 1,481 192,345 10,365
€ thousands | Fixed Elements | Performance- Related Element | Long-Term Incentive Elements | Total | ||||||||||||||||
Salary | Other(1) | Short-Term Incentive (STI) | Share-Based Payment (SAP SOP 2010)(2) | |||||||||||||||||
Bill McDermott (co-CEO)(3) | 1,279.9 | 408.0 | 3,935.5 | 950.0 | 6,573.4 | |||||||||||||||
Jim Hagemann Snabe (co-CEO) | 1,150.0 | 107.6 | 3,271.2 | 950.0 | 5,478.8 | |||||||||||||||
Dr. Werner Brandt | 700.0 | 29.7 | 1,979.6 | 577.0 | 3,286.3 | |||||||||||||||
Gerhard Oswald | 700.0 | 34.5 | 1,979.6 | 577.0 | 3,291.1 | |||||||||||||||
Dr. Vishal Sikka(4) | 700.0 | 120.5 | 2,103.7 | 577.0 | 3,501.2 | |||||||||||||||
Dr. Angelika Dammann | 466.7 | 45.9 | 1,163.1 | 384.7 | 2,060.4 | |||||||||||||||
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Total | 4,996.6 | 746.2 | 14,432.7 | 4,015.7 | 24,191.2 | |||||||||||||||
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Part I
Item 6
Share-Based Payment Under SAP SOP 2010 (2011 Grants)RSU Milestone Plan 2015 (Grants for 2014)
2011 Grants | ||||||||||||
Quantity | Fair Value per Right at Time of Grant | Total Fair Value at Time of Grant | ||||||||||
€ | € thousands | |||||||||||
Bill McDermott (co-CEO) | 112,426 | 8.45 | 950.0 | |||||||||
Jim Hagemann Snabe (co-CEO) | 112,426 | 8.45 | 950.0 | |||||||||
Dr. Werner Brandt | 68,284 | 8.45 | 577.0 | |||||||||
Gerhard Oswald | 68,284 | 8.45 | 577.0 | |||||||||
Dr. Vishal Sikka | 68,284 | 8.45 | 577.0 | |||||||||
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Total | 429,704 | 3,631.0 | ||||||||||
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Grants for 2014 | ||||||||||||
Quantity | Grant Value per Unit at Time of Grant | Total Grant Value at Time of Grant | ||||||||||
€ | € thousands | |||||||||||
Bill McDermott (CEO) | 76,374 | 52.90 | 4,040.50 | |||||||||
Dr. Werner Brandt (until June 30, 2014)1) | — | — | — | |||||||||
Robert Enslin (from May 4, 2014) | 18,164 | 51.72 | 939.40 | |||||||||
Bernd Leukert (from May 4, 2014) | 18,164 | 51.72 | 939.40 | |||||||||
Luka Mucic (from July 1, 2014) | 13,811 | 52.78 | 729.00 | |||||||||
Gerhard Oswald | 27,396 | 52.90 | 1,449.40 | |||||||||
Dr. Vishal Sikka (until May 4, 2014)1) | — | — | — | |||||||||
Total | 153,909 | 8,097.70 |
1) The allocations for Werner Brandt (27,396 RSUs), and Vishal Sikka (27,396 RSUs) were forfeited at the end of their contracts. Consequently, they are not disclosed in the table above.
II. Executive Board Members’ Compensation According to HGB and GAS 17
Under the compensation disclosure rules of the German HGB and GAS 17, share-based compensation awards are to be included in the compensation of the year of grant, even if the awards are tied to future years. Accordingly, and in contrast to, the compensation amounts disclosed under the management view above, the Executive Board compensation amounts determined under HGB and GAS 17 for 2014 and 2015:
– | Exclude the share-based compensation awards granted to Executive Board members in 2012 for the years 2014 and 2015 as these were already included in the 2012 compensation |
– | Include in full the grants for 2014 and 2015 made to Executive Board members appointed in 2014, that is, also including the grant for 2015 |
– | Include the grant for 2015 made to Michael Kleinemeier who was appointed to the Executive Board in 2015 |
Including RSU Milestone Plan 2015 awards for 2015 granted in 2015 to Michael Kleinemeier (€263,200) upon his appointment to the Executive Board, the total Executive Board compensation for 2015 calculated as required under section 314 of the German Commercial Code amounts to€15,400,400, thereof: Bill McDermott€5,151,500; Robert Enslin€2,463,800; Michael Kleinemeier€657,400; Bernd Leukert€2,372,200; Luka Mucic€2,372,600; and Gerhard Oswald€2,382,900.
Including RSU Milestone Plan 2015 awards for 2014 and 2015 granted in 2014 to Robert Enslin (€1,574,800 for each of the two years); Bernd Leukert (2014:
€1,280,000; 2015:€1,574,800); and Luka Mucic (2014:€1,141,000; 2015:€1,574,800) upon their appointment to the Executive Board, the total Executive Board compensation for 2014 calculated as required under section 314 of the German Commercial Code amounts to€23,216,200, thereof: Bill McDermott€4,048,100; Jim Hagemann Snabe€1,395,900; Werner Brandt€1,768,800; Robert Enslin€4,550,800; Bernd Leukert€4,147,200; Luka Mucic€3,691,500; Gerhard Oswald€1,954,700; and Vishal Sikka€1,659,200.
All amounts as determined under HGB and GAS 17, other than share-based compensation, are identical to the amounts disclosed under the management view above.
III. Executive Board Members’ Compensation According to the Code
Pursuant to the recommendations of the Code, the value of benefits granted for the year under review as well as the allocation, that is the amounts disbursed for the year under review, are disclosed below based on the reference tables recommended in the Code.
In contrast to the disclosure rules stipulated in the German HGB and GAS 17, the Code includes the service cost according to IAS 19 in the Executive Board compensation and requires the additional disclosure of the target value for the one-year variable compensation and the maximum and minimum compensation amounts achievable for the variable compensation elements. However, due to the payouts under the RSU Milestone Plan 2015 not being capped, there is no disclosure to be made for the maximum variable compensation amount achievable (marked as “NA” in the table below).
German Corporate Governance Code (Benefits Granted in 2014 and 2015)
Benefits Granted | Bill McDermott CEO | Robert Enslin Member of the | Michael Kleinemeier Member of the (from November 1, 2015) | |||||||||||||||||||||||||||||||||||||||||||||
20151) | 2015 (Min) | 2015 (Max) | 20141) | 20151) | 2015 (Min) | 2015 (Max) | 20141) | 2015 | 2015 (Min) | 2015 (Max) | 2014 | |||||||||||||||||||||||||||||||||||||
Fixed compensation | 1,150.0 | 1,150.0 | 1,150.0 | 1,150.0 | 700.0 | 700.0 | 700.0 | 462.9 | 116.7 | 116.7 | 116.7 | — | ||||||||||||||||||||||||||||||||||||
Fringe benefits2) | 1,258.0 | 1,258.0 | 1,258.0 | 861.4 | 103.3 | 103.3 | 103.3 | 121.0 | 0 | 0 | 0 | — | ||||||||||||||||||||||||||||||||||||
Total | 2,408.0 | 2,408.0 | 2,408.0 | 2,011.4 | 803.3 | 803.3 | 803.3 | 583.9 | 116.7 | 116.7 | 116.7 | — | ||||||||||||||||||||||||||||||||||||
One-year variable compensation | 1,860.0 | 0 | 3,371.3 | 1,860.0 | 1,125.8 | 0 | 2,040.5 | 746.4 | 188.1 | 0 | 340.9 | — | ||||||||||||||||||||||||||||||||||||
Multiyear variable compensation | ||||||||||||||||||||||||||||||||||||||||||||||||
RSU Milestone Plan 2015 | — | 0 | NA | — | — | 0 | NA | 939.4 | 315.0 | 0 | NA | — | ||||||||||||||||||||||||||||||||||||
Total | 4,268.0 | 2,408.0 | NA | 3,871.4 | 1,929.1 | 803.3 | NA | 2,269.7 | 619.8 | 116.7 | NA | — | ||||||||||||||||||||||||||||||||||||
Service cost | 682.4 | 682.4 | 682.4 | 646.8 | 308.0 | 308.0 | 308.0 | 148.1 | 0 | 0 | 0 | — | ||||||||||||||||||||||||||||||||||||
Total | 4,950.4 | 3,090.4 | NA | 4,518.2 | 2,237.1 | 1,111.3 | NA | 2,417.8 | 619.8 | 116.7 | NA | — |
German Corporate Governance Code (Benefits Granted in 2014 and 2015)
Benefits Granted | Bernd Leukert Member of the Executive | Luka Mucic Member of the Executive | Gerhard Oswald Member of the Executive | |||||||||||||||||||||||||||||||||||||||||||||
2015 | 2015 (Min) | 2015 (Max) | 2014 | 2015 | 2015 (Min) | 2015 (Max) | 2014 | 2015 | 2015 (Min) | 2015 (Max) | 2014 | |||||||||||||||||||||||||||||||||||||
Fixed compensation | 700.0 | 700.0 | 700.0 | 462.9 | 700.0 | 700.0 | 700.0 | 350.0 | 700.0 | 700.0 | 700.0 | 700.0 | ||||||||||||||||||||||||||||||||||||
Fringe benefits2) | 11.7 | 11.7 | 11.7 | 12.2 | 12.1 | 12.1 | 12.1 | 4.3 | 22.4 | 22.4 | 22.4 | 22.0 | ||||||||||||||||||||||||||||||||||||
Total | 711.7 | 711.7 | 711.7 | 475.1 | 712.1 | 712.1 | 712.1 | 354.3 | 722.4 | 722.4 | 722.4 | 722.0 | ||||||||||||||||||||||||||||||||||||
One-year variable compensation | 1,125.8 | 0 | 2,040.5 | 746.4 | 1,125.8 | 0 | 2,040.5 | 567.5 | 1,125.8 | 0 | 2,040.5 | 1,125.8 | ||||||||||||||||||||||||||||||||||||
Multiyear variable compensation | ||||||||||||||||||||||||||||||||||||||||||||||||
RSU Milestone Plan 2015 | — | 0 | NA | 939.4 | — | 0 | NA | 729.0 | — | 0 | NA | 1,449.4 | ||||||||||||||||||||||||||||||||||||
Total | 1,837.5 | 711.7 | NA | 2,160.9 | 1,837.9 | 712.1 | NA | 1,650.8 | 1,848.2 | 722.4 | NA | 3,297.2 | ||||||||||||||||||||||||||||||||||||
Service cost | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||
Total | 1,837.5 | 711.7 | NA | 2,160.9 | 1,837.9 | 712.1 | NA | 1,650.8 | 1,848.2 | 722.4 | NA | 3,297.2 |
1) The value of the fixed and one-year variable elements is subject to a contractual exchange-rate clause applied at the end of the year, so the amounts actually paid may be greater.
2) Insurance contributions, benefits in kind, expenses for maintenance of two households, use of aircraft, tax and discrete payments arising through application of the fixed exchange-rate clause.
The total Executive Board compensation granted according to the Code amounted to€13,330,900 (2014: €23,302,200).
German Corporate Governance Code (Allocation)
Allocation | Bill McDermott CEO | Robert Enslin Member of the Executive Board | Michael Kleinemeier Member of the Executive Board (from November 1, 2015) | |||||||||||||||||||||
2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |||||||||||||||||||
Fixed compensation | 1,150.0 | 1,150.0 | 700.0 | 462.9 | 116.7 | — | ||||||||||||||||||
Fringe benefits1) | 1,258.0 | 861.4 | 103.3 | 121.0 | 0 | — | ||||||||||||||||||
Total | 2,408.0 | 2,011.4 | 803.3 | 583.9 | 116.7 | — | ||||||||||||||||||
One-year variable compensation | 2,036.7 | 1,737.2 | 817.3 | — | — | — | ||||||||||||||||||
Multi-year variable compensation | ||||||||||||||||||||||||
RSU Milestone Plan 2015 | — | — | — | — | — | — | ||||||||||||||||||
MTI | — | 1,011.1 | — | — | — | — | ||||||||||||||||||
SAP SOP 2011 | — | — | — | — | — | — | ||||||||||||||||||
SAP SOP 2010 | — | — | — | — | — | — | ||||||||||||||||||
SAP SOP 2009 | — | 378.7 | — | — | — | — | ||||||||||||||||||
Other | — | — | — | — | — | — | ||||||||||||||||||
Total | 4,444.7 | 5,138.4 | 1,620.6 | 583.9 | 116.7 | — | ||||||||||||||||||
Service cost | 682.4 | 646.9 | 308.0 | 148.1 | 0 | — | ||||||||||||||||||
Total | 5,127.1 | 5,785.3 | 1,928.6 | 732.0 | 116.7 | — |
German Corporate Governance Code (Allocation)
Allocation | Bernd Leukert Member of the Executive | Luka Mucic Member of the | Gerhard Oswald Member of the | |||||||||||||||||||||
2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |||||||||||||||||||
Fixed compensation | 700.0 | 462.9 | 700.0 | 350.0 | 700.0 | 700.0 | ||||||||||||||||||
Fringe benefits1) | 11.7 | 12.2 | 12.1 | 4.3 | 22.4 | 22.0 | ||||||||||||||||||
Total | 711.7 | 475.1 | 712.1 | 354.3 | 722.4 | 722.0 | ||||||||||||||||||
One-year variable compensation | 817.3 | — | 621.4 | — | 1,232.7 | 1,051.5 | ||||||||||||||||||
Multi-year variable compensation | ||||||||||||||||||||||||
RSU Milestone Plan 2015 | — | — | — | — | — | — | ||||||||||||||||||
MTI | — | — | — | — | — | 611.0 | ||||||||||||||||||
SAP SOP 2011 | — | — | — | — | 1,126.7 | — | ||||||||||||||||||
SAP SOP 2010 | — | — | — | — | — | 1,590.9 | ||||||||||||||||||
SAP SOP 2009 | — | — | — | — | — | — | ||||||||||||||||||
Other | — | — | — | — | — | — | ||||||||||||||||||
Total | 1,529.0 | 475.1 | 1,333.5 | 354.3 | 3,081.8 | 3,975.4 | ||||||||||||||||||
Service cost | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Total | 1,529.0 | 475.1 | 1,333.5 | 354.3 | 3,081.8 | 3,975.4 |
1) Insurance contributions, benefits in kind, expenses for maintenance of two households, use of aircraft, tax and discrete payments arising through application of the fixed exchange-rate clause.
The total Executive Board compensation allocated according to the Code amounted to€13,116,700 (2014:€32,687,400).
End-of-Service Benefits
Regular End-of-Service Undertakings
Retirement Pension Plan
Retirement Pension Plan
Members of the Executive Board receive a retirement pension when they reach the retirement age of 60 and vacate their Executive Board seat, or a disability pension if, before reaching the regular retirement age, they become subject to occupational disability or permanent incapacity. A surviving dependent’s pension is paid on the death of a former member of the Executive Board. The disability pension is 100% of the vested retirement pension entitlement and is payable until the beneficiary’s 60th birthday, after which it is replaced by a retirement pension. The surviving dependent’s pension is 60% of the retirement pension or vested disability pension entitlement at death. Entitlements are enforceable against SAP AG. Current pension payments are reviewed annually for adjustments and, if applicable, increased according to the surplus in the pension liability insurance.
If service is ended before the retirement age of 60 is reached, pension entitlement is reduced in proportion as the actual length of service stands in relation to the maximum possible length of service.
The applied retirement pension plan is contributory. The contribution is 4% of applicable compensation up to the applicable income threshold plus 14% of applicable compensation above the applicable income threshold. For this purpose, applicable compensation is 180% of annual base salary. The applicable income threshold is the statutory annual income threshold
for the state pension plan in Germany (West), as amended from time to time.
Exceptionalfollowing retirement pension agreements apply to the followingindividual members of the Executive Board members:Board:
Prior to May 18, 2012, Bill McDermott and Vishal Sikka had rights to future benefits under the pension plan of SAP America. The pension plan of SAP America was a cash balance plan that on retirement provided either monthly pension payments or a lump sum. The pension became available from the beneficiary’s 65th birthday. Subject to certain conditions, the plan also provided earlier payment or invalidity benefits. The portion of the SAP America pension plan classified as “Qualified Retirement Plan” according to the U.S. Employee Retirement Income Security Act (ERISA) was terminated and all account balances were liquidated from the plan on May 18, 2012. Bill McDermott and Vishal Sikka transferred their account balance into their third-party pension accounts.
Bill McDermott still has rights to future benefits under the portion of the SAP America pension plan classified as “Non-Qualified Retirement Plan” according to ERISA. The “Non-Qualified” pension plan of SAP America is a cash balance plan that on retirement provides either monthly pension payments or a lump sum. The pension becomes available from the beneficiary’s 65th birthday. Subject to certain conditions, the plan also provides earlier payment or invalidity benefits. The “Non-Qualified” pension plan closed with effect from January 1, 2009. Interest continues to be paid on the earned rights to benefits within this plan.
– | Michael Kleinemeier, Bernd Leukert, Luka Mucic, and Gerhard Oswald receive a retirement pension when they reach the retirement age of 60 (62 for Board Members appointed after January 1, 2012) and retire from their Executive Board seat, or a disability pension if, before reaching the regular retirement age, they become subject to occupational disability or permanent incapacity. A surviving dependent’s pension is paid on the death of a former member of the Executive Board. The disability pension is 100% of the vested retirement pension entitlement and is payable until the beneficiary’s 60th birthday, after which it is replaced by a retirement pension. The surviving dependent’s pension is 60% of the retirement pension or vested disability pension entitlement at death. Entitlements are enforceable against SAP SE. Current pension payments are reviewed annually for adjustments and, if applicable, increased according to the surplus in the pension liability insurance. If service is ended before the retirement age of 60 (62 for Board Members appointed after January 1, 2012), pension entitlement is reduced in proportion as the actual length of service stands in relation to the maximum possible length of service. The applied retirement pension plan is contributory. The contribution is 4% of applicable compensation up to the applicable income threshold plus 14% of applicable compensation above the |
applicable income threshold. For this purpose, applicable compensation is 180% of annual base salary. The applicable income threshold is the statutory annual income threshold for the state pension plan in Germany (West), as amended from time to time. Originally, Gerhard Oswald was under a performance-based retirement plan. This plan was discontinued when SAP introduced a contributory retirement pension plan in 2000. His pension benefits are derived from any accrued entitlements on December 31, 1999, under performance-based pension agreements and a salary-linked contribution for the period commencing January 1, 2000. Gerhard Oswald’s rights to retirement pension benefits will increase by further annual contributions because he remains a member of the Executive Board after his 60th birthday until his scheduled retirement on December 31, 2016. |
– | Bill McDermott has rights to future benefits under the portion of the pension plan for SAP America classified as “Non-Qualified Retirement Plan” according to the U.S. Employee Retirement Income Security Act (ERISA). The “Non-Qualified” pension plan of SAP America is a cash balance plan that on retirement provides either monthly pension payments or a lump sum. The pension becomes available from the beneficiary’s 65th birthday. Subject to certain conditions, the plan also provides earlier payment or invalidity benefits. The “Non-Qualified” pension plan closed with effect from January 1, 2009. Interest continues to be paid on the earned rights to benefits within this plan. |
Part I
Item 6
SAP also made contributions to a third-party pension plan for Bill McDermott (2015:€682,400; 2014:€646,800) and Vishal Sikka.Robert Enslin (2015:€308,000; 2014:€148,100). SAP’s contributions are based on payments by Bill McDermott’sMcDermott and Vishal Sikka’s paymentsRobert Enslin into this pension plan. Additionally, in view of the close of the SAP America pension plan, SAP adjusted its payments to this non-SAP pension plan. In 2012, SAP paid contributions for Bill McDermott totaling €1,053,600 (2011: €470,800) and for Vishal Sikka totaling €215,300 (2011: €95,700).
Instead of paying for entitlements under the pension plan for Executive Board members, SAP pays equivalent amounts to a non-SAP pension plan for Jim Hagemann Snabe. In 2012, SAP paid contributions totaling €283,400 (2011: €283,800).
Gerhard Oswald’s performance-based retirement plan was discontinued when SAP introduced a contributory retirement pension plan in 2000. His pension benefits are derived from any accrued entitlements on December 31, 1999, under performance-based pension agreements and a salary-linked contribution for the period commencing January 1, 2000. Gerhard Oswald’s rights to retirement pension benefits will increase by further annual contributions because he will remain a member of the Executive Board after his 60th birthday until his retirement on June 30, 2014.
Lars Dalgaard has no entitlements under the pension plan for Executive Board members. SAP made no retirement pension plan contributions to a third-party pension plan with respect to Lars Dalgaard in 2012.
Total ProjectedDefined Benefit Obligation (PBO)Obligations (DBO) and the Total Accruals for Pension Obligations to Executive Board Members
€ thousands | Bill McDermott (co-CEO)(1) | Dr. Werner Brandt | Luisa Deplazes Delgado (from September 1, 2012) | Gerhard Oswald | Dr. Vishal Sikka(1) | Total | ||||||||||||||||||
PBO January 1, 2011 | 1,073.2 | 1,284.3 | n.a. | 4,127.4 | 46.7 | 6,531.6 | ||||||||||||||||||
Less plan assets market value January 1, 2011 | 52.6 | 921.7 | n.a. | 3,374.9 | 45.0 | 4,394.2 | ||||||||||||||||||
Accrued January 1, 2011 | 1,020.6 | 362.6 | n.a. | 752.5 | 1.7 | 2,137.4 | ||||||||||||||||||
PBO change in 2011 | 66.3 | 215.4 | n.a. | 358.1 | 6.4 | 646.2 | ||||||||||||||||||
Plan assets change in 2011 | 4.0 | 209.3 | n.a. | 436.3 | 3.5 | 653.1 | ||||||||||||||||||
PBO December 31, 2011 | 1,139.5 | 1,499.7 | n.a. | 4,485.5 | 53.1 | 7,177.8 | ||||||||||||||||||
Less plan assets market value December 31, 2011 | 56.6 | 1,131.0 | n.a. | 3,811.2 | 48.5 | 5,047.3 | ||||||||||||||||||
Accrued December 31, 2011 | 1,082.9 | 368.7 | n.a. | 674.3 | 4.6 | 2,130.5 | ||||||||||||||||||
PBO change in 2012 | –64.4 | 541.8 | 55.1 | 1,231.3 | –53.1 | 1,710.7 | ||||||||||||||||||
Plan assets change in 2012 | –56.6 | 217.0 | 48.3 | 383.3 | –48.5 | 543.5 | ||||||||||||||||||
PBO December 31, 2012 | 1,075.1 | 2,041.5 | 55.1 | 5,716.8 | 0 | 8,888.5 | ||||||||||||||||||
Less plan assets market value December 31, 2012 | 0 | 1,348.0 | 48.3 | 4,194.5 | 0 | 5,590.8 | ||||||||||||||||||
Accrued December 31, 2012 | 1,075.1 | 693.5 | 6.8 | 1,522.3 | 0 | 3,297.7 |
|
€ thousands | Bill McDermott (CEO) | Michael (from November 1, | Bernd Leukert1) | Luka Mucic1) | Gerhard Oswald | Total | ||||||||||||||||||
DBO January 1, 2014 | 1,042.7 | — | — | — | 5,816.5 | 6,859.2 | ||||||||||||||||||
Less plan assets market value January 1, 2014 | — | — | — | — | 4,651.3 | 4,651.3 | ||||||||||||||||||
Accrued January 1, 2014 | 1,042.7 | — | — | — | 1,165.2 | 2,207.9 | ||||||||||||||||||
DBO change in 2014 | 169.8 | — | 123.2 | 102.8 | 1,404.9 | 1,800.7 | ||||||||||||||||||
Plan assets change in 2014 | — | — | 94.6 | 67.8 | 341.1 | 503.5 | ||||||||||||||||||
DBO December 31, 2014 | 1,212.5 | — | 123.2 | 102.8 | 7,221.4 | 8,659.9 | ||||||||||||||||||
Less plan assets market value December 31, 2014 | — | — | 94.6 | 67.8 | 4,992.4 | 5,154.8 | ||||||||||||||||||
Accrued December 31, 2014 | 1,212.5 | — | 28.6 | 35.0 | 2,229.0 | 3,505.1 | ||||||||||||||||||
DBO change in 2015 | 170.0 | 29.7 | 129.2 | 129.9 | –171.2 | 287.6 | ||||||||||||||||||
Plan assets change in 2015 | — | 25.4 | 145.6 | 138.0 | 356.9 | 665.9 | ||||||||||||||||||
DBO December 31, 2015 | 1,382.5 | 29.7 | 252.4 | 232.7 | 7,050.2 | 8,947.5 | ||||||||||||||||||
Less plan assets market value December 31, 2015 | — | 25.4 | 240.2 | 205.8 | 5,349.3 | 5,820.7 | ||||||||||||||||||
Accrued December 31, 2015 | 1,382.5 | 4.3 | 12.2 | 26.9 | 1,700.9 | 3,126.8 |
Part I
Item 6
1) The values shown here only reflect the pension entitlements that Michael Kleinemeier, Bernd Leukert and Luka Mucic will receive from the retirement pension plan for Executive Board members.
The table below shows the annual pension entitlement of each member of the Executive Board on reaching the scheduled retirement age 60(60 for Executive Board members initially appointed before 2012 and 62 for Executive Board members initially appointed after January 1, 2012) based on entitlements from SAP under performance-based and salary-linked plans vested on December 31, 2012.2015.
Annual Pension Entitlement
€ thousands | Vested on December 31, 2012 | Vested on December 31, 2011 | ||||||
Bill McDermott (co-CEO)(1) | 78.1 | 98.3 | ||||||
Dr. Werner Brandt | 88.2 | 80.6 | ||||||
Luisa Deplazes Delgado (from September 1, 2012)(3) | 2.3 | n.a. | ||||||
Gerhard Oswald(2) | 259.9 | 243.7 | ||||||
Dr. Vishal Sikka(1) | n.a. | 6.5 |
€ thousands | Vested on December 31, 2015 | Vested on December 31, 2014 | ||||||
Bill McDermott (CEO)1) | 106.9 | 94.0 | ||||||
Michael Kleinemeier (from November 1, 2015) | 0.7 | — | ||||||
Bernd Leukert | 8.8 | 3.5 | ||||||
Luka Mucic | 7.8 | 2.6 | ||||||
Gerhard Oswald2) | 302.5 | 279.4 |
|
1) The rights shown here for Bill McDermott refer solely to rights under the pension plan for SAP America. 2) Due to the extension of Gerhard Oswald’s contract beyond June 30, 2014, these values represent the retirement pension entitlement that he would receive after his current Executive Board contract expires on December 31, 2016, based on the entitlements vested on December 31, 2015 (December 31, 2014).
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These are vested entitlements. To the extent that members continue to serve on the Executive Board and that therefore more contributions are made for them in the future, pensions actually payable at the scheduled retirement age of 60 will be higher than the amounts shown in the table.
Postcontractual NoncompeteNon-Compete Provisions
During the agreed 12-month postcontractual noncompetenon-compete period, each Executive Board member receives abstention payments corresponding to 50% of his or herthe final average contractual compensation as agreed in the respective contract on an individual basis. Any other occupational income generated by the Executive Board member will be deducted from their compensation in
accordance with section 74c of the German Commercial Code.
The following table presents the net present values of the postcontractual noncompetenon-compete abstention payments. The net present values in the table reflect the discounted present value of the amounts that would be paid in the fictitious scenario in which the Executive Board members leave SAP at the end of their respective current contract terms and their final average contractual compensation prior to their departure equals the compensation in 2012.2015. Actual postcontractual noncompetenon-compete payments will likely differ from these amounts depending on the time of departure and the compensation levels and target achievements at the time of departure.
Net Present Values of the Postcontractual NoncompeteNon-Compete Abstention Payments
€ thousands | Contract Term Expires | Net Present Value Postcontractual Abstention Payment1) | ||||
Bill McDermott | June 30, 2017 | |||||
| June 30, 2017 | |||||
(from November 1, 2015) | October 31, 2018 | 349.6 | ||||
Bernd Leukert | June 30, | |||||
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| ||||||
Gerhard Oswald | ||||||
| ||||||
1,928.9 | ||||||
Total | ||||||
Part I
Item 6
Early End-of-Service Undertakings
Severance Payments
The standard contract for all Executive Board members provides that on termination before full term (for example, where the member’s appointment is revoked, where the member becomes occupationally disabled, or in connection with a change of control), SAP AGSE will pay to the member the outstanding part of the compensation target for the entire remainder of the term, appropriately discounted for early payment. A member has no claim to that payment if he or she hasthey have not served SAP as a member of itsthe Executive Board for at least one year or if he or she leavesthey leave SAP AGSE for reasons for which he or she isthey are responsible. Upon the appointment of Robert Enslin, Bernd Leukert, Luka Mucic, and Michael Kleinemeier to the Executive Board, the Supervisory Board abstained from the waiting period of one year due to their previous membership to the Global Managing Board.
If an Executive Board member’s appointment to the Executive Board expires or ceases to exist because of, or as a consequence of, change or restructuring, or due to a change of control, SAP AGSE and each Executive Board member has the right to terminate the employment contract within eight weeks of the occurrence by giving six months’ notice. A change of control is deemed to occur when a third party is required to make a mandatory takeover offer to the shareholders of SAP AGSE under the German Securities Acquisition and Takeover Act, when SAP AGSE merges with another company and becomes the subsumed entity, or when a control or profit transfer agreement is concluded with SAP AGSE as the dependent company. An Executive Board member’s contract can also be terminated before full term if his or hertheir appointment as an SAP AG Executive Board member of SAP SE is revoked in connection with a change of control.
Postcontractual NoncompeteNon-Compete Provisions
Abstention compensation for the postcontractual noncompetenon-compete period as described above is also payable on early contract termination.
Permanent Disability
In case of permanent disability, the contract will end at the end of the quarter in which the permanent inability to work was determined. The Executive Board member receives the monthly basic salary for a further 12 months starting from the date the permanent disability is determined.
Payments to Former Executive Board Members
In 2012,2015, we paid pension benefits of €1,360,000€1,580,000 to Executive Board members who had retired before January 1, 2012 (2011: €1,346,000)2015 (2014:€1,425,000). At the end of the year, the PBODBO for former Executive Board members was €30,551,000 (2011: €25,267,000)€32,758,000 (2014:€33,764,000). Plan assets of €26,054,000€26,716,000 are available to servicemeet these obligations (2011: €25,788,000)(2014:€25,584,000).
Executive Board Members’ Holdings of Long-Term Incentives
Members of the Executive Board hold or held share-based payment rights throughout the year share-based payment rights under the RSU Milestone Plan 2015 (which was granted in 2012) as well asand the SAP SOP 2010 SOP Performance Plan 2009, and SAP SOP 2007 programs (which were granted in previous years). For information about the terms and details of these programs, see the Notes to the Consolidated Financial Statements section, Note (27).
Part I
Item 6
RSU Milestone Plan 2015
The table below shows Executive Board members’ holdings, on December 31, 2012,2015, of restricted share unitsRSUs issued to them under the RSU Milestone Plan 2015. The plan is a cash-settled long-term incentive scheme with a payout subsequent to a performance period of one year and an additional holding period of three years. The RSU Milestone Plan 2015 consists of four plan tranches to be issued with respect to the calendar years 2012 through 2015.
RSU Milestone Plan 2015 (2015 Tranche)
Year Granted | Holding on January 1, 2012 | Grants in 2012 | Units Vested | Forfeited Units | Holding on December 31, 2012 | |||||||||||||||||||||||||||
Quantity | Quantity | Remaining Term in Years | Quantity of RSUs | Quantity of RSUs | Quantity of RSUs | Remaining Term in Years | ||||||||||||||||||||||||||
Bill McDermott (co-CEO) | 2012 | – | 95,414 | 3.98 | 127,425 | – | 127,425 | 3.08 | ||||||||||||||||||||||||
Jim Hagemann Snabe (co-CEO) | 2012 | – | 95,414 | 3.98 | 127,425 | – | 127,425 | 3.08 | ||||||||||||||||||||||||
Dr. Werner Brandt | 2012 | – | 34,226 | 3.98 | 45,709 | – | 45,709 | 3.08 | ||||||||||||||||||||||||
Lars Dalgaard | 2012 | – | 24,594 | 3.81 | 32,845 | – | 32,845 | 3.08 | ||||||||||||||||||||||||
Luisa Deplazes Delgado | 2012 | – | 8,332 | 3.42 | 11,127 | – | 11,127 | 3.08 | ||||||||||||||||||||||||
Gerhard Oswald | 2012 | – | 34,226 | 3.98 | 45,709 | – | 45,709 | 3.08 | ||||||||||||||||||||||||
Dr. Vishal Sikka | 2012 | – | 34,226 | 3.98 | 45,709 | – | 45,709 | 3.08 | ||||||||||||||||||||||||
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Total | – | 326,432 | 435,950 | 435,950 | ||||||||||||||||||||||||||||
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Quantity of RSUs | Holding on January 1, 2015 | Grants in 2015 | Performance- Related Adjustment | Exercised Units | Forfeited Units | Holding on December 31, 2015 | ||||||||||||||||||
Bill McDermott (CEO) | 255,050 | 77,099 | 36,568 | — | — | 368,717 | ||||||||||||||||||
Robert Enslin | 14,148 | 27,656 | 12,329 | — | — | 54,133 | ||||||||||||||||||
Michael Kleinemeier (from November 1, 2015) | 0 | 4,622 | 599 | — | — | 5,221 | ||||||||||||||||||
Bernd Leukert | 14,148 | 27,656 | 13,922 | — | — | 55,726 | ||||||||||||||||||
Luka Mucic | 10,757 | 27,656 | 13,474 | — | — | 51,887 | ||||||||||||||||||
Gerhard Oswald | 91,490 | 27,656 | 13,117 | — | — | 132,263 | ||||||||||||||||||
Total | 385,593 | 192,345 | 90,009 | 0 | 0 | 667,947 |
The holding of RSUs on December 31, 2015, which were issued and not forfeited in 2015, reflects the number of RSUs multiplied by the total target achievement. The total target achievement consists of the addition of the target achievement of the financial KPIs of 112.96% and the adjustment factor based on individual plan
participation. The RSUs allocated in 2012 have a remaining term of 0.08 years; the RSUs allocated in 2013 have a remaining term of 1.08 years; the RSUs allocated in 2014 have a remaining term of 2.08 years; and the RSUs allocated in 2015 have a remaining term of 3.08 years.
RSU Milestone Plan 2015 (2014 Tranche)
Quantity of RSUs | Holding on January 1, 2014 | Grants in 2014 | Performance- Related Adjustment | Exercised Units | Forfeited Units | Holding on December 31, 2014 | ||||||||||||||||||
Bill McDermott (CEO) | 195,562 | 76,374 | –16,886 | — | — | 255,050 | ||||||||||||||||||
Dr. Werner Brandt (until June 30, 2014) | 70,151 | 27,396 | — | — | 27,396 | 70,151 | ||||||||||||||||||
Gerhard Oswald | 70,151 | 27,396 | –6,057 | — | — | 91,490 | ||||||||||||||||||
Dr. Vishal Sikka (until May 4, 2014)1) | 70,151 | 27,396 | — | 70,151 | 27,396 | — | ||||||||||||||||||
Robert Enslin (from May 4, 2014) | 0 | 18,164 | –4,016 | — | — | 14,148 | ||||||||||||||||||
Bernd Leukert (from May 4, 2014) | 0 | 18,164 | –4,016 | — | — | 14,148 | ||||||||||||||||||
Luka Mucic (from July 1, 2014) | 0 | 13,811 | –3,054 | — | — | 10,757 | ||||||||||||||||||
Total | 406,014 | 208,701 | –34,029 | 70,151 | 54,792 | 455,743 |
1) According to the termination agreement with Vishal Sikka, the 2012 grants will be paid out after the close of the Annual General Meeting of Shareholders in 2016, based on a fixed share price of€52.96. The 2013 grants will be paid out after the close of the Annual General Meeting of Shareholders in 2017 based on a fixed share price of€58.69.
The holding of RSUs on December 31, 2014, which were issued and not forfeited in 2014, reflects the number of RSUs multiplied by the 77.89% target achievement.
RSU Milestone Plan 2015 (2013 Tranche)
Quantity of RSUs | Holding on January 1, 2013 | Grants in 2013 | Performance- Related Adjustment | Exercised Units | Forfeited Units | Holding on December 31, 2013 | ||||||||||||||||||
Bill McDermott (co-CEO) | 127,425 | 73,289 | –5,152 | — | — | 195,562 | ||||||||||||||||||
Jim Hagemann Snabe (co-CEO)1) | 127,425 | 73,289 | –5,152 | 195,562 | — | — | ||||||||||||||||||
Dr. Werner Brandt | 45,709 | 26,290 | –1,848 | — | — | 70,151 | ||||||||||||||||||
Gerhard Oswald | 45,709 | 26,290 | –1,848 | — | — | 70,151 | ||||||||||||||||||
Dr. Vishal Sikka | 45,709 | 26,290 | –1,848 | — | — | 70,151 | ||||||||||||||||||
Total | 391,977 | 225,448 | –15,849 | 195,562 | 0 | 406,014 |
1) According to the termination agreement with Jim Hagemann Snabe, the 2012 and 2013 grants were paid out after the close of the Annual General Meeting of Shareholders on May 21, 2014, based on a fixed share price of€52.96 for the 2012 grants and€58.69 for the 2013 grants.
The holding of RSUs on December 31, 2013, which were issued and not forfeited in 2013, reflects the number of RSUs multiplied by the 92.97% target achievement.
RSU Milestone Plan 2015 (2012 Tranche)
Quantity of RSUs | Holding on January 1, 2012 | Grants in 2012 | Performance- Related Adjustment | Exercised Units | Forfeited Units | Holding on December 31, 2012 | ||||||||||||||||||
Bill McDermott (co-CEO) | — | 95,414 | 32,011 | — | — | 127,425 | ||||||||||||||||||
Jim Hagemann Snabe (co-CEO) | — | 95,414 | 32,011 | — | — | 127,425 | ||||||||||||||||||
Dr. Werner Brandt | — | 34,226 | 11,483 | — | — | 45,709 | ||||||||||||||||||
Gerhard Oswald | — | 34,226 | 11,483 | — | — | 45,709 | ||||||||||||||||||
Dr. Vishal Sikka | — | 34,226 | 11,483 | — | — | 45,709 | ||||||||||||||||||
Total | — | 293,506 | 98,471 | — | — | 391,977 |
The holding on December 31, 2012, reflects the number of RSUs issued in 2012 multiplied by the 133.55% target achievement.
Part I
Item 6
SAP SOP 2010
The table below shows Executive Board members’ holdings, on December 31, 2012,2015, of virtual share options issued to them under the SAP SOP 2010 since its inception. The strike price for an option is 115% of the base price. The issued options have a term of seven years and can only be exercised on specified dates after the vesting period. The options issued in 2010 arewere exercisable beginning in September 2014 and the options issued in 2011 arewere exercisable beginning in June 2015.
SAP SOP 2010 Virtual Share Options
Year Granted | Strike Price per Option | Holding on January 1, 2012 | Rights Exercised in 2012 | Price on Exercise Date | Exercisable Rights of Retired Members of the Executive Board | Forfeited Rights | Holding on December 31, 2012 | |||||||||||||||||||||||||||||||||
€ | Quantity of Options | Remaining Term in Years | Quantity of Options | € | Quantity of Options | Quantity of Options | Quantity of Options | Remaining Term in Years | ||||||||||||||||||||||||||||||||
Bill McDermott (co-CEO) | 2010 | 40.80 | 135,714 | 5.69 | – | – | – | – | 135,714 | 4.69 | ||||||||||||||||||||||||||||||
2011 | 48.33 | 112,426 | 6.44 | – | – | – | – | 112,426 | 5.44 | |||||||||||||||||||||||||||||||
Jim Hagemann Snabe (co-CEO) | 2010 | 40.80 | 135,714 | 5.69 | – | – | – | – | 135,714 | 4.69 | ||||||||||||||||||||||||||||||
2011 | 48.33 | 112,426 | 6.44 | – | – | – | – | 112,426 | 5.44 | |||||||||||||||||||||||||||||||
Dr. Werner Brandt | 2010 | 40.80 | 82,428 | 5.69 | – | – | – | – | 82,428 | 4.69 | ||||||||||||||||||||||||||||||
2011 | 48.33 | 68,284 | 6.44 | – | – | – | – | 68,284 | 5.44 | |||||||||||||||||||||||||||||||
Gerhard Oswald | 2010 | 40.80 | 82,428 | 5.69 | – | – | – | – | 82,428 | 4.69 | ||||||||||||||||||||||||||||||
2011 | 48.33 | 68,284 | 6.44 | – | – | – | – | 68,284 | 5.44 | |||||||||||||||||||||||||||||||
Dr. Vishal Sikka | 2010 | 40.80 | 82,428 | 5.69 | – | – | – | – | 82,428 | 4.69 | ||||||||||||||||||||||||||||||
2011 | 48.33 | 68,284 | 6.44 | – | – | – | – | 68,284 | 5.44 | |||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||
Total | 948,416 | – | – | – | – | 948,416 | ||||||||||||||||||||||||||||||||||
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Part I
Item 6
Year Granted | Holding on January 1, 2015 | Strike Price per Option | Rights Exercised in 2015 | Price on Exercise Date | Forfeited Rights | Holding on December 31, 2015 | ||||||||||||||||||||||||||||||
Quantity of Options | Remaining Term in Years | € | Quantity of Options | € | Quantity of Options | Quantity of Options | Remaining Term in Years | |||||||||||||||||||||||||||||
Bill McDermott (CEO) | 2010 | 135,714 | 2.69 | 40.80 | — | — | — | 135,714 | 1.69 | |||||||||||||||||||||||||||
2011 | 112,426 | 3.44 | 48.33 | — | — | — | 112,426 | 2.44 | ||||||||||||||||||||||||||||
Gerhard Oswald | 2010 | 0 | — | — | 0 | — | — | — | — | |||||||||||||||||||||||||||
2011 | 68,284 | – | 48.33 | 68,284 | 64.83 | — | — | — | ||||||||||||||||||||||||||||
Total | 316,424 | 68,284 | — | 248,140 |
SOP Performance Plan 2009
The table below shows the current Executive Board members’ holdings, on December 31, 2012, of virtual share options issued under the SOP Performance Plan 2009.
The strike price for an option varies with the performance of SAP shares over time against the TechPGI index. The gross profit per option is limited to €30.80, corresponding to 110% of the SAP share price on the date of issue.
The issued options have a term of five years and can only be exercised on specified dates after the two-year vesting period. In this case, the options have been exercisable since May 2011.
SOP Performance Plan 2009 Virtual Share Options
Year Granted | Strike Price per Option | Holding on January 1, 2012 | Rights Exercised in 2012 | Price on Exercise Date | Exercisable Rights of Retired Members of the Executive Board | Forfeited Rights | Holding on December 31, 2012 | |||||||||||||||||||||||||||||||||
€ | Quantity of Options | Remaining Term in Years | Quantity of Options | € | Quantity of Options | Quantity of Options | Quantity of Options | Remaining Term in Years | ||||||||||||||||||||||||||||||||
Bill McDermott | 2009 | variable | 102,670 | 2.35 | 102,670 | 60.40 | – | – | – | – | ||||||||||||||||||||||||||||||
Jim Hagemann Snabe (co-CEO) | 2009 | variable | 102,670 | 2.35 | 102,670 | 60.40 | – | – | – | – | ||||||||||||||||||||||||||||||
Dr. Werner Brandt | 2009 | variable | 102,670 | 2.35 | 102,670 | 60.40 | – | – | – | – | ||||||||||||||||||||||||||||||
Gerhard Oswald | 2009 | variable | 102,670 | 2.35 | 102,670 | 60.40 | – | – | – | – | ||||||||||||||||||||||||||||||
Dr. Vishal Sikka(1) | 2009 | variable | 35,588 | 2.35 | 35,588 | 60.40 | – | – | – | – | ||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||
Total | 446,268 | 446,268 | – | – | – | – | ||||||||||||||||||||||||||||||||||
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The share options had a value of €3.47 per option on their exercise date in 2012.
Part I
Item 6
SAP SOP 2007
The table below shows Executive Board members’ holdings, on December 31, 2012, of virtual share options issued to them under the SAP SOP 2007 plan since its inception, including virtual share options issued to them both during and before their respective membership of the Executive Board.
The strike price for an option is 110% of the base price. The issued options have a term of five years and can only be exercised on specified dates after the two-year vesting period. The options issued in 2007 could be exercised with effect from June 2009, following expiration of the two-year vesting period. The options issued in 2008 have been exercisable since March 2010, following expiration of the two-year vesting period.
SAP SOP 2007 Virtual Share Options
Year Granted | Strike Price per Option | Holding on January 1, 2012 | Rights Exercised in 2012 | Price on Exercise Date | Exercisable Rights of Retired Members of the Executive Board | Forfeited Rights | Holding on December 31, 2012 | |||||||||||||||||||||||||||||||||
€ | Quantity of Options | Remaining Term in Years | Quantity of Options | € | Quantity of Options | Quantity of Options | Quantity of Options | Remaining Term in Years | ||||||||||||||||||||||||||||||||
Dr. Vishal Sikka(1) | 2008 | 35.96 | 17,571 | 1.18 | 17,571 | 48.43 | – | – | – | – | ||||||||||||||||||||||||||||||
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Total | 17,571 | 17,571 | – | – | – | |||||||||||||||||||||||||||||||||||
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Total Expense for Share-Based Payment
In the report year and the prior year, totalTotal expense for the share-based payment plans of Executive Board members was recordedrecognized as follows.
Total Expense for Share-Based Payment
€ thousands | 2012 | 2011 | ||||||
Bill McDermott (co-CEO) | 16,239.0 | 1,053.5 | ||||||
Jim Hagemann Snabe (co-CEO) | 16,239.0 | 1,052.9 | ||||||
Dr. Werner Brandt | 4,998.1 | 621.9 | ||||||
Lars Dalgaard (from April 12, 2012) | 4,239.6 | n.a. | ||||||
Luisa Deplazes Delgado (from September 1, 2012) | 2,795.6 | n.a. | ||||||
Gerhard Oswald | 6,417.0 | 621.9 | ||||||
Dr. Vishal Sikka | 6,500.3 | 652.8 | ||||||
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Total | 57,428.6 | 4,003.0 | ||||||
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€ thousands | 2015 | 2014 | ||||||
Bill McDermott (CEO) | 12,291.1 | 5,063.8 | ||||||
Robert Enslin | 1,851.2 | 1,833.5 | ||||||
Michael Kleinemeier (from November 1, 2015) | 364.7 | — | ||||||
Bernd Leukert | 2,208.6 | 1,759.7 | ||||||
Luka Mucic | 2,148.5 | 1,577.2 | ||||||
Gerhard Oswald | 3,445.6 | 1,891.1 | ||||||
Total | 22,309.7 | 12,125.3 |
The expense recognition follows the regulations as set underis recognized in accordance with IFRS 2 “Share Based Payments”. Because the RSU Milestone Plan 2015 tranches for 2013 to 2015 were already allocated at the beginning(Share-Based Payments) and consists exclusively of 2012, a portion of this expense is already included in the expenses for the financial year 2012, even though these future tranches depend on the achievement of specific financial targets in future periods.obligations arising from Executive Board activities.
Part I
Item 6
Shareholdings and Transactions of Executive Board Members
No member of the Executive Board holds more than 1% of the ordinary shares of SAP AG.SE. Members of the
Executive Board held a total of
35,271 45,309 SAP shares on December 31, 2012 (2011: 20,5692015 (2014: 36,426 shares).
The table below shows transactions by Executive Board members and persons closely associated with them notified to SAP pursuant to the German Securities Trading Act, section 15a, in 2012.2015.
Transactions in SAP Shares
Transaction Date | Transaction | Quantity | Unit Price | |||||||||||||
Bill McDermott | August 11, 2015 | Purchase of ADRs | ||||||||||||||
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| 2,000 | US$ | ||||||||||||||
Robert Enslin | August 26, 2015 | Purchase of ADRs | 1,145 | US$66.3099 | ||||||||||||
Bernd Leukert | May 7, 2015 | Share sale | 1,595 | €66.2364 | ||||||||||||
August 13, 2015 | Share purchase | 830 | €63.7290 | |||||||||||||
Luka Mucic | May 20, 2015 | Share purchase | 700 | €68.9990 | ||||||||||||
Gerhard Oswald | July 22, 2015 | Share purchase | 930 | €66.7100 |
Executive Board: Other Information
We did not grant any compensation advance or credit to, or enter into any commitment for the benefit of, any member of our Executive Board in 20122015 or the previous year.
As far as the law permits, SAP AGSE and its affiliated companies in Germany and elsewhere indemnify and hold harmless their respective directors and officers against and from the claims of third parties. To this end, we maintain directors’ and officers’ (D&O) group liability insurance. The policy is annual and is renewed from year to year. The insurance covers the personal liability of the insured group for financial loss caused by its managerial acts and omissions. The current D&O policy includes an individual deductible for Executive Board members of SAP AGSE as required by section 93 (2) of the German Stock Corporation Act.
Compensation for Supervisory Board Members
Compensation System
Supervisory Board members’ compensation is governed by our Articles of Incorporation, section 16. By resolution of our May 20, 2015, Annual General Meeting of Shareholders the section was changed from the compensation with fixed and performance-related components to a fixed compensation plus fixed amounts for membership in and chairing of committees.
Each member of the Supervisory Board receives, in addition to the reimbursement of his or hertheir expenses, an annual basic compensation composed of fixed elements and a variable element.€165,000. The variable element depends on the dividend paid by SAP on its shares.
The fixed element is €100,000 for the chairperson €70,000 forreceives€275,000 and the deputy chairperson and €50,000 for other members. €220,000.
For membership of the Audit Committee, Supervisory Board members receive additional fixed annual remuneration
compensation of €15,000,€16,500, and for membership of any other Supervisory Board committee €10,000,€11,000, provided that the committee concerned has met in the year. The chairperson of the audit committeeAudit Committee receives €25,000,€27,500, and the chairpersons of the other committees receive €20,000.€22,000. The fixed remuneration is payable after the end of the year.
The variable compensation element is €10,000 for the chairperson, €8,000 for the deputy chairperson, and €6,000 for the other members of the Supervisory Board for each €0.01 by which the dividend distributed per share exceeds €0.40. The variable remuneration is payable after the end of the Annual General Meeting of Shareholders that resolves on the dividend for the relevant year.
However, the aggregate compensation excluding compensation for committee memberships must not exceed €250,000 for the chairperson, €200,000 for the deputy chairperson, and €150,000 for other members of the Supervisory Board.
Any members of the Supervisory Board having served for less than the entire year receive one-twelfth of the annual remuneration for each month of service commenced. This also applies to the increased compensation of the chairperson and the deputy chairpersonchairperson(s) and to the remuneration for the chairperson and the members of a committee.
Part I
Item 6
Amount of Compensation
Subject to the resolution on the appropriation of retained earnings by the Annual General Meeting of Shareholders on June 4, 2013, the compensation paid to Supervisory Board members in respect of 2012 will be as set out in the table below.
Supervisory Board Members’ Compensation in 20122015
2012 | 2011 | |||||||||||||||||||||||||||||||
€ thousands | Fixed Compensation | Compensation for Committee Work | Variable Compensation | Total | Fixed Compensation | Compensation for Committee Work | Variable Compensation | Total | ||||||||||||||||||||||||
Prof. Dr. h.c. mult. Hasso Plattner (chairperson) | 100.0 | 60.0 | 150.0 | 310.0 | 100.0 | 100.0 | 150.0 | 350.0 | ||||||||||||||||||||||||
Christiane Kuntz-Mayr (deputy chairperson from May 23, 2012) | 67.5 | 10.0 | 128.3 | 205.8 | 50.0 | 10.0 | 100.0 | 160,0 | ||||||||||||||||||||||||
Pekka Ala-Pietilä | 50.0 | 20.0 | 100.0 | 170.0 | 50.0 | 30.0 | 100.0 | 180.0 | ||||||||||||||||||||||||
Thomas Bamberger (until May 23, 2012) | 20.8 | 6.3 | 41.7 | 68.8 | 50.0 | 15.0 | 100.0 | 165.0 | ||||||||||||||||||||||||
Panagiotis Bissiritsas | 50.0 | 24.2 | 100.0 | 174.2 | 50.0 | 20.0 | 100.0 | 170.0 | ||||||||||||||||||||||||
Prof. Anja Feldmann (from May 23, 2012) | 33.3 | 6.7 | 66.7 | 106.7 | n.a. | n.a. | n.a. | n.a. | ||||||||||||||||||||||||
Prof. Dr. Wilhelm Haarmann | 50.0 | 30.0 | 100.0 | 180.0 | 50.0 | 50.0 | 100.0 | 200.0 | ||||||||||||||||||||||||
Margret Klein-Magar (from May 23, 2012) | 33.3 | 6.7 | 66.7 | 106.7 | n.a. | n.a. | n.a. | n.a. | ||||||||||||||||||||||||
Peter Koop | 20.8 | 4.2 | 41.7 | 66.7 | 50.0 | 20.0 | 100.0 | 170.0 | ||||||||||||||||||||||||
Lars Lamadé (deputy chairperson until May 23, 2012) | 62.5 | 10.0 | 120.8 | 193.3 | 70.0 | 28.3 | 130.0 | 228.3 | ||||||||||||||||||||||||
Bernard Liautaud | 50.0 | 16.7 | 100.0 | 166.7 | 50.0 | 10.0 | 100.0 | 160.0 | ||||||||||||||||||||||||
Dr. Gerhard Maier (until May 23, 2012) | 20.8 | 10.4 | 41.7 | 72.9 | 50.0 | 25.0 | 100.0 | 175.0 | ||||||||||||||||||||||||
Dr. h. c. Hartmut Mehdorn | 50.0 | 10.0 | 100.0 | 160.0 | 50.0 | 10.0 | 100.0 | 160.0 | ||||||||||||||||||||||||
Dr. Hans-Bernd Meier (until May 23, 2012) | 20.8 | 0 | 41.7 | 62.5 | 20.8 | 0 | 41.7 | 62.5 | ||||||||||||||||||||||||
Prof. Dr.-Ing. Dr. h.c. Dr.-Ing. E.h. Joachim Milberg (until May 23, 2012) | 20.8 | 18.8 | 41.7 | 81.3 | 50.0 | 55.0 | 100.0 | 205.0 | ||||||||||||||||||||||||
Dr. Kurt Reiner (from May 23, 2012) | 33.3 | 13.3 | 66.7 | 113.3 | n.a. | n.a. | n.a. | n.a. | ||||||||||||||||||||||||
Mario Rosa-Bian (from May 23, 2012) | 33.3 | 6.7 | 66.7 | 106.7 | n.a. | n.a. | n.a. | n.a. | ||||||||||||||||||||||||
Dr. Erhard Schipporeit | 50.0 | 25.0 | 100.0 | 175.0 | 50.0 | 35.0 | 100.0 | 185.0 | ||||||||||||||||||||||||
Stefan Schulz | 50.0 | 24.2 | 100.0 | 174.2 | 50.0 | 30.0 | 100.0 | 180.0 | ||||||||||||||||||||||||
Inga Wiele (from May 23, 2012) | 33.3 | 16.7 | 66.7 | 116.7 | n.a. | n.a. | n.a. | n.a. | ||||||||||||||||||||||||
Prof. Dr.-Ing. Dr.-Ing. E.h. Klaus Wucherer | 50.0 | 20.0 | 100.0 | 170.0 | 50.0 | 10.0 | 100.0 | 160.0 | ||||||||||||||||||||||||
Compensation for former Supervisory Board Members | n.a. | n.a. | n.a. | n.a. | 33.3 | 16.7 | 66.7 | 116.7 | ||||||||||||||||||||||||
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Total | 900.8 | 339.6 | 1,740.8 | 2,981.3 | 874.1 | 465.0 | 1,688.3 | 3,027.5 | ||||||||||||||||||||||||
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Part I
Item 6
€ thousands | 2015 | 2014 | ||||||||||||||||||||||||||
Fixed Compen- sation | Compen- tee Work | Total | Fixed Compen- sation | Compen- tee Work | Variable Compen- sation | Total | ||||||||||||||||||||||
Prof. Dr. h.c. mult. Hasso Plattner (chairperson) | 275.0 | 66.0 | 341.0 | 100.0 | 100.0 | 150.0 | 350.0 | |||||||||||||||||||||
Margret Klein-Magar (deputy chairperson from May 20, 2015) | 215.4 | 29.3 | 244.8 | 50.0 | 30.0 | 100.0 | 180.0 | |||||||||||||||||||||
Pekka Ala-Pietilä | 165.0 | 27.5 | 192.5 | 50.0 | 30.0 | 100.0 | 180.0 | |||||||||||||||||||||
Panagiotis Bissiritsas | 165.0 | 32.1 | 197.1 | 50.0 | 20.0 | 100.0 | 170.0 | |||||||||||||||||||||
Catherine Bordelon (until May 20, 2015) | 68.8 | 0 | 68.8 | 25.0 | 5.0 | 50.0 | 80.0 | |||||||||||||||||||||
Martin Duffek (from May 20, 2015) | 110.0 | 18.3 | 128.3 | NA | NA | NA | NA | |||||||||||||||||||||
Prof. Anja Feldmann | 165.0 | 22.0 | 187.0 | 50.0 | 20.0 | 100.0 | 170.0 | |||||||||||||||||||||
Prof. Dr. Wilhelm Haarmann | 165.0 | 44.0 | 209.0 | 50.0 | 50.0 | 100.0 | 200.0 | |||||||||||||||||||||
Andreas Hahn (from May 20, 2015) | 110.0 | 14.7 | 124.7 | NA | NA | NA | NA | |||||||||||||||||||||
Christiane Kuntz-Mayr (deputy chairperson and member until May 20, 2015) | 91.7 | 9.2 | 100.8 | 70.0 | 20.8 | 130.0 | 220.8 | |||||||||||||||||||||
Prof. Dr. Gesche Joost (from May 28, 2015) | 110.0 | 11.0 | 121.0 | NA | NA | NA | NA | |||||||||||||||||||||
Lars Lamadé | 165.0 | 22.0 | 187.0 | 50.0 | 30.0 | 100.0 | 180.0 | |||||||||||||||||||||
Steffen Leskovar (until May 20, 2015) | 68.8 | 11.5 | 80.2 | 25.0 | 12.5 | 50.0 | 87.5 | |||||||||||||||||||||
Bernard Liautaud | 165.0 | 22.0 | 187.0 | 50.0 | 30.0 | 100.0 | 180.0 | |||||||||||||||||||||
Dr. h. c. Hartmut Mehdorn (until May 15, 2015) | 68.8 | 9.2 | 77.9 | 50.0 | 20.0 | 100.0 | 170.0 | |||||||||||||||||||||
Christine Regitz (from May 20, 2015) | 110.0 | 14.7 | 124.7 | NA | NA | NA | NA | |||||||||||||||||||||
Dr. Kurt Reiner (until May 20, 2015) | 68.8 | 9.2 | 77.9 | 50.0 | 20.0 | 100.0 | 170.0 | |||||||||||||||||||||
Mario Rosa-Bian (until May 20, 2015) | 68.8 | 9.2 | 77.9 | 50.0 | 15.0 | 100.0 | 165.0 | |||||||||||||||||||||
Dr. Erhard Schipporeit | 165.0 | 27.5 | 192.5 | 50.0 | 35.0 | 100.0 | 185.0 | |||||||||||||||||||||
Stefan Schulz (until May 20, 2015) | 68.8 | 11.5 | 80.2 | 50.0 | 30.8 | 100.0 | 180.8 | |||||||||||||||||||||
Robert Schuschnig-Fowler (from May 20, 2015) | 110.0 | 7.3 | 117.3 | NA | NA | NA | NA | |||||||||||||||||||||
Dr. Sebastian Sick (from May 20, 2015) | 110.0 | 14.7 | 124.7 | NA | NA | NA | NA | |||||||||||||||||||||
Jim Hagemann Snabe | 165.0 | 22.0 | 187.0 | 25.0 | 10.0 | 50.0 | 85.0 | |||||||||||||||||||||
Pierre Thiollet (from May 20, 2015) | 110.0 | 7.3 | 117.3 | NA | NA | NA | NA | |||||||||||||||||||||
Inga Wiele (until July 6 , 2014) | NA | NA | NA | 29.2 | 14.6 | 58.3 | 102.1 | |||||||||||||||||||||
Prof. Dr.-Ing. Dr.-Ing. E.h. Klaus Wucherer | 165.0 | 16.5 | 181.5 | 50.0 | 20.8 | 100.0 | 170.8 | |||||||||||||||||||||
Total | 3,249.6 | 478.5 | 3,728.1 | 924.2 | 514.5 | 1,788.3 | 3,227.0 |
In addition, we reimburse to members of the Supervisory Board for their expenses and the value-added tax payable on their compensation.
TheIn total, compensationwe received services from members of allthe Supervisory Board members in 2012 for work for SAP excluding compensation relating to the office of Supervisory Board member was € 1,083,500 (2011: €1,688,300). Those amounts are composed entirely of remuneration received by(including services from employee representatives on the Supervisory Board relatingin their capacity as employees of SAP) in the amount of€1,282,800 (2014:€2,295,000). This amount includes fees paid to their position as SAP employeesLinklaters LLP in 2012 and 2011 respectively.
Frankfurt am Main, Germany (which Supervisory Board member Wilhelm Haarmann is an attorney at the German bar and a partner at HAARMANN Partnerschaftsgesellschaft in Frankfurt am Main, Germany. Wilhelm Haarmann and HAARMANN Partnerschaftsgesellschaft occasionally advise SAP on particular projects, tax matters, and questionsof) of law. In 2012, the fees for such services totaled €9,400 (2011: €358,800)€224,500 (2014:€1,001,700).
Long-Term Incentives for the Supervisory Board
We do not offer members share options or other share-based payment for their Supervisory Board work. Any share options or other share-based payment received by employee-elected members relate to their position as SAP employees and not to their work on the Supervisory Board.
Shareholdings and Transactions of Supervisory Board Members
Supervisory Board chairperson Hasso Plattner and the companies he controlled held 121,348,80790,248,789 SAP shares on December 31, 20122015 (December 31, 2011: 121,515,1022014: 107,442,743 SAP shares), representing 9.878% (2011: 9.895%7.346% (2014: 8.746%) of SAP’s share capital. No other member of the Supervisory Board held more than 1% of the SAP AGSE share capital at the end of 20122015 or of the previous year. Members of the Supervisory Board held a total of 121,363,85890,262,686 SAP shares on December 31, 20122015 (December 31, 2011: 121,524,1392014: 107,467,372 SAP shares).
The table below shows transactions by Supervisory Board members and persons closely associated with them notified to SAP pursuant to the German Securities Trading Act, section 15a, in 2012:2015:
Transactions in SAP Shares
Transaction Date | Transaction | Quantity | Unit Price in € | Transaction Date | Transaction | Quantity | Unit Price | |||||||||||||||||||
Christiane Kuntz-Mayr | February 15, 2012 | Share sale | (1) | 7,700 | 48.6107 | |||||||||||||||||||||
Hasso Plattner | November 7, 2012 | Share purchase | 3,029,994 | 57.3400 | ||||||||||||||||||||||
Andreas Hahn | May 28, 2015 | Share purchase | 12 | € | 57.3600 | |||||||||||||||||||||
November 8, 2012 | Share sale | 3,029,994 | 56.1600 | June 2, 2015 | Share sale | 100 | € | 67.4170 | ||||||||||||||||||
November 8, 2012 | Share purchase | 3,029,994 | 56.1600 | August 5, 2015 | Share sale | 115 | € | 66.2200 | ||||||||||||||||||
November 28, 2012 | Share sale | (2) | (2) | October 28, 2015 | Share sale | 38 | € | 70.0100 | ||||||||||||||||||
Margret Klein-Magar | May 7, 2015 | Share sale | 120 | € | 66.2364 | |||||||||||||||||||||
Hasso Plattner | December 18, 2015 | Share purchase | 2,444,816 | € | 72.9300 | |||||||||||||||||||||
Hasso Plattner GmbH & Co. Beteiligungs-KG | December 23, 2015 | Compensation in kind (granting party) | 87,803,973 | 1 | ) | |||||||||||||||||||||
HP Vermögensverwaltungs GmbH & Co. KG | December 23, 2015 | Compensation in kind (receiving party) | 87,803,973 | 1 | ) | |||||||||||||||||||||
Sabine Plattner GmbH & Co. Beteiligungs-KG | November 25, 2015 | Share sale | 480,000 | 2 | ) | |||||||||||||||||||||
Riitta Schuschnig-Fowler | December 8, 2015 | Share sale | 50 | € | 72.4500 | |||||||||||||||||||||
Robert Schuschnig-Fowler | December 8, 2015 | Share sale | 35 | € | 72.6500 | |||||||||||||||||||||
Ingrid van Skyhawk | May 28, 2015 | Share purchase | 11 | € | 57.3600 | |||||||||||||||||||||
June 2, 2015 | Share sale | 75 | € | 67.4170 | ||||||||||||||||||||||
August 4, 2015 | Share sale | 122 | € | 65.6800 | ||||||||||||||||||||||
November 18, 2015 | Share sale | 90 | € | 73.7700 |
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1) Compensation in kind of 87,803,973 shares, hypothetical volume of the transaction€6,299,935,062.75. 2) The notifying party concluded a contract with a bank acting as commission agent for the sale of 10,000 SAP shares per week. The sale will be carried out at the bank’s own discretion in the stock market or over the counter in the months December 2015 through November 2016.
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Supervisory Board: Other Information
We did not grant any compensation advance or credit to, or enter into any commitment for the benefit of, any member of our Supervisory Board in 20122015 or the previous year.
Hasso Plattner, the chairperson of the Supervisory Board, entered into a consulting contract with SAP after he joined the Supervisory Board in May 2003. The contract does not provide for any compensation. The only cost we incurred under the contract was the reimbursement of expenses.
Part I
Item 6
As far as the law permits, we indemnify Supervisory Board members against, and hold them harmless from, claims brought by third parties. To this end, we maintain directors’ and
officers’ (D&O) group liability insurance. The current D&O policy does not include an individual deductible for Supervisory Board members as envisaged in the German Corporate Governance Code.
Headcount
The following tables set forthNote (7) to our Consolidated Financial Statements presents the number of employees, measured in full-time equivalents by functional area and by geographic region:region.
December 31, 2012 | December 31, 2011 | December 31, 2010 | ||||||||||||||||||||||||||||||||||||||||||||||
Full-time equivalents | EMEA(1) | Americas | Asia Pacific Japan | Total | EMEA(1) | Americas | Asia Pacific Japan | Total | EMEA(1) | Americas | Asia Pacific Japan | Total | ||||||||||||||||||||||||||||||||||||
Software and software-related services | 4,559 | 2,628 | 3,364 | 10,551 | 4,068 | 2,079 | 2,816 | 8,963 | 3,804 | 1,827 | 2,254 | 7,885 | ||||||||||||||||||||||||||||||||||||
Professional services and other services | 7,020 | 4,399 | 2,840 | 14,259 | 6,808 | 3,963 | 2,497 | 13,268 | 6,787 | 3,955 | 2,410 | 13,152 | ||||||||||||||||||||||||||||||||||||
Research and development | 8,952 | 3,672 | 5,388 | 18,012 | 8,713 | 3,028 | 4,120 | 15,861 | 8,617 | 3,154 | 4,113 | 15,884 | ||||||||||||||||||||||||||||||||||||
Sales and marketing | 5,697 | 6,220 | 2,982 | 14,899 | 4,856 | 4,581 | 2,343 | 11,780 | 4,593 | 4,214 | 2,180 | 10,987 | ||||||||||||||||||||||||||||||||||||
General and administration | 2,243 | 1,383 | 660 | 4,286 | 2,073 | 1,120 | 542 | 3,735 | 2,053 | 1,005 | 518 | 3,576 | ||||||||||||||||||||||||||||||||||||
Infrastructure | 1,286 | 821 | 308 | 2,415 | 1,182 | 702 | 274 | 2,158 | 1,135 | 628 | 266 | 2,029 | ||||||||||||||||||||||||||||||||||||
SAP Group | 29,757 | 19,123 | 15,542 | 64,422 | 27,700 | 15,473 | 12,592 | 55,765 | 26,989 | 14,783 | 11,741 | 53,513 | ||||||||||||||||||||||||||||||||||||
Thereof acquisitions | 791 | 2,987 | 1,038 | 4,816 | 264 | 49 | 90 | 403 | 1,174 | 1,975 | 1,084 | 4,233 | ||||||||||||||||||||||||||||||||||||
SAP Group (months’ | 29,009 | 17,619 | 14,506 | 61,134 | 27,296 | 15,010 | 12,040 | 54,346 | 25,929 | 13,164 | 10,877 | 49,970 |
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On December 31, 2012,2015, we had 64,42276,986 full-time equivalent (FTE) employees worldwide (December 31, 2011: 55,765)2014: 74,406). This represents an increase in headcount of 8,6572,579 FTEs in comparison to 2012. Of the overall headcount increase in 2012, 4,816 resulted from acquisitions.2014. The average number of employees in 20122015 was 61,134 (2011: 54,346)75,180 (2014: 68,343).
We define the FTE headcount as the number of people we would employ if we only employed people on full-time employment contracts. Students employed part-time and certain individuals who are employed by SAP but who, for various reasons, are not currently working, are excluded from our figures. Also, temporary employees are not included in the above figures. The number of such temporary employees is not material.
On December 31, 2012,2015, the largest number of SAP employees (46%(44%) were employed in the EMEAEurope, Middle East, and Africa (EMEA) region (including 26%23% in Germany and 20%21% in other countries inof the region), while 30%29% were employed in the AmericasNorth America and Latin America (Americas) region (including 21% in the United States and 9%8% in other countries inof the region) and 24%27% in the Asia Pacific Japan (APJ) region.
Because we invested in support and cloud computing in 2012, our support headcount increased in all regions. Our worldwide headcount in the field of cloud and software and software-related services grew 18%decreased less than 1% to 10,551 (2011: 8,963)14,991 FTEs (2014: 15,074). Professional services and other servicesServices counted 14,259 employees15,085 FTEs at the end of 20122015 – an increase of 7% (2011: 13,268)3% (2014: 14,639). Our R & D &D
headcount saw a relatively strong year-over-year increase of 14%11% to 18,01220,938 FTEs (2011: 15,861)(2014: 18,908). This growth stemmed from our acquisitions and greater investment in the APJ region. Sales and marketing headcount grew significantly by 26%1% to 14,899 at the end of the year (2011: 11,780), because we invested very heavily in the sales and marketing of our products and services in 2012 and employed more sales staff in all regions with a strong focus on the emerging markets. Our general and administration headcount rose 15% to 4,28618,206 FTEs at the end of the year (2011: 3,735)(2014: 17,969). Our acquisitions wereGeneral and administration headcount stayed constant at 5,024 FTEs at the main reason for this increase.end of the year (2014: 5,023). Our infrastructure employees who provide IT and facility management services, numbered 2,4152,743 FTEs – an increasea decrease of 12% (2011: 2,158) that mainly resulted from our acquisitions and investments in our company IT.2% (2014: 2,794).
Part I
Item 6
In the Americas region, headcount (FTEs) increased by 3,650,95, or 24%less than 1%; in the EMEA region, the increase was 2,057,566, or 7%2%; and in the APJ region, it was 2,950,1,919, or 23%10%.
Our personnel expense per employee wasincreased to approximately €119,000€135,000 in 2012 (2011:2015 (2014: approximately €108,000)€115,000). This rise in expense is primarily attributable to an increase in salaries, andemployee-related restructuring expenses, share-based payments, prompted by the new plans and a significant rise in the share price in 2012.2015. The personnel expense per employee is defined as the personnel expense divided by the average number of employees. For more information about employee compensation and a detailed overview of the number of people we employed,employ, see the Notes to the Consolidated Financial Statements section, Note (7).
Employee Relations and Labor UnionsRelations
On a worldwide basis, we believe that our employee and labor relations are excellent. Employees
On a corporate level employees of SAP France S.A.in Europe are represented by the SAP SE Works Council (WoC) (Europe). By law and agreement with SAP Labs France S.A. are subjectthe SAP SE WoC (Europe) is entitled to receive information on transnational matters and to consult with the Executive Board or a collective bargaining agreement.representative thereof. The SAP SE WoC (Europe) was established in November 2014 as a result of the legal transformation of SAP AG into SAP SE. The SAP SE WoC (Europe) replaced the European Works Council which was dissolved following the conversion.
On the legal entity level, the SAP AGSE works council (Germany) represents the employees of SAP AG with 39 members; theSE. The employees of SAP Deutschland AGSE & Co. KG (SAP Germany) are represented by a separate works council with 31 members. For different areas of co-determination the entity-level works councils have elected committees. By law the works councils are entitled to consultation and, in some areas, to co-determination rights concerning labor conditions at SAP AG and SAP Germany.council. Other employee representatives include the group works council currently having seven members (members of the works councils of SAP AGSE and SAP Germany), the representatives of severely disabled persons in all entities and on group level (Germany) and the spokespersons committee as the representation of the executives.
Employees of SAP France, SAP France Holding and SAP Labs France SAS are subject to a collective bargaining agreement. Each of SAP France, S.A.,SAP France Holding, SAP Labs France S.A.SAS, Multiposting SAS France and Sybaseb-process France SARL are represented by a French works council. A French works council is responsible for protecting the employees’ collective interests by ensuring that management considers the interests of employees in making decisions on behalf of the company. A French works council is entitled to certain company
information and to consult with management on matters that are expected to have an impact on company structure or on the employees it represents. The union negotiatesrepresented unions negotiate agreements with SAP France S.A. and SAP Labs France S.A. Some negotiations are compulsory under law. The staff representatives are obligated to present all individual or collective complaints regarding salary, policies or agreements between the employees and the company in question.SAS.
In addition, the employees of our subsidiariesvarious other SAP Espanaentities, including SAP España – Sistemas, Aplicaciones y Productos en la Informática, S.A., SAP Belgium N.V.NV/SA., SAP Nederland B.V., Sybase Iberia, S.L.SAP Italia Sistemi Applicazioni Prodotti in Data Processing S.p.A., Concur (France) SAS, SAP Brasil Ltda, SAP sistemi, aplikacije in produkti za obdelavo podatkov d.o.o.(Slovenia), SAP Romania SRL, SAP Argentina S.A. and SAP Italia S.p.A.Svenska Aktiebolag (Sweden), are also represented by works councils. Each of SAP (UK) Limited and SAP Ireland Limited has ancouncils, worker representatives, employee consultation forum which represents the employees’ interests.
forums and/or unions. In September 2012 the SAP European Works Council (EWC) was established and held its constituent meeting. The EWC represents alladdition, some of these employees of SAP within the European Union. By law and SAP agreement the EWC is entitledare subject to receive information and consult on transnational matters.a collective bargaining agreement.
Beneficial Ownership of Shares
The ordinary shares beneficially owned by the persons listed in Item 6. Directors, Senior Management and Employees – Compensation Report” isare disclosed in “Item 7. Major Shareholders and Related-Party Transactions – Major Shareholders.”
SHARE-BASED COMPENSATION PLANS
Share-Based Compensation
We maintain certain share-based compensation plans. The share-based compensation from these plans result from cash-settled and equity-settled awards issued to employees. For more information on our share-based compensation plans refer to “Item 6. Directory,Directors, Senior Management and Employees – Compensation Report” and Note (27) to our Consolidated Financial Statements.
Part I
Item 7
ITEM 7. MAJOR SHAREHOLDERS AND RELATED-PARTY TRANSACTIONS
The share capital of SAP AGSE consists of ordinary shares, which are issued only in bearer form. Accordingly, SAP AGSE generally has no waycannot determine the identity of determining who its shareholders are or how many shares a particular shareholder owns. SAP’s
ordinary shares are traded in the United States by means of ADRs. Each ADR currently represents one SAP AGSE ordinary share. On March 7, 2013,11, 2016, based on information provided by the Depositary there were 47,405,45341,751,316 ADRs held of record by 1,117917 registered holders. The ordinary shares underlying such ADRs represented 3.86%3.40% of the then-outstanding ordinary shares (including treasury stock). Because SAP’s ordinary shares are issued in bearer form only, we are unable to determine the number of ordinary shares directly held by persons with U.S. addresses.
The following table sets forth certain information regarding the beneficial ownership of the ordinary shares to the extent known to SAP as of March 7, 201311, 2016 of: (i) each person or group known by SAP AGSE to own beneficially 5% or more of the outstanding ordinary shares; and (ii) the beneficial ownership of all members of the Supervisory Board and all members of the Executive Board, individually and as a group, in each case as reported to SAP AGSE by such persons. There was, as far as we are able to tell given the nature of our shares, no significant change in the percentage ownership held by any major shareholder during the past three years. None of the major shareholders have special voting rights.
Ordinary Shares Beneficially Owned | ||||||||
Major Shareholders | Number | % of Outstanding | ||||||
Dietmar Hopp, collectively(1) | 65,273,200 | 5.313 | % | |||||
Hasso Plattner, Chairperson Supervisory Board,collectively(2) | 120,857,498 | 9.838 | % | |||||
Klaus Tschira, collectively(3) | 92,079,595 | 7.495 | % | |||||
Executive Board Members as a group (7 persons) | 35,271 | 0.003 | % | |||||
Supervisory Board Members as a group (16 persons) | 120,872,438 | 9.839 | % | |||||
Executive Board Members and Supervisory Board Membersas a group (23 persons)(4) | 120,907,709 | 9.842 | % | |||||
Options and convertible bonds that are vested and exercisable within 60 days of March 7, 2013, held by Executive Board Members and Supervisory Board Members, collectively | 0 | n.a. | ||||||
BlackRock, Inc.(5) | n.a. | >5 | % |
Ordinary Shares Beneficially Owned | ||||||||
Major Shareholders | Number | % of Outstanding | ||||||
Dietmar Hopp, collectively(1) | 65,273,200 | 5.313 | % | |||||
Hasso Plattner, Chairperson Supervisory Board, collectively(2) | 90,248,789 | 7.346 | % | |||||
Joint heirs of Klaus Tschira, collectively (3) | 88,149,595 | 7.175 | % | |||||
Executive Board Members as a group (6 persons) | 45,309 | 0.004 | % | |||||
Supervisory Board Members as a group (18 persons) | 90,262,818 | 7.347 | % | |||||
Executive Board Members and Supervisory Board Members as a group (24 persons)(4) | 90,308,127 | 7.351 | % | |||||
Options and convertible bonds that are vested and exercisable within 60 days of March 11, 2016, held by Executive Board Members and Supervisory Board Members, collectively | 0 | NA | ||||||
BlackRock, Inc.(5) | NA | >5 | % |
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(1) Represents 65,273,200 ordinary shares beneficially owned by Dietmar Hopp, including 3,404,000 ordinary shares owned by DH Besitzgesellschaft mbH & Co. KG (formerly known as Golf Club St. Leon-Rot GmbH & Co. Betriebs-oHG) of which DH Verwaltungs-GmbH is the general partner and 61,869,200 ordinary shares owned by Dietmar Hopp Stiftung, GmbH. Mr. Hopp exercises voting and dispositive powers of the ordinary shares held by such entities. The foregoing information is based solely on a Schedule 13G filed by Dietmar Hopp and Dietmar Hopp Stiftung, GmbH on February 15, 2016. (2) Includes HP Vermögensverwaltungs GmbH & Co. KG in which Hasso Plattner exercises sole voting and dispositive power. (3) Includes Klaus Tschira Stiftung gGmbH and Dr. h. c. Tschira Beteiligungs GmbH & Co. KG in which the joint heirs of Klaus Tschira exercise sole voting and dispositive power. (4) We believe each of the other members of the Supervisory Board and the Executive Board beneficially owns less than 1% of SAP SE’s ordinary shares as of March 11, 2016. (5) |
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As required under German law, BlackRock, Inc. informed SAP that they own more than 5% of SAP’s outstanding ordinary shares. BlackRock, Inc. is not required to provide SAP with the number of shares owned and has not provided such information. |
Part I
Item 7, 8, 9
We at present have no knowledge about any arrangements, the operation of which may at a subsequent date result in a change in control of the company.
For further information on related-party transactions see Note (30) to our Consolidated Financial Statements.
CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
See “Item 18. Financial Statements” and pages F-1 through F-99.F-73.
Legal Proceedings
We are subject to a variety of legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business, including claims and lawsuits involving businesses we have acquired. In 2010, we recorded a provision of US$1.3 billion for the TomorrowNow litigation. When the trial judge set aside the 2010 verdict and offered Oracle a remittitur of US$272 million, we subsequently reduced the provision
Refer to US$272 million. Oracle did not accept the remittitur; rather, Oracle opted for a second trial. Prior to the second trial, the parties stipulated to a final judgment of US$306 million with each party reserving all appeal rights. Both parties have filed their respective notice of appeal. On appeal, Oracle is seeking three forms of relief: (1) reinstatement of the November 2010 $1.3 billion verdict; (2) as a first alternative, a new trial at which Oracle may again seek hypothetical license damages (based in part on evidence of alleged saved development costs) plus SAP’s alleged infringer’s profits without any deduction of expenses (Oracle does not put a number on its claim for the requested new trial); and (3) as a second alternative, increase of the remittitur (alternative to new trial) to $408.7 million (vs. the $272 million Oracle had previously rejected). SAP has dismissed its cross-appeal. Consequently, we increased the provision to US$306 million. Although the outcome of such proceedings and
claims cannot be predicted with certainty, management does not believe that the outcome of all other matters currently pending against us has had or will have a material adverse effect on our business, financial position, profit or cash flows. Any litigation, however, involves potential risk and potentially significant litigation costs, and therefore there can be no assurance that any litigation which is now pending or which may arise in the future will not have such a material adverse effect on our business, financial position, profit, cash flows or reputation.
See a detailed discussion of our legal proceedings in Note (23) to our Consolidated Financial Statements.Statements for a detailed discussion of our material legal proceedings.
Dividend Policy
For more information on dividend policy see the disclosure in “Item 3. Key Information –Dividends”— Dividends”.
Significant Changes
ConversionWe are in the process of Legal Formpreparing the consolidation of intellectual property rights from hybris AG to a European Company – a Societas EuropaeaSAP SE. For more information about this transfer, see Note (32).
On March 21, 2013 theThe Supervisory Board of SAP AG approvedSE appointed Stefan Ries and Steve Singh to the proposal of theSAP Executive Board, to preparewith effect from April 1, 2016.
Stefan Ries will continue his role as Chief Human Resources Officer and also take on the conversionrole of SAP AG into a European Company, otherwise referredLabor Relations Director. Steve Singh will continue to as a Societas Europaea, or SE. This conversion of legal form requires shareholder approval, which is currently scheduled forlead the Annual General Meeting of the Shareholders in 2014. SAP Business Network Group.
The SupervisoryGlobal Managing Board and the Executive Board believe that the planned change of legal form reflects SAP’s position as an internationally-oriented company with European roots. In addition, this legal form offers the possibility to optimize both the corporate governance structure and the work of the corporate bodies of SAP AG. With the conversion into an SE, the shareholders of SAP AG will automatically become shareholders of SAP SE and shareholders’ rights will remain unchanged.be dissolved on March 31, 2016.
Our ordinary shares are officially listed on the Frankfurt Stock Exchange, the Berlin Stock Exchange and the Stuttgart Stock Exchange. The
Part I
Item 9
principal trading market for the ordinary shares is Xetra, the electronic dealing platform of Deutsche Boerse AG. The ordinary shares are issued only in bearer form.
ADRs representing SAP AGSE ordinary shares are listed on the New York Stock Exchange (NYSE) under the symbol “SAP,” and currently each ADR represents one ordinary share.
TRADING ON THE FRANKFURT STOCK EXCHANGE AND THE NYSE
The table below sets forth, for the periods indicated, the high and low closing sales prices for the ordinary shares on the Xetra trading System of the Frankfurt Stock Exchange together with the closing highs and lows of the DAX, and the high and low closing sales prices for the ADRs on the NYSE (information is provided by Reuters):
Price per Ordinary Share in € | DAX(1) in points | Price per ADR in US$ | Price per Ordinary Share in € | DAX(1) in points | Price per ADR in US$ | |||||||||||||||||||||||||||||||||||||||||||
High | Low | High | Low | High | Low | High | Low | High | Low | High | Low | |||||||||||||||||||||||||||||||||||||
Annual Highs and Lows | ||||||||||||||||||||||||||||||||||||||||||||||||
2008 | 39.93 | 23.45 | 7,949.11 | 4,127.41 | 58.98 | 29.70 | ||||||||||||||||||||||||||||||||||||||||||
2009 | 35.26 | 25.00 | 6,011.55 | 3,666.41 | 52.37 | 31.69 | ||||||||||||||||||||||||||||||||||||||||||
2010 | 38.40 | 31.12 | 7,077.99 | 5,434.34 | 54.08 | 41.59 | ||||||||||||||||||||||||||||||||||||||||||
2011 | 45.90 | 34.26 | 7,527.64 | 5,072.33 | 68.31 | 48.39 | 45.90 | 34.26 | 7,527.64 | 5,072.33 | 68.31 | 48.39 | ||||||||||||||||||||||||||||||||||||
2012 | 61.43 | 41.45 | 7,672.10 | 5,969.40 | 81.21 | 53.25 | 61.43 | 41.45 | 7,672.10 | 5,969.40 | 81.21 | 53.25 | ||||||||||||||||||||||||||||||||||||
2013 | 64.80 | 52.20 | 9,589.39 | 7,459.96 | 87.14 | 70.27 | ||||||||||||||||||||||||||||||||||||||||||
2014 | 62.55 | 50.90 | 10,087.12 | 8,571.95 | 85.45 | 64.14 | ||||||||||||||||||||||||||||||||||||||||||
2015 | 74.85 | 54.53 | 12,374.73 | 9,427.64 | 80.91 | 63.37 | ||||||||||||||||||||||||||||||||||||||||||
Quarterly Highs and Lows | ||||||||||||||||||||||||||||||||||||||||||||||||
2011 | ||||||||||||||||||||||||||||||||||||||||||||||||
2014 | ||||||||||||||||||||||||||||||||||||||||||||||||
First Quarter | 44.67 | 37.45 | 7,426.81 | 6,513.84 | 61.67 | 48.76 | 62.55 | 54.31 | 9,742.96 | 9,017.79 | 85.45 | 74.87 | ||||||||||||||||||||||||||||||||||||
Second Quarter | 45.90 | 41.07 | 7,527.64 | 7,026.85 | 68.31 | 58.19 | 59.15 | 54.41 | 10,028.80 | 9,173.71 | 81.77 | 74.21 | ||||||||||||||||||||||||||||||||||||
Third Quarter | 44.02 | 34.26 | 7,471.44 | 5,072.33 | 64.50 | 48.71 | 61.12 | 56.53 | 10,029.43 | 9,009.32 | 82.30 | 72.16 | ||||||||||||||||||||||||||||||||||||
Fourth Quarter | 44.72 | 36.87 | 6,346.19 | 5,216.71 | 62.72 | 48.39 | 58.73 | 50.90 | 10,087.12 | �� | 8,571.95 | 71.70 | 64.14 | |||||||||||||||||||||||||||||||||||
2012 | ||||||||||||||||||||||||||||||||||||||||||||||||
2015 | ||||||||||||||||||||||||||||||||||||||||||||||||
First Quarter | 54.51 | 41.45 | 7,157.82 | 6,017.23 | 72.31 | 53.25 | 67.60 | 54.53 | 12,167.72 | 9,469.66 | 73.53 | 63.56 | ||||||||||||||||||||||||||||||||||||
Second Quarter | 53.21 | 44.16 | 7,056.65 | 5,969.40 | 70.97 | 55.24 | 70.72 | 62.60 | 12,374.73 | 10,944.97 | 77.27 | 70.23 | ||||||||||||||||||||||||||||||||||||
Third Quarter | 56.69 | 44.71 | 7,451.62 | 6,387.57 | 72.90 | 55.50 | 68.77 | 55.89 | 11,735.72 | 9,427.64 | 74.60 | 63.37 | ||||||||||||||||||||||||||||||||||||
Fourth Quarter | 61.43 | 52.86 | 7,672.10 | 6,950.53 | 81.21 | 69.05 | 74.85 | 57.12 | 11,382.23 | 9,509.25 | 80.91 | 64.16 | ||||||||||||||||||||||||||||||||||||
Monthly Highs and Lows | ||||||||||||||||||||||||||||||||||||||||||||||||
2012 | ||||||||||||||||||||||||||||||||||||||||||||||||
2015 | ||||||||||||||||||||||||||||||||||||||||||||||||
July | 52.30 | 44.71 | 6,774.06 | 6,387.57 | 65.11 | 55.50 | 68.77 | 61.29 | 11,735.72 | 10,676.78 | 74.60 | 68.26 | ||||||||||||||||||||||||||||||||||||
August | 52.90 | 51.26 | 7,089.32 | 6,606.09 | 65.66 | 62.18 | 66.79 | 56.90 | 11,636.30 | 9,648.43 | 73.08 | 65.47 | ||||||||||||||||||||||||||||||||||||
September | 56.69 | 52.38 | 7,451.62 | 6,932.58 | 72.90 | 66.13 | 59.83 | 55.89 | 10,317.84 | 9,427.64 | 67.07 | 63.37 | ||||||||||||||||||||||||||||||||||||
October | 56.27 | 52.86 | 7,437.23 | 7,173.69 | 72.90 | 69.05 | 71.88 | 57.12 | 10,850.14 | 9,509.25 | 78.71 | 64.16 | ||||||||||||||||||||||||||||||||||||
November | 60.18 | 55.35 | 7,405.50 | 6,950.53 | 78.43 | 70.93 | 74.85 | 72.33 | 11,382.23 | 10,708.40 | 80.22 | 77.96 | ||||||||||||||||||||||||||||||||||||
December | 61.43 | 60.34 | 7,672.10 | 7,435.12 | 81.21 | 78.91 | 74.75 | 69.40 | 11,261.24 | 10,139.34 | 80.91 | 77.21 | ||||||||||||||||||||||||||||||||||||
2013 | ||||||||||||||||||||||||||||||||||||||||||||||||
2016 | ||||||||||||||||||||||||||||||||||||||||||||||||
January | 62.08 | 57.82 | 7,857.97 | 7,675.91 | 82.40 | 77.38 | 74.25 | 70.58 | 10,310.10 | 9,391.64 | 80.36 | 76.90 | ||||||||||||||||||||||||||||||||||||
February | 60.91 | 58.99 | 7,833.39 | 7,581.18 | 83.57 | 77.86 | 73.19 | 64.90 | 9,757.88 | 8,752.87 | 79.70 | 73.68 | ||||||||||||||||||||||||||||||||||||
March (through March 7, 2013) | 63.80 | 60.35 | 7,939.77 | 7,691.68 | 83.44 | 78.68 | ||||||||||||||||||||||||||||||||||||||||||
March (through March 11, 2016) | 71.17 | 68.62 | 9,831.13 | 9,498.15 | 78.65 | 76.34 |
(1) The DAX is a continuously updated, capital-weighted performance index of 30 German blue chip companies. In principle, the shares included in the DAX are selected on the basis of their stock exchange turnover and the issuer’s free-float market capitalization. Adjustments to the DAX are made for capital changes, subscription rights and dividends.
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On March 7, 2013,11, 2016, the closing sales price per ordinary share on the Frankfurt Stock Exchange (Xetra Trading System) was €63.80€69.97 and the closing sales price per ADR on the NYSE was US$83.44,US $78.65, as reported by Reuters.
Part I
Item 10
ITEM 10. ADDITIONAL INFORMATION
Organization and Register
SAP AGSE is a stock corporationEuropean Company (Societas Europaea, or “SE”) organized in the Federal Republic of Germany under German and European law, including Council Regulation (EC) No. 2157/2001 on the Statute for a European Company (the “SE Regulation”), the German Act on the Implementation of Council Regulation No. 2157/2001 of October 8, 2001 on the Statute for a European Company (Gesetz zur Ausführung der Verordnung (EG) Nr. 2157/2001 des Rates vom 8. Oktober 2001 über das Statut der Europäischen Gesellschaft (SE) – SE-Ausführungsgesetz; “SE-AG”) of December 22, 2004, and the German Stock Corporation Act (Aktiengesetz). SAP AGSE is registered in the Commercial Register (Handelsregister) at the Lower Court of Mannheim, Germany, under the entry number “HRB 350269.719915.” SAP AGSE publishes its official notices in the Federal Gazette (www.bundesanzeiger.de).
Objects and Purposes
SAP’s Articles of Incorporation state that our objects involve, directly or indirectly, the development, production and marketing of products and the provision of services in the field of information technology, including:
developing and marketing integrated product and service solutions for e-commerce;
developing software for information technology and the licensing of its use to others;
organization and deployment consulting, as well as user training, for e-commerce and other software solutions;
selling, leasing, renting and arranging the procurement and provision of all other forms of use of information technology systems and related equipment; and
making capital investments in enterprises active in the field of information technology to promote the opening and advancement of international markets in the field of information technology.
– | developing and marketing integrated product and service solutions for e-commerce; |
– | developing software for information technology and the licensing of its use to others; |
– | organization and deployment consulting, as well as user training, for e-commerce and other software solutions; |
– | selling, leasing, renting and arranging the procurement and provision of all other forms of use of information technology systems and related equipment; and |
– | making capital investments in enterprises active in the field of information technology to promote the opening and advancement of international markets in the field of information technology. |
SAP is authorized to act in all the business areas listed above and to delegate such activities to affiliated entities within the meaning of the German Stock Corporation Act; in particular SAP is authorized to delegate its business in whole or in part to such entities. SAP AGSE is authorized to establish branch offices in Germany and other countries, as well as to form, acquire or invest in other companies of the same or related kind and to enter
to enter into collaboration and joint venture agreements. SAP is further authorized to invest in enterprises of all kinds principally for the purpose of placing financial resources.investment purposes. SAP is authorized to dispose of investments, to consolidate the management of enterprises in which it participates, to enter into affiliation agreements with such entities, or to limit its activities to manage its shareholdings.
Introduction
SAP AG,SE, as a German stock corporation,European Company with a two-tier board system, is governed by three separate bodies: the Supervisory Board, the Executive Board and the Annual General Meeting of Shareholders. Their rules are defined by European and German law, by the Agreement on the Involvement of Employees in SAP SE (“Employee Involvement Agreement”, or “EIA”), by the German Corporate Governance Code and by SAP’s Articles of Incorporation (Satzung) and are summarized below. See “Item 16G. Differences in Corporate Governance Practices” for additional information on our corporate governance practices.
The Supervisory Board
The Supervisory Board appoints and removes the members of the Executive Board and oversees and advises the management of the corporation. At regular intervals it meets to discuss current business as well as business development and planning. The SAP Executive Board must consult with the Supervisory Board concerning the corporate strategy, which is developed by the Executive Board. The Supervisory Board maintains a listTypes of transactions for which the Executive Board requires the Supervisory Board’s consent are listed in the Articles of Incorporation; in addition, the Supervisory Board has specified further types of transactions that require its consent. Accordingly, the Supervisory Board must also approve the annual budget of SAP upon submission by the Executive Board and certain subsequent deviations from the approved budget. The Supervisory Board is also responsible for representing SAP AGSE in transactions between SAP AGSE and Executive Board members.
The Supervisory Board, based on a recommendation by its Audit Committee, provides its proposal for the election of the external independent auditor to the Annual General Meeting of Shareholders. The Supervisory Board is also responsible for monitoring the auditor’s independence, a task it has delegated to its audit committee.
Part I
Item 10
The German Co-determination ActPursuant to Article 40 (3) sentence 1 of 1976 (Mitbestimmungsgesetz) requiresthe SE Regulation, the number of members of the supervisory board and the rules for determining this number are to be laid down in the articles of incorporation. Furthermore, pursuant to Section 17 (1) SE-AG, the size of supervisory boards of corporations with more than 2,000 employees companies which, like SAP SE, have a capital stock exceeding€ 10,000,000, is limited
to consist of an equal number of representatives of the shareholders and representatives of the employees. The minimum total number of supervisory board members, and thus the minimum number of shareholder representatives and employee representatives, is legally fixed and depends on21 members. Moreover, the number of employees employedmembers must be divisible by three. In line with these provisions as well as the corporation and its German subsidiaries. OurEIA, the Articles of Incorporation of SAP SE provide that the Supervisory Board currentlyshall be composed of 18 members. Furthermore, it is provided in the EIA that the shareholders of SAP SE have the possibility to reduce the size of the Supervisory Board in the future (i.e. at the earliest in the Annual General Meeting of Shareholders in 2018, with effect from the Annual General Meeting of Shareholders in 2019) to 12 members.
The current Supervisory Board of SAP SE consists of sixteeneighteen members, of which eightnine members have beenwere elected by SAP AG’sSE’s shareholders at the Annual General Meeting of Shareholders in 2014, and eightnine members which have been electedwere appointed by the employeesSAP SE Works Council Europe in 2015. The term of office of all eighteen members will end upon the conclusion of the GermanAnnual General Meeting of Shareholders in 2015.
The procedure for the appointment of the employees’ representatives on the Supervisory Board of SAP entities (i.e. entitiesSE is governed by the EIA. In accordance with the EIA, the nine seats on the first Supervisory Board reserved for employees’ representatives were allocated as follows: the first six seats were allocated to Germany, the seventh seat was allocated to France, the eighth seat was also allocated to Germany, and the ninth seat was allocated to a European country not represented by the first eight seats, as determined by the SAP SE Works Council Europe. The employees’ representatives for the first six seats allocated to Germany were determined by direct vote by all SAP employees with their principal place of employment in Germany. The employees’ representative for the seventh seat allocated to France was determined according to the applicable provisions of French law on the election or appointment of employees’ representatives on a supervisory board. With regard to the eighth and ninth seat, members of the SAP Group having their registered office in Germany).SE Works Council Europe from Germany and Slovakia were appointed by the SE Works Council as employees’ representatives.
Any Supervisory Board member elected by the shareholders at the Annual General Meeting of Shareholders may be removed by three-quarters of the votes cast at the Annual General Meeting of Shareholders. Any Supervisory Board member elected byappointed in accordance with the employeesEIA may be removed by three quartersthe SAP SE Works Council Europe upon application by the body that nominated the respective employees’ representative for appointment by the SE Works Council or, in case the employees’ representative was directly elected, the majority of the votes cast by the employees of the German SAP entities.entitled to vote.
The Supervisory Board elects a chairperson and aone or two deputy chairpersonchairperson(s) among its members by a majority of the votes cast. Only a shareholders’
representative may be elected as chairperson of the Supervisory Board. When electing the chairperson of the Supervisory Board, the oldest member in terms of age of the shareholders’ representatives on the Supervisory Board will chair the meeting and, in the event of a tied vote, will have the casting vote.
Unless otherwise mandatorily prescribed by law or the Articles of Incorporation, resolutions of the Supervisory Board are adopted by simple majority of the votes cast. In the event of a tie, the vote of its members. If such majority is not reached on the first vote, the chairperson will be chosen solely byand, in the members elected byevent that the shareholders andchairperson does not participate in passing the resolution, the vote of the deputy chairperson, provided that he or she is a shareholders’ representative, will be chosen solely by the members elected by the employees. Unless otherwise provided by law, the Supervisory Board acts by simple majority. In the case of any deadlock the chairperson has the deciding vote.decisive (casting vote).
The members of the Supervisory Board cannot be elected or appointed, as the case may be, for a term longer than approximately fivesix years. TheOther than for the employees’ representatives on the first Supervisory Board of SAP SE, the term expires at the close of the Annual General Meeting of Shareholders giving its formal approval of the acts of the Supervisory Board and the Executive Board infor the fourth fiscal year following the year in which the Supervisory Board was elected unless the Annual General Meeting of Shareholders specifies a shorter term of office when electing individual members of the Supervisory Board or the entire Supervisory Board.members commenced. Re-election is possible. Our Supervisory Board normally meets four times a year. The remunerationcompensation of the members of the Supervisory Board is determined byset in the Articles of Incorporation.
As stipulated in the German Corporate Governance Code (GCGC), an adequate number of our Supervisory Board members are independent. To be considered for appointment to the Supervisory Board and for as long as they serve, members must comply with certain criteria concerning independence, conflicts of interest and multiple memberships of management, supervisory and other governing bodies. They must be loyal to SAP in their conduct and must not accept any position in companies that are in competition with SAP. Members are subject to insider trading prohibitions and the respective directors’ dealing rules of the German Securities Trading Act. A member of the Supervisory Board may not vote on matters relating to certain contractual agreements between such member and SAP AG.SE. Further, as the compensation of the Supervisory Board members is laid downset in the Articles of Incorporation, Supervisory Board members are unable to vote on their own compensation, with the exception that they are able to exercise voting rights in a General Meeting of Shareholders in connection with a resolution amending the Articles of Incorporation.
The Supervisory Board may appoint committees from among its members and may, to the extent permitted by law, entrust such committees with the authority to make decisions on behalf of the Supervisory Board. Currently the Supervisory Board maintains the following committees:
The Audit Committee
The focus of the Audit Committee (Prüfungsausschuss) is the oversight of SAP’s external financial reporting as well as SAP’s risk management, internal controls (including internal controls over the effectiveness of the financial reporting process), corporate audit and compliance matters. According to German Law SAP’s Audit Committee includes at least one independent member with specialist expertise in the fields of financial reporting or auditing. Among the tasks of the Audit Committee are the discussion of SAP’s quarterly and year end financial reporting prepared under German and U.S. regulations, including this report. The Audit Committee proposes the appointment of the external independent auditor to the Supervisory Board, determines focus audit areas, discusses critical accounting policies and estimates with and reviews the audit reports issued and audit issues identified by the auditor. The audit committee also negotiates the audit fees with the auditor and monitors the auditor’s independence.independence and quality. SAP’s Corporate Audit, (CA), SAP’s GlobalOffice of Legal Compliance Office (GCO)and Integrity and SAP’s Risk Management Office
Part I
Item 10
(RMO) report upon request or at the occurrence of certain findings, but in any case at least once a year (GCO(Office of Legal Compliance and RMO)Integrity and Risk Management Office) or twice a year (CA)(Corporate Audit), directly to the Audit Committee.
The Audit Committee has established procedures regarding the prior approval of all audit and non-audit services provided by our external independent auditor. See “Item 16C. Principal Accountant Fees and Services” for details. Furthermore the Audit Committee monitors the effectiveness of our internal risk management and other monitoring processes that are or need to be established.
The Supervisory Board has determined Erhard Schipporeit to be an audit committee financial expert as defined by the regulations of the SEC issued under Section 407 of the Sarbanes-Oxley Act as well as an independent financial expert as defined by the German Stock Corporation Act. See “Item 16A. Audit Committee Financial Expert” for details. He is also the chairperson of the Audit Committee.
The General and Compensation Committee
The General and Compensation Committee (Präsidialsidial- und Personalausschuss) coordinates the work of the Supervisory Board, prepares its meetings and deals with corporate governance issues. In addition, it carries out the preparatory work necessary for the personnel decisions made by the Supervisory Board, notably those concerning compensation for the Executive Board members and the conclusion, amendment and termination of the Executive Board members’ contracts of appointment.
The German Stock Corporation Act prohibits the Compensation Committee from deciding on the remuneration
compensation of the Executive Board members on behalf of the Supervisory Board and requires that such decision is made by the entire Supervisory Board. This Act also provides the General Meeting of Shareholders with the right to vote on the system for the remunerationcompensation of Executive Board members, such vote, however, not being legally binding for the Supervisory Board.
The Finance and Investment Committee
The Finance and Investment Committee (Finanz- und Investitionsausschuss) addresses general financing issues. Furthermore, it regularly discusses acquisitions of intellectual property and companies, venture capital investments and other investments with the Executive Board and reports
to the Supervisory Board on such investments. It is also responsible for the approval of such investments if the individual investment amount exceeds certain specified limits.
Required by the German Co-determination Act of 1976 (Mitbestimmungsgesetz), the MediationThe Technology and Strategy Committee (Vermittlungsausschuss) convenes only if the two-thirds majority required for appointing/revoking the appointment of Executive Board members is not attained. This committee has never held a meeting in SAP AG’s history.
The Technology and Strategy and Technology Committee (Strategie- und Technologieausschuss)(Technologie-und Strategieausschuss) monitors technology transactions and provides the Supervisory Board with in-depth technical advice.
The Nomination Committee
The Nomination Committee (Nominierungsausschuss) is exclusively composed of shareholder representatives and is responsible for identifying suitable candidates for membership of the Supervisory Board for recommendation to the Annual General Meeting of Shareholders.
The Special Committee
The Special Committee (Sonderausschuss) is tasked with coordinatingdeliberates on matters arising out of substantial exceptional risks, such as major litigations.
The People and managingOrganization Committee
The People and Organization Committee (Ausschuss für Mitarbeiter- und Organisationsangelegenheiten) deliberates and advises the Executive and Supervisory Board’s external legal advisors concerned withBoard on key personnel matters and major organizational changes below the investigationExecutive Board and analysis of the facts in connection with the legal action brought by Oracle Corporation.Global Managing Board level as well as equal opportunities for women at SAP.
The duties procedures and committeesprocedures of the Supervisory Board and its committees are specified in their respective bylaws,rules of procedure, if any, which reflect the requirements of European and German law, including the SE Regulation and the German Stock Corporation Act, the Articles of Incorporation and the recommendations of the GCGC.
According to the provisions of the Sarbanes-Oxley Act, SAP does not grant loans to the members of the Executive Board or the Supervisory Board.
The Executive Board
The Executive Board manages the Company’s business, is responsible for preparing its strategy and represents it in dealings with third parties. The Executive Board reports regularly to the Supervisory Board about SAP operations and business strategies and prepares special reports upon request. A person may not serve on the Executive Board and on the Supervisory Board at the same time.
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The Executive Board and the Supervisory Board must cooperate closely for the benefit of the Company. Without being asked, theThe Executive Board mustis required to provide to the Supervisory Board regular, prompt and comprehensive information about all of the essential issues affecting the SAP Group’s business progress and its potential business risks. Furthermore, the Executive Board must maintain regular contact with the chairperson of the Supervisory Board.Board and vice versa. The Executive Board must inform the chairperson of the Supervisory Board promptly about exceptional events that are of significance to SAP’s business. The Supervisory Board chairperson must inform the Supervisory Board accordingly.accordingly and shall, if required, convene an extraordinary meeting of the Supervisory Board.
Pursuant to the Articles of Incorporation, the Executive Board must consist of at least two members. Currently, SAP AG’sSE’s Executive Board is currently comprised of sevensix members. Any two members of the Executive Board jointly or one member of the Executive Board and the holder of a special power of attorney (Prokurist) jointly may legally represent SAP AG.SE. The Supervisory Board appoints each member of the Executive Board for a maximum term of five years, with the possibility of re-appointment. Under certain circumstances, a member of the Executive Board may be removed by the Supervisory Board prior to the expiration of that member’s term. A member of the Executive Board may not vote on matters relating to certain contractual agreements between such member and SAP AG,SE, and may be liable to SAP AGSE if such member has a material interest in any contractual agreement between SAP and a third party which was not previously disclosed to and approved by the Supervisory Board. Further, as the compensation of the Executive Board members is set by the Supervisory Board, Executive Board members are unable to vote on their own compensation, with the exception that they are able to exercise voting rights in a General Meeting of Shareholders resolving a non-binding vote on the system for the remunerationcompensation of Executive Board members.
Under German law SAP AG’sSE’s Supervisory Board members and Executive Board members have a duty of loyalty and care towards SAP AG.SE. They must exercise the standard of care of a prudent and diligent businessman and bear the burden of proving they did so if their actions
are contested. Both bodies must consider the interest of SAP AGSE shareholders and our employees and, to some extent, the common good. Those who violate their duties may be held jointly and severally liable for any resulting damages, unless they acted pursuant
to a lawful resolution of the Annual General Meeting of Shareholders.
SAP has implemented a Code of Business Conduct for employees (see “Item 16B. Code of Ethics” for details). The employee code is equally applicable to managers and members of the Executive Board. Its rules are observed as well by members of the Supervisory board as applicable.
Under German law the Executive Board of SAP AGSE has to assess all major risks for the SAP Group. In addition, all measures taken by management to reduce and handle the risks have to be documented. Therefore, SAP’s management has adopted suitable measures such as implementing an enterprise-wide risk monitoring system to ensure that adverse developments endangering the corporate standing are recognized at a reasonably early point in time.
The GlobalOffice of Legal Compliance Office (GCO), an extension of SAP’s Global Legal Department,and Integrity was created by the SAP Executive Board in 2006 to oversee and coordinate legal and regulatory policy compliance at SAP. Effective March 1, 2007, the Company appointed aThe Chief Global Compliance Officer whoheading the Office of Legal Compliance and Integrity directly reports to the General Counsel,CFO of SAP SE and also has direct communication channels and reporting obligations to the Executive Board and the Audit Committee of the Supervisory Board. The GCOOffice of Legal Compliance and Integrity manages a network of more than 100 local subsidiary Compliance Officers who act as the point of contact for local questions or issues under the SAP Code of Business Conduct for employees. The GCOOffice of Legal Compliance and Integrity provides training and communication to SAP employees to raise awareness and understanding of legal and regulatory compliance policies. Employee help lines are also supported in each region where questions can be raised or questionable conduct can be reported without fear of retaliation.
Pursuant to Sec. 289a of the German Commercial Code (Handelsgesetzbuch) the Executive Board of publicly listed companies like SAP AG are required to issue a corporate governance statement (Erklärung zur Unternehmensführung) every year together with its annual financial statements. Companies are free to include the corporate governance declaration in their management report or publish the declaration on their website. SAP has chosen to publish the declaration on its website under (http://www.sap.com/corporate-en/investors/governance/index.epx). As stipulated by law the declaration comprises the declaration of compliance with the recommendations of the GCGC pursuant to Sec. 161 of the German Stock Corporation Act, relevant disclosures of the
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company’s corporate governance practices such as ethical, work and welfare standards, and a description of the Executive Board and Supervisory Board’s rules of procedure as well as information on the composition and rules of procedure of their sub-committees.
The Global Managing Board
In May 2012, SAP created a Global Managing Board in addition to the SAP Executive Board, which retains ultimate responsibility for overseeing and deciding on the activities of the company. The Global Managing Board allows SAP to appoint a broader range of global leaders to help steer the organization. ItThe Global Managing Board has advisory and decision-supporting functions for the Executive Board and comprises all Executive Board members as well as Robert EnslinHelen Arnold, Quentin Clark, Stefan Ries and Bob Calderoni.Steve Singh.
The Annual General Meeting of Shareholders
Shareholders of the Company exercise their voting rights at shareholders’ meetings. The Executive Board calls the Annual General Meeting of Shareholders, which must take place within the first eightsix months of each fiscal year. The Supervisory Board or the Executive Board may call an extraordinary meeting of the shareholders if the interests of the stock corporation so require. Additionally, shareholders of SAP AGSE holding in the aggregate a minimum of 5% of SAP AG’sSE’s issued share capital may call an extraordinary meeting of the shareholders. Shareholders as of the record date are entitled to attend and participate in shareholders’ meetings if they have provided timely notice of their intention to attend the meeting.
At the Annual General Meeting of Shareholders, the shareholders are asked, among other things, to formally approve the actions taken by the Executive Board and the Supervisory Board in the preceding fiscal year, to approve the appropriation of the corporation’s distributable profits and to appoint an external independent auditor. Shareholder representatives of the Supervisory Board are generally elected at the Annual General Meeting of Shareholders for a term of approximately five years. Shareholders may also be asked to grant authorization to repurchase treasury shares, to resolve on measures to raise or reduce the capital of the Company or to ratify amendments of our Articles of Incorporation. The
Annual General Meeting of Shareholders can make management decisions only if requested to do so by the Executive Board.
There are no provisions in the Articles of Incorporation of SAP AGSE that would have an effect of delaying, deferring or preventing a change in control of SAP AGSE and that would only operate with respect to a merger, acquisition or corporate restructuring involving it or any of its subsidiaries.
According to the German Securities Acquisition and Takeover Act (Wertpapiererwerbs- und Übernahmegesetz) a bidder seeking control of a company with its corporate seat in Germany or another state of the European Economic Area (EEA) and its shares being traded on a European Unionan EEA stock exchange must publish an advance notice of its decision to make a tender offer, submit a draftan offer statement to the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht) for review, and obtain certification from a qualified financial institution that adequate financing is in place to complete the offer. The offer statement must be published upon approval by the Federal Financial Supervisory Authority or expiry of a certain time period without such publication being prohibited by the Federal Financial Supervisory
Authority. Once a biddershareholder has acquired shares representing at least 30% of the voting power of the targetrights in an EEA-listed company, it must make an offer for all remaining shares. The Securities Acquisition and Takeover Act requires the executive board of the target company to refrain from taking any measures that may frustrate the success of the takeover offer. However, the target executive board is permitted to take any action that a prudent and diligent management of a company that is not the target of a takeover bid would also take. Moreover, the target executive board may search for other bidders and, with the prior approval of the supervisory board, may take other defensive measures, provided that both boards act within the parameters of their general authority under the German Stock Corporation Act. An executive board may also adopt specific defensive measures if such measures have been approved by the supervisory board and were specifically authorized by the shareholdersgeneral shareholders’ meeting no laterearlier than 18 months in advance of such measures by a takeover bid by resolution of at least 75% of the votes cast.shares represented.
Under the European Takeover Directive of 2004 member states had to choose whether EU restrictions on defensive measures apply to companies that are registered in their territory. Germany decided to opt out and to retain its current restrictions on a board implementing defensive measures (as described above). As required by the Directive if a country decides to
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opt out the German Securities Acquisition and Takeover Act grants companies the option of voluntarily applying the European standard by a change of the Articles of Incorporation (opt-in). SAP AGSE has not made use of this option.
Under German law, the capital stock may be increased in consideration of contributions in cash or in kind, or by establishing authorized capital or contingent capital or by an increase of the company’s capital reserves. Authorized capital provides the Executive Board with the flexibility to issue new shares for a period of up to five years. The Executive Board must obtain the approval of the Supervisory Board before issuing new shares with regard to the authorized capital. Contingent capital allows the issuance of new shares for specified purposes, including stock option plans for Executive Board members or employees and the issuance of shares upon conversion of convertible bonds and exercise of stock options. By law, the Executive Board may only issue new shares with regard to the contingent capital for the specified purposes. Capital increases require an approval by at least 75% of the share capital represented and by the simple majority of thevalid votes cast at the General Meeting of Shareholders in which the increase is proposed, and requires an amendment to the Articles of Incorporation.
The share capital may be reduced by an amendment to the Articles of Incorporation approved by at least 75% of the share capital represented and by the simple majority of thevalid votes cast at the General Meeting of Shareholders. In addition, the Executive Board of SAP AGSE is allowed to authorize a reduction of the company’s capital stock by canceling a defined number of repurchased treasury shares if this repurchasing and the subsequent reduction have already been approved by the General Meeting of Shareholders.
The Articles of Incorporation do not contain conditions regarding changes in the share capital that are more stringent than those provided by applicable European and German law.
RIGHTS ACCOMPANYING OUR SHARES
There are no limitations imposed by German law or the Articles of Incorporation of SAP AGSE on the rights to own securities, including the rights of
non-residents or foreign holders to hold the ADRs or ordinary shares, to exercise voting rights or to receive dividends or other payments on such shares.
According to the German stock corporation law, the rights of shareholders cannot be amended without shareholders’ consent. The Articles of Incorporation do not provide more stringent conditions regarding changes of the rights of shareholders than those provided by applicable European and German law.
Voting Rights
Each ordinary SAP AGSE share represents one vote. Cumulative voting is not permitted under applicable European and German law. A corporation’s articles of incorporation may stipulate a majority necessary to pass a shareholders’ resolution differing from the majority provided by law, unless the law does not mandatorily requirerequires a certain majority. Section 21 (1) of SAP AG’sSE’s Articles of Incorporation provides that resolutions may be passed at the General Meeting of Shareholders by the majority as provided by law. This means that resolutions may be passed bywith a majority of 50% plus one vote ofvalid votes cast, (simple majority), unless a larger majority is prescribed by law or the law provides or requires a higher majority.Articles of Incorporation. SAP SE’s Articles of Incorporation as well as applicable European and German law requiresrequire that the following matters, among others, be approved by at least 75% of the share capital represented and by the simple majority of thevalid votes cast at the General Meeting of Shareholders in which the matter is proposed:
– | changing
|
– | capital increases and capital decreases; |
– | excluding preemptive rights of shareholders to subscribe for new shares or for treasury shares; |
– | dissolution; |
– | a merger into, or a consolidation with, another company; |
– | a transfer of all or virtually all of the assets; |
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candidates who received the largest number of votes. If the second ballot is tied, the election shall be determined by drawing lots.
– | a change of corporate form, including re-conversion into a German stock corporation; |
– | a transfer of the registered seat to another EU member state; and |
– | any other amendment to the Articles of Incorporation (pursuant to section 21 (2) sentence 1 of the Articles of Incorporation). For any amendments of the Articles of Incorporation which require a simple majority for stock corporations established under German law, however, section 21 (2) sentence 2 of SAP SE’s Articles of Incorporation provides that the simple majority of the valid votes cast is sufficient if at least half of the subscribed capital is represented or, in the absence of such quorum, the majority prescribed by law (i.e. two thirds of the votes cast, pursuant to sec. 59 of the SE Regulation) is sufficient. |
Dividend Rights
See “Item 3. Key Information – Dividends.”
Preemptive Rights
Shareholders have preemptive rights to subscribe (Bezugsrecht) for any issue of additional shares in proportion to their shareholdings in the issued capital. The preemptive rights may be excluded under certain circumstances by a shareholders’ resolution (approved by at least 75% of the share capital represented and by the simple majority of thevalid votes cast at the General Meeting of Shareholders) or by the Executive Board authorized by such shareholders’ resolutions and subject to the consent of the Supervisory Board.
Liquidation
If SAP AGSE were to be liquidated, any liquidation proceeds remaining after all of our liabilities were paid would be distributed to our shareholders in proportion to their shareholdings.
Disclosure of Shareholdings
SAP AG’sSE’s Articles of Incorporation do not require shareholders to disclose their share holdings. The German Securities Trading Act (Wertpapierhandelsgesetz), however, requires holders of voting securities of SAP AGSE to notify SAP AGSE and the Federal Financial Supervisory Authority of the number orof shares they hold if that number reaches, exceeds or falls below specified thresholds. These thresholds are 3%, 5%, 10%, 15%, 20%, 25%, 30%, 50% and 75% of the corporation’s outstanding voting rights. In respect of certificates representing shares, the notification requirement shall apply exclusively to the holder of the certificates. In addition, the German Securities Trading Act also obliges anyone who holds, directly or indirectly, financial instruments that result inconvey an unconditional entitlement to acquire on one’s initiative alone and under a legally binding agreement, shares in SAP AG,SE, to notify SAP AGSE and the Federal Financial Supervisory Authority if the thresholds mentioned above have been reached, exceeded or fallen
below, with the exception of the 3% threshold. This notification obligation also exists for the holder of a financial instrument which merely de facto enables its holder or a third party to acquire shares in SAP SE, subject to the thresholds mentioned in the preceding sentence. In connection with
this notification obligation positions in voting rights and other financial instruments have to be aggregated.
Exchange Controls and Other Limitations Affecting Security Holders
The euro is a fully convertible currency. At the present time, Germany does not restrict the export or import of capital, except for investments in certain areas in accordance with applicable resolutions adopted by the United Nations and the European Union. However, for statistical purposes only, every individual or corporation residing in Germany (“Resident”) must report to the German Central Bank (Deutsche Bundesbank), subject only to certain immaterial exceptions, any payment received from or made to an individual or a corporation residing outside of Germany (“Non-Resident”) if such payment exceeds €12,500€12,500 (or the equivalent in a foreign currency). In addition, German Residents (except for individuals and certain financial institutions) must report any claims againstaccounts payable to or any liabilities payable toreceivable from Non-Residents if such claimspayables or liabilities,receivables, in the aggregate, exceed €5€5 million (or the equivalent in a foreign currency) at the end of any calendar month. Furthermore, companies resident in Germany with accounts payable to or receivable from Non-Residents in excess of€500 million have to report any payables or receivables to/from Non-Residents arising from derivative instruments at the end of each calendar quarter. Residents are also required to report annually to the German Central Bank any shares or voting rights of 10% or more which they hold directly or indirectly in non-resident corporations with total assets of more than €3€3 million. Corporations residing in Germany with assets in excess of €3€3 million must report annually to the German Central Bank any shares or voting rights of 10% or more held directly or indirectly by a Non-Resident.
General
The following discussion is a summary of certain material German tax and U.S. federal income tax consequences of the acquisition, ownership and disposition of our ADRs or ordinary shares to a U.S. Holder. In general, a U.S. Holder (as hereinafter defined) is any beneficial owner of our ADRs or ordinary shares that (i) is a citizen or resident of the U.S. or a corporation organized under the laws of the U.S. or any political subdivision thereof, an estate whose income is subject to U.S. federal income tax regardless of its source or a trust, if a U.S. court can exercise primary supervision over its administration and
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one or more U.S. persons are authorized to control all substantial
decisions of the trust; (ii) is not a resident of Germany for purposes of the income tax treaty between the U.S. and Germany (Convention between the Federal Republic of Germany and the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital and to certain other Taxes, as amended by the Protocol of June 1, 2006 and as published in the German Federal Law Gazette 2008 vol. II pp. 611/851; the “Treaty”); (iii) owns the ADRs or ordinary shares as capital assets; (iv) does not hold the ADRs or ordinary shares as part of the business property of a permanent establishment or a fixed base in Germany; and (v) is fully entitled to the benefits under the Treaty with respect to income and gain derived in connection with the ADRs or ordinary shares.
THE FOLLOWING IS NOT A COMPREHENSIVE DISCUSSION OF ALL GERMAN TAX AND U.S. FEDERAL INCOME TAX CONSEQUENCES THAT MAY BE RELEVANT FOR U.S. HOLDERS OF OUR ADRs OR ORDINARY SHARES. THEREFORE, U.S. HOLDERS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE OVERALL GERMAN TAX AND U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF OUR ADRs OR ORDINARY SHARES IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, INCLUDING THE EFFECT OF ANY STATE, LOCAL OR OTHER FOREIGN OR DOMESTIC LAWS.
German Taxation
The summary set out below is based on German tax laws, interpretations thereof and applicable tax treaties to which Germany is a party and that are in force at the date of this report; it is subject to any changes in such authority occurring after that date, potentially with retroactive effect, that could result in German tax consequences different from those discussed below. This discussion is also based, in part, on representations of the Depositary and assumes that each obligation of the Deposit Agreement and any related agreements will be performed in accordance with its terms. For additional information on the Depository and the fees associated with SAP’s ADR program see “Item 12. Description of Securities Other Than Equity Securities – American Depository Shares.”
For purposes of applying German tax law and the applicable tax treaties to which Germany is a party, a holder of ADRs will generally be treated as owning the ordinary shares represented thereby.
German Taxation of Dividends
Under German income tax law, the full amount of dividends distributed by aan incorporated company is generally subject to German withholding tax at a
domestic rate of 25% plus a solidarity surtax of 5.5% thereon (effectively 1.375% of dividends before withholding tax), resulting in an aggregate withholding tax rate from dividends of 26.375%. Non-resident corporate shareholders will generally be entitled to a refund in the amount of two-fifths of the withholding tax (including solidarity surtax). This does not preclude a further reduction or refund of withholding tax, if any, available under a relevant tax treaty.
Generally, for many non-resident shareholders the withholding tax rate is currently reduced under applicable income tax treaties. Rates and refund procedures may vary according to the applicable treaty. To reduce the withholding tax to the applicable treaty tax rate a non-resident shareholder must apply for a refund of withholding taxes paid. Claims for refund, if any, are made on a special German claim for refund form, which must be filed with the German Federal Tax Office (Bundeszentralamt für Steuern, D-53221 Bonn, Germany; http://www.bzst.de). The relevant forms can be obtained from the German Federal Tax Office or from German embassies and consulates. For details, such non-resident shareholders are urged to consult their own tax advisors. Special rules apply for the refund to U.S. Holders (we refer to the below section “Refund Procedures for U.S. Holders”).
Refund Procedures for U.S. Holders
Under the Treaty, a partial refund of the 25% withholding tax equal to 10% of the gross amount of the dividend and a full refund of the solidarity surtax can be obtained by a U.S. Holder. Thus, for each US$100 of gross dividends paid by SAP AGSE to a U.S. Holder, the dividends (which are dependent on the euro/dollar exchange rate at the time of payment) will be initially subject to a German withholding tax of US$26.375, of which US$11.375 may be refunded under the Treaty. As a result, a U.S. Holder effectively would receive a total dividend of US$85 (provided the euro/dollar
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exchange rate at the time of payment of the dividend is the same as at the time of refund, otherwise the effective dividend may be higher or lower). Further relief of German withholding tax under the Treaty may be available for corporate U.S. Holders owning at least 10% of the voting stock of SAP or U.S. Holders qualifying as pension fund within the meaning of the Treaty, subject to further requirements being met.
To claim the refund of amounts withheld in excess of the Treaty rate, a U.S. Holder must submit (either directly or, as described below, through the Data Medium Procedure participant) a claim for refund to the German tax authorities, with, in the case of a direct claim, the original bank voucher (or certified copy thereof) issued by the paying entity documenting the tax withheld, within four years from the end of the calendar year in which the dividend is received. Claims for refund are made on a
special German claim for refund form, which must be filed with the German Federal Tax Office (Bundeszentralamt für Steuern, D-53221 Bonn, Germany). The German claim for refund form may be obtained from the German tax authorities at the same address where applications are filed, from the Embassy of the Federal Republic of Germany, 2300 M Street4645 Reservoir Road NW, Washington, DC 20037,20007, or can be downloaded from the homepage of the German Federal Tax Office (http://www.bzst.de).
U.S. Holders must also submit to the German tax authorities a certification of their U.S. residency status (IRS Form 6166). This certification can be obtained from the Internal Revenue Service by filing a request for certification (generally on an IRS Form 8802, which will not be processed unless a user fee is paid) with the Internal Revenue Service, P.O. Box 71052, Philadelphia, PA 19176-6052. U.S. Holders should consult their own tax advisors regarding how to obtain an IRS Form 6166.
An IT-supported quick-refund procedure is available for dividends received (the “Data Medium Procedure – DMP”). If the U.S. Holder’s bank or broker elects to participate in the DMP, it will perform administrative functions necessary to claim the Treaty refund for the beneficiaries. The refund beneficiaries must confirm to the DMP participant that they meet the conditions of the Treaty provisions and that they authorize the DMP participant to file applications and receive notices and payments on their behalf. Further each refund beneficiary must confirm that (i) it is the beneficial owner of the dividends received; (ii) it is resident in the U.S. in the meaning of the Treaty; (iii) it does not have its domicile, residence or place of management in Germany; (iv) the dividends received do not form part of a permanent
establishment or fixed base in Germany; and (v) it commits, due to its participation in the DMP, not to claim separately for refund.
The beneficiaries also must provide an IRS Form 6166 certification with the DMP participant. The DMP participant is required to keep these documents in its files and prepare and file a combined claim for refund with the German tax authorities by electronic media. The combined claim provides evidence of a U.S. Holder’s personal data including its U.S. Tax Identification Number.
The German tax authorities reserve the right to audit the entitlement to tax refunds for several years following their payment pursuant to the Treaty in individual cases. The DMP participant must assist with the audit by providing the necessary details or by forwarding the queries to the respective refund beneficiaries.
The German tax authorities will issue refunds denominated in euros. In the case of shares held through banks or brokers participating in the Depository, the refunds will be issued to the Depository, which will convert the refunds to dollars. The resulting amounts will be paid to banks or brokers for the account of the U.S. Holders.
German Taxation of Capital Gains
Under German income tax law, a capital gain derived from the sale or other disposition of ADRs or ordinary shares by a non-resident shareholder is subject to income tax in Germany only if such non-resident shareholder has held, directly or indirectly, ADRs or ordinary shares representing 1% or more of the registered share capital of a company at any time during the five-year period immediately preceding the sale or other disposition.
However, a U.S. Holder of ADRs or ordinary shares that qualifies for benefits under the Treaty is not subject to German income or corporate income tax on the capital gain derived from the sale or other disposition of ADRs or ordinary shares.
German Gift and Inheritance Tax
Generally, a transfer of ADRs or ordinary shares by a shareholder at death or by way of gift will be
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subject to German gift or inheritance tax, respectively, if (i) the decedent or donor, or the heir, donee or other transferee is resident in Germany at the time of the transfer, or with respect to German citizens who are not resident in Germany, if the decedent or donor, or the heir, donee or other transferee has not been continuously outside of Germany for a period of more than five years; (ii) the ADRs or ordinary shares are part of the business property of a permanent establishment or a fixed base in Germany; or (iii) the ADRs or ordinary shares subject to such transfer form part of a portfolio that represents 10% or more of the registered share capital of the Company and has been held, directly or indirectly, by the decedent or donor, respectively, at the time of the transfer, actually or constructively together with related parties.
However, the right of the German government to impose gift or inheritance tax on a non-resident shareholder may be limited by an applicable estate tax treaty. In the case of a U.S. Holder, a transfer of ADRs or ordinary shares by a U.S. Holder at death or by way of gift generally will not be subject to German gift or inheritance tax by reason of the estate tax treaty between the U.S. and Germany (Convention between the Federal Republic of Germany and the United States of America for the Avoidance of Double Taxation with respect to Estate, Gift and Inheritance Taxes, German Federal Law Gazette 1982 vol. II page 847,846, as amended by the Protocol of
December 14, 1998 and as published on December 21, 2000, German Federal Law Gazette 2001 vol. II, page 65; the “Estate Tax Treaty”) so long as the decedent or donor, or the heir, donee or other transferee was not domiciled in Germany for purposes of the Estate Tax Treaty at the time the gift was made, or at the time of the decedent’s death, and the ADRs or ordinary shares were not held in connection with a permanent establishment or a fixed base in Germany. In general, the Estate Tax Treaty provides a credit against the U.S. federal gift or estate tax liability for the amount of gift or inheritance tax paid in Germany, subject to certain limitations, in a case where the ADRs or ordinary shares are subject to German gift or inheritance tax and U.S. federal gift or estate tax.
Other German Taxes
There are currently no German net worth, transfer, stamp or other similar taxes that would apply to a U.S. Holder on the acquisition, ownership, sale or other disposition of our ADRs or ordinary shares.
U.S. Taxation
The following discussion applies to U.S. Holders only if the ADRs and ordinary shares are held as capital assets for tax purposes. It does not address tax considerations applicable to U.S. Holders that may be subject to special tax rules, such as dealers or traders in securities, financial institutions, insurance companies, tax-exempt entities, regulated investment companies, U.S. Holders that hold ordinary shares or ADRs as a part of a straddle, conversion transaction or other arrangement involving more than one position, U.S. Holders that own (or are deemed for U.S. tax purposes to own) 10% or more of the total combined voting power of all classes of voting stock of SAP AG,SE, U.S. Holders that have a principal place of business or “tax home” outside the United States or U.S. Holders whose “functional currency” is not the dollar and U.S. Holders that hold ADRs or ordinary shares through partnerships or other pass-through entities.
The summary set out below is based upon the U.S. Internal Revenue Code of 1986, as amended (the “Code”), the Treaty and regulations, rulings and judicial decisions thereunder at the date of this report. Any such authority may be repealed, revoked or modified, potentially with retroactive effect, so as to result in U.S. federal income tax consequences different from those discussed below. No assurance can be given that the conclusions set out below would be sustained by a court if challenged by the IRS. The discussion below is based, in part, on representations of the Depositary, and assumes that each obligation in the Deposit Agreement and any related agreements will be performed in accordance with its terms.
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For U.S. federal income tax purposes, a U.S. Holder of ADRs will be considered to own the ordinary shares represented thereby. Accordingly, unless the context otherwise requires, all references in this section to ordinary shares are deemed to refer likewise to ADRs representing an ownership interest in ordinary shares.
U.S. Taxation of Dividends
Subject to the discussion below under “Passive Foreign Investment Company Considerations”, distributions made by SAP AGSE with respect to ordinary shares (other than distributions in liquidation and certain distributions in redemption of stock), including the amount of German tax deemed to have been withheld in respect of such distributions, will generally be taxed to U.S. Holders as ordinary dividend income.
As discussed above, a U.S. Holder may obtain a refund of German withholding tax under the Treaty to the extent that the German withholding tax exceeds 15% of the dividend distributed. Thus, for each US$100 of gross dividends paid by SAP AGSE to a U.S. Holder, the dividends (which are dependent on the euro/dollar exchange rate at the time of payment) will be initially subject to German withholding tax of US$25 plus US$1.375 solidarity surtax, and the U.S. Holder will receive US$73.625. A U.S. Holder who obtains the Treaty refund will receive from the German tax authorities an additional amount in euro that would be equal to US$11.375. For U.S. tax purposes, such U.S. Holder will be considered to have received a total distribution of US$100, which will be deemed to have been subject to German withholding tax of US$15 (15% of US$100) resulting in the net receipt of US$85 (provided the euro/dollar exchange rate at the time of payment of the dividend is the same as at the time of refund, otherwise the effective dividend may be higher or lower).
In the case of a distribution in euro, the amount of the distribution generally will equal the dollar value of the euro distributed (determined by reference to the spot currency exchange rate on the date of receipt of the distribution, or receipt by the Depositary in the case of a distribution on ADRs), regardless of whether the holder in fact converts the euro into dollars, and the U.S. Holder will not realize any separate foreign currency gain or loss (except to the extent that such gain or loss arises on the actual disposition of foreign currency received). However, a U.S. Holder may be required to recognize foreign currency gain or loss on the
receipt of a refund in respect of German withholding tax to the extent the U.S. dollar value of the refund differs from the U.S. dollar equivalent of that amount on the date of receipt of the underlying dividend.
Dividends paid by SAP AGSE generally will constitute “portfolio income” for purposes of the limitations on the
use of passive activity losses (and, therefore, generally may not be offset by passive activity losses) and as “investment income” for purposes of the limitation on the deduction of investment interest expense. Dividends paid by SAP AGSE will not be eligible for the dividends received deduction generally allowed to U.S. corporations under Section 243 of the Code. Dividends paid by SAP AGSE to an individual after December 31, 2002 are treated as “qualified dividends” subject to capital gains rates, i.e. at a maximum rate of 15% if received prior to January 1, 2013 and 20% afterwards,, if SAP AGSE was not in the prior year and, is not in the year in which the dividend is paid, a passive foreign investment company (“PFIC”). Based on our audited financial statements and relevant market and shareholder data, we believe that we were not treated as a PFIC for U.S. federal income taxes with respect to our 20122015 tax year. In addition, based on our audited financial statements and our current expectations regarding the value and nature of our assets, the sources and nature of our income, and relevant market and shareholder data, we do not anticipate becoming a PFIC for the 20132016 tax year. Beginning on January 1, 2013, dividend income may also be subject toWith the enactment of The Health Care and Education Reconciliation Act of 2010, certain US holders who are individuals, trusts, or estates, must pay a Medicare tax on net investment income at a rate of 3.8%. on the lesser of (i) net investment income such as dividends and (ii) the excess of modified adjusted gross income over the statutory thresholds.
U.S. Taxation of Capital Gains
In general, assuming that SAP AGSE at no time is a PFIC, upon a sale or exchange of ordinary shares to a person other than SAP AG,SE, a U.S. Holder will recognize gain or loss in an amount equal to the difference between the amount realized on the sale or exchange and the U.S. Holder’s adjusted tax basis in the ordinary shares. Such gain or loss will be a capital gain or loss and will be considered a long-term capital gain (taxable at a reduced rate for individuals) if the ordinary shares were held for more than one year. Beginning on January 1, 2013, capitalCapital gains may also be subject to the Medicare tax on net investment income at a rate of 3.8%. The deductibility of capital losses is subject to significant limitations. Upon a sale of ordinary shares to SAP AG,SE, a U.S. Holder may recognize a capital gain or loss or, alternatively, may be considered to have received a distribution with
Part I
Item 10
respect to the ordinary shares, in each case depending upon the application to such sale of the rules of Section 302 of the Code.
Deposit and withdrawal of ordinary shares in exchange for ADRs by a U.S. Holder will not result in its realization of gain or loss for U.S. federal income tax purposes.
U.S. Information Reporting and Backup Withholding
Dividend payments made to holders and proceeds paid from the sale of shares or ADRs are subject to information reporting to the Internal Revenue Service and will be subject to backup withholding taxes (currently
(currently imposed at a 28% rate) unless the holder (i) is a corporation or other exempt recipient or (ii) provides a taxpayer identification number on a properly completed IRS Form W-9 and certifies that no loss of exemption from backup withholding has occurred. Holders that are not U.S. persons are not subject to information reporting or backup withholding. However, such a holder may be required to provide a certification of its non-U.S. status in connection with payments received within the United States or through a U.S.-related financial intermediary.
Backup withholding is not an additional tax and any amounts withheld as backup withholding may be credited against a holder’s U.S. federal income tax liability. A holder may obtain a refund of any excess amounts withheld under the backup withholding rules by timely filing the appropriate claim for refund with the Internal Revenue Service and furnishing any required information.
Shareholders may be subject to other U.S. information reporting requirements and should consult their own tax advisors for application of these reporting requirements to their own facts and circumstances.
U.S. Foreign Tax Credit
In general, in computing its U.S. federal income tax liability, a U.S. Holder may elect for each taxable year to claim a deduction or, subject to the limitations on foreign tax credits generally, a credit for foreign income taxes paid or accrued by it. For U.S. foreign tax credit purposes, subject to the applicable limitations under the foreign tax credit rules, German tax withheld from dividends paid to a U.S. Holder, up to the 15% provided under the Treaty, will be eligible for credit against
the U.S. Holder’s federal income tax liability or, if the U.S. Holder has elected to deduct such taxes, may be deducted in computing taxable income.
For U.S. foreign tax credit purposes, dividends paid by SAP AGSE generally will be treated as foreign-source income and as “passive category income” (or in the case of certain holders, as “general category income”). Gains or losses realized by a U.S. Holder on the sale or exchange of ordinary shares generally will be treated as U.S.-source gain or loss.
Passive Foreign Investment Company Considerations
Special and adverse U.S. tax rules apply to a U.S. Holder that holds an interest in a passive foreign investment company (PFIC). Based on current projections concerning the composition of SAP AG’sSE’s income and assets, SAP AGSE does not believe that it will be treated as a PFIC for its current or future taxable years. However,
because this conclusion is based on our current projections and expectations as to its future business activity, SAP AGSE can provide no assurance that it will not be treated as a PFIC in respect of its current or any future taxable years.
SuccessFactors,Concur Technologies, Inc.
Pursuant to the Agreement and Plan of Merger dated as of December 3, 2011September 18, 2014 by and among Concur Technologies, Inc., SAP America, Inc. and Congress Acquisition Corp., a wholly owned subsidiary of SAP AG (SAP America), Saturn Expansion Corporation, a wholly owned subsidiary ofon December 4, 2014 SAP America (Saturn)acquired Concur, the leader in the multi-billion travel and SuccessFactors, Inc. (SuccessFactors), Saturn commenced a cash tender offerexpense management software industry, for all of the outstanding shares of the common stock of SuccessFactors, par value US$0.001129.00 per share (each a share), at a price of US$40.00 per share, representingwhich represents an enterprise value of approximately US$3.68.3 billion. On February 21, 2012, SAP acquired more than 90% of the outstanding ordinary shares of SuccessFactors. Subsequent to the acceptance of the shares for payment under the tender offer, SAP effected a short-form merger under Delaware and acquired the remaining shares for the same US$40.00 per share price that was paid in the tender offer. The transaction was funded primarily from SAP’s cash on hand and a €1EUR 7.0 billion credit facility.
Part I
Item 10, 11, 12
The preceding description is a summary of the Agreement and Plan of Merger and is qualified in its entirety by the Agreement and Plan of Merger which is incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the SEC by SuccessFactors on December 5, 2011.
Ariba, Inc.
Pursuant to the Agreement and Plan of Merger, dated as of May 22, 2012 by and among Ariba, Inc., SAP America, Inc. and Angel Expansion Corporation, (the “Merger Agreement”), on October 1, 2012 SAP America acquired Ariba, the leading cloud-based business commerce network, for US$45.00 per share, representing an enterprise value of approximately US$4.3 billion. The acquisition combines Ariba’s successful buyer-seller collaboration network with SAP’s broad customer base and deep business process expertise to create new models for business-to-business collaboration in the cloud. The transaction was funded from SAP’s free cash and a €2.4 billion term loan facility.
The preceding description is a summary of the Merger Agreement and is qualified in its entirety by the Merger Agreement which is incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the SEC by Ariba, Inc. on May 22, 2012.
See “Item 5. Operating and Financial Review and Prospects – Liquidity and Capital Disclosures”, for information on our credit facilities.
We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended. In accordance with these requirements, we file reports and furnish other information as a foreign private issuer with the SEC. These materials, including this report and the exhibits thereto, may be inspected and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. The SEC also maintains a Web site at www.sec.gov that contains reports and other information regarding registrants that file electronically with the SEC. This report as well as some of the other information submitted by us to the SEC may be accessed through this Web site. In addition, information about us is available at our Web site:www.sap.comwww.sap.com..
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to various financial risks, such as market risks, including changes in foreign currency exchange rates, interest rates and equity prices, as well as credit risk and liquidity risk. We manage these risks on a Group-wide basis. Selected derivatives are exclusively used for this purpose and not for speculation, which is defined as entering into derivative instruments without a corresponding underlying transaction. Financial risk management is done centrally. See Notes (24), (25) and (26) to our Consolidated Financial Statements for our quantitative and qualitative disclosures about market risk.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Fees and Charges Payable by ADR Holders
Deutsche Bank Trust Company Americas is the Depositary for SAP AG’sSE’s ADR program. ADR holders may be required to pay the following charges:
taxes and other governmental charges;
– | taxes and other governmental charges; |
– | registration fees as may be in effect from time to time for the registration of transfers of SAP ordinary shares on any applicable register to the Depositary or its nominee or the custodian or its nominee in connection with deposits or withdrawals under the Deposit Agreement; |
– | applicable air courier, cable, telex and facsimile expenses of the Depositary; |
– | expenses incurred by the Depositary in the conversion of foreign currency; |
– | US $5.00 or less per 100 ADSs (or portion thereof) to the Depositary for the execution and delivery of ADRs (including in connection with the depositing of SAP ordinary shares or the exercising of rights) and the surrender of ADRs as well as for the distribution of other securities; |
– | a maximum aggregate service fee of US $3.00 per 100 ADSs (or portion thereof) per calendar year to the Depositary for the services performed by the Depositary in administering the ADR program, including for processing any cash dividends and other cash distributions; and |
– | US $5.00 or less per 100 ADSs (or portion thereof) to the Depositary for distribution of securities other than SAP ordinary shares or rights. |
These fees may at any time and from time to time for the registration of transfers ofbe changed by agreement between SAP ordinary shares on any applicable register to the Depositary or its nominee or the custodian or its nominee in connection with deposits or withdrawals under the Deposit Agreement;
applicable air courier, cable, telex and facsimile expenses of the Depositary;
expenses incurred by the Depositary in the conversion of foreign currency;
$5.00 or less per 100 ADSs (or portion thereof) to the Depositary for the execution and delivery of ADRs (including in connection with the depositing of SAP ordinary shares or the exercising of rights)SE and the surrender of ADRs as well as for the distribution of other securities;
Part I
Item 12
a maximum aggregate service fee of US$2.00 per 100 ADSs (or portion thereof) per calendar year to the Depositary for the services performed by the Depositary in administering the ADR program, including for processing any cash dividends and other cash distributions; and
$5.00 or less per 100 ADSs (or portion thereof) to the Depositary for distribution of securities other than SAP ordinary shares or rights.
Depositary. These charges are described more fully in Section 5.9 of the Amended and Restated Deposit Agreement dated as of November 25, 2009, as amended by Amendment No. 1 dated as of March 18, 2016 and as may be further amended from time to time, incorporated by reference as ExhibitExhibits 4.1.1 and 4.1.2 to our 2010 Annual Report on Form 20-F filed with the Commission on March 18, 2011.this report.
Applicable service fees are either deducted from any cash dividends or other cash distributions or charged separately to holders in a manner determined by the Depositary, depending on whether ADSs are registered in the name of investors (whether certificated or in book-entry form) or held in brokerage and custodian accounts (via DTC). In the case of distributions of securities other
than SAP ordinary shares or rights, the Depositary charges the applicable ADS record date holder concurrent with the distribution. In the case of ADSs registered in the name of the investor, whether certificated or in book entry form, the Depositary sends invoices to the applicable record date ADS holders. For ADSs held in brokerage and custodian accounts via DTC, the Depositary may, if permitted by the settlement systems provided by DTC, collect the fees through those settlement systems from the brokers and custodians holding ADSs in their DTC accounts. The brokers and custodians who hold their clients’ ADSs in DTC accounts in such case may in turn charge their clients’ accounts the amount of the service fees paid to the Depositary.
In the event of a refusal to pay applicable fees, the Depositary may refuse the requested services until payment is received or may set off the amount of the service from any distribution to be made to the ADR holder, all in accordance with the Deposit Agreement.
If any taxes or other governmental charges are payable by the holders and/or beneficial owners of ADSs to the Depositary, the Depositary, the custodian or SAP may withhold or deduct from any distributions made in respect of the deposited SAP ordinary share and may sell for the account of the holder and/or beneficial owner any or all of the deposited ordinary shares and apply such distributions and sale proceeds in payment of such taxes (including applicable interest and penalties) or charges, with the holder and the beneficial owner thereof remaining fully liable for any deficiency.
Fees and Other Payments Payable by the Depositary to SAP
TheIn connection with the ADR program, the Depositary has agreed to make certain payments to SAP as reimbursement for expenses incurred by SAP in connection with itsand waive certain costs of providing ADR administrative and reporting services, including reporting of ADR program activity, distribution of information to investors, managing the ADR program, including ADR processing activities and in support of SAP’s ongoingcorporate actions, ADR broker desk services and ADR investor relations activities related to the ADR program.services, including production of investor targeting, peer analysis, shareholder identification reports and market perception studies. For the year ended December 31, 2012,period beginning November 25, 2014 and ending November 24, 2015, the Depositary has made direct and indirect payments to SAP in an aggregate amount of US$2,632,581.79 for investor relations activitiesUS $1,287,940.78 related to the ADR program, includingprogram. In 2015, the productionDepositary agreed to reimburse up to US $25,000 in legal fees associated with the cost of annual reports and Form 20-F filings, 2012 NYSE listing fees, road shows, productionrenewal of investor targeting, peer analysis, shareholder identification reports and perception studies, postage for mailing annual and interim reports and other communications tothe ADR holders and participation in retail investor activities, broker conferences, SAP sponsored analyst events and capital markets days.program.
Part II
Item 13, 14, 15, 16, 16A
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
None.
ITEM 15. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Disclosure controls and procedures are controls and other procedures of SAP that are designed to ensure that information required to be disclosed by SAP in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by SAP in the reports that it files or submits under the Exchange Act is accumulated and communicated to SAP management, including SAP’s principal executive and financial officers (i.e. SAP’s co-chiefchief executive officers (Co-CEOs)officer (CEO) and chief financial officer (CFO)), or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. SAP’s management evaluated, with the participation of SAP’s Co-CEOsCEO and CFO the effectiveness of SAP’s disclosure controls and procedures as of December 31, 2012.2015. The evaluation was led by SAP’s Global Governance Risk & Compliance function, including dedicated “SOX Champions” in all of SAP’s major entities and business units with the participation of process owners, SAP’s key corporate senior management, senior management of each business group, and as indicated above under the supervision of SAP’s Co-CEOsCEO and CFO. Based on the foregoing, SAP’s management, including SAP’s Co-CEOsCEO and CFO, concluded that as of December 31, 2012,2015, SAP’s disclosure controls and procedures were effective.
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of SAP is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. SAP’s internal control over financial reporting is a process designed under the supervision of SAP’s Co-CEOsCEO and CFO to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in
accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
SAP’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2012.2015. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control – Integrated Framework.Framework (2013)”.
Based on the assessment under these criteria, SAP management has concluded that, as of December 31, 2012,2015, the Company’s internal control over financial reporting was effective.
KPMG, our independent registered public accounting firm, has issued its attestation report on the effectiveness of SAP’s internal control over financial reporting, which is included in Item 18. Financial Statements, “Report of Independent Registered Public Accounting Firm.”
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There has been no change in our internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our Supervisory Board has determined that Erhard Schipporeit is an “audit committee
Part II
Item 16A, 16B, 16C
financial expert”, as defined by the regulations of the Commission issued pursuant to Section 407 of the Sarbanes-Oxley Act of 2002 and meeting the requirements of Item 16A. He is “independent”, as such term is defined in Rule 10A-3 under the Exchange Act.
In 2003, SAP adopted a Code of Business Conduct that applies to all employees (including all personnel in the accounting and controlling departments), managers and the members of SAP’s Executive Board (including our CEOsCEO and CFO). Our Code of Business Conduct constitutes a “code of ethics” as defined in Item 16.B of Form 20-F. Our Code of Business Conduct sets standards for all dealings with customers, partners, competitors and suppliers and includes, among others, regulations with regard to confidentiality, loyalty, preventing conflicts of interest, preventing bribery, and avoiding anti-competitive practices. International differences in culture, language, and legal and social systems make the adoption of uniform Codes of
Business Conduct across an entire global company challenging. As a result, SAP has set forth a master code containing minimum standards. In turn, each company within the SAP Group has been required to adopt a similar code that meets at least these minimum standards, but may also include additional or more stringent rules of conduct. Newly acquired companies also are required to meet the minimum standards set forth in the Code of Business Conduct. Effective February 2012, SAP amended its Code of Business Conduct to address certain changes in bribery laws, and to update the intellectual property and non-retaliation provisions. We have made our amended Code of Business Conduct publicly available by posting the full text on our Web site under http://www.sap.com/corporate-en/investors/governance/policies-statutes.epx.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
AUDIT FEES, AUDIT RELATED FEES, TAX FEES AND ALL OTHER FEES
Refer to Note (31) to our Consolidated Financial Statements for information on fees billedcharged by our independent registered public accounting firm, KPMG, for audit services and other professional services.
AUDIT COMMITTEE’S PRE-APPROVAL POLICIES AND PROCEDURES
As required under German law, our shareholders appoint our external independent auditors to audit our financial statements, based on a proposal that is legally required to be submitted by the Supervisory Board. The Supervisory Board’s proposal is based on a proposal by the Audit Committee. See also the description in “Item 10. Additional Information – Corporate Governance.”
In 2002 our Audit Committee adopted a policy with regard to the pre-approval of audit and non-audit services to be provided by our external independent auditors. This policy, which is designed to assure that such engagements do not impair the independence of our auditors, was amended and expanded in 2003, 2007 and 2009 (changes in 2009 only related to information requirements). The policy requires prior approval of the Audit Committee for all services to be provided by our external independent auditors for any entity of the SAP Group. With regard to non-audit services the policy distinguishes among three categories of services:
– | (i) “Prohibited services:” This category includes services that our external independent auditors must not be engaged to perform. These are services that are not permitted by applicable law or that would be inconsistent with maintaining the auditors’ independence. |
(i) “Prohibited services:” This category includes services that our external independent auditors must not be engaged to perform. These are services that are not permitted by applicable law or that would be inconsistent with maintaining the auditors’ independence.
(ii) “Services requiring universal approval:” Services of this category may be provided by our external independent auditors up to a certain aggregate amount in fees per year that is determined by the Audit Committee.
(iii) “Services requiring individual approval:” Services of this category may only be provided by our external independent auditors if they have been individually (specifically) pre-approved by the Audit Committee or an Audit Committee member who is authorized by the Audit Committee to make such approvals.
– | (ii) “Services requiring universal approval:” Services of this category may be provided by our external independent auditors up to a certain aggregate amount in fees per year that is determined by the Audit Committee. |
– | (iii) “Services requiring individual approval:” Services of this category may only be provided by our external independent auditors if they have been individually (specifically) pre-approved by the Audit Committee or an Audit Committee member who is authorized by the Audit Committee to make such approvals. |
Our Chief Accounting Officer or individuals empowered by him review all individual requests to engage our external independent auditors as a service provider in accordance with this policy and determines the category to which the requested service belongs. All requests for engagements with expected fees over a specified limit are additionally reviewed by our CFO. Based on the determination of the category the request is
Part II
Item 16C, 16D
(i) declined if it is a “prohibited service,” (ii) approved if it is a “service requiring universal approval” and the maximum aggregate amount fixed by the Audit Committee has not been reached or (iii) forwarded to the Audit Committee for individual approval if the “service requires individual approval” or is a “service requiring universal approval” and the maximum aggregate amount fixed by the Audit Committee has been exceeded.
Our Audit Committee’s pre-approval policies also include information requirements to ensure the Audit Committee is kept aware of the volume of engagements involving our external independent auditors that were not individually pre-approved by the Audit Committee itself.
Substantially all of the work performed to audit our Consolidated Financial Statements was performed by our principal accountant’s full-time, permanent employees.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Rule 10A-3 of the Exchange Act requires that all members of our audit committee be independent,
subject to certain exceptions. In accordance with German law, the Audit Committee consists of both employee and shareholder elected members. Rule 10A-3 provides an exception for an employee of a foreign private issuer such as SAP who is not an executive officer of that issuer and who is elected to the supervisory board or audit committee of that issuer pursuant to the issuer’s governing law. In this case, the employee is exempt from the independence requirements of Rule 10A-3 and is permitted to sit on the audit committee.
We rely on this exemption. Our Audit Committee includes two members who are non-executive employees of SAP AG, Inga Wielerepresentatives, Panagiotis Bissiritsas and Stefan Schulz,Martin Duffek , who were namedappointed to our Supervisory Board pursuant to the German Co-determination ActAgreement on the Involvement of Employees in SAP SE (see “Item 6. Directors, Senior Management and Employees.” for details). We believe that the reliance on this exemption does not materially adversely affect the ability of our Audit Committee to act independently and to satisfy the other requirements of Rule 10A-3.
Part II
Item 16E, 16F, 16G
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
We did not purchase any ADRs in 2012. The following table sets out information concerning repurchases of our ordinary shares, which we
mainly use to serve our employee discount stock purchase programs, Long-Term Incentive Plans, Stock Option Plans and other such plans. The maximum number of shares that we were authorized to repurchase under these plans and programs as of December 31, 2012 was 86,515,907.
Period | (a)Total Number of Shares Purchased | (b)Average Price Paid per Share (in €) | (c)Total Number of Shares Purchased as Part of Publicly Announced Plans and Programs | (d)Maximum Number of Shares that May Yet Be Purchased Under these Plans and Programs | ||||||||||||
January 1/1/12 – 1/31/12 | 190,000 | 45.74 | 190,000 | 85,082,342 | ||||||||||||
February 2/1/12 – 2/28/12 | 910,000 | 48.64 | 910,000 | 85,184,921 | ||||||||||||
March 3/1/12 – 3/31/12 | 0 | – | 0 | 85,213,701 | ||||||||||||
April 4/1/12 – 4/30/12 | 0 | – | 0 | 85,246,300 | ||||||||||||
May 5/1/12 – 5/31/12 | 0 | – | 0 | 85,280,215 | ||||||||||||
June 6/1/12 – 6/30/12 | 0 | – | 0 | 86,225,823 | ||||||||||||
July 7/1/12 – 7/31/12 | 0 | – | 0 | 86,258,552 | ||||||||||||
August 8/1/12 – 8/31/12 | 0 | – | 0 | 86,289,354 | ||||||||||||
September 9/1/12 – 9/30/12 | 0 | – | 0 | 86,413,029 | ||||||||||||
October 10/1/12 – 10/31/12 | 0 | – | 0 | 86,443,467 | ||||||||||||
November 11/1/12 – 11/30/12 | 0 | – | 0 | 86,472,799 | ||||||||||||
December 12/1/12 – 12/31/12 | 0 | – | 0 | 86,515,907 | ||||||||||||
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|
|
|
| |||||||||||
Total | 1,100,000 | 48.14 | 1,100,000 | |||||||||||||
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Purchases between January 1, 2012 and December 31, 2012 were made in accordance with the authorization to acquire and use treasury shares granted atAt the Annual General Meeting of Shareholders on June 8 2010, pursuant to which4, 2013, the Executive Board was authorized to acquire, on or before June 30, 2013,3, 2018, up to 120 million shares of SAP. The authorization from June 8, 20104, 2013 replaced the authorization from May 19, 2009.June 8, 2010.
Both authorizations wereThe authorization is subject to the provision that the shares to be purchased, together with any other shares already acquired and held by SAP, do not account for more than 10% of SAP’s capital stock.
In 2015 there were no purchases made by us or on our behalf or on behalf of affiliates of SAP of SAP shares or SAP ADRs. The total number of SAP shares that SAP could purchase under existing repurchase programs was 92,299,388 as of December 31, 2015.
ITEM 16F. CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 16G. DIFFERENCES IN CORPORATE GOVERNANCE PRACTICES
The following summarizes the principal ways in which our corporate governance practices differ from the New York Stock Exchange (NYSE) corporate governance rules applicable to U.S. domestic issuers (the NYSE Rules).
SAP is incorporated under the laws of the European Union and Germany, with securities publicly traded on markets in Germany, including the Frankfurt Exchange and in the United States on the NYSE.
The NYSE Rules permit foreign private issuers to follow applicable home country corporate governance practices in lieu of the NYSE corporate governance standards, subject to certain exceptions. Foreign private issuers electing to follow home country corporate governance rules are required to disclose the principal differences in their corporate governance practices from those required under the NYSE Rules. This Item 16G
Part II
Item 16G
summarizes the principal ways in which SAP’s corporate governance practices differ from the NYSE Rules applicable to domestic issuers.
The primary sourcesources of law relating to the corporate governance of a European Company are the Council Regulation (EC) No. 2157/2001 on the Statute for a European Company (the “SE Regulation”), the German stock corporation isAct on the Implementation of Council Regulation No. 2157/2001 of October 8, 2001 on the Statute for a European Company (Gesetz zur Ausführung der Verordnung (EG) Nr. 2157/2001 des Rates vom 8. Oktober 2001 über das Statut der Europäischen Gesellschaft (SE) – SE-Ausführungsgesetz; “SE-AG”) of December 22, 2004, and the German Stock Corporation Act (Aktiengesetz). Additionally, the Securities Trading Act (Wertpapierhandelsgesetz), the German Securities Purchase and Take Over Act (Wertpapiererwerbs- und Übernahmegesetz), the Stock Exchange Admission Regulations, the German Commercial Code (Handelsgesetzbuch) and certain other German statutes contain corporate governance rules applicable to SAP. In addition to these mandatory rules, the German Corporate Governance Code (“GCGC”) summarizes the mandatory statutory corporate governance principles found in the German Stock Corporation Act and other provisions of German law. Further, the GCGC contains supplemental recommendations and suggestions for standards on responsible corporate governance intended to reflect generally accepted best practices.
The German Stock Corporation Act requires the executive and the supervisory board of publicly listed companies like SAP to declare annually that the recommendations set forth in the GCGC have been and are being complied with or which of the recommendations have not been or are not being complied with and why not. SAP has disclosed and reasoned deviations from a few of the GCGC recommendations in its Declaration of Implementation on a yearly basis since 2003. Declarations from 2007 forward are available on the SAP website (http://www.sap.com/corporate-en/investors/governance/policies-statutes.epx).
We believe the following to be the significant differences between applicable European and German corporate governance practices, as SAP has implemented them, and those applicable to domestic companies under the NYSE Rules.
GERMAN STOCK CORPORATIONS ARE REQUIRED TO HAVESAP SE IS A EUROPEAN COMPANY WITH A TWO-TIER BOARD SYSTEM
SAP is governed by three separate bodies: (i) the Supervisory Board, which counsels, supervises and
and
controls the Executive Board; (ii) the Executive Board, which is responsible for the management of SAP; and (iii) the General Meeting of Shareholders. The rules applicable to these governing bodies are defined by European and German law and by SAP’s Articles of Incorporation. This corporate structure differs from the unitary board of directors established by the relevant laws of all U.S. states and the NYSE Rules. Under the SE Regulation and the German Stock Corporation Act, the Supervisory Board and Executive Board are separate and no individual may be a member of both boards. See “Item 10. Additional Information –— Corporate Governance” for additional information on the corporate structure.
The NYSE Rules require that a majority of the members of the board of directors of a listed issuer and each member of its nominating, corporate governance, compensation and audit committee be “independent.” As a foreign private issuer, SAP is not subject to the NYSE board, compensation committee and corporate governance committee independence requirements but instead can elect to follow its home country rules. With respect to the audit committee, SAP is required to satisfy Rule 10A-3 of the Exchange Act, which provides certain exemptions from the audit committee independence requirements in the case of employee board representatives. The NYSE Rules stipulate that no director qualifies as “independent” unless the board of directors has made an affirmative determination that the director has no material direct or indirect relationship with the listed company. However, under the NYSE Rules a director may still be deemed independent even if the director or a member of a director’s immediate family has received during a 12 month period within the prior three years up to $120,000 in direct compensation. In addition, a director may also be deemed independent even if a member of the director’s immediate family works for the company’s auditor in a non-partner capacity and not on the company’s audit. By contrast, the GCGC requires that the Supervisory Board ensure that proposed candidates are persons with the necessary knowledge, competencies and applicable experience, and thatexperience. Additionally, the Supervisory Board includes what it considers an adequateis required to implement and adhere to concrete director independence criteria, including a consideration of the total number of independent members. ASupervisory Board members as defined in Section 5.4.2 of the Code. According to this definition, a Supervisory Board member iswill not be considered independent in particular if s/he has personal or she has no business or personal relations with SAPthe company, its executive bodies, a controlling shareholder or its Executive Board thatan enterprise associated with any of the preceding persons and entities which could give rise tocause a substantial and sustained conflict of interest. The members of the Supervisory Board must have enough time to perform
their board duties and must carry out their duties carefully and in good faith. For as long as they serve, they must comply with the criteria that are enumerated in relation to the selection of candidates for the Supervisory Board concerning independence, conflict of interest and multiple memberships of management, supervisory and other governing bodies. They must be loyal to
Part II
Item 16G
SAP in their conduct and they must not accept appointment in companies that are in competition with SAP. Supervisory Board members must disclose any planned non-ordinary course business transactions with SAP to the Supervisory Board promptly. The Supervisory Board members cannot carry out such transactions before the Supervisory Board has given its permission. The Supervisory Board may grant its permission for any such transaction only if the transaction is based on terms and conditions that are standard for the type of transaction in question and if the transaction is not contrary to SAP’s interest. SAP complies with these GCGC director independence requirements.
Applicable European and German corporate law requires that for publicly listed stock corporations at least one member of the Supervisory Board who has expert knowledge in the areas of financial accounting and audit of financial statements must be independent. Mr. Erhard Schipporeit who is the Chairman of SAP’s Audit Committee meets these requirements. However, applicable European and German corporate law and the GCGC do not require the Supervisory Board to make an affirmative determination for each individual member that is independent or that a majority of Supervisory Board members or the members of a specific committee are independent.
The NYSE independence requirements are closely linked with risks specific to unitary boards of directors that are customary for U.S. companies. In contrast, the two-tier board structure requires a strict separation of the executive board and supervisory board. In addition, the supervisory board of a European Company formed by conversion from a large German stock corporations iscorporation which was subject to the principle of employee codetermination as outlined in the German Co-Determination Act of 1976 (Mitbestimmungsgesetz). is subject to at least the same level of employee participation which formerly existed in the German stock corporation that was converted to an SE. The terms of employee participation with regard to the Supervisory Board of SAP SE are, among others, set out in the Agreement on the Involvement of Employees in SAP SE. As a result, the Supervisory Board of SAP AGSE consists of 1618 members, of which eight have beennine are representatives of SAP SE’s shareholders elected by SAP AG’s shareholders at the Annual General Meeting and eightnine members have beenare representatives of the European employees. Only a shareholders’ representative may be elected by employees of SAP AG and its German subsidiaries. Typically, theas chairperson of the supervisory boardSupervisory Board. In case
of a tied vote, the vote of the chairperson and, in the event that the chairperson does not participate in passing the resolution, the vote of the deputy chairperson, provided that he or she is a shareholder representative. In case of a tie vote, the supervisory board chairperson may cast theshareholders’ representative, will be decisive tie-breaking vote.(casting vote). This board structure creates a different system of checks and balances, including employee participation, and cannot be directly compared with a unitary board system.
As a foreign private issuer, the NYSE Rules require SAP to establish an Audit Committee that satisfies the requirements of Rule 10A-3 of the Exchange Act with respect to audit committee independence. SAP is in compliance with these requirements. The Chairman of SAP’s Audit Committee and Prof. Dr. Klaus Wucherer meet the independence requirements of Rule 10A-3 of the Exchange Act. The other two Audit Committee members, Inga WielePanagiotis Bissiritsas and Stefan Schulz,Martin Duffek, are employee representatives who are eligible for the exemption provided by Rule 10 A-3 (b) (1) (iv) (C) (see “Item 16D Exemptions from the listing standards for audit committees” for details).
The Audit Committee independence requirements are similar to the Board independence requirements under applicable European and German corporate law and the GCGC. See the section above under “Director Independence Rules.” Nonetheless, SAP meets the NYSE Rules on audit committee independence applicable to foreign private issuers.
RULES ON NON-MANAGEMENT BOARD MEETINGS ARE DIFFERENT
Section 303 A.03 of the NYSE Rules stipulates that the non-management board of each listed issuer must meet at regularly scheduled executive sessions without the management. Under applicable European and German corporate law and the GCGC the Supervisory Board is entitled but not required to exclude Executive Board members from its meetings. The Supervisory Board exercises this right generally during its meetings.
RULES ON ESTABLISHING COMMITTEES DIFFER
Pursuant to Section 303 A.04 and 303 A.05 of the NYSE Rules listed companies are required to set up a Nominating/Corporate Governance Committee and a Compensation Committee, each composed entirely of independent directors and having a written charter specifying the committee’s purpose and responsibilities. In addition, each committee’s performance must be reviewed annually. With one exception,Applicable European and German corporate law does not mandate the creation of specific supervisory board committees. Required by the German Co-Determination Act of 1976
Part II
Item 16G
(Mitbestimmungsgesetz), the Mediation Committee (Vermittlungsausschuss) convenes only if the 2/3 majority required for appointing/revoking the appointment of Executive Board Members is not attained. This committee has never been convened in SAP’s history. In addition, theThe GCGC recommends that the Supervisory Board establish an Audit Committee and a Nomination Committee. In addition to the legally required Mediation Committee, SAP has the following committees, which are in compliance with the GCGC: General and Compensation Committee, Audit Committee, Strategy and Technology Committee,
Finance and Investment Committee, Nomination Committee, Special Committee and SpecialPeople and Organization Committee (See “Item 10. Additional Information — Corporate Governance” for more information).
RULES ON SHAREHOLDERS’ COMPULSORY APPROVAL ARE DIFFERENT
Section 312 of the NYSE Rules requires U.S. companies to seek shareholder approval of all equity-compensation plans, including certain material revisions thereto (subject to certain exemptions as described in the rules), issuances of common stock, including convertible stock, if the common stock has, or will have upon issuance, voting power of or in excess of 20% of the then outstanding common stock, and issuances of common stock if they trigger a change of control.
According to applicable European law, the German Stock Corporation Act and other applicable German laws, shareholder approval is required for a broad range of matters, such as amendments to the articles of association, certain significant corporate transactions (including inter-company agreements and material restructurings), the offering of stock options and similar equity compensation to its
Executive Board members or its employees by a way of a conditional capital increase or by using treasury shares (including significant aspects of such an equity compensation plan as well as the exercise thresholds), the issuance of new shares, the authorization to purchase the corporation’s own shares, and other essential issues, such as transfers of all, or substantially all, of the assets of the stock corporation, including shareholdings in subsidiaries.
SPECIFIC PRINCIPLES OF CORPORATE GOVERNANCE
Under the NYSE Rules Section 303A.09 listed companies must adopt and disclose corporate guidelines. Since October 2007, SAP has applied, with few exceptions, the recommended corporate governance standards of the GCGC rather than company-specific principles of corporate governance. The GCGC recommendations differ from the NYSE Standards primarily as outlined in this Item 16G.
SPECIFIC CODE OF BUSINESS CONDUCT
NYSE Rules Section 303 A.10 requires listed companies to adopt and disclose a code of business conduct and ethics for directors, officers and employees, and to disclose promptly any waivers of the code for directors or executive officers. Although not required under applicable European and German law, SAP has adopted a Code of Business Conduct, which is equally applicable to employees, managers and members of the Executive Board. SAP complies with the requirement to disclose the Code of Business Conduct and any waivers of the code with respect to directors and executive officers. See “Item 16B. Code of Ethics” for details.
Part III
Item 17, 18, 19
Not applicable.
The ConsolidateConsolidated Financial Statements are included herein on pages F-1 through F-99.F-73.
The following are filed as part of this report:
Report of Independent Registered Public Accounting Firm.
– | Report of Independent Registered Public Accounting Firm. |
– | Consolidated Financial Statements |
– | Consolidated Income Statements for the years ended |
– | Consolidated Statements of Comprehensive Income for the years ended December 31, |
– | Consolidated Statements of Financial Position as of December 31, |
– | Consolidated Statements of Changes in Equity for the years ended December 31, |
– | Consolidated Statements of Cash Flows for the years ended December 31, |
– | Notes to the Consolidated Financial Statements. |
The following documents are filed as exhibits to this report:
The following documents are filed
1 | Articles of Incorporation (Satzung) of SAP SE, effective as
Certain instruments which define rights of holders of long-term debt of SAP SE and its subsidiaries are not being filed because the total amount of securities authorized under each such instrument does not exceed 10% of the total consolidated assets of SAP SE and its subsidiaries. SAP SE and its subsidiaries hereby agree to furnish a copy of each such instrument to the Securities and Exchange Commission upon request. |
4.1.1 | ||
4.1.2 | Amendment No. 1 dated March 18, 2016 to the Amended and Restated Deposit Agreement, by and among SAP SE, Deutsche Bank Trust Company Americas as Depositary, and all owners and holders from time to time of American Depositary Receipts issued thereunder, including the form of American Depositary Receipt.(3) | |
4.9 | Agreement and Plan of Merger dated as of September 18, 2014 by and among Concur Technologies, Inc., SAP America, Inc. and Congress Acquisition Corp.(4) | |
8 | For a list of our subsidiaries see Note (33) to our Consolidated Financial Statements in “Item 18. Financial Statements”. | |
12.1 | Certification of Bill McDermott, Chief Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a). | |
12.2 | Certification of Luka Mucic, Chief Financial Officer, required by Rule 13a-14(a) orRule 15d-14(a). |
Part III
Item 19
Dated: March 29, 2016 SAP SE AND SUBSIDIARIES INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Supervisory Board of SAP SE: We have audited the accompanying consolidated statements of financial position of SAP SE and subsidiaries (“SAP” or “the Company”) as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2015. We also have audited SAP’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). SAP’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SAP SE and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2015, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB). Also in our opinion, SAP SE maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control – Integrated Framework (2013) issued by the COSO.
(Unaudited) 2015(1) US$ 2015 € 2014 € 2013 € Cloud subscriptions and support Software licenses Software support Software licenses and support Cloud and software Services Total revenue Cost of cloud subscriptions and support Cost of software licenses and support Cost of cloud and software Cost of services Total cost of revenue Gross profit Research and development Sales and marketing General and administration Restructuring TomorrowNow and Versata litigation Other operating income/expense, net Total operating expenses Operating profit Other non-operating income/expense, net Finance income Finance costs Financial income, net Profit before tax Income tax TomorrowNow and Versata litigation Other income tax expense Income tax expense Profit after tax Attributable to owners of parent Attributable to non-controlling interests Earnings per share, diluted (in€) (1) The 2015 figures have been translated solely for the convenience of the reader at an exchange rate of US$1.0859 to€1.00, the Noon Buying Rate certified by the Federal Reserve Bank of New York on December 31, 2015. The accompanying Notes are an integral part of these Consolidated Financial Statements. SAP SE AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME OF SAP GROUP for the years ended December 31,
The accompanying Notes are an integral part of these Consolidated Financial Statements. SAP SE AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION OF SAP GROUP as at December 31,
(1) The 2015 figures have been translated solely for the convenience of the reader at an exchange rate of US$1.0859 to€1.00, the Noon Buying Rate certified by the Federal Reserve Bank of New York on December 31, 2015. The accompanying Notes are an integral part of these Consolidated Financial Statements. SAP SE AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY OF SAP GROUP as at December 31,
The accompanying Notes are an integral part of these Consolidated Financial Statements. SAP SE AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS OF SAP GROUP for the years ended December 31,
(1) The 2015 figures have been translated solely for the convenience of the reader at an exchange rate of US$1.0859 to€1.00, the Noon Buying Rate certified by the Federal Reserve Bank of New York on December 31, 2015. The accompanying Notes are an integral part of these Consolidated Financial Statements. SAP SE AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Entities Consolidated in the Financial Statements
The additions relate to legal entities added in connection with acquisitions and foundations. The disposals are mainly due to
(3a) Bases of The Consolidated Financial Statements have been prepared on the historical cost basis except for the following:
Where applicable, information about the methods and assumptions used in determining the respective measurement bases is disclosed in the Notes specific to that asset or liability. (3b) Relevant Accounting Policies Reclassifications We Consequently, we have combined the revenue from premium support services with the revenue from professional services and other services in a new services revenue line item. Previously, revenues from premium support services were classified as support revenues (2014:€539 million, 2013:€445 million) and related costs were classified as cost of software and software-related services The two other revenue line items cloud subscriptions and
Business Combinations and Goodwill
Foreign Currencies
recognized
net. The exchange rates of key currencies affecting the Company were as follows: Exchange Rates
Revenue Recognition Classes of Revenue We derive our revenue from fees charged to our customers for (a) the use of our hosted cloud offerings, (b) licenses to our on-premise software products, Cloud and software
Services revenue as
We account for out-of-pocket expenses invoiced by SAP and reimbursed by customers as cloud subscriptions and support, software support, or services revenue, depending on the Timing of Revenue Recognition We do not start recognizing revenue from customer arrangements before evidence of an arrangement exists and the amount of revenue and probable. If, for any of our product or service offerings, we determine at the outset of an arrangement that the amount of revenue cannot be measured reliably, we conclude that the inflow of economic benefits associated with the transaction is not probable, and we defer revenue recognition until the arrangement fee becomes due and payable by the customer. If, at the outset of an arrangement, we determine that collectability is not probable, we conclude that the inflow of economic benefits associated with the transaction is not probable, and we defer revenue recognition until the earlier of when collectability becomes probable or payment is received. If
cloud subscriptions and fees charged for non-periodical services are invoiced as the services are delivered. Cloud subscriptions and support
In general, our cloud subscriptions and support contracts include certain set-up activities. If these set-up activities have stand-alone value, they are accounted for Revenue from the sale of perpetual licenses of our standard on-premise software products is recognized
In general, our on-premise software license agreements We usually recognize revenue from on-premise software arrangements involving resellers on evidence of sell-through by the reseller to the end-customer, because the inflow of the economic benefits associated with the arrangements to us is not probable before sell-through has occurred.
the percentage-of-completion method based on contract costs incurred to date as a percentage of total estimated contract costs required to complete the development work. On-premise software subscription contracts combine software and support service elements, as under these contracts the customer is provided with current software products, rights to receive unspecified future software products, and rights to product support
We
Measurement of
Our contributions to resellers that allow our resellers to execute qualified and approved marketing activities are recognized as an offset to revenue, unless we obtain a separate identifiable benefit for the contribution and the fair value of Multiple-Element Arrangements We combine two or more customer contracts with the same customer and account for the contracts as a single contract if the contracts are negotiated as a package or otherwise linked. Thus, the majority of our contracts that contain cloud offerings or on-premise software also include other goods or services (multiple-element arrangements). We account for the different goods and services promised under our customer contracts as separate units of account (distinct deliverables) unless:
Goods and services that do not qualify as distinct deliverables are combined into one unit of account (combined deliverables). The portion of the transaction fee allocated to one distinct deliverable is recognized in revenue separately under the policies applicable to the respective deliverable. For combined deliverables consisting of cloud offerings or on-premise software and other services, the allocated portion of the transaction fee is recognized using the percentage-of-completion method, as outlined above, or over the cloud subscription term, if applicable, depending on which service term is longer. We allocate the total transaction fee of a customer contract to the distinct deliverables under the contract based on their fair values. The allocation is done relative to the distinct deliverables’ individual fair values unless the residual method is applied as outlined below. Fair value is determined by company-specific objective evidence of fair value which is the price charged consistently when that element is sold separately or, for elements not yet sold separately, the price established by our management if it is probable that the price will not change before the element is sold separately. Where company-specific objective evidence of fair value and third-party evidence of selling price cannot be established due to lacking stand-alone sales or lacking pricing consistency, we determine the fair value of a distinct deliverable by estimating its stand-alone selling price. Company-specific objective evidence of fair value and estimated stand-alone selling prices (ESP) for our major products and services are determined as follows:
We also consider FASB ASC 985-605 in our accounting for options that entitle the customer to purchase, in the future, additional on-premise software or services. We allocate revenue to future incremental discounts whenever customers are granted a material right, that is, the right to license additional on-premise software at a higher discount than the one given within the initial software license arrangement, or to purchase or renew services at rates below the fair values established for these services. We also consider whether future purchase options included in arrangements for cloud subscription deliverables constitute a material right. Cost of Cost of Cost of Cost of Research and Development Research and development includes the costs incurred by activities related to the development of software solutions (new products, updates, and enhancements) including resource and hardware costs for the development systems.
We have determined that the conditions for recognizing internally generated intangible assets from our software development activities are not met until shortly before the products are available for sale. Development costs incurred after the recognition criteria are met have not been material. Consequently, Sales and Marketing Sales and marketing includes costs incurred for the selling and marketing activities related to our software General and Administration General and administration includes costs related to finance and administrative functions, human resources, and general management as long as they are not directly attributable to one of the other operating expense line items.
We
Share-Based Payments Share-based payments cover cash-settled and equity-settled awards issued to our employees. The
We grant our employees discounts on certain share-based
For more information about our share-based payments, see Note (27).
Financial Assets Our financial assets comprise cash and cash equivalents (highly liquid investments with original maturities of three months or less), loans and receivables, acquired equity and debt investments, and derivative financial instruments (derivatives) with positive fair values.
Regular way purchases and sales of financial assets are recorded as at the trade date. Among the other impairment indicators in
Derivatives
Derivatives Many transactions constitute economic hedges, and therefore contribute effectively to the securing of financial risks but do not qualify for hedge accounting under IAS 39.
Derivatives Designated as Hedging Instruments
a) Cash Flow Hedge In general, we apply cash flow hedge accounting to the foreign currency risk of highly probable forecasted transactions and interest-rate risk on variable rate financial liabilities. With regard to foreign currency risk, hedge accounting relates to the spot price and the intrinsic values of the derivatives designated and qualifying as cash flow hedges, while gains and losses on the interest element and on those time values excluded from the hedging relationship as well as the ineffective portion of gains or losses are recognized in profit or loss as they occur. b) Fair Value Hedge We apply fair value hedge accounting for certain of our fixed rate financial liabilities. Valuation and Testing of Effectiveness
The effectiveness of the hedging relationship is tested prospectively and retrospectively. Prospectively, we apply the critical terms match for our foreign currency hedges as currencies, maturities, and the amounts are identical for the forecasted transactions and the spot element of the forward exchange rate contract or intrinsic value of the currency options, respectively. For The method of retrospectively testing effectiveness depends on the type of the hedge as described further below: a) Cash Flow Hedge Retrospectively, effectiveness is tested on a cumulative basis applying the dollar offset method by using the hypothetical derivative method. Under this approach, the change in fair value of a constructed hypothetical derivative with terms reflecting the relevant terms of the hedged item is compared to the change in the fair value of the hedging instrument employing its relevant terms. The hedge is deemed highly effective if the results are within the range 80% to 125%. b) Fair Value Hedge Retrospectively, effectiveness is tested using statistical methods in the form of a regression analysis by which the validity and extent of the relationship between the change in value of the hedged items as the independent variable and the fair value change of the derivatives as the dependent variable is determined. The hedge is deemed highly effective if the determination coefficient between the hedged items and the hedging instruments exceeds 0.8 and the slope coefficient lies within a range of –0.8 to –1.25. Trade and Other Receivables Trade receivables are recorded at invoiced amounts less sales allowances and allowances for doubtful accounts. We record these allowances based on a specific review of all significant outstanding invoices. When analyzing the recoverability of our trade receivables, we consider the following factors:
Account balances are written off, that is, charged off against the allowance after all collection efforts have been exhausted and the likelihood of recovery is considered remote. In our Consolidated Income Statements, expenses from recording bad debt allowances for a portfolio of trade receivables are classified as other operating income, net, whereas expenses from recording bad debt allowances for specific customer balances are classified as cost of Included in trade receivables are unbilled receivables related to fixed-fee and time-and-material consulting arrangements for contract work performed to date. Other Non-Financial Assets Other non-financial assets are recorded at amortized cost. We recognize as an asset the direct and incremental cost incurred when obtaining a customer cloud subscription contract. We amortize these assets on a straight line basis over the period of providing the cloud subscriptions to which Intangible Assets We classify intangible assets according to their nature and use in our operation. Software and database licenses consist primarily of technology for internal use, whereas acquired technology consists primarily of purchased software to be incorporated into our product offerings and in-process research and development. Customer relationship and other intangibles consist primarily of customer contracts and acquired trademark licenses.
Amortization expenses of intangible assets are classified as cost of Property, Plant, and Equipment Property, plant, and equipment are carried at acquisition cost plus the fair value of related asset retirement costs if any and if reasonably estimable, Property, plant, and equipment are depreciated over their expected useful lives, generally using the straight-line method. Useful Lives of Property, Plant, and Equipment
Impairment of Goodwill and Non-Current Assets
The
Impairment losses are
Liabilities Financial Liabilities Financial liabilities include trade and other payables, bank loans, issued bonds, private placements, and other financial liabilities
Customer funding liabilities are funds we draw from and make payments on
Expenses and gains/losses on financial liabilities mainly consist of interest
The employee-related provisions include, amongst others, long-term employee benefits. They are
Post-Employment Benefits
Since our domestic defined benefit pension plans primarily consist of an employee-financed post-retirement plan that is fully financed with qualifying insurance policies, current service cost may become a credit as a result of adjusting the liability’s carrying amount
Deferred Income Deferred income is recognized as
The preparation of the Consolidated Financial Statements in conformity with IFRS requires management to make judgments, estimates, and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, revenues, and expenses, as well as disclosure of contingent assets and liabilities. We base our judgments, estimates, and assumptions on historical and forecast information, as well as on regional and industry economic conditions in which we or our customers operate, changes to which could adversely affect our estimates. Although we believe we have made reasonable estimates about the ultimate resolution of the underlying uncertainties, no assurance can be given that the final outcome of these matters will be consistent with what is reflected in our assets, liabilities, revenues, and expenses. Actual results could differ from original estimates. The accounting policies that most frequently require us to make judgments, estimates, and assumptions, and therefore are critical to understanding our results of operations, include the following:
Our management periodically discusses these critical accounting policies with the Audit Committee of the Supervisory Board. Revenue Recognition As described in the Revenue Recognition section of Note (3b), we do not recognize revenue before amount of revenue can be measured reliably and collection of the related receivable is The application of the percentage-of-completion method requires us to make estimates about total revenue, total cost to complete the project, and the stage of completion. The assumptions, estimates, and uncertainties inherent in determining the stage of completion affect the timing and amounts of revenue recognized. In
Under
Additionally, our revenue for on-premise software contracts would be significantly different if we applied a revenue allocation policy other than the residual method.
Valuation of Trade Receivables As described in the Trade and Other Receivables section in Note (3b), we account for impairments of trade receivables by recording sales allowances and allowances for doubtful accounts on an individual receivable basis and on a portfolio basis. The assessment of whether a receivable is collectible is inherently judgmental and requires the use of assumptions about customer defaults that could change significantly. Judgment is required when we evaluate available information about a particular customer’s financial situation to determine whether it is probable that a credit loss will occur and the amount of such loss is reasonably estimable and thus an allowance for that specific account is necessary. Basing the general allowance for the remaining receivables on our historical loss experience, too, is highly judgmental, as history may not be indicative of future Accounting for Share-Based Payments
We use certain assumptions in estimating the fair values for our share-based payments, including expected future For the purpose of determining the estimated fair value of our stock options, we believe expected volatility is the most sensitive assumption. Regarding future payout under in these factors could significantly affect the estimated fair values as calculated by the option-pricing model, and the future payout. For more information about these plans, see Note (27). Accounting for Income Tax We The For more information about our income tax, see Note (10). Accounting for Business Combinations In our accounting for business combinations, judgment is required in determining whether an intangible asset is identifiable, and should be recorded separately from goodwill. Additionally, estimating the identifiable assets acquired and liabilities assumed involves considerable management judgment. The necessary measurements are based on information available expectations and assumptions that have been deemed reasonable by management. These judgments, estimates, and assumptions can materially affect our financial position and profit for several reasons,
Subsequent Accounting for Goodwill and Other As described in the Intangible Assets section in Note (3b), all of our intangible assets other than goodwill have finite useful lives. Consequently, the depreciable amount of the intangible assets is
Both the amortization period and the amortization method have an impact on the amortization expense that is recorded in each period. In making impairment assessments for our intangible assets and goodwill, the outcome of these tests is highly dependent on management’s latest estimates and assumptions regarding future cash flow projections and economic risks, which are complex and require significant judgment and assumptions about future developments. They can be affected by a variety of factors, including changes in our business strategy, our internal forecasts, and an estimate of our weighted-average cost of capital. The segments. This allocation
Share-based payments cover cash-settled and equity-settled awards issued to our employees. The respective expenses are recognized as employee benefits expenses and classified in our Consolidated Income Statements according to the activities that the employees owning the awards perform. We grant our employees discounts on certain share-based payment awards. Since those discounts are not dependent on future services to be provided by our employees, the discount is recognized as an expense when the rights are granted. Where we hedge our exposure to cash-settled awards, changes in the fair value of the respective hedging instruments are also recognized as employee benefits expenses in profit or loss. The fair values of hedging instruments are based on market data reflecting current market expectations. For more information about our share-based payments, see Note (27). Financial Assets Our financial assets comprise cash and cash equivalents (highly liquid investments with original maturities of three months or less), loans and receivables, acquired equity and debt investments, and derivative financial instruments (derivatives) with positive fair values. Financial assets are only classified as financial assets at fair value through profit or loss if they are held for Regular way purchases and sales of financial assets are recorded as at the trade date. Among the other impairment indicators in IAS 39 (Financial Instruments: Recognition and Measurement), for an investment in an equity security, objective evidence of impairment includes a significant (more than 20%) or prolonged (a period of more than nine months) decline in its fair value. Impairment losses on financial assets are recognized in financial income, net. For available-for-sale financial assets, which are non-derivative financial assets that are not assigned to loans and receivables or financial assets at fair value through profit or loss, impairment losses directly reduce an asset’s carrying amount, while impairments on loans and receivables are recorded using allowance accounts. Such allowance accounts are always presented together with the accounts containing the asset’s cost in other financial assets. Account balances are charged off against the respective allowance after all collection efforts have been exhausted and the likelihood of recovery is considered remote. Derivatives Derivatives Not Designated as Hedging Instruments Many transactions constitute economic hedges, and therefore contribute effectively to the securing of financial risks but do not qualify for hedge accounting under IAS 39. To hedge currency risks inherent in foreign-currency denominated and recognized monetary assets and liabilities, we do not designate our held-for-trading derivative financial instruments as accounting hedges, because the profits and losses from the underlying transactions are recognized in profit or loss in the same periods as the profits or losses from the derivatives. In addition, we occasionally have contracts that contain foreign currency embedded derivatives to be accounted for separately. Derivatives Designated as Hedging Instruments We use derivatives to hedge foreign currency risk or interest-rate risk and designate them as cash flow or fair value hedges if they qualify for hedge accounting under IAS 39. For more information about our hedges, see Note (24). a) Cash Flow Hedge In general, we apply cash flow hedge accounting to the foreign currency risk of highly probable forecasted transactions and interest-rate risk on variable rate financial liabilities. With regard to foreign currency risk, hedge accounting relates to the spot price and the intrinsic values of the derivatives designated and qualifying as cash flow hedges, while gains and losses on the interest element and on those time values excluded from the hedging relationship as well as the ineffective portion of gains or losses are recognized in profit or loss as they occur. b) Fair Value Hedge We apply fair value hedge accounting for certain of our fixed rate financial liabilities. Valuation and Testing of Effectiveness The effectiveness of the hedging relationship is tested prospectively and retrospectively. Prospectively, we apply the critical terms match for our foreign currency hedges as currencies, maturities, and the amounts are identical for the forecasted transactions and the spot element of the forward exchange rate contract or intrinsic value of the currency options, respectively. For interest-rate swaps, we also apply the critical terms match as the notional amounts, currencies, maturities, basis of the variable legs or fixed legs, respectively, reset dates, and the dates of the interest and principal payments are identical for the debt instrument and the corresponding interest-rate swaps. Therefore, over the life of the hedging instrument, the changes in the designated components of the hedging instrument will offset the impact of fluctuations of the underlying hedged items. The method of retrospectively testing effectiveness depends on the type of the hedge as described further below: a) Cash Flow Hedge Retrospectively, effectiveness is tested on a cumulative basis applying the dollar offset method by using the hypothetical derivative method. Under this approach, the change in fair value of a constructed hypothetical derivative with terms reflecting the relevant terms of the hedged item is compared to the change in the fair value of the hedging instrument employing its relevant terms. The hedge is deemed highly effective if the results are within the range 80% to 125%. b) Fair Value Hedge Retrospectively, effectiveness is tested using statistical methods in the form of a regression analysis by which the validity and extent of the relationship between the change in value of the hedged items as the independent variable and the fair value change of the derivatives as the dependent variable is determined. The hedge is deemed highly effective if the determination coefficient between the hedged items and the hedging instruments exceeds 0.8 and the slope coefficient lies within a range of –0.8 to –1.25. Trade and Other Receivables Trade receivables are recorded at invoiced amounts less sales allowances and allowances for doubtful accounts. We record these allowances based on a specific review of all significant outstanding invoices. When analyzing the recoverability of our trade receivables, we consider the following factors:
Account balances are written off, that is, charged off against the allowance after all collection efforts have been exhausted and the likelihood of recovery is considered remote. In our Consolidated Income Statements, expenses from recording bad debt allowances for a portfolio of trade receivables are classified as other operating income, net, whereas expenses from recording bad debt allowances for specific customer balances are classified as cost of cloud and software or cost of services, depending on the transaction from which the respective trade receivable results. Sales allowances are recorded as an offset to the respective revenue item. Included in trade receivables are unbilled receivables related to fixed-fee and time-and-material consulting arrangements for contract work performed to date. Other Non-Financial Assets Other non-financial assets are recorded at amortized cost. We recognize as an asset the direct and incremental cost incurred when obtaining a customer cloud subscription contract. We amortize these assets on a straight line basis over the period of providing the cloud subscriptions to which the assets relate. Intangible Assets We classify intangible assets according to their nature and use in our operation. Software and database licenses consist primarily of technology for internal use, whereas acquired technology consists primarily of purchased software to be incorporated into our product offerings and in-process research and development. Customer relationship and other intangibles consist primarily of customer contracts and acquired trademark licenses. All our purchased intangible assets other than goodwill have finite useful lives. They are initially measured at acquisition cost and subsequently amortized either based on expected consumption of economic benefits or on a straight-line basis over their estimated useful lives ranging from two to 20 years. Amortization for acquired in-process research and development project assets starts when the projects are complete and the developed software is taken to the market. We typically amortize these intangibles over five to seven years. Amortization expenses of intangible assets are classified as cost of cloud and software, cost of services, research and development, sales and marketing, and general and administration, depending on the use of the respective intangible assets. Property, Plant, and Equipment Property, plant, and equipment are carried at acquisition cost plus the fair value of related asset retirement costs if any and if reasonably estimable, less accumulated depreciation. Property, plant, and equipment are depreciated over their expected useful lives, generally using the straight-line method. Useful Lives of Property, Plant, and Equipment
Impairment of Goodwill and Non-Current Assets The annual goodwill impairment test is performed at the level of our operating segments since there are no lower levels in SAP at which goodwill is monitored for internal management purposes. The test is performed at the same time for all operating segments. Impairment losses are presented in other operating income/expense, net in profit or loss. Liabilities Financial Liabilities Financial liabilities include trade and other payables, bank loans, issued bonds, private placements, and other financial liabilities that comprise derivative and non-derivative financial liabilities. They are classified as financial liabilities at amortized cost and at fair value through profit or loss. The latter include only those financial liabilities that are held for trading, as we do not designate financial liabilities at fair value through profit or loss. Customer funding liabilities are funds we draw from and make payments on on behalf of our customers for customers’ employee expense reimbursements, related credit card payments, and vendor payments. We present these funds in cash and cash equivalents and record our obligation to make these expense reimbursements and payments on behalf of our customers as customer funding liabilities. Expenses and gains/losses on financial liabilities mainly consist of interest expense, which is recognized based on the effective interest method. Provisions The employee-related provisions include, amongst others, long-term employee benefits. They are secured by pledged reinsurance coverage and are offset against the settlement amount of the secured commitment. Post-Employment Benefits The discount rates used in measuring our post-employment benefit assets and liabilities are derived from rates available on high-quality corporate bonds and government bonds for which the timing and amounts of payments match the timing and the amounts of our projected pension payments. The assumptions used to calculate pension liabilities and costs are disclosed in Note (18a). Net interest expense and other expenses related to defined benefit plans are recognized in employee expenses. Since our domestic defined benefit pension plans primarily consist of an employee-financed post-retirement plan that is fully financed with qualifying insurance policies, current service cost may become a credit as a result of adjusting the defined benefit liability’s carrying amount to the fair value of the qualifying plan assets. Such adjustments are recorded in service cost. Deferred Income Deferred income is recognized as cloud subscriptions and support revenue, software licenses revenue, software support revenue, or services revenue, depending on the reason for the deferral, once the basic applicable revenue recognition criteria have been met. These criteria are met, for example, when the services are performed or when the discounts that relate to a material right granted in a purchase option are applied. (3c) Management Judgments and Sources of Estimation Uncertainty The preparation of the Consolidated Financial Statements in conformity with IFRS requires management to make judgments, estimates, and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, revenues, and expenses, as well as disclosure of contingent assets and liabilities. We base our judgments, estimates, and assumptions on historical and forecast information, as well as on regional and industry economic conditions in which we or our customers operate, changes to which could adversely affect our estimates. Although we believe we have made reasonable estimates about the ultimate resolution of the underlying uncertainties, no assurance can be given that the final outcome of these matters will be consistent with what is reflected in our assets, liabilities, revenues, and expenses. Actual results could differ from original estimates. The accounting policies that most frequently require us to make judgments, estimates, and assumptions, and therefore are critical to understanding our results of operations, include the following:
Our management periodically discusses these critical accounting policies with the Audit Committee of the Supervisory Board. Revenue Recognition As described in the Revenue Recognition section of Note amount of revenue can be measured reliably and collection of the related receivable is probable. The determination of whether the amount of revenue can be measured reliably or whether the fees are The application of the percentage-of-completion method requires us to make estimates about total revenue, total cost to complete the project, and the stage of completion. The assumptions, estimates, and uncertainties inherent in In the
The determination of Under a multiple-element arrangement including a cloud subscription, or on-premise software, and other deliverables, we do not In the area of allocating the transaction fee to
Additionally, our revenue for on-premise software contracts would be significantly different if we applied a revenue allocation policy other than the residual method. Valuation of Trade Receivables As described in the Trade and Other Receivables section in Note (3b), we account for impairments of trade receivables by recording sales allowances and allowances for doubtful accounts on an individual receivable basis and on a portfolio basis. The assessment of whether a
We use certain assumptions in estimating the fair values for our share-based payments, including expected future share price volatility and expected option life (which represents our estimate of the average amount of time remaining until the options are exercised or expire unexercised). In addition, the final payout for these plans also depends on our share price at the respective exercise dates. Changes to these For the purpose of determining the estimated fair value of our stock options, we believe expected volatility is the most sensitive assumption. Regarding future payout under our cash-settled plans, the price of SAP stock will be the most relevant factor. Changes in these factors could significantly affect the estimated fair values as calculated by the option-pricing model, and the future payout. For more information about these plans, see Note (27). Accounting for Income Tax We are subject to changing tax laws in multiple jurisdictions within the countries in which we operate. Our ordinary business activities also include transactions where the ultimate tax outcome is uncertain, such as those involving revenue sharing and cost reimbursement arrangements between SAP Group entities. In addition, the amount of income tax we pay is generally subject to ongoing audits by domestic and foreign tax authorities. As a result, judgment is necessary in determining our worldwide income tax provisions. We make our estimates about the ultimate resolution of our tax uncertainties based on current tax laws and our interpretation thereof. Changes to the
The assessment whether a deferred tax asset is impaired requires management judgment, as we
For more information about our income tax, see Note (10).
In our accounting for business combinations, judgment is
expectations and assumptions that have been deemed reasonable by management. These judgments, estimates, and assumptions can materially affect our financial position and profit for several reasons, including the following:
Subsequent Accounting for Goodwill and Other Intangible Assets As described in the Intangible Assets section in Note (3b), all of our intangible assets other than goodwill have finite useful lives. Consequently, the depreciable amount of the
Both the amortization period and the amortization method have an impact on the amortization expense that is recorded in each period.
The outcome of goodwill impairment tests and thus the carrying amounts of our recognized goodwill may depend on the allocation of goodwill to our operating
Share-Based Payments Share-based payments cover cash-settled and equity-settled awards issued to our employees. The respective expenses are recognized as employee benefits expenses and classified in our Consolidated Income Statements according to the activities that the employees owning the awards perform.
We grant our employees discounts on certain share-based payment awards. Since those discounts are not dependent on future services to be provided by our employees, the discount is recognized as an expense when the rights are granted. Where we hedge our exposure to cash-settled awards, changes in the fair value of the respective hedging instruments are also recognized as employee benefits expenses in profit or loss. The fair values of hedging instruments are based on market data reflecting current market expectations. For more information about our share-based payments, see Note (27). Financial Assets Our financial assets comprise cash and cash equivalents (highly liquid investments with original maturities of three months or less), loans and receivables, acquired equity and debt investments, and derivative financial instruments (derivatives) with positive fair values. Financial assets are only classified as financial assets at fair value through profit or loss if they are held for trading, as we do not designate financial assets at fair value through profit or loss. All other financial assets are classified as loans and receivables if we do not designate them as available-for-sale financial assets. Regular way purchases and sales of financial assets are recorded as at the trade date. Among the other impairment indicators in IAS 39 (Financial Instruments: Recognition and Measurement), for an investment in an equity security, objective evidence of impairment includes a significant (more than 20%) or prolonged (a period of more than nine months) decline in its fair value. Impairment losses on financial assets are recognized in financial income, net. For available-for-sale financial assets, which are non-derivative financial assets that are not assigned to loans and receivables or financial assets at fair value through profit or loss, impairment losses directly reduce an asset’s carrying amount, while impairments on loans and receivables are recorded using allowance accounts. Such allowance accounts are always presented together with the accounts containing the asset’s cost in other financial assets. Account balances are charged off against the respective allowance after all collection efforts have been exhausted and the likelihood of recovery is considered remote. Derivatives Derivatives Not Designated as Hedging Instruments Many transactions constitute economic hedges, and therefore contribute effectively to the securing of financial risks but do not qualify for hedge accounting under IAS 39. To hedge currency risks inherent in foreign-currency denominated and recognized monetary assets and liabilities, we do not designate our held-for-trading derivative financial instruments as accounting hedges, because the profits and losses from the underlying transactions are recognized in profit or loss in the same periods as the profits or losses from the derivatives. In addition, we occasionally have contracts that contain foreign currency embedded derivatives to be accounted for separately. Derivatives Designated as Hedging Instruments We use derivatives to hedge foreign currency risk or interest-rate risk and designate them as cash flow or fair value hedges if they qualify for hedge accounting under IAS 39. For more information about our hedges, see Note (24). a) Cash Flow Hedge In general, we apply cash flow hedge accounting to the foreign currency risk of highly probable forecasted transactions and interest-rate risk on variable rate financial liabilities. With regard to foreign currency risk, hedge accounting relates to the spot price and the intrinsic values of the derivatives designated and qualifying as cash flow hedges, while gains and losses on the interest element and on those time values excluded from the hedging relationship as well as the ineffective portion of gains or losses are recognized in profit or loss as they occur. b) Fair Value Hedge We apply fair value hedge accounting for certain of our fixed rate financial liabilities. Valuation and Testing of Effectiveness The effectiveness of the hedging relationship is tested prospectively and retrospectively. Prospectively, we apply the critical terms match for our foreign currency hedges as currencies, maturities, and the amounts are identical for the forecasted transactions and the spot element of the forward exchange rate contract or intrinsic value of the currency options, respectively. For interest-rate swaps, we also apply the critical terms match as the notional amounts, currencies, maturities, basis of the variable legs or fixed legs, respectively, reset dates, and the dates of the interest and principal payments are identical for the debt instrument and the corresponding interest-rate swaps. Therefore, over the life of the hedging instrument, the changes in the designated components of the hedging instrument will offset the impact of fluctuations of the underlying hedged items. The method of retrospectively testing effectiveness depends on the type of the hedge as described further below: a) Cash Flow Hedge Retrospectively, effectiveness is tested on a cumulative basis applying the dollar offset method by using the hypothetical derivative method. Under this approach, the change in fair value of a constructed hypothetical derivative with terms reflecting the relevant terms of the hedged item is compared to the change in the fair value of the hedging instrument employing its relevant terms. The hedge is deemed highly effective if the results are within the range 80% to 125%. b) Fair Value Hedge Retrospectively, effectiveness is tested using statistical methods in the form of a regression analysis by which the validity and extent of the relationship between the change in value of the hedged items as the independent variable and the fair value change of the derivatives as the dependent variable is determined. The hedge is deemed highly effective if the determination coefficient between the hedged items and the hedging instruments exceeds 0.8 and the slope coefficient lies within a range of –0.8 to –1.25. Trade and Other Receivables Trade receivables are recorded at invoiced amounts less sales allowances and allowances for doubtful accounts. We record these allowances based on a specific review of all significant outstanding invoices. When analyzing the recoverability of our trade receivables, we consider the following factors:
Account balances are written off, that is, charged off against the allowance after all collection efforts have been exhausted and the likelihood of recovery is considered remote. In our Consolidated Income Statements, expenses from recording bad debt allowances for a portfolio of trade receivables are classified as other operating income, net, whereas expenses from recording bad debt allowances for specific customer balances are classified as cost of cloud and software or cost of services, depending on the transaction from which the respective trade receivable results. Sales allowances are recorded as an offset to the respective revenue item. Included in trade receivables are unbilled receivables related to fixed-fee and time-and-material consulting arrangements for contract work performed to date. Other Other non-financial assets are recorded at amortized cost. We recognize as an asset the direct and incremental cost incurred when obtaining a customer cloud subscription contract. We amortize these assets on a straight line basis over the period of providing the cloud subscriptions to which the assets relate. Intangible Assets We classify intangible assets according to their nature and use in our operation. Software and database licenses consist primarily of technology for internal use, whereas acquired technology consists primarily of purchased software to be incorporated into our product offerings and in-process research and development. Customer relationship and other intangibles consist primarily of customer contracts and acquired trademark licenses. All our purchased intangible assets other than goodwill have finite useful lives. They are initially measured at acquisition cost and subsequently amortized either based on expected consumption of economic benefits or on a straight-line basis over their estimated useful lives ranging from two to 20 years. Amortization for acquired in-process research and development project assets starts when the projects are complete and the developed software is taken to the market. We typically amortize these intangibles over five to seven years. Amortization expenses of intangible assets are classified as cost of cloud and software, cost of services, research and development, sales and marketing, and general and administration, depending on the use of the respective intangible assets. Property, Plant, and Equipment Property, plant, and equipment are carried at acquisition cost plus the fair value of related asset retirement costs if any and if reasonably estimable, less accumulated depreciation. Property, plant, and equipment are depreciated over their expected useful lives, generally using the straight-line method. Useful Lives of Property, Plant, and Equipment
Impairment of Goodwill and Non-Current Assets The annual goodwill impairment test is performed at the level of our operating segments since there are no lower levels in SAP at which goodwill is monitored for internal management purposes. The test is performed at the same time for all operating segments. Impairment losses are presented in other operating income/expense, net in profit or loss. Liabilities Financial Liabilities Financial liabilities include trade and other payables, bank loans, issued bonds, private placements, and other financial liabilities that comprise derivative and non-derivative financial liabilities. They are classified as financial liabilities at amortized cost and at fair value through profit or loss. The latter include only those financial liabilities that are held for trading, as we do not designate financial liabilities at fair value through profit or loss. Customer funding liabilities are funds we draw from and make payments on on behalf of our customers for customers’ employee expense reimbursements, related credit card payments, and vendor payments. We present these funds in cash and cash equivalents and record our obligation to make these expense reimbursements and payments on behalf of our customers as customer funding liabilities. Expenses and gains/losses on financial liabilities mainly consist of interest expense, which is recognized based on the effective interest method. Provisions The employee-related provisions include, amongst others, long-term employee benefits. They are secured by pledged reinsurance coverage and are offset against the settlement amount of the secured commitment. Post-Employment Benefits The discount rates used in measuring our post-employment benefit assets and liabilities are derived from rates available on high-quality corporate bonds and government bonds for which the timing and amounts of payments match the timing and the amounts of our projected pension payments. The assumptions used to calculate pension liabilities and costs are disclosed in Note (18a). Net interest expense and other expenses related to defined benefit plans are recognized in employee expenses. Since our domestic defined benefit pension plans primarily consist of an employee-financed post-retirement plan that is fully financed with qualifying insurance policies, current service cost may become a credit as a result of adjusting the defined benefit liability’s carrying amount to the fair value of the qualifying plan assets. Such adjustments are recorded in service cost. Deferred Income Deferred income is recognized as cloud subscriptions and support revenue, software licenses revenue, software support revenue, or services revenue, depending on the reason for the deferral, once the basic applicable revenue recognition criteria have been met. These criteria are met, for example, when the services are performed or when the discounts that relate to a material right granted in a purchase option are applied. (3c) Management Judgments and Sources of Estimation Uncertainty The preparation of the Consolidated Financial Statements in conformity with IFRS requires management to make judgments, estimates, and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, revenues, and expenses, as well as disclosure of contingent assets and liabilities. We base our judgments, estimates, and assumptions on historical and forecast information, as well as on regional and industry economic conditions in which we or our customers operate, changes to which could adversely affect our estimates. Although we believe we have made reasonable estimates about the ultimate resolution of the underlying uncertainties, no assurance can be given that the final outcome of these matters will be consistent with what is reflected in our assets, liabilities, revenues, and expenses. Actual results could differ from original estimates. The accounting policies that most frequently require us to make judgments, estimates, and assumptions, and therefore are critical to understanding our results of operations, include the following:
Our management periodically discusses these critical accounting policies with the Audit Committee of the Supervisory Board. Revenue Recognition As described in the Revenue Recognition section of Note (3b), we do not recognize revenue before the amount of revenue can be measured reliably and collection of the related receivable is probable. The determination of whether the amount of revenue can be measured reliably or whether the fees are collectible is inherently judgmental, as it requires estimates as to whether and to what extent subsequent concessions may be granted to customers and whether the customer is expected to pay the contractual fees. The timing and amount of revenue recognition can vary depending on what assessments have been made. The application of the percentage-of-completion method requires us to make estimates about total revenue, total cost to complete the project, and the stage of completion. The assumptions, estimates, and uncertainties inherent in determining the stage of completion affect the timing and amounts of revenue recognized. In the accounting for our multiple-element arrangements, we have to determine the following:
The determination of whether different contracts with the same customer are to be accounted for as one contract is highly judgmental, as it requires us to evaluate whether the contracts are negotiated together or linked in any other way. The timing and amount of revenue recognition can vary depending on whether two contracts are accounted for separately or as one single contract. Under a multiple-element arrangement including a cloud subscription, or on-premise software, and other deliverables, we do not account for the cloud subscription, or on-premise software, and the other deliverables separately if one of the other deliverables (such as consulting services) is deemed to be essential to the functionality of the cloud subscription or on-premise software. The determination whether an undelivered element is essential to the functionality of the delivered element requires the use of judgment. The timing and amount of revenue recognition can vary depending on how that judgment is exercised, because revenue may be recognized over a longer service term. In the area of allocating the transaction fee to the different deliverables under the respective customer contract, judgment is required in the determination of an appropriate fair value measurement which may impact the timing and amount of revenue recognized depending on the following:
Additionally, our revenue for on-premise software contracts would be significantly different if we applied a revenue allocation policy other than the residual method. Valuation of Trade Receivables As described in the Trade and Other Receivables section in Note (3b), we account for impairments of trade receivables by recording sales allowances and allowances for doubtful accounts on an individual receivable basis and on a portfolio basis. The assessment of whether a receivable is collectible is inherently judgmental and requires the use of assumptions about customer defaults that could change significantly. Judgment is required when we evaluate available information about a particular customer’s financial situation to determine whether it is probable that a credit loss will occur and the amount of such loss is reasonably estimable and thus an allowance for that specific account is necessary. Basing the general allowance for the remaining receivables on our historical loss experience, too, is highly judgmental, as history may not be indicative of future development. Changes in our estimates about the allowance for doubtful accounts could materially impact reported assets and expenses, and our profit could be adversely affected if actual credit losses exceed our estimates. Accounting for Share-Based Payments We use certain assumptions in estimating the fair values for our share-based payments, including expected future share price volatility and expected option life (which represents our estimate of the average amount of time remaining until the options are exercised or expire unexercised). In addition, the final payout for these plans also depends on our share price at the respective exercise dates. Changes to these assumptions and outcomes that differ from these assumptions could require material adjustments to the carrying amount of the liabilities we have recognized for these share-based payments. For the purpose of determining the estimated fair value of our stock options, we believe expected volatility is the most sensitive assumption. Regarding future payout under our cash-settled plans, the price of SAP stock will be the most relevant factor. Changes in these factors could significantly affect the estimated fair values as calculated by the option-pricing model, and the future payout. For more information about these plans, see Note (27). Accounting for Income Tax We are subject to changing tax laws in multiple jurisdictions within the countries in which we operate. Our ordinary business activities also include transactions where the ultimate tax outcome is uncertain, such as those involving revenue sharing and cost reimbursement arrangements between SAP Group entities. In addition, the amount of income tax we pay is generally subject to ongoing audits by domestic and foreign tax authorities. As a result, judgment is necessary in determining our worldwide income tax provisions. We make our estimates about the ultimate resolution of our tax uncertainties based on current tax laws and our interpretation thereof. Changes to the assumptions underlying these estimates and outcomes that differ from these assumptions could require material adjustments to the carrying amount of our income tax provisions. The assessment whether a deferred tax asset is impaired requires management judgment, as we need to estimate future taxable profits to determine whether the utilization of the deferred tax asset is probable. In evaluating our ability to utilize our deferred tax assets, we consider all available positive and negative evidence, including the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are recoverable. Our judgment regarding future taxable income is based on assumptions about future market conditions and future profits of SAP. Changes to these assumptions and outcomes that differ from these assumptions could require material adjustments to the carrying amount of our deferred tax assets. For more information about our income tax, see Note (10). Accounting for Business Combinations In our accounting for business combinations, judgment is required in determining whether an intangible asset is identifiable, and should be recorded separately from goodwill. Additionally, estimating the acquisition date fair values of the identifiable assets acquired and liabilities assumed involves considerable management judgment. The necessary measurements are based on information available on the acquisition date and are based on expectations and assumptions that have been deemed reasonable by management. These judgments, estimates, and assumptions can materially affect our financial position and profit for several reasons, including the following:
Subsequent Accounting for Goodwill and Other Intangible Assets As described in the Intangible Assets section in Note (3b), all of our intangible assets other than goodwill have finite useful lives. Consequently, the depreciable amount of the intangible assets is amortized on a systematic basis over their useful lives. Judgment is required in determining the following:
Both the amortization period and the amortization method have an impact on the amortization expense that is recorded in each period. In making impairment assessments for our intangible assets and goodwill, the outcome of these tests is highly dependent on management’s latest estimates and assumptions regarding future cash flow projections and economic risks, which are complex and require significant judgment and assumptions about future developments. They can be affected by a variety of factors, including changes in our business strategy, our internal forecasts, and an estimate of our weighted-average cost of capital. These judgments impact the carrying amounts of our intangible assets and goodwill as well as the amounts of impairment charges recognized in profit or loss. The outcome of goodwill impairment tests and thus the carrying amounts of our recognized goodwill may depend on the allocation of goodwill to our operating segments. This allocation involves judgment as it is based on our estimates regarding which operating segments are expected to benefit from the synergies of the business combination. Additionally, judgment is required in the determination of our operating segments. Changes to the assumptions underlying our goodwill impairment tests could require material adjustments to the carrying amount of our recognized goodwill. For more information about the goodwill allocation and impairment testing, see Note (15). Accounting for Legal Contingencies As described in Note (23), we are currently involved in various claims and legal proceedings. We review the status of each significant matter not less frequently than each quarter and assess our potential financial and business exposures related to such matters. Significant judgment is required in the determination of whether a provision is to be recorded and what the appropriate amount for such provision should be. Notably, judgment is required in the following:
Due to uncertainties relating to these matters, provisions are based on the best information available at the time. At the end of each reporting period, we reassess the potential obligations related to our pending claims and litigation and adjust our respective provisions to reflect the current best estimate. In addition, we monitor and evaluate new information that we receive after the end of the respective reporting period but before the Consolidated Financial Statements are authorized for issue to determine whether this provides additional information regarding conditions that existed at the end of the reporting period. Changes to the estimates and assumptions underlying our accounting for legal contingencies and outcomes that differ from these estimates and assumptions could require material adjustments to the carrying amounts of the respective provisions recorded as well as additional provisions. For more information about legal contingencies, see Notes (18b) and (23). Recognition of Internally Generated Intangible Assets from Development We believe that determining whether internally generated intangible assets from development are to be recognized as intangible assets requires significant judgment, particularly in the following areas:
These judgments impact the total amount of intangible assets that we present in our balance sheet as well as the timing of recognizing development expenses in profit or loss. (3d) New Accounting Standards Adopted in the Current Period No new accounting standards adopted in 2015 had a material impact on our Consolidated Financial Statements. (3e) New Accounting Standards Not Yet Adopted The standards and interpretations (relevant to the Group) that are issued, but not yet effective, up to the date of issuance of the Group’s financial statements are disclosed below. The Group intends to adopt these standards, if applicable, when they become effective:
(4) BUSINESS COMBINATIONS In 2015, we did not conclude any significant business combinations. Prior-year acquisitions are described in our 2014 Consolidated Financial Statements. We have retrospectively adjusted the provisional amounts recognized as at the dates of these acquisitions to reflect new information obtained about facts and circumstances that existed on the respective acquisition dates. For more information about significant adjustments, see Notes (10) and (15). (5) REVENUE For detailed information about our revenue recognition policies, see Note (3). For revenue information by geographic region, see Note (28). Revenue from construction contracts (contract revenue) is mainly included in software revenue and services revenue depending on the type of contract. In 2015, contract revenue of€292 million was recognized for all our construction contracts (2014:€285 million, 2013:€261 million). The status of our construction contracts in progress at the end of the reporting period accounted for under IAS 11 (Construction Contracts) was as follows: Construction Contracts in Progress
(6) RESTRUCTURING
To further drive our transition from an on-premise software vendor to a cloud company, we have carried out additional organizational changes as part of a new restructuring plan, which is intended to minimize cost-intensive and low-growth business activities worldwide. In addition, more redundancies resulted from the integration of our acquired companies. Restructuring provisions primarily include personnel costs that result from severance payments for employee terminations and onerous contract costs. Prior-year restructuring provisions relate to restructuring activities incurred in connection with the organizational changes triggered by our new cloud and simplification strategy and the integration of employees of our acquisitions. For more information, see Note (18b). If not presented separately in our income statement, restructuring expenses would break down by functional area as follows:
(7) EMPLOYEE BENEFITS EXPENSE AND HEADCOUNT Employee Benefits Expense
The number of employees in the following table is broken down by function and by the regions EMEA (Europe, Middle East, and Africa), Americas (North America and Latin America), and APJ (Asia Pacific Japan). Number of Employees
Allocation of Share-Based Payment Expense The allocation of expense for share-based payments, net
For more information about our share-based payments, see Note (27).
Tax Expense According to Region
Major Components of Tax Expense
Profit Before Tax
Germany Foreign Total The following table reconciles the expected income tax expense computed by applying our combined German tax rate of Relationship Between Tax Expense and Profit Before Tax
Recognized Deferred Tax Assets and Liabilities
Items Not Resulting in a Deferred Tax Asset
In 2015, subsidiaries that suffered a tax loss in either the current or the preceding period recognized deferred tax assets in excess of deferred tax liabilities amounting to€129 million (2014:€73 million, 2013:€61 million), because it is probable that sufficient future taxable profit will be available to allow the benefit of the deferred tax assets to be utilized. We have not recognized a deferred tax liability on approximately for undistributed profits of our subsidiaries, because we are in a position to control the timing of the reversal of the temporary difference and it is probable that such differences will not reverse in the foreseeable future. The proposed dividend payment of
Total Income Tax
We are subject to ongoing tax audits by domestic and foreign tax authorities. were to prevail in their arguments before the court, we would expect to have an additional tax expense (including related interest
Loans and Other Financial Receivables Loans and other financial receivables mainly consist of time deposits, investments in
As at December 31, Available-for-Sale Financial Assets Our available-for-sale financial assets consist of debt investments in bonds of mainly financial and non-financial corporations and municipalities and equity investments in listed and unlisted securities, mainly held in U.S. dollars.
Derivatives Detailed information about our derivative financial instruments is presented in Note (25).
Carrying Amounts of Trade Receivables
Gross carrying amount Sales allowances charged to revenue The changes in the allowance for doubtful accounts charged to expense were immaterial in all periods presented.
Aging of Trade Receivables
For more information about financial risk and how we manage it, see Notes (24) and (25).
Prepaid expenses primarily consist of prepayments for operating leases, support services, and software
The additions, other than from business combinations, to software and database licenses in
Significant Intangible Assets
Goodwill Impairment Testing SAP had two operating segments The carrying amount of goodwill Goodwill by Operating Segment
The amount unallocated on January 1, 2015, relates to the goodwill from the acquisition of Concur in December 2014.
The
Key Assumptions
Applications, Technology & Services The recoverable amounts of the segment have been determined based on value-in-use calculations. The calculations use cash flow projections based on actual operating results and a group-wide five-year business plan approved by management. We believe that any reasonably possible change in any of the above key assumptions would not cause the carrying SAP Business Network The and a group-wide five-year business plan approved by We are using a target margin of The recoverable amount exceeds the carrying amount by The following table shows amounts by which the Sensitivity to Change in Assumptions
The recoverable amount for the SAP Business Network segment
(17a) Trade and Other Payables
Miscellaneous other liabilities mainly include
(17b) Financial Liabilities
Financial liabilities are unsecured, except for the retention of title and similar rights customary in our industry. Effective interest rates on our
Bonds
Private Placement Transactions
The U.S. private placement notes were issued by one of our subsidiaries that has the U.S. dollar as its functional currency.
Bank Loans
Other Financial Liabilities Our current other financial liabilities mainly comprise
(17c) Other Non-Financial Liabilities
Other employee-related liabilities mainly relate to vacation accruals, bonus and sales commission accruals, as well as employee-related social security obligations. For more information about our share-based payments, see Note (27). Other taxes mainly comprise
Defined Benefit Plans The measurement dates for
€664 million (2014:€714 million) of the present value of the DBO of our domestic plans relate to plans that provide for lump sum payments not based on final salary, and€287 million (2014:€234 million) of the present value of the DBO of our foreign plans relate to plans that provide for annuity payments not based on final salary. The following weighted average assumptions were used for the actuarial valuation of our domestic and foreign pension liabilities as well as other post-employment benefit obligations as at the respective measurement date: Actuarial Assumptions
The
assumptions constant. A reasonable possible change in actuarial assumptions of 50 basis points in either direction, except for the Sensitivity Analysis
Total Expense of Defined Benefit Pension Plans
Current service cost Interest expense Interest income Past service cost Total expense Actual return on plan assets
Our investment strategy on domestic benefit plans is to invest all contributions in stable insurance policies.
Our investment strategies for foreign benefit plans vary according to the risk-diversified portfolio consisting of a mix of assets, Plan Asset Allocation
Our expected contribution in Total future benefit payments from our defined benefit plans as at December 31, 2015, are expected to be
Defined Contribution We also maintain domestic and foreign defined contribution plans. Amounts contributed by us under such plans are based on a percentage of the employees’ salaries or the amount of contributions made by employees. Furthermore, in Germany Total Expense of Defined Contribution Plans and State Plans
(18b) Other Provisions
Intellectual property-related provisions relate to litigation matters. Customer-related provisions relate primarily to disputes with individual customers. Both classes of provision are described in Note (23). For more information about our
Onerous contract and other provisions
(19) DEFERRED INCOME Deferred income consists mainly of prepayments made by our customers for
(20) TOTAL EQUITY Issued Capital As at December 31, Change in Issued Capital and Treasury Shares
Authorized Shares The Articles of Incorporation authorize the Executive Board to increase the issued
Contingent Shares SAP
Other Comprehensive Income
Items Recognized in Other Comprehensive Income That Will Be Reclassified to Profit or Loss Before Tax
Treasury Shares By resolution of SAP
reported in its statutory financial statements For the year ended December 31, Dividends per share for (21) ADDITIONAL CAPITAL DISCLOSURES Capital Structure Management The primary objective of our capital structure management is to maintain a strong financial profile for investor, creditor, and customer confidence, and to support the growth of our business. We seek to maintain a capital structure that will allow us to cover our funding requirements through the capital markets at reasonable conditions, and in so doing, ensure a high level of independence, confidence, and financial flexibility.
Capital Structure
In
Total financial debt consists of current and non-current bank loans, bonds, and private placements. For more information about our financial debt, see Note (17). As part of our financing activities in 2016, the Company intends to repay a US$600 million U.S. private placement tranche when it matures and a further substantial portion of our outstanding bank loans. While we continuously monitor Group Liquidity of SAP Group
Distribution Policy Our general intention is to remain in a position to return In representing As a
Our operating leases relate primarily to the lease of office space, hardware, and equipment and intangible assets relate primarily to the construction of new and existing facilities and to the purchase of hardware, software, patents, office equipment, and SAP invests and holds interests in other entities. As of December 31, 2015, total commitments to make such equity investments amounted to€197 million (2014:€123 million) of which€86 million had been drawn (2014:€46 million). By investing in such equity investments, we are exposed to the risks inherent in the business segments in which these entities operate. Our maximum exposure to loss is the amount invested plus unavoidable future capital contributions.
Our rental and operating lease expenses were
We are subject to a variety of claims and lawsuits that arise from time to time in the ordinary course of our business, including proceedings and claims that relate to companies we have acquired, However, the outcome of litigation and
Among the claims and lawsuits are the Intellectual
The carrying amount of primarily from the Contingent liabilities exist from intellectual property-related litigation and The individual cases of intellectual property-related litigation and
In April 2007, United States-based Versata Software, Inc. (formerly Trilogy Software, Inc.) (Versata) instituted legal proceedings in the United States District Court for the Eastern District of Texas against SAP. Versata alleged that SAP’s products infringe one or more of the claims in
In February 2010, United States-based TecSec, Inc. (TecSec) instituted legal proceedings in the United States against SAP In April 2010, SAP instituted legal proceedings (a
Customer-Related Litigation and Claims Customer-related litigation and claims include cases in which The carrying amount of the provisions recorded for customer-related litigation and claims and the development of the carrying amount in the reporting period are disclosed in Note (18b). The expected timing or amounts of any resulting outflows of economic benefits from these lawsuits and claims is uncertain and not estimable as they generally depend on the duration of the legal proceedings and settlement negotiations required to resolve the litigation and claims and the unpredictability of the outcomes of legal disputes in several jurisdictions. For more information, see Note (3c). Contingent liabilities exist from customer-related litigation and claims for which Non-Income Tax-Related Litigation and Claims
We are subject to ongoing audits by domestic and foreign tax authorities. Along with many other companies operating in Brazil, we are involved in various proceedings with Brazilian authorities regarding assessments and litigation matters on non-income taxes on intercompany royalty payments and intercompany services. The total potential amount related to these matters for all applicable years is approximately For more information about income (24) FINANCIAL RISK FACTORS We are exposed to various financial risks, such as market risks (including foreign currency exchange rate risk, Market Risk a) Foreign Currency Exchange Rate Risk
In rare circumstances, transacting in a currency other than the functional currency also leads to embedded foreign currency derivatives being separated and measured at fair value through profit or loss. In addition, the concentration of the foreign currency exchange rate risk with the IP holders, as the royalties are mostly denominated in the subsidiaries’ local currencies, while the functional currency of currencies of subsidiaries with significant operations, for example the U.S. dollar, the pound sterling, the Japanese yen, the Swiss franc, the Generally, we are not exposed to any significant foreign currency exchange rate risk with regard to our investing and financing activities, as such activities are normally conducted in the functional currency of the investing or borrowing entity. However, flow risk from the consideration to be paid in U.S. dollars for the b)
c) Equity Price Risk
Credit Risk
To reduce the credit risk in
Liquidity Risk
Contractual Maturities of Non-Derivative Financial Liabilities
Trade payables Financial liabilities Total of non-derivative financial liabilities Contractual Maturities of Derivative Financial Liabilities and Financial Assets
We manage market risks (including foreign currency exchange rate risk, In the following sections we provide details on the management of each respective financial risk and our related risk exposure. In the sensitivity analyses that show the effects of hypothetical changes of relevant risk variables on profit or other comprehensive income, we determine the periodic effects by relating the hypothetical changes in the risk variables to the balance of financial instruments at the reporting date. Foreign Currency Exchange Rate Risk Management We continually monitor our exposure to currency fluctuation risks based on monetary items and forecasted transactions and pursue a Group-wide strategy to manage foreign currency exchange rate risk, using derivative financial instruments, primarily foreign exchange forward contracts, as appropriate, with the primary aim of reducing profit or loss volatility. Currency Hedges The foreign exchange forward contracts we enter into to offset exposure relating to Currency hedges In addition, during Currency Hedges We enter into derivative financial instruments, primarily foreign exchange forward contracts, to hedge significant forecasted cash flows (royalties) from foreign subsidiaries denominated in foreign currencies with a defined set of hedge ratios and a hedge horizon of up to
For the years ended December 31, probable. Therefore, we did not discontinue any of our cash flow hedge relationships. Also, we identified no ineffectiveness in all years reported. Foreign Currency Exchange Rate Exposure In line with our internal risk reporting process, we use the
Consequently, we are only exposed to significant foreign currency exchange rate fluctuations with regard
We calculate our sensitivity on an upward/downward shift of +/–25% of the
Our foreign currency exposure as at December 31 (and if year-end exposure is not representative, also our average/high/low exposure) was as follows: Foreign Currency Exposure
The
The majority of our investments are based on variable rates and/or short maturities (2015: 87%; 2014: 71%) while most of our financing transactions are based on fixed rates and long maturities (2015: 66%; 2014: 55%). To match the interest-rate risk
A sensitivity analysis is provided to show the impact of our
Due to the points for the U.S. dollar/euro area (2014: +100/+50 basis points If, on December 31,
Interest-Rate Sensitivity
Our
Our investments in equity instruments with quoted market prices in active markets We are exposed to equity price risk with regard to our share-based payments. In order to reduce resulting profit or loss volatility, we hedge certain cash flow exposures associated with these plans through the purchase of derivative instruments, but do not establish a designated hedge relationship. In our sensitivity analysis we include the underlying share-based payments and the hedging instruments. Thus, we base the calculation on our net exposure to equity prices as we believe taking only the derivative instrument into account would not properly reflect our equity price risk exposure. An assumed 20% increase (decrease) in equity prices as at December 31, Credit Risk Management To mitigate the credit risk from issuers with a minimum rating of at least To further reduce our credit risk, we require collateral for certain investments in the full amount of the investment volume which we would be allowed to make use of in the case of default of the counterparty to the investment. As such collateral, we only accept bonds In addition, the concentration of credit risk that exists when counterparties are involved in similar activities by instrument, sector, or geographic area is further mitigated by diversification of counterparties throughout the world and adherence to an internal limit system for each counterparty. This internal limit system stipulates that the business volume with individual counterparties is restricted to a defined limit, which depends on the lowest official long-term credit rating available by at least one of the major rating agencies, the Tier 1 capital of the respective financial institution, or participation in the German Depositors’ Guarantee Fund or similar protection schemes. We continuously monitor strict compliance with these counterparty limits. As the premium for credit default swaps mainly depends on The default risk of our trade receivables is managed separately, mainly based on assessing the creditworthiness of customers through external ratings and our concerned. Outstanding receivables are continuously monitored locally. Liquidity Risk Management Our liquidity is managed by our global treasury department with the primary aim of maintaining liquidity at a level that is adequate to meet our financial obligations.
Apart from effective working capital and cash management, we have reduced the liquidity risk inherent in managing our day-to-day operations and meeting our financing responsibilities by arranging an adequate volume of available credit facilities with various financial institutions on which we can draw if necessary. In order to retain high financial flexibility, Additionally, as at December 31, (26) ADDITIONAL FAIR VALUE DISCLOSURES ON FINANCIAL INSTRUMENTS Fair Value of Financial Instruments We use various types of financial
Fair Values of Financial Instruments and Classification Within the Fair Value Hierarchy
Fair Values of Financial Instruments and Classification Within the Fair Value Hierarchy
1) We do not separately disclose the fair value for cash and cash equivalents, trade receivables, and accounts payable as their carrying amounts 2) Since the line items Fair Values of Financial Instruments Classified According to IAS 39
Determination of Fair Values
at the Financial Instruments Measured at Fair Value
Financial Instruments Not Measured at
Transfers Between Levels 1 and 2 Transfers of available-for-sale equity investments from Level 2 to all years presented, while transfers from Level 1 to Level 2 did not occur at all. Level 3 Disclosures The following table shows the reconciliation from the opening to the Reconciliation of
(27) SHARE-BASED PAYMENTS SAP has granted awards under various cash-settled and equity-settled share-based payments to its directors and employees. Most of these awards are described in detail below. SAP has other share-based a) Cash-Settled Share-Based Payments SAP’s 2010 (2010–
As at December 31, Fair Value and Parameters Used at Year End 2015 for Cash-Settled Plans
1) For these awards, the fair value is calculated by subtracting the net present value of expected future dividend payments, if any, until maturity of the respective award from the prevailing share price as of the valuation date.
Fair Value and Parameters Used at Year End 2014 for Cash-Settled Plans
1) For these awards, the fair value is calculated by subtracting the net present value of expected future dividend payments, if any, until maturity of the respective award from the prevailing share price as of the valuation date. Expected volatility of the SAP share price is based on a Expected remaining life of the options reflects both the contractual term and the expected, or historical, exercise behavior. The risk-free interest rate is derived from German government bonds with a similar duration. Dividend yield is based on
Changes in Numbers of Outstanding Awards Under Our Cash-Settled Plans
a.1) Employee Participation Plan (EPP) and Long-Term Incentive Plan (LTI Plan) 2015 SAP implemented two The plans are focused on SAP’s share price and the achievement of two financial key performance indicators (KPIs): non-IFRS total revenue and non-IFRS operating profit, which are derived from the Company’s 2015 financial KPIs. Under these plans, virtual shares, called restricted share units (RSUs), are granted to participants. Participants are paid out in cash based on the number of RSUs that vest.
The RSU allocation process At the end of the given year, the number of RSUs that finally vest with plan participants depends on SAP’s actual performance for the given year, and might be higher or lower than the number of RSUs originally granted. If performance against both Under the EPP 2015, the RSUs are paid out in the first quarter of the year after the one-year performance period, whereas the RSUs for members of the Board under the LTI Plan 2015 are subject to a The The final financial effect of each tranche of the EPP 2015 and the LTI Plan 2015 will depend on the number of vested RSUs and the SAP share price, which is set directly after the announcement of the preliminary fourth quarter and full-year results for the last financial year under the EPP 2015 (of the respective three-year holding period under the LTI Plan 2015), and thus may be significantly above or below the budgeted amounts.
Under the SAP Stock Option Plan 2010, The grant-base value is based on the average fair market value of one ordinary share over the five business days prior to the Executive Board resolution date. The virtual stock options granted under the SOP 2010 give the employees the right to receive a certain amount of money by exercising the options under the terms and conditions of this plan. After a three-year vesting period (four years for members of the Executive Board), the plan provides for 11 predetermined exercise dates every calendar year (one date per month except in April) until the rights lapse six years after the grant date (seven years for members of the Executive Board). Employees can employed by SAP; if they leave the The exercise price is 110% of the grant base value (115% for members of the Executive Board) which is Monetary benefits will be capped at 100% of the exercise price (150% for members of the Executive Board).
We maintain share-based payment
The
Depending on performance, the number of
The RSUs are paid out in
Under the Share Matching Plan (SMP) implemented in 2010, SAP offers its employees the opportunity to purchase SAP eligible employee may purchase through the SMP is limited to a percentage of the employee’s annual base salary. After a three-year holding period, such plan participants will receive one The terms for the members of the Senior Leadership those for the other employees. The following table shows the parameters and assumptions used at grant date to determine the fair value of Fair Value and Parameters at Grant Date for SMP
Changes in
Recognized
(28) SEGMENT AND GEOGRAPHIC INFORMATION General Information
The Since fiscal year 2015 SAP thus has two reportable segments that are regularly reviewed by our
The The Our Concur and Fieldglass acquisitions are included in the segment information since their respective acquisition dates (December 4, 2014, for Concur and May 2, 2014, for Fieldglass).
Revenue and Results of Segments
Segment asset/liability information is not regularly provided to our CODM. Goodwill by operating segment is disclosed in Note (15). Measurement and Presentation Our management reporting system reports our intersegment services as cost reductions and does not track them as internal revenue. Intersegment services mainly represent utilization of human resources of one segment by another segment on a project-by-project basis. Intersegment services are charged based on internal cost rates including certain indirect overhead costs, excluding a profit margin. Most of our depreciation and amortization expense affecting Our management reporting system produces a variety of reports that differ by the currency exchange rates used in the accounting for foreign-currency transactions and operations. Reports based on actual currencies use the same currency rates as are used in our financial
statements. Reports based on constant currencies report revenues and expenses using the average exchange rates from the previous year’s corresponding period. We use an operating profit indicator to measure the performance of our operating segments. However, the accounting policies applied in the The measurements of
The
Certain corporate-level activities are not allocated to our segments, including finance, accounting, legal, human resources, and marketing. They are disclosed in the
Reconciliation of
Geographic Information We have aligned our revenue by region disclosures with the changes made to the structure of our income statement as outlined in Note (3b). The
Revenue by Region
Total Revenue by
Non-Current Assets by Region
For information about the breakdown of our (29) BOARD OF DIRECTORS Executive Board Memberships on supervisory boards and other comparable governing bodies of enterprises, other than subsidiaries of SAP on December 31, 2015
Information as at December 31,
Allocating the fair value of the share-based payments to the respective years they are economically linked to the total compensation of the Executive Board members for the years Executive Board Compensation
1) Portion of total executive compensation allocated to the respective year based on management view The share-based payment amounts disclosed above are based on the grant date fair value of the restricted share units (RSUs) issued to Executive Board members during the year.
the respective years, section 314 of the German Commercial Code (HGB) requires them to be included in the total compensation number for the year of grant. Upon his appointment to the Executive Board in 2015, Michael Kleinemeier received a grant related to 2015. Vesting of the LTI grants is dependent on the respective Executive Board member’s continuous service for the
The share-based payment
Considering the grant date fair value of the RSUs allocated during the year instead of the economically allocated amount of share-based payments in the table above, the sum of short-term employee benefits and share-based payment amounts to Share-Based Payment for Executive Board Members
In the table above, the share-based payment expense is the amount recorded in profit or loss under IFRS 2 in the respective period. The Retirement Pension Plan for Executive Board Members
The total annual compensation of the Supervisory Board members for Supervisory Board Compensation
The Supervisory Board members do not receive any share-based payment for their services. As far as members who are employee representatives on the Supervisory Board receive share-based payment, such compensation is for their services as employees only and is unrelated to their status as members of the Supervisory Board.
Payments
SAP did not grant any compensation advance or credit to, or enter into any commitment for the benefit of, any member of the Executive Board or Supervisory Board in
Shareholdings of Executive and Supervisory Board Members
(30) RELATED PARTY TRANSACTIONS
Certain Executive Board and Supervisory Board members of SAP
SAP, engaged in the following transactions with SAP: providing consulting services to SAP, receiving sport sponsoring from Christiane Kuntz-Mayr, vice chairperson and member of the SAP Supervisory Board until May 20, 2015, acted as a managing director of family & kids @ work gemeinnützige UG (“family & kids @ work”). Wilhelm Haarmann practices as a partner in the law firm Linklaters LLP in Frankfurt am Main, Germany. SAP occasionally purchased and purchases legal and similar services from Linklaters. Occasionally, members of the Executive Board of SAP SE obtain services from SAP for which they pay a consideration believed to All amounts related to the
In total, we sold services to members of
(31) PRINCIPAL ACCOUNTANT FEES AND SERVICES At the Annual General Meeting of Shareholders held on May independent auditor for Fees for Audit and Other Professional Services
Audit fees are the aggregate fees charged by KPMG for under audit fees. Tax fees are fees for professional services rendered by KPMG for tax advice on transfer pricing, restructuring, and tax compliance on current, past, or contemplated transactions. The (32) EVENTS AFTER THE REPORTING PERIOD
We are in the process of preparing the consolidation of intellectual property rights held by SAP’s group company hybris AG at the level of SAP SE in Germany. Based on deviating applicable tax rates, the Group expects an overall positive income tax effect in a (33) SUBSIDIARIES AND OTHER EQUITY INVESTMENTS Subsidiaries
Total in 20121) Profit/Loss (–) for 20121) Total Equity 12/31/20121) REST OF EUROPE, MIDDLE EAST, AFRICA Ambin Properties (Proprietary) Limited, Johannesburg, South Africa Ariba Belgium N.V., Heverlee, Belgium3) Ariba Czech s.r.o., Prague, Czech Republic3) Ariba France, S.A.S., Paris, France3) Ariba Iberia, S.L., Madrid, Spain3) Ariba International Sweden AB, Stockholm, Sweden3) Ariba Italia Srl, Rome, Italy3) Ariba Middle East & North Africa FZ-LLC, Dubai, United Arab Emirates3) Ariba Slovak Republic s.r.o., Kosice, Slovakia3) Ariba Switzerland GmbH, Zurich, Switzerland3) Ariba Technologies Ireland Ltd., Dublin, Ireland3) Ariba Technologies Netherlands B.V., Amsterdam, the Netherlands3) Ariba UK Limited, Egham, United Kingdom3) Armstrong Laing Limited, London, United Kingdom b-process, Paris, France3) Business Objects (UK) Limited, London, United Kingdom10) Business Objects Holding B.V., s-Hertogenbosch, the Netherlands Business Objects Software Limited, Dublin, Ireland Cartesis UK Limited, London, United Kingdom Christie Partners Holding CV, Rotterdam, the Netherlands Crossgate Italia S.p.A., Milan, Italy Crossgate UK Ltd., Slough, United Kingdom10) Crystal Decisions (Ireland) Limited, Dublin, Ireland Crystal Decisions Holding Limited, Dublin, Ireland Crystal Decisions UK Limited, London, United Kingdom10) Edgewing Limited, London, United Kingdom Epista Software A/S, Copenhagen, Denmark3) Total in 20121) Profit/Loss (–) for 20121) Total Equity 12/31/20121) EssCubed Procurement Pty. Ltd., Johannesburg, South Africa3) Joe D Partners CV, Utrecht, the Netherlands Limited Liability Company “SAP Labs”, Moscow, Russia3) Limited Liability Company SAP CIS, Moscow, Russia Limited Liability Company SAP Kazakhstan, Almaty, Kazakhstan Limited Liability Company SAP Ukraine, Kiev, Ukraine Merlin Systems Oy, Espoo, Finland NL Quotaholder 1 B.V., Amsterdam, the Netherlands3) NL Quotaholder 2 B.V., Amsterdam, the Netherlands3) Plateau Systems UK Ltd., Guildford, United Kingdom3) Quadrem Africa Pty. Ltd., Johannesburg, South Africa3) Quadrem Europe S.A.S., Paris, France3) Quadrem Netherlands B.V., Amsterdam, the Netherlands3) Quadrem Overseas Cooperatief U.A., Amsterdam, the Netherlands3) S.A.P. Nederland B.V., s-Hertogenbosch, the Netherlands SAP – NOVABASE, A.C.E., Porto Salvo, Portugal SAP (Schweiz) AG, Biel, Switzerland SAP (UK) Limited, Feltham, United Kingdom SAP Belgium NV/SA, Brussels, Belgium SAP BULGARIA EOOD, Sofia, Bulgaria SAP Business Services Center Europe, s.r.o., Prague, Czech Republic SAP Business Services Center Nederland B.V., Utrecht, the Netherlands SAP Commercial Services Ltd., Valletta, Malta SAP ČR, spol. s r.o., Prague, Czech Republic SAP CYPRUS Ltd, Nicosia, Cyprus SAP d.o.o., Zagreb, Croatia SAP Danmark A/S, Copenhagen, Denmark SAP Egypt LLC, Cairo, Egypt SAP EMEA Inside Sales S.L., Barcelona, Spain Total in 20121) Profit/Loss (–) for 20121) Total Equity 12/31/20121) SAP España – Sistemas, Aplicaciones y Productos en la Informática, S.A., Madrid, Spain SAP Estonia OÜ, Tallinn, Estonia SAP Finland Oy, Espoo, Finland SAP France Holding, Paris, France SAP France, Paris, France SAP HELLAS S.A. – SYSTEMS, APPLICATIONS AND PRODUCTS IN DATA PROCESSING, Athens, Greece SAP Hungary Rendszerek, Alkalmazások és Termékek az Adatfeldolgozásban Informatikai Kft., Budapest, Hungary SAP Ireland Limited, Dublin, Ireland SAP Ireland US-Financial Services Ltd., Dublin, Ireland SAP Israel Ltd., Ra’anana, Israel SAP Italia Sistemi Applicazioni Prodotti in Data Processing S.p.A., Milan, Italy SAP Labs Bulgaria EOOD, Sofia, Bulgaria SAP Labs Finland Oy, Espoo, Finland SAP LABS France S.A.S., Mougins, France SAP Labs Israel Ltd., Ra’anana, Israel SAP Latvia SIA, Riga, Latvia SAP Malta Investments Ltd., Valletta, Malta SAP Middle East and North Africa L.L.C., Dubai, United Arab Emirates4) SAP Nederland Holding B.V., s-Hertogenbosch, the Netherlands SAP Norge AS, Lysaker, Norway SAP Österreich GmbH, Vienna, Austria SAP Polska Sp. z o.o., Warsaw, Poland SAP Portals Israel Ltd., Ra’anana, Israel SAP Portugal – Sistemas, Aplicações e Produtos Informáticos, Sociedade Unipessoal, Lda., Porto Salvo, Portugal SAP Public Services Hungary Kft., Budapest, Hungary SAP Romania SRL, Bucharest, Romania SAP Saudi Arabia Software Services Limited, Riyadh, Kingdom of Saudi Arabia Total in 20121) Profit/Loss (–) for 20121) Total Equity 12/31/20121) SAP Saudi Arabia Software Trading Limited, Riyadh, Kingdom of Saudi Arabia SAP Service and Support Centre (Ireland) Limited, Dublin, Ireland SAP sistemi, aplikacije in produkti za obdelavo podatkov d.o.o., Ljubljana, Slovenia SAP Slovensko s.r.o., Bratislava, Slovakia SAP Svenska Aktiebolag, Stockholm, Sweden SAP Training and Development Institute FZCO, Dubai, United Arab Emirates3) SAP Türkiye Yazilim Üretim ve Ticaret A.S., Istanbul, Turkey SAP UAB (Lithuania), Vilnius, Lithuania SAPV (Mauritius), Ebene, Mauritius7) SAP West Balkans d.o.o., Belgrade, Serbia SuccessFactors (UK) Limited, London, United Kingdom3) SuccessFactors Denmark ApS, Copenhagen, Denmark3) SuccessFactors France S.A.S., Paris, France3) SuccessFactors Ireland Limited, Dublin, Ireland3) SuccessFactors Italy S.R.L, Milan, Italy3) SuccessFactors Netherlands B.V., Amsterdam, the Netherlands3) SuccessFactors Schweiz GmbH, Zurich, Switzerland3) Sybase (UK) Limited, Maidenhead, United Kingdom Sybase France S.a.r.l., Paris, France Sybase Iberia S.L., Madrid, Spain Sybase Luxembourg S.a.r.l, Luxembourg Sybase Nederland B.V., Utrecht, the Netherlands Sybase South Africa (Proprietary) Limited, Johannesburg, South Africa Systems Applications Products Africa Region (Proprietary) Limited, Johannesburg, South Africa Systems Applications Products Africa (Proprietary) Limited, Johannesburg, South Africa Total in 20121) Profit/Loss (–) for 20121) Total Equity 12/31/20121) Systems Applications Products Nigeria Limited, Abuja, Nigeria Systems Applications Products South Africa (Proprietary) Limited, Johannesburg, South Africa Syclo International Limited, Leatherhead, United Kingdom3) The Infohrm Group Ltd., London, United Kingdom3) TomorrowNow (UK) Limited, Feltham, United Kingdom10) TomorrowNow Nederland B.V., Amsterdam, the Netherlands AMERICAS 110405, Inc., Newtown Square, Pennsylvania, USA Alliente, Inc., Pittsburgh, Pennsylvania, USA3) Ariba Canada, Inc., Mississauga, Canada3) Ariba Holdings, Inc., Grand Cayman, Cayman Islands3) Ariba, Inc., Sunnyvale, California, USA3) Ariba International Holdings, Inc., Wilmington, Delaware, USA3) Ariba International, Inc., Wilmington, Delaware, USA3) Ariba Investment Company, Inc., Wilmington, Delaware, USA3) Business Objects Argentina S.R.L., Buenos Aires, Argentina Business Objects Option, LLC, Wilmington, Delaware, USA Congo Acquisition LLC, San Mateo, California, USA3) Extended Systems, Inc., Boise, Idaho, USA Financial Fusion, Inc., Concord, Massachusetts, USA FreeMarkets International Holdings Inc. de Mexico, de S. de R.L. de C.V., Mexico City, Mexico3) FreeMarkets Ltda., São Paulo, Brazil3) iAnywhere Solutions Canada Ltd., Waterloo, Canada iAnywhere Solutions Inc., Dublin, California, USA INEA Corporation USA, Wilmington, Delaware, USA Inxight Federal Systems Group, Inc., Wilmington, Delaware, USA Jam Acquisition II LLC, San Mateo, California, USA3) Total in 20121) Profit/Loss (–) for 20121) Total Equity 12/31/20121) Jobs2Web, Inc., Minnetonka, Minnesota, USA3) Plateau Systems LLC, Arlington, Virginia, USA3) Quadrem Brazil Ltda., Rio de Janeiro, Brazil3) Quadrem Canada Ltd., Mississauga, Canada3) Quadrem Chile Ltda., Santiago de Chile, Chile3) Quadrem Colombia SAS, Bogota, Colombia3) Quadrem International Holdings, Ltd., Plano, USA3) Quadrem International Ltd., Hamilton, Bermuda3) Quadrem Mexico S. de R. de C.V., Mexico City, Mexico3) Quadrem Peru S.A.C., Lima, Peru3) Quadrem U.S., Inc., Plano, Texas, USA3) SAP America, Inc., Newtown Square, Pennsylvania, USA SAP Andina y del Caribe C.A., Caracas, Venezuela SAP ARGENTINA S.A., Buenos Aires, Argentina SAP Brasil Ltda, São Paulo, Brazil SAP Canada Inc., Toronto, Canada SAP Chile Limitada, Santiago, Chile SAP Colombia S.A.S., Bogota, Colombia SAP Costa Rica, S.A., San José, Costa Rica SAP Financial Inc., Toronto, Canada SAP Global Marketing, Inc., New York, New York, USA SAP Government Support & Services, Inc., Newtown Square, Pennsylvania, USA SAP HANA REAL TIME FUND, San Mateo, California, USA3),7) SAP Industries, Inc., Newtown Square, Pennsylvania, USA SAP International, Inc., Miami, Florida, USA SAP Investments, Inc., Wilmington, Delaware, USA SAP LABS, LLC, Palo Alto, California, USA SAP México S.A. de C.V., Mexico City, Mexico SAP PERU S.A.C., Lima, Peru SAP Public Services, Inc., Washington, D.C., USA Total in 20121) Profit/Loss (–) for 20121) Total Equity 12/31/20121) SAP Technologies Inc., Palo Alto, California, USA SAP Ventures Fund I, L.P., Wilmington, Delaware, USA7) SuccessFactors, Inc., San Mateo, California, USA3) SuccessFactors Brasil Consultoria e Assistência em Vendas Limitada, Sao Paulo, Brazil3) SuccessFactors Canada Inc., Ottawa, Canada3) SuccessFactors Cayman, Ltd., Grand Cayman, Cayman Islands3) SuccessFactors de México, S. de R.L. de C.V., Mexico City, Mexico3) SuccessFactors International Holdings, LLC, San Mateo, California, USA3) SuccessFactors International Services, Inc., San Mateo, California, USA3) SuccessFactors Middle East Holdings, LLC, San Mateo, California, USA3) Surplus Record, Inc., Chicago, Illinois, USA3) Sybase 365 LLC, Dublin, California, USA Sybase 365 Ltd., Tortola, British Virgin Islands Sybase Argentina S.A., Buenos Aires, Argentina Sybase Canada Ltd., Waterloo, Canada Sybase Global LLC, Dublin, California, USA Sybase Intl Holdings LLC, Dublin, California, USA Sybase, Inc., Dublin, California, USA Syclo LLC, Hoffman Estates, Illinois, USA3) The Inforhrm Group Inc., Washington, Columbia, USA3) TomorrowNow, Inc., Bryan, Texas, USA YouCalc, Inc., San Mateo, California, USA3) ASIA PACIFIC JAPAN Ariba (China) Limited, Hong Kong, China3) Ariba Australia Pty Ltd., Sydney, Australia3) Ariba India Pvt. Ltd., Gurgaon, India3) Ariba International Singapore Pte. Ltd., Singapore, Singapore3) Total in 20121) Profit/Loss (–) for 20121) Total Equity 12/31/20121) Ariba Singapore Pte. Ltd., Singapore, Singapore3) Ariba Software Technology Services (Shanghai) Co. Ltd., Shanghai, China3) Ariba Technologies India Pvt. Ltd., Bangalore, India3) Beijing Zhang Zhong Hu Dong Information Technology Co. Ltd., Beijing, China Business Objects Malaysia Sdn. Bhd., Kuala Lumpur, Malaysia Business Objects Software (Shanghai) Co., Ltd., Shanghai, China iAnywhere Solutions K.K., Tokyo, Japan Nihon Ariba K.K., Tokyo, Japan3) Plateau Systems Australia Ltd, Brisbane, Australia3) Plateau Systems Pte. Ltd., Singapore, Singapore3) PT SAP Indonesia, Jakarta, Indonesia PT Sybase 365 Indonesia, Jakarta, Indonesia Quadrem Asia Pte. Ltd., Singapore, Singapore3) Quadrem Australia Pty Ltd., Brisbane, Australia3) Quadrem China Ltd., Hong Kong, China3) Right Hemisphere Ltd., Auckland, New Zealand Ruan Lian Technologies (Beijing) Co. Ltd., Beijing, China SAP (Beijing) Software System Co., Ltd., Beijing, China SAP Asia Pte Limited, Singapore, Singapore SAP Asia (Vietnam) Co. Ltd., Ho Chi Minh City, Vietnam SAP Australia Pty Limited, Sydney, Australia SAP HONG KONG CO. LIMITED, Hong Kong, China SAP INDIA (HOLDING) PTE LTD., Singapore, Singapore SAP INDIA PRIVATE LIMITED, Bangalore, India SAP JAPAN Co., Ltd., Tokyo, Japan SAP Korea Limited, Seoul, South Korea Total in 20121) Profit/Loss (–) for 20121) Total Equity 12/31/20121) SAP Labs India Private Limited, Bangalore, India SAP Malaysia Sdn. Bhd., Kuala Lumpur, Malaysia SAP New Zealand Limited, Auckland, New Zealand SAP PHILIPPINES, INC., Makati, Philippines SAP R&D Center Korea, Inc., Seoul, South Korea SAP SYSTEMS, APPLICATIONS AND PRODUCTS IN DATA PROCESSING (THAILAND) LTD., Bangkok, Thailand6) SAP TAIWAN CO., LTD., Taipei, Taiwan Shanghai SuccessFactors Software Technology Co., Ltd., Shanghai, China3) SuccessFactors (Philippines), Inc., Pasig City, Philippines3) SuccessFactors Asia Pacific Limited, Hong Kong, China3) SuccessFactors Australia Holdings Pty Ltd., Brisbane, Australia3) SuccessFactors Australia Pty Limited, Brisbane, Australia3) SuccessFactors Business Solutions India Private Limited, Bangalore, India3) SuccessFactors Hong Kong Limited, Hong Kong, China3) SuccessFactors Japan K.K., Tokyo, Japan3) SuccessFactors Korea Ltd., Seoul, South Korea3) SuccessFactors Singapore Pte. Ltd., Singapore, Singapore3) Sybase (Singapore) Pte Limited, Singapore Sybase 365 Ltd. (HK), Hong Kong, China Sybase Australia Pty Limited, Sydney, Australia Sybase Hong Kong Limited, Hong Kong, China Sybase India, Ltd., Mumbai, India Sybase K.K., Tokyo, Japan Sybase Philippines Inc., Makati City, Philippines Total in 20121) Profit/Loss (–) for 20121) Total Equity 12/31/20121) Sybase Software (China) Co. Ltd., Beijing, China Sybase Software (India) Private Ltd, Mumbai, India Sybase Software (Malaysia) Sdn. Bhd., Kuala Lumpur, Malaysia TomorrowNow Australia Pty Limited, Sydney, Australia TomorrowNow Singapore Pte Limited, Singapore, Singapore II. INVESTMENTS IN ASSOCIATES Alteryx Inc., Irvine, California, USA ArisGlobal Holdings, LLC, Stamford, Connecticut, USA China DataCom Corporation Limited, Guangzhou, China Greater Pacific Capital (Cayman), L.P., Grand Cayman, Cayman Islands11) Original1 GmbH, Frankfurt am Main, Germany Procurement Negócios Eletrônicos S/A, Rio de Janeiro, Brazil
1) These figures are based on our local IFRS financial statements prior to eliminations resulting from consolidation and therefore do not reflect the contribution of these companies included in the Consolidated Financial Statements. The translation of the equity into Group currency is based on period-end closing exchange rates, and on average exchange rates for revenue and net income/loss. 2) As at December 31, 2015, including managing directors, in FTE. 3) Figures for profit/loss after tax and total equity pursuant to HGB, section 285 and section 313 are not disclosed if they are of minor significance for a fair presentation of the profitability, liquidity, capital resources and financial position of SAP SE, pursuant to HGB, section 313 (2) sentence 3 no. 4 and section 286 (3) sentence 1 no. 1. 4) Consolidated for the first time in 2015. 5) Agreements with the other shareholders provide that SAP SE fully controls the entity. 6) SAP SE does not hold any ownership interests in four structured entities, SAPV (Mauritius), Sapphire SAP HANA Fund of Funds, L.P., Sapphire Ventures Fund I, L.P. and Sapphire Ventures Fund II, L.P. However, based on the terms of limited partnership agreements under which these entities were established, SAP SE is exposed to the majority of the returns related to their operations and has the current ability to direct these entities’ activities that affect these returns, in accordance with IFRS 10 (Consolidated Financial Statements). Accordingly, the results of operations are included in SAP’s consolidated financial statements. 7) Entity whose personally liable partner is SAP SE. 8) Entity with profit and loss transfer agreement. 9) Pursuant to HGB, section 264 (3) or section 264b, the subsidiary is exempt from applying certain legal requirements to their statutory stand-alone financial statements including the requirement to prepare notes to the financial statements and a review of operations, the requirement of independent audit and the requirement of public disclosure. 10) Pursuant to sections 479A to 479C of the UK Companies Act 2006, the entity is exempt from having its financial statements audited on the basis that SAP SE has provided a guarantee of the entity’s liabilities in respect of its financial year ended 31 December 2015. 11) Pursuant to article 2:403 of the Dutch Civil Code, the entity is exempt from applying certain legal requirements to their statutory stand-alone financial statements including the requirement to prepare the financial statements, the requirement of independent audit and the requirement of public disclosure on the basis that SAP SE has provided a guarantee of the entity’s liabilities in respect of its financial year ended 31 December 2015. Other Equity Investments
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