Introduction

SAP SE is a 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.”

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, 2018, which was US$1.1456 per €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. On February 8, 2019, the Noon Buying Rate for converting euro to dollars was US$1.1326 per €1.00.

Unless the context otherwise requires, references in this report to ordinary shares are to SAP SE’s ordinary shares, without nominal value. References in this report to “ADRs” are to SAP SE’s American Depositary Receipts, each representing one SAP ordinary share. References in this report to “ADSs” are to SAP SE’s American Depositary Shares, which are the deposited securities evidenced by the ADRs.

SAP, ABAP, Adaptive Server, Advantage Database Server, Afaria,  Business ByDesign, BusinessObjects, ByDesign,, Crystal Reports, ExpenseIt, PartnerEdge, PowerBuilder, PowerDesigner, Quadrem, R/3, Replication Server, SAP Ariba, SAP BusinessObjects Explorer, SAP Business Workflow, SAP C/4HANA, SAP Concur, SAP EarlyWatch, SAP Fieldglass, SAP Fiori, SAP HANA, SAP Jam, SAP Leonardo, SAP Lumira, SAP NetWeaver, SAP S/4HANA, SAP SuccessFactors, SAP Vora, SAPPHIRE, SAPPHIRE NOW, SQL Anywhere, The Best Run SAP, TravelTrax, TripIt, TripLink, TwoGo, Web Intelligence and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP SE (or an SAP affiliate 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 web site (www.sap.com) without charge immediately following our filing with the U.S. Securities and Exchange Commission (SEC). Such reports are also available on the website maintained by the SEC (www.sec.gov). 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.

Forward-Looking Statements

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, social and political instability caused by state-based conflicts, terrorist attacks, civil unrest, war, or international hostilities could lead to disruptions of our business operations or have a negative impact on our business, financial position, profit, and cash flows.

–        Laws, regulatory requirements and standards in Germany, the United States, and elsewhere continue to be very stringent. Our international business activities and processes expose us to numerous and often conflicting laws and regulations, policies, standards, or other requirements and sometimes even conflicting regulatory requirements, and to risks that could harm our business, financial position, profit, and cash flows.

–        Claims and lawsuits against us, such as for IP infringements, or our inability to obtain or maintain adequate licenses for third-party technology, could have an adverse effect on our business, financial position, profit, cash flows, and reputation. Moreover, similar adverse effects could result if we are unable to adequately protect or enforce our own intellectual property.

–        Non-compliance with increasingly complex and stringent, sometimes even conflicting, applicable data protection and privacy laws or failure to adequately meet the contractual 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.

–        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.

–        A cybersecurity attack or breach, or undetected security vulnerabilities in our products, infrastructure, or services, or economic espionage could result in significant legal and financial exposure and have a material adverse effect on our customers, our partners, our financial position, our operations, our reputation, and our business in general.

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,” “predict,” “project,” “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; Expected Developments section; Risk 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 this report and our Annual Report on Form 20-F should be considered, as well as all of our other filings with the U.S. 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. We 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), Gartner, the European Central Bank (ECB), and the International Monetary Fund (IMF). This type of data represents only the estimates of IDC, Gartner, 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, Gartner, ECB, IMF, or other similar sources that is contained in this report. The data from these sources is subject to risks and uncertainties, and subject to change based on various factors, including those described above, in the Risk Factors section, and elsewhere in this report. These and other factors could cause our results to differ materially from those expressed in the estimates made by third parties and SAP. We caution readers not to place undue reliance on this data.

We use various performance measures to manage our performance with regard to our primary financial objectives, which are growth and profitability, and our primary non-financial objectives, which are customer loyalty and employee engagement. We view growth and profitability as indicators of our current performance, while we see customer loyalty and employee engagement as indicators of our future performance.

Measures to Manage Our Financial Performance

Measures to Manage Our Operating Financial Performance

In 2018, we used the following key measures to manage our operating financial performance:

Cloud subscriptions and support revenue (non-IFRS): This revenue driver comprises the main revenues of our fast-growing cloud business. Revenue from cloud subscriptions and support represents fees earned from providing customers with any of the following:

–         Software as a service (SaaS)

–         Platform as a service (PaaS)

–         Infrastructure as a service (IaaS)

–         Premium cloud subscription support beyond regular support

For more information regarding cloud subscriptions and support revenue and a description of these services, see the Notes to the Consolidated Financial Statements, Note (A.1).

We use the cloud subscriptions and support revenue (non-IFRS) measure at both actual currencies and constant currencies.

Cloud and software revenue (non-IFRS): We use cloud and software revenue (non-IFRS) expressed in both actual currencies and constant currencies 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 software revenue are our key revenue drivers because they tend to affect our other revenue streams. Generally, customers that buy software licenses also enter into related support contracts, and these generate recurring revenue in the form of support revenue after the software sale. Support contracts cover standardized support services that comprise unspecified future software updates and enhancements. Software licenses revenue as well as cloud subscriptions and support revenue also tend to stimulate services revenue, which is earned by providing customers with professional services, premium engagement services, training services, messaging services, and payment services.

Total revenue (non-IFRS): We use total revenue (non-IFRS) to measure our growth at both actual currencies and constant currencies. The total of cloud subscriptions and support revenue and software support revenue divided by total revenue is the share of more predictable revenue. This measure provides additional insight into our sustained business success.

New cloud bookings: For our cloud activities, we also look at new cloud bookings (both in actual currencies and constant currencies). This measure reflects the committed order entry from new customers and from incremental purchases by existing customers for offerings that generate cloud subscriptions and support revenue. For new cloud bookings we take into consideration committed deals only, meaning utilization-based payments are not included in this measure. In this way, it is an indicator of cloud-related sales success in a given period and of secured future cloud subscriptions and support revenue. We focus primarily on the average

contract value variant of the new cloud bookings measure that generally takes into account annualized amounts for contracts. There are no comparable IFRS measures for these bookings metrics.

Cloud backlog: In addition to new cloud bookings, we use the measure “cloud backlog” to evaluate our sales success in the cloud business. We define cloud backlog as a measure that represents expected future cloud subscriptions and support revenue that, as of period end, is contracted but not yet billed.

Operating profit (non-IFRS): We use operating profit (non-IFRS) expressed in both actual currencies and constant currencies to measure our overall operational process efficiency and overall business performance.

Cloud subscriptions and support gross margin (non-IFRS): We use our cloud subscriptions and support gross margin (non-IFRS) to measure our process efficiency 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.

Operating margin (non-IFRS): We use operating margin to measure our overall operational efficiency. Operating margin (non-IFRS) is the ratio of our operating profit (non-IFRS) to total revenue (non-IFRS), expressed as a percentage.

Measures to Manage Our Non-Operating Financial Performance

We use the following measures to manage our non-operating financial performance:

Financial income, net: This measure provides insight 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 assets and capital investment portfolio, and the average rate of interest at which assets are invested. We also monitor average outstanding borrowings and associated finance costs.

Days Sales Outstanding (DSO): We manage working capital by controlling the DSO of trade receivables. DSO measures the average number of days from the raised invoice to cash receipt from the customer. We calculate DSO by dividing the average invoiced trade receivables balance of the last 12 months by the average monthly cash receipt of the last 12 months.

Measures to Manage Overall Financial Performance

We use the following measures to manage our overall financial performance:

Earnings per share (EPS) (IFRS and non-IFRS): 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. EPS is influenced not only by our operating and non-operating business and income taxes but also by the number of shares outstanding.

Effective tax rate (IFRS and non-IFRS): 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 and free cash flow: Our consolidated statement of cash flows provides insight into how we generate and use cash and cash equivalents. When applied in conjunction

with the other primary financial statements, it provides information that helps us evaluate the changes in our net assets, our financial structure (including our liquidity and solvency), and our ability to affect the amounts and timing of cash flows 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 to Manage Our Non-Financial Performance

In 2018, we used the following key measures to manage our non-financial performance in the areas of customer loyalty, employee engagement, and leadership trust:

Customer Net Promoter Score (Customer NPS): This score measures the willingness of our customers to recommend or promote SAP to others. It is derived from ongoing customer surveys that identifies, on a scale of 0–10, whether a customer is likely to recommend SAP to friends or colleagues, is neutral, or is unwilling to recommend. 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 Customer NPS, we start with the percentage of “promoters” of SAP, that is, those giving us a score of 9 or 10 on a scale of 0–10. We then subtract the percentage of “detractors,” that is, those giving us a score of 0 to 6. The method ignores “passives,” that is, those giving us a score of 7 or 8. Consequently, the range of achievable scores is –100 to +100, with the latter being the best achievable score for customer loyalty as measured by the Customer NPS methodology.

Employee Engagement Index: We use this index to measure the motivation and loyalty of our employees, how proud they are of our company, and how strongly they identify with SAP. The index is derived from an annual survey of our employees. Applying this measure is recognition that our growth strategy depends on engaged employees.

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 same methodology as we do to compute the Net Promoter Score (NPS).

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 short-term and midterm planning and controlling processes. We initially identify future growth and profitability drivers at a highly aggregated level. In a first step, the resulting financial plan is broken down into (i) our deployment models “On Premise,” “Software as a Service/Platform as a Service,” “Infrastructure as a Service,” and “Business Networks”; and (ii) functions such as development, sales, and administration. In a second step, the planned total revenues and total expenses are generally allocated to the areas of functional responsibility of the individual members of the

Executive Board (the board areas). If a board area represents not only a functional department but also has a responsibility for operating segments within this board area (for example, SAP Business Network segment and Customer Experience segment), the allocation is done at the lower segment level. Budget adjustments may be applied during the year to reflect changes in priorities, to achieve efficiency targets and to reflect endogenous and exogenous factors. Such budget adjustments, as well as the assessment of the Executive Board’s performance, are handled at the board area level if the board area is part of a segment, or at the segment level if the board area comprises several segments. It is then the individual board member’s responsibility to break down the allocated budget adjustments within the segment budget boundary. Based on an integrated portfolio process running in parallel to the budgeting process, we ensure aligned investment behavior across board areas with regards to specific solutions or solution areas. In a final step, customer-facing revenue targets and cost of sales and marketing targets are broken down into sales regions.

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 financial goals, and to identify any deviations from plan. We continuously monitor the affected 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

Explanation of Non-IFRS Measures

We disclose certain financial measures such as revenue (non-IFRS), expense (non-IFRS), and profit measures (non-IFRS) 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, our IFRS financial 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. We use non-IFRS revenue and profit 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 components of our Executive Board members’ and employees’ remuneration are based on revenue (non-IFRS), operating profit (non-IFRS), operating margin (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 provide to the capital markets are based on non-IFRS revenue and profit 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.

Revenue (Non-IFRS)

Non-IFRS revenue measures 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 revenue 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, IFRS cloud subscriptions and support revenue, IFRS cloud and software revenue, and 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 of our ongoing performance across periods.

Operating Expense (Non-IFRS)

Operating expense numbers that are identified as operating expenses (non-IFRS) have been adjusted by excluding the following expenses:

–         Acquisition-related charges

§         Amortization expense/impairment charges for intangibles acquired in business combinations and certain stand-alone acquisitions of intellectual property (including purchased in-process research and development)

§         Settlements of pre-existing business relationships in connection with a business combination

§         Acquisition-related third-party expenses

–         Share-based payment expenses

–         Restructuring expenses, that is, expenses resulting from measures which comply with the definition of restructuring according to IFRS.

We exclude certain acquisition-related expenses for the purpose of calculating operating profit (non-IFRS), operating margin (non-IFRS), and 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. For similar reasons, we eliminate share-based payment expenses as these costs are impacted by share price developments and other factors outside our control. We also eliminate restructuring expenses because they are volatile and mostly cannot be influenced by management at levels below the Executive Board.

Operating Profit (Non-IFRS), Cloud Subscriptions and Support Gross Margin (Non-IFRS), Operating Margin (Non-IFRS), Effective Tax Rate (Non-IFRS), and Earnings per Share (Non-IFRS)

Operating profit, cloud subscriptions and support gross margin, operating margin, effective tax rate, and earnings per share identified as operating profit (non-IFRS), cloud subscriptions and support gross margin (non-IFRS), operating margin (non-IFRS), effective tax rate (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) and the income tax effects thereon.

Constant Currencies 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 currencies measures by translating foreign currencies using the average exchange rates from the comparative period instead of the current period.

Free Cash Flow

Among other measures, we use free cash flow to manage our overall financial performance.

Usefulness of Non-IFRS Measures

We believe that our non-IFRS measures are useful to investors for the following reasons:

–         Our revenue (non-IFRS), expense (non-IFRS), and profit (non-IFRS) measures, along with the “new cloud bookings” and “cloud backlog” measures (see above) provide investors with insight into management’s decision making because management uses these 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 facilitate comparisons 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, and restructuring plans.

–         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:

–        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 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 remaining 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 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 evaluating our operating profit (non-IFRS) and operating margin (non-IFRS) numbers as these combine our revenue (non-IFRS) and expenses (non-IFRS) despite the absence of a common conceptual basis.

§         Our restructuring charges resulted in significant cash outflows in the past and could do so in the future. 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 currencies 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. Therefore, we limit our use of constant currencies 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 currencies and nominal measures of revenue (non-IFRS) and 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 nominal and constant currencies non-IFRS 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 our 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.

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

Selected Financial Data

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, 2018. 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, unless otherwise stated.

Exchange Rates

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 SE 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 SE’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 12. Description of Securities Other Than Equity Securities — American Depositary Shares.”

For details on the impact of exchange rate fluctuations see “Item 5. Operating and Financial Review and Prospects — Foreign Currency Exchange Rate Exposure”.

Dividends

Dividend Distribution Policy

Dividends are jointly proposed by SAP SE’s Supervisory Board (Aufsichtsrat) and Executive Board (Vorstand) based on SAP SE’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 SE’s Annual General Meeting of Shareholders. SAP SE’s Annual General Meeting of Shareholders usually convenes during the second quarter of each year. Beginning with the dividends payable for the 2017 fiscal year and in accordance with a change of the German Stock Corporation Act that aims to implement joint market standards in Europe for corporate actions processing, dividends are remitted to the custodian bank on behalf of the shareholders on the third business day following the Annual General Meeting of Shareholders.  Record holders of the ADRs on the dividend record date will be entitled to receive 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 SE ordinary share. Accordingly, the final dividend per ADR is equal to the dividend for one SAP SE 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.

(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) Subject to approval at the Annual General Meeting of Shareholders of SAP SE currently scheduled to be held on May 15, 2019.

(3) 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 February 8, 2019 of US$1.1326 per €1.00. The dividend paid may differ due to changes in the exchange rate.

The amount of dividends paid on the ordinary shares depends on the amount of profits to be distributed by SAP 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 payment of any future dividend 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 SE and approved by the Annual General Meeting of Shareholders.

Risk Factors

Economic, Political, Social, and Regulatory Risks

Global Economic and Political Environment: Uncertainty in the global economy, financial markets, social and political instability caused by state-based conflicts, terrorist attacks, civil unrest, war, or international hostilities could lead to disruptions of our business operations or have a negative impact on our business, financial position, profit, and cash flows.

As a global company, we are influenced by multiple external factors that are difficult to predict and beyond our influence and control. Any of these factors could have a significant adverse effect on the overall economy as well as on our business.

The following potential events, among others, could bring risks to SAP’s business:

–         General economic, political, social, environmental, market conditions, and unrest (for example, Turkey, Venezuela, UK/ Brexit)

–         Continued deterioration in global economic conditions (impact on accurate forecast) or budgetary constraints of national governments

–         Tariff conflicts, as for example between the United States and China

–         Financial market volatility episodes, global economic crises and chronic fiscal imbalances, slowing economic conditions, or disruptions in emerging markets

–         Higher credit barriers for customers, reducing their ability to finance software purchases

–         Increased number of bankruptcies among customers, business partners, and key suppliers

–         Terrorist attacks or other acts of violence, civil unrest, natural disasters, or pandemic diseases impacting our business

Any of these events could limit our ability to reach our targets as they have a negative effect on our business operations, financial position, profit, and cash flows.

International Laws and Regulations: Laws, regulatory requirements and standards in Germany, the United States, and elsewhere continue to be very stringent. Our international business activities and processes expose us to numerous and often conflicting laws and regulations, policies, standards, or other requirements and sometimes even conflicting regulatory requirements, and to risks that 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 180 countries and territories in the Americas (Latin America and North America); 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. As a European 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.

Our business in these countries is subject to numerous risks inherent to international business operations. Among others, these risks include:

–         Possible tax constraints impeding business operations in certain countries

–         Changes in accounting standards and tax laws including, but not limited to, conflict and overlap among tax regimes measures as well as the introduction of new tax concepts that harm digitized business models

–         Discriminatory, protectionist, or conflicting fiscal policies and tax laws, such as certain protectionist measures included in the U.S. Tax Reform which was enacted at the end of 2017, and the lack of regulations at the time of the report to provide guidance on the interpretations thereon by the U.S. tax authorities, the Internal Revenue Services (IRS)

–         Workforce restrictions resulting from changing laws and regulations, from political decisions (such as Brexit, government elections), or through required works council involvements, labor union approvals, and immigration laws in different countries

–         Protectionist trade policies, import and export regulations, and trade sanctions (such as in Russia), counter or even conflicting sanctions (such as in the United States and Russia), and embargoes (such as in Iran) including, but not limited to, country-specific software certification requirements

–         Violations of country-specific sanctions (such as the UN sanction against North Korea or the United States’ sanction requirements against Iran and certain other countries)

–         Compliance with and stringent enforcement of laws, as for example the EU General Data Protection Regulation (GDPR) or China’s Cyber Security Law, and regulations (including interpretations), implications of government elections, lack of reforms, data protection and privacy rules, regulatory requirements and standards (such as the Payment Card Industry Data Security Standard (PCI DSS))

–         Expenses associated with the localization of our products and compliance with local regulatory requirements

–         Difficulties enforcing intellectual property and contractual rights in certain jurisdictions

In 2017, an investigation was initiated and is ongoing with regards to potential sanctions violations. For more information relating to the potential sanctions violations noted above, see the Notes to the Consolidated Financial Statements, Note (G.4).

As we expand into new countries and markets and/or extend our business activities in these markets, including emerging and high-risk markets, these risks could intensify. The application of the respective local laws and regulations to our business is sometimes unclear, subject to change over time, and often conflicting 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. Governmental authorities could use considerable discretion in applying these statutes and any imposition of sanctions against us could be material. One or more of these factors could have an adverse effect on our operations globally or in one or more countries or regions, which could have an adverse effect on our business, financial position, profit, and cash flows.

Legal and IP: Claims and lawsuits against us, such as for IP infringements, or our inability to obtain or maintain adequate licenses for third-party technology, could have an adverse effect on our business, financial position, profit, cash flows, and reputation. Moreover, similar adverse effects could result if we are unable to adequately protect or enforce our own intellectual property.

We believe that we will continuously be subject to claims and lawsuits, including intellectual property infringement claims, as our solution portfolio grows; as we acquire companies with increased use of third-party code

including open source code; as we expand into new industries with our offerings, resulting in greater overlap in the functional scope of offerings; and as non-practicing entities that do not design, manufacture, or distribute products assert intellectual property infringement claims. Moreover, protecting and defending our intellectual property is crucial to our success.

The outcome of litigation and other claims or lawsuits is intrinsically uncertain and could lead, for example, to the following risks:

–         Claims and lawsuits might be brought against us, including claims and lawsuits involving businesses we have acquired.

–         We might be dependent in the aggregate on third-party technology, including cloud and Web services, that we embed in our products or that we resell to our customers.

–         Third parties have claimed, and might claim in the future, that we infringe their intellectual property rights or that we are overusing or misusing licenses to these technologies.

–         We integrate certain open source software components from third parties into our software. Open source licenses might require that the software code in those components or the software into which they are integrated be freely accessible under open source terms.

–         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. In addition, proprietary rights could be challenged, invalidated, held unenforceable, or otherwise affected. Moreover, the laws and courts of certain countries might not offer effective means to enforce our legal or intellectual property rights. Finally, SAP may not be able to collect all judgments awarded to it in legal proceedings.

–         Some intellectual property might be vulnerable to disclosure or misappropriation by employees, partners, or other third parties.

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. 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 or brought against us in the future that could hinder our ability to conduct our business and could have an adverse effect on our reputation, business, financial position, profit, and cash flows. Third parties could 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. Third-party claims might require us to make freely accessible under open source terms one of our products or third-party (non-SAP) software upon which we depend.

Any legal action we bring to enforce our proprietary rights could also involve enforcement against a partner or other third party, which might have an adverse effect on our ability, and our customers’ ability, to use that partner’s or other third parties’ products.

The outcome of litigation and other claims or lawsuits is intrinsically uncertain. Management’s view of the litigation might 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, which are the basis for our accounting for these litigations and claims under IFRS.

Data Protection and Privacy: Non-compliance with increasingly complex and stringent, sometimes even conflicting, applicable data protection and privacy laws or failure to adequately meet the contractual 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 local laws wherever SAP does business. With regard to data protection requirements, in May 2016, the EU enacted a “General Data Protection Regulation” (GDPR) with the aim of further harmonizing data protection laws across the EU. Since May 25, 2018, GDPR is applicable law in all EU and EEA member states. Within limits, member states can supplement the GDPR with additional national rules. Some member states have already enacted such laws.

Furthermore, evolving regulations and new laws (such as the EU’s proposed e-Privacy Regulation) globally regarding data protection and privacy or other standards increasingly aimed at the use of personal information, such as for marketing purposes and the tracking of individuals’ online activities, may impose additional burdens for SAP due to increasing compliance standards that could restrict the use and adoption of SAP’s products and services (in particular cloud services) and make it more challenging and complex to meet customer expectations.

This could lead to increased risks for SAP, which could harm SAP’s business and limit SAP’s growth.

Non-compliance with applicable data protection and privacy laws, in particular the EU GDPR, by SAP and/or any of the subcontractors engaged by SAP within processing of personal data could lead, for example, to risks in the following areas:

–         Mandatory disclosures of breaches to affected individuals, customers, and data protection supervisory authorities

–         Investigations and administrative measures by data protection supervisory authorities, such as the instruction to alter or stop non-compliant data processing activities, including the instruction to stop using non-compliant subcontractors

–         Fines of up to 4% of SAP’s annual Group turnover

–         Damage claims by customers

–         Harm to SAP’s reputation

–         Increased complexity in times of digitalization with regards to legal requirements in the context of cross-border data transfer

In addition, the German Federal Office for the Protection of the Constitution and security industry experts have warned of risks related to a globally growing number of cybersecurity attacks aimed at obtaining or violating company data including personal data. We anticipate cyberattack techniques to continue to evolve and increase in sophistication, which could make it difficult to anticipate and prevent attacks and intrusions, thus leading, for example, to risks in the following areas, among others:

–         A globally increasing number of hacker attacks aimed at obtaining or violating company data including personal data as observed in recent prominent cases of cyberattacks where the use of ransomware was the preferred method of hackers

Any one or more of these events could have an adverse effect on our business, financial position, profit, and cash flows.

Corporate Governance and Compliance Risks

Unauthorized Disclosure of Information: Our controls and efforts to prevent the unauthorized disclosure of confidential information might not be effective.

Confidential information and internal information related to topics such as our strategy, new technologies, mergers and acquisitions, unpublished financial results, customer data, or personal data, could be disclosed prematurely or inadvertently and subsequently lead to market misperception and volatility.

Such disclosure could lead to risks in the following areas, among others:

–         Disclosure of confidential information and intellectual property, defective products, production downtimes, supply shortages, and compromised data (including personal data) through, for example, inappropriate usage of social media by employees

–         Requirement to notify multiple regulatory agencies and comply with applicable regulatory requirements and, where appropriate, the data owner

Any one or more of these events could have an adverse effect on our market position and lead to fines and penalties. In addition, this could have an adverse effect on our business, reputation, financial position, profit, and cash flows.

Ethical Behavior: 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 overarching approach 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, codified and supplemented the already existing guidelines and expectations for the business behavior practiced at SAP.

However, we might for instance encounter the following risks associated with:

–         Non-compliance with our integrity standards and violation of compliance related rules, regulations, and legal requirements including, but not limited to, anticorruption and bribery legislation in Germany, the U.S. Foreign Corrupt Practices Act, the UK Bribery Act, and other local laws prohibiting corrupt payments by employees, vendors, distributors, or agents

–         Unethical and fraudulent behavior of individual employees or partners leading to criminal charges, fines, and claims by injured parties

–         Collusion with external third parties, for example providing assistance in securing contracts

–         Fraud and corruption together with operational difficulties, especially in countries with a high Corruption Perceptions Index and particularly in emerging markets

–         Increased scrutiny of public sector transactions in high-risk territories

–         Impact on business activities in highly regulated industries such as public sector, healthcare, banking, or insurance

Any one or more of these events could have an adverse effect on our business, reputation, financial position, share price, profit, and cash flows.

In 2017 and 2018, SAP encountered situations that required clear messaging and strong action on non-compliance in the context of ethical behavior that has the potential to harm our business. In South Africa, SAP is

continuing to investigate its dealings with the public sector. For more information relating to the alleged anti-bribery law violations noted above, see the Notes to the Consolidated Financial Statements, Note (G.4).

Environment and Sustainability: Failure 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 are an integral component of our holistic management of social, environmental, and economic risks and opportunities.

We have identified risks in this context, including, but not limited to, the following:

–         Failure to meet customer, partner, or other stakeholder expectations or generally accepted standards on climate change, energy constraints, and our social investment strategy

–         Failure to achieve communicated targets for greenhouse gas emissions

–         Failure to maintain our rating in sustainable investment indexes

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, profit, and share price.

U.S. Judgments: U.S. judgments may be difficult or impossible to enforce against us or our Board members.

Currently, except for Bill McDermott, Robert Enslin, and Jennifer Morgan all members of SAP SE’s Executive Board, and except for Diane Greene and Aicha Evans, 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.

Financial Risks

Sales and Revenue Conditions: Our sales and revenue conditions are subject to market fluctuations and our forecasts might 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 our software revenue in particular, is difficult to forecast for a number of reasons, and could lead to risks related to the following, among others:

–         Challenges in pipeline development and realization

–         Long sales cycles for many of our products

–         Timing issues with respect to the introduction of new products and services or product and service enhancements by SAP or our competitors

–         Large size, complexity, and extended settlement of individual customer transactions

–         Introduction/adaptation of licensing and deployment models such as cloud subscription models

–         Adoption of, and conversion to, new business models, leading from upfront payment models to an increase in pay-per-use or subscription-based payment models, thus the respective service period typically ranges from one to three years, and goes up to five years

–         Changes in customer budgets or seasonality of technology purchases by customers

–         Decreased software sales that could have an adverse effect on related maintenance and services revenue growth

–         Shortfall in anticipated revenue or delay in revenue recognition or deployment models that require revenue to be recognized over an extended period of time

–         Inability of acquired companies to accurately predict their sales pipelines

–         High operating expenses or insufficient revenue generation to offset the significant research and development costs

In recent years, the trend has been towards an increased number of sales transactions, with the average deal size remaining more or less constant. However, the loss or delay of one or a few large opportunities could have an adverse effect on our business, financial position, profit, and cash flows.

Liquidity: External factors could impact our liquidity and increase the default risk associated with, and the valuation of, our financial assets.

Macroeconomic factors such as an economic downturn could have an adverse effect on our future liquidity. We use a globally centralized financial management approach 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.

However, adverse macroeconomic factors could increase the default risk associated with the investment of our total Group liquidity, and could lead to the following risks, among others:

–         Group liquidity shortages

–         Inability to repay financial debt

–         Increased default risk of financial investments, which might lead to significant impairment charges in the future

–         Limitation of operating and/or strategic financial flexibility

Any one or more of these events could have an impact on the value of our financial assets, which could have an adverse effect on our business, financial position, profit, and cash flows.

Use of Accounting Policies and Judgment: In our accounting, management uses policies and applies estimates. This could negatively affect our business, financial position, profit, and cash flows.

To comply with IFRS, management is required to establish and apply accounting policies as well as to apply judgment, including but not limited to making and using estimates and assumptions. The policies and judgment affect our reported financial figures.

This use of policies and judgment could lead to risks in the following areas, among others:

–         New pronouncements by standard setters and regulators as well as changes in common practice or common interpretations of existing standards might force us to change existing policies. Where such changes trigger significant changes to our processes, we might struggle to implement the changes in a timely manner.

–         The facts and circumstances, as well as the assumptions on which our management bases its judgment might change over time, requiring us to change the judgment previously applied.

Both of the above risks could result in significant changes to our reported financials, and could have an adverse effect on our business, financial position, profit, and cash flows.

Currency, Interest Rate, and Share Price Fluctuation: As a globally operating company, SAP is subject to various financial risks related to currencies, interest rates, and share price fluctuations, which could negatively impact our business, financial position, profit, and cash flows.

Because we operate throughout the world, a significant portion of our business is conducted in foreign currencies. In 2018, approximately 72.1% of our revenue was attributable to operations in foreign currencies. This foreign currency business therefore gets translated into our reporting currency, the euro.

This could lead to the following risks, among others:

–         Period-over-period fluctuations

–         Exchange rate risks with currency appreciation or depreciation, or risks related to currency devaluation (legal and/or administrative changes to currency regimes)

–         Interest rate fluctuation

–         Share price fluctuation impacting cash outflows for share-based compensation payments

Any one or more of these events could have an adverse effect on our business, financial position, profit, and cash flows.

Insurance: Our insurance coverage might not be sufficient and uninsured losses may occur.

We maintain insurance coverage to protect us against a broad range 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.

Nevertheless, we could still be subject to risks in the following areas, among others:

–         Losses that might be beyond the limits, or outside the scope, of coverage of our insurance and that may limit or prevent indemnification under our insurance policies

–         Inability to maintain adequate insurance coverage on commercially reasonable terms in the future

–         Certain categories of risks are currently not insurable at reasonable cost

–         No assurance of the financial ability of the insurance companies to meet their claim payment obligations

Any one or more of these events could have an adverse effect on our business, financial position, profit, and cash flows.

Venture Capital: We could incur significant losses in connection with venture capital investments.

Through Sapphire Ventures, our consolidated venture investment funds, we plan to continue investing in new and promising technology businesses.

This could lead to risks in the following areas, among others:

–         Investments could generate net losses and/or require additional expenditures from their investors.

–         Changes to planned business operations might affect the performance of companies in which Sapphire Ventures holds investments.

–         Tax deductibility of capital losses and impairment in connection with equity securities are often restricted, and could therefore have an adverse effect on our effective tax rate.

Any one or more of these events could have an adverse effect on our business, financial position, profit, and cash flows.

Market Price Volatility: The market price for our ADRs and ordinary shares may be volatile.

The market 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;

–         fines, penalties or civil liabilities as a result of potential compliance violations in the context of alleged facts in ongoing or future investigations;

–         proposed and completed acquisitions or other significant transactions by us or our competitors;

–         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 and our midterm ambitions;

–         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;

–         cybersecurity attacks and breaches;

–         general and country specific economic or political conditions (particularly wars, terrorist attacks, etc.); 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.

Human Capital Risks

Human Workforce: If we are unable to attract, develop, retain, and effectively manage our geographically dispersed workforce, we might not be able to run our business and operations efficiently and successfully, or develop successful new solutions and services.

Our success is dependent on appropriate alignment of our planning processes for our highly skilled and specialized workforce and leaders, both male and female, adequate resource allocation, and our location strategy with our general strategy. In certain regions and specific technology and solution areas, we continue to set very high growth targets, depending on short-term and long-term skill requirements, taking infrastructure needs as well as local legal or tax regulations in consideration. 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 as well as business experts is limited and, as a result, competition in our industry is intense.

We could face risks in the following areas, among others:

–         Failure to apply workforce planning processes, adequate resource allocation, and location strategy in alignment with our general strategy

–         Failure to identify, attract, develop, motivate, adequately compensate, and retain well-qualified and engaged personnel to scale to targeted markets

–         Failure to successfully maintain, upskill, and expand our highly skilled and specialized workforce

–         Poor succession management or failure to find adequate replacements

–         Loss of key personnel of acquired business

–         Failure to meet short-term and long-term workforce and skill requirements including achievements of internal gender diversity objectives

–         Lack of appropriate or inadequately executed benefit and compensation programs

–         Lack of availability and scalability of business experts and consultants

–         Mismatch of expenses and revenue due to changes in headcount and infrastructure needs, as well as local legal or tax regulations

–         Challenges with effectively managing a large distribution network of third-party companies

Any one or more of these events could reduce our ability to attract, develop, retain, and effectively manage our geographically dispersed workforce, which in turn could have an adverse effect on our business, financial position, profit, and cash flows.

Operational Business Risks

Sales and Services: Sales and implementation of SAP software and services, including cloud, is subject to a number of significant risks sometimes beyond our direct control.

A core element of our business is the successful implementation of software and service solutions to enable our customers to master complexity and help our customers’ businesses run at their best. The implementation of SAP software and cloud-based service deliveries is led by SAP, by partners, by customers, or by a combination thereof.

However, we might encounter risks in the following areas, among others:

–         Implementation risks, if, for example, implementations take longer than planned, or fail to generate the profit originally expected, scope deviations, solution complexity, individual integration and migration needs or functional requirement changes, or insufficient milestone management and tracking leading to delays in timeline, maybe even exceeding maintenance cycles of solutions in scope

–         Insufficient customer expectation management, including scope, integration capabilities and aspects as well as lack in purposeful selection, implementation, and utilization of SAP solutions

–         Lack of customer commitments and respective engagements, including lack of commitment of resources leading to delays or deviations from recommended best practices

–         Challenges to effectively implement acquired technologies

–         Protracted installation or significant third-party consulting costs

–         Improper calculations or estimates leading to costs exceeding the fees agreed in fixed-price contracts

–         Unrenderable services committed during the sales stage

–         Delayed customer payments due to differing perception on project outcome/results

–         Inadequate contracting and consumption models based on subscription models for services, support, and application management

–         Deviations from standard terms and conditions, which may lead to an increased risk exposure

–         Statements on solution developments might be misperceived by customers as commitments on future software functionalities

Any one or more of these events could have an adverse effect on our business, financial position, profit, and cash flows.

Partner Ecosystem: If we are unable to scale, maintain, and enhance an effective partner ecosystem, revenue might not increase as expected.

An open and vibrant 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 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.

These partnerships could lead to risks in the following areas, among others:

–         Failure to establish and enable a network of qualified partners supporting our scalability needs

–         Failure to get the full commitment of our partners, which might reduce speed and impact in market reach

–         Products or services model being less strategic and/or attractive compared to our competition

–         Partners might not renew agreements with us, or not enter into new agreements on terms acceptable to us or at all, or start competing with SAP.

–         Failure to enable and train sufficient partner resources to promote, sell, and support to scale to targeted markets

–         Partners might not develop a sufficient number of new solutions and content on our platforms or might not provide high-quality products and services to meet customer expectations.

–         Partners might not embed our solutions sufficiently enough to profitably drive product adoption, especially with innovations such as SAP S/4HANA, SAP C/4HANA, and SAP Cloud Platform.

–         Partners might not adhere to applicable legal and compliance regulations.

–         Partners and their products might not meet quality requirements expected by our customers or SAP.

–         Partners might not transform their business model in accordance with the transformation of SAP’s business model in a timely manner.

–         Partners might not be able or might not have capacity to meet customer expectations in terms of service provisioning.

–         Partners might fail to abide to contract terms in embargoed or high-risk countries.

If one or more of these risks materialize, this might have an adverse effect on the demand for our products and services as well as the partner’s loyalty and ability to deliver. As a result, we might not be able to scale our business to compete successfully with other vendors, which could have an adverse effect on our reputation, business, financial position, profit, and cash flows.

Cloud Operations: We may not be able to properly protect and safeguard our critical information and assets, business operations, cloud offerings, and related infrastructure against disruption or poor performance.

SAP is highly dependent on the availability of our infrastructure, and the software used in our cloud portfolio is inherently complex.

This could lead to risks in the following areas, among others:

–         Capacity shortage and SAP’s inability to deliver and operate cloud services in a timely and efficient manner as expected by or committed to our customers

–         Customer concerns about the ability to scale operations for large enterprise customers

–         Defects or disruption to data center operations or system stability and availability

–         Interruptions in the availability of SAP’s cloud applications portfolio could potentially impact customer service level agreements

–         System outages or downtimes, failure of the SAP network due to human or other errors, security breaches, or variability in user traffic for cloud applications

–         Hardware failures or system errors resulting in data loss, corruption, or incompletion of the collected information

–         Incomplete cloud portfolio or certification representation could lead to customer misperception

–         Loss of the right to use hardware purchased or leased from third parties could result in delays in our ability to provide our cloud applications

–         Scalability demands on infrastructure and operation could lead to cost increase and margin impacts

–         Non-adherence to our quality standards in the context of partner co-location of data centers

–         Increased Total Cost of Ownership (TCO) for SAP

–         Customers’ cloud service demands might not match our data center capacity investments

–         Non-compliance with applicable certification requirements, such as Payment Card Industry Data Security Standard (PCI DSS)

Any one or more of these events could have an adverse effect on our business, financial position, profit, and cash flows.

Cybersecurity and Security: A cybersecurity attack or breach, or undetected security vulnerabilities in our products, infrastructure, or services, or economic espionage could result in significant legal and financial exposure and have a material adverse effect on our customers, our partners, our financial position, our operations, our reputation, and our business in general.

As we continue to grow organically and through acquisitions, deliver a full portfolio of solutions via the cloud, host or manage elements of our customers’ businesses in the cloud, process large amounts of data and offer more mobile solutions to users, we face a progressively more complex security environment. The complexity of this security environment is amplified due to the increasingly malicious global cybersecurity threat landscape in which we operate, including third-party data, products, and services that we incorporate into SAP products, and the continually evolving and increasingly advanced techniques employed by threat actors targeting IT products and businesses. Such threat actors include, but are not limited to, highly sophisticated parties such as nation-states and organized criminal syndicates. As a leading cloud company and service provider to some of the largest and best-known customers in the world, we are naturally a prominent target and experience cybersecurity attacks of varying types and degrees on a regular basis. As a result, we are subject to risks and associated consequences in the following areas, among others:

–         Undetected security defects and vulnerabilities

–         Exposure of our business operations and service delivery due to virtual attack, disruption, damage, and/or unauthorized access, theft, destruction, industrial and/or economic espionage, serious and organized crime, and other illegal activities, as well as violent extremism and terrorism

–         Abuse of data, social engineering, misuse or trespassers in our facilities, or systems could be rendered unusable

–         State-driven economic espionage or competitor-driven industrial espionage, and criminal activities including, but not limited to, cyberattacks and breaches against cloud services and hosted on-premise software

–         Disruptions to back-up, disaster recovery, and business continuity management processes

–         Failure to securely and successfully deliver cloud services by any cloud service provider could have a negative impact on customer trust in cloud solutions

–         Increased response time for identified security issues due to complexity and interdependencies could lead to security threats for SAP and customers

–         Customer systems or systems operated by SAP could be compromised by vulnerabilities due to hacker exploitation

–         Breach of security measures due to, for example but not limited to, employee error or wrongdoing, system vulnerabilities, malfunctions, or attempts of third parties to fraudulently induce employees, users, partners, or customers to gain access to our systems, data, or customers’ data

–         Recovery costs as well as significant contractual and legal claims by customers, partners, authorities (including state, federal, and non-U.S.), and third-party service providers which could expose us to significant expense and liability or result in the issuance of orders or consent decrees that could require us to modify our business practices

–         Significant costs to attempt to detect, prevent, and mitigate any successful attacks, including but not limited to the costs of third-party legal and security experts and consultants, insurance costs, additional personnel and technologies, organizational changes, and incentives to customers and partners to retain their business

–         Increasing sophistication and frequency of cybersecurity attacks could mean that we might not discover a security breach or a loss of information for a significant amount of time after the breach, or at all, and might not be able to anticipate attacks or implement sufficient mitigating measures

–         Our cybersecurity and security protocols might not be able to keep pace with the ever-evolving and emerging threats

–         Customer concerns and loss of confidence in the current or future security and reliability of our products and services, including cloud solutions

–         Significant damage to the SAP brand, our reputation, our competitive position, our stock price, and our long-term shareholder value

Any one or more of these events could have a material adverse effect on our business, financial position, profit, and cash flows.

Technology and Products: Our technology and/or products may experience undetected defects, coding or configuration errors, may not integrate as expected, or may not meet customer expectations.

Our product strategy and development investment, including new product launches and enhancements, are subject to risks in the following areas, among others:

–         Software products and services might not fully meet market needs or customer expectations

–         We might not be as fast as expected in integrating our platforms and solutions, enabling the complete product and cloud service portfolio, harmonizing our user interface design and technology, integrating acquired technologies and products, or bringing packages, services, or

new solutions based on the SAP HANA platform as well as SAP Cloud Platform to the market.

–         New products, services, and cloud offerings, including third-party technologies, might not comply with local standards and requirements or could contain undetected or detected defects or could not be mature enough from the customer’s point of view for business-critical solutions after shipment despite all the due diligence SAP puts into quality.

–         Inability to define and provide adequate solution packages and scope for all customer segments

–         Inability to fulfil expectations of customers regarding time and quality in the defect resolution process

–         Lack of customer references for new products and solutions

Any one or more of these events could have an adverse effect on our business, financial position, profit, and cash flows.

Strategic Risks

Market Share and Profit: Our market share and profit could decline due to increased competition, market consolidation, technological innovation, and new business models in the software industry.

The market for cloud computing is increasing and shows strong growth relative to the market for on-premise solutions. 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 capacity, as well as for us to attract new customers. Additionally, we need to bring new solutions based on the SAP HANA business data platform, new technologies, as well as SAP Cloud Platform to the market in line with demands and ahead of our competitors. In particular, innovative applications supporting the Intelligent Enterprise such as SAP S/4HANA, SAP C/4HANA, or newer technologies such as Internet of Things, machine learning, robotic process automation (RPA), which automates rule-based, repetitive tasks, digital assistants (including voice recognition and interaction), and blockchain.

Factoring in the aforementioned, this could lead to risks in the following areas, among others:

–         Potential loss of existing on-premise customers due to competing cloud market trends

–         Adverse revenue effects due to increasing cloud business and conversions from on-premise licenses to cloud subscriptions from existing SAP customers, which could have an adverse effect on related maintenance and services revenue

–         Insufficient solution and service adoption together with increased complexity, as well as failures during the execution of our intelligent enterprise strategy in the context of our portfolio for solution and services could lead to a loss of SAP’s position as a leading cloud company and subsequently to reduced customer adoption.

–         Customers and partners might be reluctant or unwilling to migrate and adapt to the cloud or consider competitive cloud offerings.

–         Existing customers might cancel or not renew their contracts (such as maintenance or cloud subscriptions), or decide not to buy additional products and services.

–         The market for cloud business might not develop further, or it might develop more slowly than anticipated.

–         Strategic alliances among competitors and/or their growth-related efficiency gains in the cloud area could lead to significantly increased competition in the market with regards to pricing and ability to integrate solutions.

–         Price pressure, cost increases, and loss of market share through traditional, new, and especially cooperating competitors

Any one or more of these events could have an adverse effect on our business, financial position, profit, and cash flows.

Mergers and Acquisitions: We might not acquire and integrate companies effectively or successfully.

To expand our business, we acquire businesses, products, and technologies, and we expect to continue to make acquisitions in the future. Over time, certain of these acquisitions have increased in size and in strategic importance for SAP. Management negotiation of potential acquisitions and the integration of acquired businesses, products, or technologies demands time, focus, and resources of both management and workforce, and exposes us to unpredictable operational difficulties.

Acquiring businesses, products, and technologies may present risks to SAP, including risks related to the following areas, among others:

–         Incorrect information or assumptions during the due diligence process for the acquisition (including information or assumptions related to the business environment and/or business and licensing models)

–         Failure to integrate acquired technologies or solutions successfully and profitably into SAP’s solution portfolio and strategy

–         Failure to successfully integrate acquired entities, operations, cultures, or languages, all within the constraints of applicable local laws

–         Unfulfilled needs of the acquired company’s customers or partners

–         Material unidentified liabilities of acquired companies (legal, tax,  IP)

–         Failure in implementing, restoring, or maintaining internal controls, disclosure controls and procedures, and policies within acquired companies

–         Incompatible practices or policies (compliance requirements)

–         Insufficient integration of the acquired company’s accounting, HR, and other administrative systems

–         Failure to coordinate or successfully integrate the acquired company’s research and development (R&D), sales, marketing activities, and security and cybersecurity protocols

–         Debt incurrence or significant unexpected cash expenditures

–         Non-compliance with existing SAP standards including applicable product standards such as our open source product standards

–         Impairment of goodwill and other intangible assets acquired in business combinations

–         Non-compliance of the acquired company with regulatory requirements, for example accounting standards, export control laws, and trade sanctions, for which SAP with and by the acquisition assumes responsibility and liability, including potential fines and the obligation to remedy the non-compliance

Any one or more of these events could have an adverse effect on our business, financial position, profit, and cash flows.

Innovation: We might not be able to compete effectively if we strategize our solution portfolio ineffectively or if we are unable to keep up with rapid technological and product innovations, enhancements, new business models, and changing market expectations.

Our future success depends upon our ability to keep pace with technological and process innovations and new business models, as well as on our ability to develop new products and services, enhance and expand our existing products and services portfolio, and integrate products and services we obtain through acquisitions. To be successful, we are required to adapt our products and our go-to-market approach to a cloud-based delivery and consumption model to satisfy changing customer demand and

to ensure an appropriate level of adoption, customer satisfaction, and retention.

Considering preceding dependencies, this could lead to risks in the following areas, among others:

–         Not being able to bring new business models, solutions, solution enhancements, intelligent technologies, integrations and interfaces, and/or services to market before our competitors or at equally favorable conditions

–         Not being able to anticipate and develop technological improvements or succeed in adapting SAP products, services, processes, and business models to technological change, changing regulatory requirements, emerging industry standards, and changing requirements of our customers and partners (especially with innovations such as SAP S/4HANA, SAP C/4HANA, and SAP Cloud Platform) supporting the intelligent enterprise strategy

–         Uncertainties regarding new SAP solutions, technologies, and business models as well as delivery and consumption models might lead customers to wait for proofs of concept or holistic integration scenarios through reference customers or more mature versions first.

–         Lower level of adoption of our new solutions, technologies, business models, and flexible consumption models, or no adoption at all

–         Our product and technology strategy might not be successful, or our customers and partners might not adopt our technology platforms, applications, or cloud services quickly enough or they might consider other competitive solutions in the market, or our strategy might not match customers’ expectations, specifically in the context of expanding the product portfolio into additional markets.

–         Increasing competition from open source software initiatives, or comparable models in which competitors might provide software and intellectual property free and/or at terms and conditions unfavorable for SAP.

–         Inability to drive growth of references through customer use cases and demo systems

Any one or more of these events could have an adverse effect on our business, financial position, profit, and cash flows.

ITEM 4. INFORMATION ABOUT SAP

Our legal corporate name is SAP SE. SAP SE is translated in English to SAP European Company (Societas Europaea, or “SE”). SAP SE is organized in the Federal Republic of Germany under German and European law, see “Item 10. Additional Information.” Where the context requires in the discussion below, SAP SE also refers to our predecessor or previous legal forms and names, as the case may be, i.e. Systemanalyse und Programmentwicklung GbR (1972-1976), SAP Systeme, Anwendungen, Produkte in der Datenverarbeitung GmbH (1976-1988), “SAP Aktiengesellschaft Systeme, Anwendungen, Produkte in 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 2018 we integrated certain subsidiaries into the following significant SAP subsidiaries: SAP France, SAP America and SAP (Schweiz) AG.

For (i) a description of our principal capital expenditures and divestitures and the amount invested (including interests in other companies) since January 1, 2016 until the date of this report 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.”

The following table sets forth our most significant subsidiaries based on total revenues of SAP group in 2018. All of these subsidiaries are wholly owned by SAP SE.

Strategy and Business Model

Overview of SAP

Founded in 1972, SAP is a global company headquartered in Walldorf, Germany. Our legal corporate name is SAP SE. SAP is the market leader in enterprise application software1 and also the leading analytics and business intelligence company. Globally, more than 77% of all transaction revenue touches an SAP system. With more than 425,000 customers in more than 180 countries, the SAP Group has a global presence and employs more than 96,000 people.

Our ordinary shares are listed on the Frankfurt Stock Exchange. American Depositary Receipts (ADRs) representing SAP SE ordinary shares are listed on the New York Stock Exchange (NYSE). SAP is a member of Germany’s DAX, TechDAX, the Dow Jones EURO STOXX 50, the Dow Jones Sustainability Index World, and the Dow Jones Sustainability Index Europe. As at December 31, 2018, SAP was the most valuable company in the DAX based on market capitalization. SAP was ranked as the most sustainable software company in the Dow Jones Sustainability Indices for the twelfth consecutive year.

As at December 31, 2018, SAP SE directly or indirectly controlled a worldwide group of 265 subsidiaries that develop, distribute, and provide our products, solutions, and services. For a list of our subsidiaries, associates, and other equity investments, see the Notes to the Consolidated Financial Statements, Note (G.10).

Our Purpose

We are living in a time of global uncertainty that is caused by massive social change and digital disruption. Some of the world’s greatest challenges can only be addressed by combining technology-driven innovations and corporate leadership.

At SAP, our purpose is to “help the world run better and improve people’s lives” by empowering our customers to create a better economy, society, and environment for the world. With our innovations, we can help customers run at their best. Being the best means our customers can connect people and information to address the world’s biggest challenges. That’s why we focus on engineering solutions to fuel innovation, foster equality, and spread opportunity across borders and cultures. With our broad customer base and ecosystem of around 18,800 partners, we can amplify our collective economic, social, and environmental impact.

We are committed to supporting the United Nations Sustainable Development Goals (UN SDGs). Technology-driven innovation underpins how SAP, together with our customers and our ecosystem, can execute initiatives across all 17 of the UN SDGs.

The Intelligent Enterprise

Most enterprises today are struggling to address three key challenges: How do they deliver a next-generation customer experience to stay relevant in a world of disruption? How do they drive maximum cost synergies to fund innovation? How do they better engage their employees to attract and retain top talent?

Enterprises are trying to leverage data-driven insights to solve these challenges. Winners in the digital economy are those that are able to extract intelligence and insights from their data and act faster relative to their competition. SAP can help our customers to win in the marketplace

by reimagining entire business processes through injecting predictive insights leveraging technologies such as artificial intelligence (AI)/machine learning (ML), the Internet of Things (IoT), and analytics across an integrated value chain. With SAP innovations, our customers can engage in real time with their users to deliver and continuously improve their experiences.

SAP can deliver the intelligent enterprise by focusing on three key business outcomes:

–        Reimagining the end-to-end customer experience from predicting the demand to designing the product based on the unique need of the consumer, to procuring the best supplier for the product to manufacturing, and to delivering the product or service that maximizes customer satisfaction

–        Delivering a step change in productivity through the next level of automation in business processes powered by AI/ML that will be embedded in every part of the business process (across financials, supply chain, manufacturing, procurement, travel, and human resources). The key to doing this is improving cycle time of business processes and injecting speed everywhere

–        Transforming the way companies engage their workforce by delivering total workforce engagement across full-time and contingent labor and by improving the effectiveness of their workforce by driving touchless processes and voice/chat-enabled systems.

At SAP, our commitment to our customers is to help them meet today’s challenges and to prepare for anticipated challenges of the future. Our strategy is to deliver the intelligent enterprise for our customers. Our vision for the intelligent enterprise is an event-driven, real-time business. SAP can deliver on these objectives by leveraging the power of data in SAP software with technologies such as AI/ML to build powerful intelligent applications. With SAP HANA and SAP Cloud Platform, we can embed intelligence into every part of our portfolio. This enables enterprises to get step change in productivity and enables higher focus on innovation, customer experience, and new business models. The intelligent enterprise is how SAP sees the future of business for our customers, the future of work for our customers’ employees, and the future of experience for our customers’ customers.

Delivering the Intelligent Enterprise

Our integrated end-to-end portfolio enables an intelligent enterprise by offering business value, data-driven innovation, rich customer experience insights, and embedded intelligence. We embed intelligent technologies throughout the extensive platform and rich portfolio of applications we deliver. Our software, technologies, and services address the three core elements of the intelligent enterprise for the 25 industries and 12 lines of business (LoBs) we serve:

–        An intelligent suite of LoB applications that includes next-generation enterprise resource planning (ERP) in the cloud, as well as solutions for customer experience, manufacturing and supply chain, network and spend management, and people engagement. The intelligent suite is integrated and differentiated by industry-specific business processes for end-to-end scenarios.

–        A digital platform to help customers manage data orchestration across their entire application footprint. This includes real-time visibility into distributed data silos using next-generation data management solutions and an open cloud platform as a business platform for integration and business process innovation.

–        Intelligent technologies, such as AI/ML, IoT, and advanced analytics, help customers optimize their core business processes, extract real-time insights, and reinvent their business models. This intelligence is integrated across applications and helps us deliver unique outcomes to every customer.

For more information about the products and solutions offered as part of our Intelligent Enterprise Framework, see the Products, Research & Development, and Services section.

The innovative power of our people is key to delivering the intelligent enterprise, as our people are key in helping our customers transform. We strive to create a workplace that can attract and retain the best talent in the market. We are fully committed to enabling our employees to grow their skills at every stage of their career at SAP.

Expanding to Experience Management

Every digital interaction is an opportunity to positively influence a customer. Each digital interaction is an opportunity to measure customer satisfaction, employee engagement, partner collaboration, and brand impact. It is also an opportunity to derive sentiment on how end users and customers perceive a company or a product. By combining experience data with operational data, SAP can expand from delivering the intelligent enterprise to delivering intelligent experiences to our customers.

Most successful companies do not just react to problems as they occur, they try to predict and mitigate those problems before they ever happen. Experience management is the process of analyzing the interactions that people experience with a company in real time and identifying opportunities for improvement. By analyzing employee surveys and service center tickets and calls, and combining this information with organizational data, SAP can help support a higher level of employee engagement and retention for our customers. By capturing feedback on how consumers experience the physical or digital product in real time, SAP can help our customers design better. By understanding the sentiment of every customer interaction, and correlating this with operational data on price and service delivery, SAP can help our customers drive better topline performance and create better products and services.

Acquisitions

We will continue to focus on investments in technology and innovations that ensure sustainable growth of our solution portfolio to drive our short-term, mid-term, and long-term ambitions. We will continue to unleash the full potential of our employees’ talent as well as foster strategic

partnerships with our ecosystem to cultivate innovation. Further, we may make targeted acquisitions to complement our solution offerings and improve coverage in key strategic markets.

In April 2018, we acquired Callidus Software Inc., a company offering a cloud-based customer relationship management (CRM) solution marketed under CallidusCloud, which provides SAP and our customers a differentiated, cloud-based CRM solution. This helps put SAP in a leading position to compete in the CRM market. SAP has consolidated the CallidusCloud offerings with SAP Hybris solutions into the SAP C/4HANA suite of customer experience solutions, and is reported as part of the Customer Experience segment. For more information about the acquisition of Callidus Software Inc., see the Notes to the Consolidated Financial Statements, Note (D.1).

In November 2018, we announced our intent to acquire Qualtrics International, Inc., a global pioneer of the experience management software category that enables organizations to thrive in today’s economy. The deal was closed on January 23, 2019. Experience management focuses on obtaining and tapping the value of outside-in customer, employee, product, and brand feedback in real time. Together, SAP and Qualtrics aim to accelerate the new experience management category by combining experience data and operational data to power the experience economy. This creates a highly differentiated offering for businesses to engage with their customers to deliver and continuously improve customer, employee, product, and brand experiences. Qualtrics will be reflected in our Customer Experience segment which we renamed, upon the Qualtrics acquisition in 2019, to “Customer and Experience Management.” For more information about the acquisition of Qualtrics International, Inc., see the Notes to the Consolidated Financial Statements, Note (G.9).

Sapphire Ventures

In addition to our investments in organic growth and acquisitions, SAP also supports entrepreneurs that aspire to build industry-leading businesses, through venture capital funds managed by Sapphire Ventures. Sapphire Ventures currently has over US$3.5 billion under management and has invested in more than 160 companies on five continents. This includes growth-stage technology companies and early-stage venture capital funds. Sapphire Ventures pursues opportunities in which it can help fuel enterprise growth by adding expertise, relationships, geographic reach, and capital. It places a particular focus on companies in Europe, Israel, and the United States. In addition to our venture investments through Sapphire Ventures, SAP also has a dedicated SAP.iO fund, managed by Sapphire Ventures, that focuses on strategic early-stage investments in enterprise software startups. As a part of the SAP.iO Fund, SAP has also committed to invest up to 40% of the investable capital in under-represented groups in technology to foster diversity and inclusion. One of these investment examples is women in technology.

SAP’s Impact

Our purpose comes to life through our contribution to the UN Sustainable Development Goals (SDGs). We innovate software and technology solutions that help empower our customers to become intelligent enterprises. It means connecting people and information to address the world’s biggest challenges.

For us, delivering the Intelligent Enterprise and helping our customers thrive in the experience economy are essential for a better, more productive world. By unlocking the full potential of innovation, we can transform how businesses and governments impact the economies, societies, and environments in which they exist. In this way, we aim to fulfill our purpose of helping the world run better and improving people’s lives.

Our Business Model

We create value by identifying the business needs of our customers, then developing and delivering software, services, and support that address these business needs. The close collaboration with our customers and partners throughout the process helps us continuously improve our solutions, identify further business needs, and deliver enhanced value to our customers.

Results

By developing software, providing our software and services to our customers, and engaging them in feedback, we immediately generate results for SAP such as growth, profitability, employee engagement, and customer loyalty. Value creation for the customer

is realized when they implement the software and services to support their business and help achieve their own visions and purposes.

Inputs

This value creation process does not happen in a vacuum. It is enabled by external inputs, most importantly customer insights and broader stakeholder dialog, financial capital, employees’ expertise, and intellectual property, third party products and services, as well as the IT infrastructure we rely on.

Impact

Our solutions lead to significant impact at our customers and – through them – in the world. The following are some examples of our impact in various areas.

Economy:

SAP software supports the UN SDGs 8, 9, 10, and 12 by helping provide meaningful work and strengthening industries and infrastructure. For example, SAP software helps as follows:

–        Companies work better to bring economic prosperity and fairly-paid jobs to people around the world.

–        Organizations optimize resources utilization, aspiring for a world with zero waste

As such, our software supports the responsible growth practices necessary to ensure the survival of future generations.

Society:

SAP software supports the UN SDGs 1, 2, 3, 4, 5, 7, 11, and 16 by helping create a peaceful and just society through better healthcare, education, and access to technology. For example:

–        SAP technology is at the epicenter of complex medical issues when it comes to prevention, treatments, and cures for cancer, diabetes and other diseases. We are also deeply committed to empowering the world’s youth, working adults, differently-abled people, and the unemployed with the right skills to thrive in the digital economy.

–        Cities are facing growing populations and aging infrastructures. SAP solutions for the Internet of Things can help manage and monitor resources so that cities can run more sustainably and help citizens enjoy more enjoyable, safer lives.

Environment:

SAP software supports the UN SDGs 6, 13, 14, and 15 and helps protect the environment by addressing the need for water, clean energy, and responsible development. For example:

–        We are all affected by climate change. SAP technology is helping our customers increase their overall resource productivity and transform their businesses to reduce carbon outputs.

–        With the world population growing steadily, humanity will need to provide water, food, and shelter to billions of people in the coming years. SAP solutions help our customers reduce water waste and support sustainable management of water and sanitation for all.

Furthermore, SAP knows there is power in collaboration and engages in a wide range of partnerships to address SDG 17.

* The outlook was communicated in January 2018 and financial targets were raised in April, July, and October 2018. The 2018 outlook numbers above reflect the raised outlook from October 2018.

Note: A reconciliation of non-IFRS results to IFRS equivalent is available in the Performance Management System section.

Note: A reconciliation of non-IFRS results to IFRS equivalent is available in the Performance Management System section.

Seasonality

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 2018, 2017, and 2016 first quarter revenue being lower than revenue in the prior year’s fourth quarter. We believe that this trend will continue in the near 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.

Bringing Together Machine and Human Intelligence

SAP works to deliver an intelligent enterprise that brings together machine and human intelligence across all business functions to provide value to customers. As we make that happen, we aim to help customers make best use of their data assets to achieve their desired outcomes faster and with less risk.

Intelligent Enterprise Vision

To make good on our commitment to help customers transform themselves into full digital enterprises operating in real time, we have created a framework for the intelligent enterprise, as described in the Strategy and Business Model section and illustrated below. This framework is further strengthened with a portfolio of services and support offerings to help customers maximize the value of their SAP software and technology implementations.

By bringing continuous innovation, we not only help our customers succeed as they adopt increasingly more sustainable business strategies, but we also realize our purpose of helping the world run better and improving people’s lives.

Intelligent Suite

Whether a business needs to manage its total spend, gain a deeper understanding of its customers, engage its external workforce, or transform its workplace experience, our intelligent suite enables a global enterprise to thrive in the digital economy. Developed with new technologies such as artificial intelligence (AI)/machine learning, including chatbots and voice technology, SAP cloud applications provide businesses with insights and intelligence to anticipate and proactively respond to business imperatives and identify opportunities for improvement. Together, these solutions support the customer’s journey to becoming an intelligent enterprise.

Integrated with SAP S/4HANA, our digital core, and built on an open cloud platform to enable integration across heterogeneous environments, these offerings can be linked easily with third-party applications and data, delivering the real-time and actionable insights that customers need.

With our acquisition of Qualtrics International Inc. on January 23, 2019, SAP adds experience management capabilities to further empower the intelligent enterprise, bringing a new dimension in which every digital interaction is an opportunity to influence a customer positively. A business can use each interaction to measure customer satisfaction, employee engagement, partner collaboration, brand impact, and user sentiment. By combining such experience data with the operational data already maintained in an SAP system, an intelligent enterprise can deliver intelligent experiences for customers.

Network and Spend Management

Every business can benefit from better managing its spend. Our cloud solutions under the SAP Ariba, SAP Concur, and SAP Fieldglass brands give customers the essential visibility and capacity to control their spend. Together, the solutions comprise the largest commerce platform in the world, with approximately $2.9 trillion in global commerce transacted annually in more than 230 countries and territories. These solutions enable insight and control across sourcing and supplier management, travel and expense, and external workforce. Our network and spend management solutions are built on an open platform of established business networks. They give customers greater understanding of all spend related to vendors and employees and the ability to share master data through SAP S/4HANA to maximize intelligence-based decisions. These solutions deliver best practices for our customers, no matter if they decide to use our entire portfolio or a specific solution to address their needs.

SAP Ariba

SAP Ariba solutions offer an online business-to-business marketplace connecting more than 3.8 million sellers in more than 190 countries, with sellers realizing more than US$2.6 trillion in goods and services every year.

New innovations in 2018 include the following:

–        The SAP Ariba Spend Analysis solution leverages AI and machine learning to reduce the time it takes to classify invoice data.

–        The SAP Ariba Snap program provides simple, affordable, and scalable options for fast-growing companies to implement sourcing solutions and reap the benefits they provide.

–        The SAP Digital Manufacturing Cloud solution offers a manufacturing network that integrates with the SAP Ariba Sourcing solution and Ariba Network, and enables manufacturers and service providers to connect and collaborate across the entire manufacturing process.

–        SAP Ariba Strategic Sourcing Suite significantly expanded its industry capabilities with new retail industry capabilities for direct spend.

–        The SAP Ariba Supplier Risk solution provides additional insights to help customers track 175 risk incident types in partnership with Semantic Vision, Made In a Free World, World Economic Forum, and other public and private data aggregators. These risk incident types are used to calculate a company’s supplier risk-exposure score. This score is then used to analyze exposure to high-risk suppliers. The solution also provides a comprehensive risk-due-diligence process, which helps companies meet third-party regulatory compliance requirements.

–        The SAP Ariba Cloud Integration Gateway solution enabled by the SAP Cloud Platform Integration service provides with buyers a simple,

reliable, and faster way to connect their SAP ERP and SAP S/4HANA systems with SAP Ariba solutions.

SAP Fieldglass

SAP Fieldglass solutions are cloud-based applications for external workforce management and services procurement. The SAP Fieldglass Vendor Management System helps organizations find, engage, and manage all types of flexible resources – including contingent workers, statement-of-work-based consultants, freelancers, and more. In 2018, SAP Fieldglass solutions connected customers with 5.7 million active external workers and more than 131,000 suppliers in over 220 countries and territories.

New innovations in 2018 include the following:

–        The Digital Partner Network for SAP Fieldglass solutions was launched in 2018 as a new ecosystem network to help customers transform how they engage and manage an external workforce of freelancers, contingent workers, independent contractors, and other service providers.

–        We delivered a machine-learning powered Resume Matching service that automatically reads and ranks candidates based on role requirements, identifying best-fit candidates while increasing efficiency and speed to hire.

SAP Concur

With close to 58 million users worldwide, SAP Concur is the world’s leading travel and expense management software. SAP Concur solutions help companies of all sizes and stages go beyond automation to a connected spend management system that encompasses travel, expense, invoice, compliance, and risk. These solutions help businesses gather instant, actionable insights that support the intelligent enterprise.

New innovations in 2018 include the following:

–        The ExpenseIt mobile app, an already established offering, was fully integrated with SAP Concur solutions in 2018, providing valuable functionality that uses receipt scanning technology powered by machine learning to turn receipts into expense report line items.

–        The Budget add-on is a Web service that aggregates data in near real time from SAP Concur solutions including Concur Expense and Concur Invoice, as well as purchase and travel requests, for a comprehensive dashboard on spend – before and after the spend occurs.

–        The Concur Drive add-on is a Web service that allows businesses to automatically capture distance driven as an automated alternative to self-reported mileage, reducing overspending in organizations.

People Engagement

SAP SuccessFactors

SAP SuccessFactors Human Capital Management (HCM) solutions help organizations increase the value of their workforce by developing, managing, engaging, and empowering their people. SAP SuccessFactors solutions are delivered as a complete digital suite that addresses all aspects of human resources (HR), from administration, payroll, and benefits to talent management and collaboration across the employee journey. These solutions integrate fully with the customer’s other business software, including SAP S/4HANA. SAP SuccessFactors HCM solutions are used by more than 6,700 customers in over 200 countries and territories, and core HR and talent management solutions reach more than 125 million users.

New innovations in 2018 include the following:

–        An SAP SuccessFactors digital assistant was developed to provide a business’ entire workforce with a personalized, engaging experience by applying machine learning to guide and recommend actions based on verbal and written questions or commands.

–        SAP SuccessFactors Visa and Permits Management is the first SAP SuccessFactors solution built on SAP Cloud Platform. It offers a single place for HR to centrally manage, automate, and gain insight into complex employee work visa and permit processes for international hiring.

–        Several key features were also added to existing HCM solutions, including functionality for the General Data Protection Regulation (GDPR), a set of laws that came into force on May 25, 2018, which affects data privacy practices throughout the European Union (EU). This GDPR functionality is now embedded across the entire HCM suite, making it easier for HR leaders to properly handle and protect sensitive employee and candidate data. A candidate relationship management capability is now available as part of the SAP SuccessFactors Recruiting solution, helping recruiters to attract more relevant candidates, engage and nurture targeted talent pools, and manage the application and hiring process more efficiently.

Further improving usability across mobile devices, SAP and Google partnered in 2018 to redesign the SAP SuccessFactors Mobile app for Android. Employees and managers can now more easily engage and complete critical people-related tasks. We also joined forces with Thrive Global to introduce Well-Being at Work, a new initiative that puts employee well-being at the heart of organizations and positions technology as a catalyst for this cultural shift. SAP SuccessFactors Work-Life is the first solution to come from this partnership. It provides real-time insights into well-being needs and makes recommendations to improve employee satisfaction and engagement.

Digital Core

SAP S/4HANA

SAP S/4HANA is our enterprise resource planning (ERP) suite for the intelligent enterprise. Approximately 10,500 customers have chosen it to support their digital transformation. It enables a business to access and analyze data in real time, giving them insights to act in the moment, providing predictive suggestions, and connecting business functions and the people within them. SAP S/4HANA software spans all business functions including finance, human resources, sales, service, procurement, manufacturing, asset management, supply chain, and R&D.

Flexible Deployment Options

Developed first for the cloud, SAP S/4HANA can be delivered as a software-as-a-service (SaaS) solution, on premise, in a private cloud, or as a hybrid deployment. All consumption options are compatible, so that organizations have the flexibility to implement SAP S/4HANA to meet their exact needs. SAP S/4HANA Cloud provides SaaS qualities such as scalability as well as quarterly innovation updates. On-premise customers receive the same updates but on an annual update cycle.

Real Time

Built specifically to take advantage of in-memory computing with SAP HANA, SAP S/4HANA reduces both the complexity of the data model and the data footprint. It enables SAP S/4HANA solutions to process huge amounts of data in real time and end users can flexibly change their perspective of the data. This not only saves time and costs for our customers but also delivers a new interactive experience and new business

insights. SAP S/4HANA empowers business users to act in the moment, as they have immediate access to information at the most granular level to help make better, more informed decisions.

Integrated and Extendable

SAP S/4HANA is built with an open architecture and connects to the entire SAP portfolio and beyond. The SAP S/4HANA Cloud software development kit (SDK) allows our customers and partners to innovate quickly and easily on SAP Cloud Platform while leveraging the capabilities of their digital core.

Manufacturing and Supply Chain

Our SAP Digital Supply Chain portfolio offers enterprises an integrated suite of digital supply chain solutions to plan, design, manufacture, deliver, and operate their products. With these solutions, customers can blend the physical and the digital world throughout the complete supply chain – from design, planning, and manufacturing to logistics and ongoing maintenance – embedding intelligence and ensuring their customers are central to every phase of their business. Customers get total visibility as products are designed, delivered, and deployed by connecting their business processes with real-time data from assets, equipment, customers, and suppliers. This visibility is used to adequately anticipate and respond to real-world physical realities.

Integrated Business Planning

The SAP Integrated Business Planning solution is powered by SAP HANA and delivers real-time supply chain planning capabilities for sales and operations, demand and supply planning, and inventory optimization in the cloud. It provides the necessary information to make business decisions using embedded analytics, simulation, prediction, and decision support. Specific SAP Integrated Business Planning applications can be used with the established SAP Fiori user experience interface or with a Microsoft Excel plug-in, allowing users to run optimization scenarios directly in their spreadsheets.

Asset Management

SAP Intelligent Asset Management solutions support manufacturers and asset operators to define, plan, and monitor the optimal service and maintenance strategy for their physical products and assets. The solutions do this by providing the required level of collaboration, integration, and analytical insights, using an asset central foundation, our digital twin for physical assets, as the common data set.

Customer Experience

SAP C/4HANA

In June 2018, we launched SAP C/4HANA, a unified suite of cloud solutions designed as the next generation of customer relationship management. SAP C/4HANA software provides companies with a single, holistic view of each customer across all channels and connects demand to the fulfillment engine in one end-to-end value chain. To complete our portfolio of customer experience solutions, SAP acquired and integrated Gigya, Callidus Software, and Coresystems, and rebranded the SAP Hybris business area to SAP Customer Experience to reflect the depth and breadth of our offerings.

SAP C/4HANA is now a major growth driver for SAP, showing triple-digit growth in cloud subscription revenue during 2018.

New innovations in 2018 include the following:

–        SAP Upscale Commerce is a commerce solution designed for midmarket retailers, major brands, and direct-to-consumer companies

looking to deploy a fast and highly engaging commerce experience. Built for today’s mobile-first consumer, it can be deployed in a matter of days, bringing SAP customers speed to market with rich AI-powered experiences.

–        SAP Commerce Cloud on Microsoft Azure is a partnership that combines SAP’s market-leading solution for B2B and B2C scenarios with the Microsoft Azure public cloud infrastructure.

We also announced the Open Data Initiative, a partnership between SAP, Microsoft, and Adobe, the goal of which is to meet a core need for our customers – to unlock a single view of their customers by bringing siloed data together.

Winning in the CRM market hinges on our ability to deliver an integrated lead-to-cash process that connects the front office (SAP C/4HANA) with the digital core (SAP S/4HANA) while maintaining competitiveness in each area of the SAP Customer Experience portfolio.

Digital Platform

Helping customers manage data orchestration and system integration across their SAP installation, our digital platform consists of SAP Cloud Platform, the foundation on which the intelligent suite is built, and SAP HANA Data Management Suite, which manages distributed data from any source. The platform not only caters to the runtime and data storage needs of the end-to-end applications in the intelligent suite, but it also enriches them with intelligent technologies, such as machine learning, Internet of Things (IoT), and analytics capabilities, all offered as cloud services, which are easily embedded in business applications.

SAP Cloud Platform

In the digital economy, companies need both standard applications and a highly flexible platform that allows them to do the following:

–        Extend and customize cloud and on-premise SAP applications

–        Develop new applications for different processes

–        Integrate cloud and on-premise applications

SAP Cloud Platform offers an enterprise platform-as-a-service (PaaS) environment where companies can build, test, run, manage, and expand software applications in the cloud. It is the center of gravity for the intelligent enterprise, as applications can run on SAP Cloud Platform, or run with it, by using the platform’s services while running on another stack. It offers comprehensive capabilities to help business users and developers create better, more agile applications in less time. Customers can apply, among other things, mobile services, advanced analytic tools, state-of-the-art authentication mechanisms, and social functionality. For maximum flexibility, portability, and agility, we use open source technologies. SAP Cloud Platform enables businesses to connect and integrate best-of-breed applications to our digital core and to custom-built solutions. The introduction of the SAP Cloud Platform Functions service and SAP Cloud Platform, ABAP environment, simplifies deployments and brings new choices for SAP customers in the cloud.

Giving Customers Freedom of Choice

With SAP Cloud Platform, customers are free to choose from a range of infrastructure-as-a-service (IaaS) providers, and today many enterprise customers are choosing more than one provider. SAP has partnered with Alibaba, Amazon, Google, and Microsoft, so our customers can run their applications in an SAP or a third-party data center, or in a combination thereof. We also offer SAP Cloud Platform as a private cloud deployment.

SAP HANA Data Management

Since 2010, SAP has helped customers realize the value in their data with SAP HANA. Today, customers have a new challenge with distributed data. Data is no longer just in transactional systems, but is distributed across products, machines, and people. This is why SAP has brought together the SAP HANA business data platform and SAP Data Hub as a complete commercial solution to address the emerging challenges enterprises face in managing a distributed data landscape.

The SAP HANA business data platform is our flagship in-memory database, available both on premise and as a service in the cloud. It enables businesses to process and analyze live data and make business decisions based on the most up-to-date information, a requirement in today’s digital economy. The innovative architecture in SAP HANA allows both transactional processing for data capture and retrieval, and analytical processing for business intelligence and reporting. It reduces time-consuming database and data management tasks and underpins intelligent applications that use advanced analytic processing. It includes features such as text analysis, multitenant database containers to support multiple isolated databases in a single SAP HANA system, as well as external machine learning libraries.

The SAP Data Hub solution enables businesses to manage data from numerous sources – SAP or third party – without having to centralize data into one location. SAP Data Hub allows data to be processed “in flow,” for example, while data is being recorded to the data store, or being prepared for use in machine learning. It also provides enterprise data governance to see who changed or accessed the data. The solution lets companies safely and effectively move and share their data to enable agile data operations across the enterprise.

Intelligent Technologies

SAP Leonardo

SAP Leonardo is a methodology that combines design thinking services with intelligent technologies for every business process, to enable rapid innovation and create better outcomes for the customer. SAP Leonardo brings together the customer vision, SAP’s processes and industry knowledge, and technologies such as analytics, AI/machine learning, and IoT capabilities. SAP Cloud Platform provides the environment for applications to consume these technologies.