SAP SE (SAP) Earnings Call Transcript & Summary

We'll go straight into the conversation. I'd just like to remind everyone that this conversation is off the record and not intended for the media.So with that, Luka, you recently reported your fourth quarter results. We showed a pretty strong momentum, particularly around the topline. So we hear from a lot of software companies around a very robust IT spending environment post the pandemic, starting from a kind of cyclical rebound, which is becoming a much more strategic and structural. And obviously, technology companies are right at the center of this.

So I'd be keen to get your perspective, from your vantage point, what are the key trends you're seeing? And what are the customer conversations you're having? And you were quite bullish in your outlook, particularly on the top line. So if you could give a sense of your pipeline, your coverage? What you're seeing across different markets and different verticals, maybe we can start with that.

Yes. Thanks a lot, Mo. Indeed, I mean we have seen a very strong demand environment all the way through 2021. Clearly, you have witnessed that also in our increasing and accelerating growth rates, in particular, in our cloud business, and we actually fully expect that this trend will continue. We see that, obviously, in the conversations that we are having and the strength of our pipeline, but we also see it from outside sources. Just recently, UBS, for example, brokered a survey among some of our largest customers, and they have confirmed that they expect their IT budgets for SAP for 2022 actually to quadruple from a growth rate perspective from about 3% growth in the past years to 12%. Obviously, with a significant overweight in cloud that we are expecting. I think one of the key reasons for that, that we are clearly seeing is the success of our rise with SAP offering when customers really are investing strategically to increase their agility, their ability to more rapidly adopt and embrace new business models and react more quickly to the shifts that we are seeing in the global economy. Rise with SAP is obviously a perfect offering to support that. And it has also led to accelerating growth across our wider portfolio as oftentimes customers are then using this opportunity to also remodel their entire end-to-end business process landscape. In terms of our confidence for the year, as I said, all of the forward-looking metrics continue to look very healthy in terms of the industries that you have inquired about, that is actually quite consistent. But of course, the nature of the conversations is different from industry to industry. In oil and gas, for example, it's obviously a lot about the shift sources of energy helping customers with the transition to more clean energy as part of their core business operations and how digital capabilities can help in that. If you look at high tech, for example, where we had a strong close to the year with significant rise successes also with the likes of Adobe and IBM, there, it's about how to embrace with more agility new business models in areas, for example, like billing and revenue innovation management. We had strong results and also the topic of reskilling the workforce, equipping it with the right talent framework is a key topic there. So total workforce management and high tech is a strong topic also at SAP internally, quite frankly. Whereas, when you look at retail, for example, clearly, omnichannel sales is a very strong topic. Topics like loyalty management, returns management and obviously, the overarching commerce topic are high in demand. So it's a consistent theme, but with different flavors per vertical.

That's great. So maybe just turning towards what I think are multiple kind of revenue drivers for SAP. Perhaps, we could sort of start with the migration that you sort of talked about 18 months ago for your customer base from kind of on promise to cloud. It's been about a year since you launched the RISE with SAP offering. What has been sort of the take-up of the product so far? And what have been, I guess, the key kind of challenges the customers are facing on migration? And how has that sort of RISE helped customers overcome those?

Yes. Obviously, since we launched RISE just about 1 year ago, that offering has seen a tremendous success. We wanted to close at least 1,000 customer contracts in the first year. We ended up with more than 1,300. Actually, half of them -- more than half of them happened in Q4. So, we have seen actually a tremendous acceleration in demand as well in this respect. But what is more important to me, quite frankly, than the pure customer account is the quality of the deals that we were able to drive. And we've seen ever since the inception of the offering that a large number of our most significant customers have become increasingly interested in the offering. Of course, it takes a while to work with them through the right transformation proposition for them, but at the end of the year, we had very large contracts with the likes of Siemens or a CVS in the U.S. or Panasonic in Asia. You can see this also through the fact that the share of large contracts as a proportion of our total cloud order entry has materially climbed up last year in 2020 in Q4. It was just around 31% of the total cloud order entry in 2021, in Q4 was actually already close to 50%. So in that respect, we are clearly seeing that the offering is resonating as a Transformation as a Service offering also for our most complex and significant customers. But it's also important to me -- for me to stay here that RISE has also seen a very nice pickup among net new customers that are looking to transform to S/4HANA cloud and see this as an opportunity to redefine their business process landscapes in a greenfield approach around 50% of our customers and as for throughout the year were net new. So it's also a great opportunity for us not only to convert our installed base, but also add net new customers. And when you talk about challenges, I think the biggest challenge is really to craft the individual transformation road maps per customer, especially with the largest ones. There are lots of considerations that have to go into this. What are the system landscapes that you start with? First, where is the biggest opportunity to streamline and standardize and simplify processes? How do you leverage the additional components that are part of RISE, like business process intelligence with Signavio, for example, or the business platform in order to really double down on those biggest opportunities to provide leverage and simplification. That is a process that is incredibly important because with RISE, we're not just trying to achieve a simple lift and shift to the cloud, but actually want to really transform the landscape to be much more value accretive to our customers. And that sometimes takes its while, but at the same time, it's the biggest differentiator for the offering as well.

Okay. That's great. And I think one of the other things that was noticeable, both in I think the fourth quarter and the third quarter results, was a really robust kind of accelerating S/4HANA cloud revenue momentum, but also in the kind of backlog growth, suggesting, as you said, not only the kind of new customer activity, but signs of some of the larger customers migrating. Can you give us a sort of color around how this will sort of translate into kind of revenues? And more importantly, as you try to kind of upsell the cloud to your customers, what sort of value uplift you are starting to see?

Obviously, S/4HANA had just a tremendous performance in 2021. Actually, even above and beyond our expectations. You've seen the growth rates, both in revenues and in the current cloud backlog move materially up -- actually above and beyond the 76% growth that you saw in cloud backlog in Q4. The pure order entry was even much higher than that, and the total contract value in S/4HANA was even higher than the annualized order entry that we were driving. So also for the next years to come, we have already line of sight of tremendous further growth momentum of S/4, and we expect that this will definitely continue, and you will see increasing growth rates along the reported metrics also in 2022. I think latest next year S/4HANA should be our single biggest cloud asset that we have in the portfolio. So that's the scope of the growth that we are seeing here. When we think about the division in contribution from the installed base and net new customers, of course, it's fair to say that those migrated customers tend to produce larger amounts of revenue to us because we are essentially operating already the largest companies on this planet on our established ERP solutions. And so the net new customers that we gain tend to be more, let's say, larger mid-market or lower large enterprise customers, but still, it's an important contribution from them. The nice thing about the migrations is, they are extremely value accretive for SAP as well. When we launched the offering around RISE, I think we predicted that we would be able to drive for a 2x cloud revenue increase factor based on the existing support revenues of those customers. And actual fact what we are seeing now is that in 2021, we were able to drive for a much higher conversion factor here. So while support revenues in 2021 have already experienced a triple-digit million impact and decline from those migrations, it has driven a much higher cloud revenue figure and therefore, actually is also a great movement from an overall absolute profit perspective for us. So this is really a great growth engine for us in the future. Again, not only seeing it as a pure core ERP opportunity, but also as we are moving our customers to S/4. And in the cloud, the argument for the rest of the portfolio becomes much stronger because that's where we have focused on integration between our most current cloud solutions and S/4 that's strengthening the value proposition for Success Factors for our procurement solutions, for our customer experience solutions and that is really then the whole power that this movement around S/4 in the cloud is providing for us.

Yes, that's a good segue. I mean, I think one of the underappreciated aspects of SAP is both via M&A and organic development. You probably have one of the broadest set of enterprise kind of cloud applications and functionality that you have developed. Could you sort of update us on kind of how the integration of these products is kind of coming along, and then how this sort of plays again into the kind of follow on to once you get customers on to the cloud, driving that kind of additional upside.

Yes. Let me answer that question in 2 different flavors. First of all, integration in terms of the offering, just very briefly, because as I briefly mentioned, RISE is not only consistent of a cloud infrastructure and S/4HANA cloud, but it comes along also with bundled transformation solutions like the business technology platform and [ Sequoia ]. Actually, it has already driven significant growth for both of those elements. So those were some of the fastest-growing assets that we had. And that aspect of commercial integration is already bearing significant fruit. When it comes to the technical integration between our solutions, obviously, that is something on which we have really strongly focused for, in particular, the last 2 years since we changed the structure of the company and brought all of the engineering functions again together in one organization. Integration has been clearly a top priority, and we have made great strides -- also significant investments, in particular in 2020 and in 2021, where about 10% to 15% of our entire R&D budget was spent on strengthening those integration elements. But now we have really very robust integration experience with a common analytics layer, a common user experience, common data model across the different solutions, common domain model. So all of this is now, of course, strengthening the argument, and when I look into the different solution areas, I would argue that probably SuccessFactors has benefited most from this strengthened integration. They have developed into a very consistent growth engine for SAP and have reaccelerated their growth quite significantly as part of their availability also as a bundled offering as part of RISE together with S/4HANA, but also procurement had a strong rebound and CX closed actually exactly in line with a quite sizable growth expectations that we had for them. So this is clearly speaking to the importance that we had to place on this topic, but it's paying off now. And the hard work and the heavy lifting is done, but integration is always a race without a finishing line, but clearly, we are actually already redeploying some of the capacity that we had to apply to this heavy lifting now to pure innovation on a functional level across the portfolio. And this will continue to further strengthen the competitive positioning of our solutions also in their own right, not only as part of us.

Yes. Well, one of the things, I think -- and this is through the history of SAP has been is the industry-specific functionality that you've built, particularly in the on-premise world, this was a massive differentiator for you and something customers relied upon. And then as we move to the cloud, one of the challenges is moving from kind of heavily customized, more standardized. But the customers still want the bells and whistles. So maybe talk to us about the strategy around your kind of cloud native solutions and how you bring in some of that industry-specific flavors? And to what extent is this a bottleneck today or becomes less of a bottleneck for customers to then move who have developed lower custom code around the [ CPEA ] over the decades.

Yes. Mo, it's a good question, but I actually see it as one of our greatest opportunities to differentiate. You're absolutely right. We always had that great depth of industry capability and also experience. And in the cloud, quite frankly, you see only niche players in certain verticals that are able to cover industries functionalities at depth in a standardized fashion. So we are perfectly suited to provide this to our customers, not through heavy customization as in the past, but through intelligent smart solutions that are all developed on top of our business technology platform to then seamlessly integrate with a clean core system and provide that agile differentiation. Look, we have made strong progress since we announced our industry cloud effort as part of our strategy refresh in 2020. We have actually already delivered more than 200 industry-specific cloud solutions. Now not all of them have been developed by SAP ourselves. That's part of our strategy as well that we want to drive for an open ecosystem around the business technology platform, leveraging partners, sometimes developing on our behalf because they have a specific industry capability for a certain segment of an industry need or also together in co-innovation with our customers. And we have really, therefore, established industry cloud as a key anchor for a number of our strategic transactions that we were then also driving for the overarching S/4 cloud transformation. We initially started with a set of priority industries like manufacturing and automotive industries, sales, also utilities with the development of a new cloud native billing solution in conjunction with E.ON as our charter clients, for example. We have seen the move that we have made in financial services with the setup of the Fioneer joint venture, which is also going to develop cloud-native solutions on top of the business technology platform. So all of this is going very well. And we believe that in the cloud, we have a capability that no one of our competitors can match to have. First of all, whole functional breadth of S/4HANA available to them, and then of that, certainly the broadest industry-specific capabilities. But again, not all development ourselves, and that's part of the new SAP as well and that we're also looking at partnering in a smart fashion.

Got it. Got it. That's very, very helpful. So maybe turning to kind of the numbers. I mean you've talked about building a very sustainable cloud growth rate over the medium term into the kind of mid-20s. Maybe talk us through how you think about the kind of the components or the building blocks of that between all the various kind of factors you've talked about between sort of migration, net new. You've also got your travel business, which often gets kind of forgotten about. That could potentially come into the mix as that rebound. So maybe walk us through the kind of the building blocks.

Yes, you're absolutely right. And you know as well, of course. Look at in 2021, we grew our cloud business actually faster than expected across all of the key metrics. Revenue was ahead of our plan. The current cloud backlog was ahead of our plan. Renewals was ahead of our plan. And therefore, we have exited the year, of course, with a very strong 26% current cloud backlog growth. That is, of course, already providing a very strong anchor to the accelerating growth in cloud revenues that we are expecting in 2022. S/4HANA was a very strong contributor, but it's certainly only seeing the beginnings of a very powerful migration opportunity. Again, RISE has 1,300 customers. S/4HANA cloud currently has roughly 5,000 customers. Well, we have 30,000-plus ERP customers and on-prem is still out there. We migrated -- so that is obviously and evidently a very strong source of growth for many years to come. And that's why we also believe that we have a great chance to further accelerate our growth in the cloud also beyond 2022, also driven by the very strong total order entry growth that I already alluded to. Now that is the S/4 journey where we have a long, long runway left, but on top of this, you have rightfully mentioned transactional revenues. They don't show up in the current cloud backlog, and indeed, they were, in particular, at the outset of the pandemic, a significant drag on our revenue performance. That has actually already dissipated towards the end of the year compared with double-digit growth on the CCP side when the committed revenues are concerned. Their headwind has actually halved between Q3 and Q4 already. [indiscernible] brought our CCP growth down by only 1.5% roughly, where in Q3, it was still 3%. And we expect that in 2022, they will actually very consistently return to double-digit growth because we're seeing despite the Omicron wave, countries are not going into full lock down anymore. Travel is certainly picking up, and the rest of the intelligence spend solutions also had already rebounded quite nicely in the second half of 2021. So I think transactional revenues rather become a tailwind than a headwind from now on. In Concur, we would expect that in 2023, they returned to the full size that they had pre-pandemic, and that, of course, will then continue to strengthen also the revenue performance going forward. Beyond that, we obviously see all of the cross-selling benefits from the move of S/4 to the cloud that we have already discussed. We're bringing new innovation to the market like the industry cloud solutions. We have a great opportunity in business networks, which we are currently bringing together across procurement, the logistics business network that we have. We just acquired Taulia, which is a perfect segue between our finance and S/4 solutions and our business network solutions, providing working capital management and support on a powerful platform there. Signavio will continue to grow very, very fast as part of the RISE motion. And so with all of that strength and quite frankly, the appreciation that our customers have for the renewed commitment towards organic innovation across the portfolio, I'm very confident that not only will we see the accelerated growth in 2022 that we have promised for, but also a further acceleration going into 2023.

All right. Got it. So maybe if we can use this as a segue to talk about some of the bottom line drivers. Gross margin was quite a bit of a debate on the most recent earnings call. I mean you are clearly very confident around sort of the hockey stick in gross margin in coming years. Maybe just remind us kind of what's driving that confidence? I know there's some sort of overlapping costs that will start to go away, and what drives the sort of confidence that you'll hit 75% and 80% targets in '23 and '25, respectively?

Yes. Look, when we defined our updated midterm strategy in October 2020. At the same time, we doubled down on our commitment to accelerate the harmonization of our cloud infrastructures in order to then drive for even higher profitability in the cloud in the outer years of the transformation. And this investment that we are taking to move legacy customers that are still on our legacy infrastructures to the harmonized hyperscaler based and own converged cloud-based infrastructure is more than EUR 500 million investment spread across 2021 and 2022. We spent a little bit less than EUR 200 million in 2021 and expect to spend a bit more than EUR 300 million on that in 2022. That's the prime and the only reason actually why you have not seen in 2021 and will not see in 2022 a material increase in the cloud gross margins. Just to give you an idea, the impact of this investment on the 2021 gross margin performance was just slightly less than 1 full percentage point in gross margin. So without this, the cloud margin would have actually increased. And in 2022, we also are confident that the underlying scale improvements that we are seeing are actually going to be able to outweigh this even further stepped up investment in 2022. Now what are we going to get for this investment because, of course, there's going to be a return in '23 when that migration program has run its course. But first of all, of course, those project expenses will be gone, but more importantly, we'll be able to operate on a much more scalable elastic infrastructure, which will require less buffers, for example, in terms of additional hardware capacities because we will be able to shuffle a way more effectively and efficiently across the different hyperscaler capacities that we have available. It will also drive greater resiliency, by the way, and also better SLAs for our customers, will also [ Indiscernible ] competitive in that respect. So we really need to get done with this program in the first half of 2023. That's what we had focused on. And that basically means, in particular, for SuccessFactors and Ariba, the 2 largest assets that -- we are migrating thousands of customers over the course 2022 to this new landscape. But this is not the only kind of lever that we are working on, and we have an overarching cloud efficiency program that we're running across the company where we're also looking at ways to, for example, utilize some of our new innovations like HANA cloud even better across the landscape. And on top of this, we see definitely mix shift benefits that will fall into place as of next year, the prime one being Concur, which is a great asset with a very high cloud margin, but which was obviously depressed in 2021 due to the topline shortfalls that they had during the pandemic. When they are coming back to normal growth on the revenue side, they will definitely join the rest of the intelligence spend assets, which have already moved in aggregate above the 80% cloud margin line and Concur will absolutely contribute to further increases. And secondly, there is also the mix shift between pure Infrastructure as a Service, which is a business that we are totally deemphasizing and which essentially is not experiencing growth anymore because of the move with RISE to a more Software as a Service centric proposition and this business has a maximum cloud margin potential of somewhere between 35% to maximum 40%. And as it becomes smaller and smaller and the lion's share of our offerings are actually going to be SaaS and PaaS offerings and the associated revenues, this will also have a positive effect. I know that there is concern out there in the market on the S/4HANA private cloud a proportion of the total business and whether that will avoid us reaching our targets. First of all, frankly, S/4HANA private cloud has very decent margins that are certainly significantly higher than our pure Infrastructure as a Service business. And secondly, quite frankly, if we are seeing a much, much greater growth in S/4HANA private cloud than we had originally modeled, that would be a nice problem to have because then we, for sure, end up with a much higher cloud revenue number in the next couple of years that we have stated as part of our midterm financial plan. And while that might have then a slightly dampening effect on the cloud margin that we're reaching in terms of the absolute cloud gross profit, it would certainly also lead us to outperform our plans. So from that perspective, I would certainly not see an issue with that if it happens. Let's see how it further unfolds, but clearly, we know what the ingredients are to bring our business up to the levels that we have anticipated for 2025.

That's great. So I wanted to briefly touch on just OpEx because OpEx is obviously growing again. Some of this is just as things reopen to variable expenses start to come back, but there's also kind of some structural shifts in, in-house. Software companies have been doing business and perhaps, more accustomed to a kind of hybrid model. Maybe talk us through the different kind of points of leverage to drive your kind of operating profit growth in the double digits that you expect over the midterm. And particularly, I know R&D has stepped up, and you've been very vocal about it for the right reasons. Is that then expected to drive leverage kind of more beyond the short term or the medium to long term?

Yes, absolutely. This is an important question, and let me be clear, I think, in 2021 and also in 2022, our guidance, we have been perfectly consistent with what we have told the markets in October 2020, and that we are talking about the first leg of a very powerful [ Indiscernible ] to cloud transformation that will result in flat to slightly declining operating profits. And actually, we are ahead of this plan. We actually closed 2021 with 1% positive growth, and still, we have guided for flat to slightly declining profits in 2022. So we are investing exactly in line with our plan, and we expect to see great returns from that. In terms of the further development out to 2023, we are equally confident that we will see double-digit growth from next year on and that this growth actually will accelerate further through 2025 with even increasing growth rates beyond next year. What are the key sources of that? Well, first of all, of course, the cloud gross margin efficiencies that we have just talked about, they are going to contribute not so tremendously yet in 2023, but then in particular, in 2024 and 2025. In 2023, we will clearly see that our investment in R&D will moderate. So we don't expect a further increase in the R&D ratio beyond what we planned for in 2022, which is roughly 17% because, again, the hard work on the integration front has been finished. We have a very strong portfolio of innovative solutions that we're investing appropriately in, but don't see the need to further step up from those investment levels that we're running right now. So that kind of headwind from the significant step-up in R&D expenses will not be around anymore going into 2023. I think when I look at the sell-side models and take a look at what is assumed there for 2022, the one discrepancy that I see is on the sales and marketing side, in particular. That's where we really are going in 2022 to invest into. We've talked about the great pipeline that we are seeing the strength in our opportunities out in the market. And of course, we need sufficient feet on the street in order to position sell, but also properly service and [ indiscernible ] option by our customers. So that's why you will see in 2022, a step-up in sales and marketing expenses that will contribute to this flat to slightly declining operating profit. But as of 2023, that should then stay at roughly that level before trending also down then as of 2024 as the share of renewals in our cloud revenues is getting bigger. When we think about this year, perhaps, as another driver, let's not forget that, first of all, T&E is going to be backed also at SAP to a greater extent than 2021. So those pandemic kind of tailwinds will certainly dissipate, which is good for Concur, but will reside additionally on the SAP side. And last but not least, let's also not forget in this guidance for flat to slightly declining profits, we had a much more significant tailwind from a divestment in 2019 -- in 2020 with the divestiture of our SDI business to [ Sinch ] as well as in 2021, where we had the Fioneer Financial Services joint venture buildup. We are not planning for not anticipating any such one-off benefits in 2022, and I think that tells you as well that we are setting up an appropriate and sound run rate, but that we are equally confident that as of next year, those OpEx increases will certainly moderate. And then together with the greater efficiency in our cloud business, we will drive for the double-digit growth.

Great. That's very clear. So maybe on stock option expenses, which has been another kind of debate out there in the market. I mean you've obviously had a very conservative kind of cash-settled method. You're moving, I guess, more in line with the industry now with kind of equity settled methods. But one of the debates out there has been that kind of rising charge and I know you outlined on the Q4 call that this will progressively step down, but a lot of companies have also talked about a more challenging hiring environment having to deploy. Is it simply a reflection of that? Like a lot of other companies, you have to invest more in stock options to kind of retain as well as hire new people.

Yes. So first off, I clearly recognize that we need going forward to provide much better modeling support and understanding of the key drivers of our share-based compensation expense, no doubt about that. So let me make a first attempt at that. First of all, I think it's important to look at the right jump-off basis. I know that we had, in 2020, a very low share-based compensation expense of just around EUR 1.1 billion, but that was obviously due to the very significant drop in the share price that we experienced in late '20. I think the more proper jump-off base is probably the expenses that we had in 2019, which was EUR 1.8 billion. So why the step-up in 2021? I think that is clear. It's mainly the IPO of Qualtrics, which has resulted in a significant step up due to the IPO awards that we had given out to key management and the top executives of Qualtrics. This is a 3-year program, so it's actually starting to come down, but it's not 0, so to say, in 2022 and going forward, but it drove half of our share-based compensation expense in 2021, and it will still drive for more than 1/3 [indiscernible] as compensation expense in 2022. If you actually just like look at the underlying SAP share-based compensation expense as a percentage of revenues from 2019 to 2022, we're talking about roughly 7% of revenue. So that has actually remained consistent and that is certainly still a figure that is reasonable compared to others in the market. Now from a go-forward perspective, when I look into 2022, it's still important to recognize that we have been guiding for a further increase from those EUR 2.8 billion and that needs to be explained because as I said, the Qualtrics proportion come slightly down. It's not EUR 1.4 billion, it's roughly EUR 1.2 billion only in 2022. That's due to two, I would say, factors that are relevant for 2022 only. One is that we are providing, in recognition of our 50th anniversary, a special top-up for our discounted share purchase program on SAP and to our employees. This is an extra EUR 100 million for 2022. The other one is that we are changing in conjunction with the move to equity settled options, the vesting schedules from annually to quarterly, which has clearly become the market standard, and we have to recognize this unloading the expenses a bit more than was the case in the past. And when you take this into account, plus the fact that, indeed, we had to step up our volumes of so-called move SAP, share-based compensation in line with the kind of developments that we see in the market. This explains the difference. Perhaps, the last point, of course, in that range the assumption was and is as well, we will see an increase in the share price of the company, which obviously if it doesn't happen, then of course, would also reside in less share-based compensation. And then for the future, as you rightfully noted, we see that we're reaching a plateau now. So in absolute terms, in absolute dollars or euros, we actually don't expect to see further increases because the Qualtrics portion will continue to come down. Those one-off step-ups in our own programs will not be around, and then it will more be more a normal progression, so to say. And therefore, as a proportion of revenues, the share will also come. So that's kind of what needs to be expected. I would anticipate that in 2025, we'll probably end up again at the total company level, even including Qualtrics with a share of roughly 7% of the revenues that we expect in 2025, which again, I think is a healthy ratio.

Okay. That's very clear. So we have just a few minutes left. I wanted to touch on sort of free cash flow. I think one of the again talking points for the market was despite sort of the shift towards more equity settle, you didn't change your midterm sort of outlook. Maybe remind us again on the kind of the building blocks, but also is this you just trying to be kind of conservative on free cash flow over the medium term? And are there any particular things we need to be mindful of on CapEx or working capital movements that the market is missing?

Yes. I think this is also a clear understanding that we need to provide more modeling support, but also a clearer explanation. So this -- you're absolutely right that the move to equity settlement, of course, will have a benefit on the 2025 cash flow, not at all on the 2022 cash flow, by the way, because our existing programs are still cash settled and will continue to drive cash outflows from 2022 to 2024. In 2025, we still have our discounted cash share program, and we will still have some countries where we cannot move for legal reasons to equity settled programs. So we still expect to have more than EUR 0.5 billion in cash outflows from share-based compensation even in 2025. So depending on how you model the development, so you might say that you have somewhere between EUR 500 million to EUR 1 billion of benefits from this program. And frankly, at the moment, yes, when we are looking into our plan [ 4 ] years, we are actually running a couple of hundred million of the EUR 8 billion. But again, share-based cash outflows are not the only component. Free cash flow is extremely challenging to predict because it's dependent on currency movements. Obviously, at the moment, we are facing a very constructive currency environment for us as a European company. So that is rather a tailwind, but then again, you have working capital movements. We are expecting to grow the business very fast in the next coming years. So we have baked in assumptions around an increase in working capital after we have come down very nicely in the last 2 years. There's obviously cash taxes as well, which are hard to predict so many years out. So from that perspective, we really just wanted to be prudent. And while we see, of course, the opportunity to outperform, it's just too far out to now say credibly. It will not be EUR 8 billion, but it will be EUR 8.5 billion or whatever else. We will definitely update the markets as we move closer there and gain visibility. And as we have said as well, the underlying fundamentals, so the assumptions around the topline growth and the profits of the company are totally unchanged. We have confidently reiterated them, so you shouldn't take or read anything else into this rather than that those components are actually not so easy to predict. And also the fact that when you take a look at the relative share of free cash flow versus the operating profit of the company, actually in 2025, if you make the math, we're talking about 70% basically as a share. That's something that we also achieved in the past, like in 2020, we had that, but our range has been actually wide between 30% to 70%. So it was not that we were establishing targets that was sandbagging, so to say. It was actually an ambitious, appropriate target. And yes, we have the scope to outperform it, but whether we are able and to what extent we are able to do that, that will really become clearer as we move closer to 2025.

Great, Luka. With that, we'd love to talk more, but we're out of time, but thank you so much for providing great insight into both, the sort of the top line drivers, and value drivers, but also clearing up a lot of the kind of questions out there in the market on some of the issues you just discussed. So thanks once again for joining us for this session, and good luck for the rest of the year.

Thank you very much. Looking forward to it.

Take care.