SAP SE (SAP) Earnings Call Transcript & Summary

And thank you again for joining us for this session with SAP. We are very delighted to have Christian Klein, CEO of the company, with us today. Christian, welcome to the conference.

Yes. Thanks for having me, Mo.

Great. So Christian, obviously, you've been CEO of SAP for sort of a couple of years. So maybe before we sort of begin the kind of more formal part of the questions. Maybe just let us know from kind of inside the company. There's been a lot of change going on with SAP and set the context of kind of when you became CEO what have been kind of the key issues and challenges you've had to address, but more importantly, put the company on the foot towards more sort of sustainable growth in the transition.

Of course, when I'm looking back the last 2 years where we also changed the strategy of SAP quite in a significant way. Of course, there's a lot of change. And when you look at right now what's happening out there in the market, you cannot plan for everything definitely not for a war in Ukraine, so everything would also happen around SAP. The good piece is, when someone would have asked me 2 years ago, "Christian, would you subscribe to this type of cloud revenue growth? Would you subscribe to this kind of also change, transformation progress we are making inside the company?" I would absolutely have done so. So look, when we -- when I would like to give you a quick overview about the state of the nation inside SAP. So first, the move to the cloud, as I mentioned, very strong. I just did a round trip here in the U.S. I ended a round trip in Europe. And I actually see strong pipeline, strong momentum. Because when you talk to an ExxonMobil, they, of course, have to move to renewables. So they need SAP to do a new type of asset management to operate upstream, downstream in a completely different way. When you talk to Suncor in Canada, actually, it's more about process automation to offset inflation pressure. So it's something what we see quite significantly these days. And then with Honeywell, this is about -- all about how can we make supply chains more resilient. So it's a lot of talk around with our technology how we can connect them to the rest of the supplier base to also to the end-tier suppliers end to end. And then last but not least, a lot of this also going around sustainability, about ESG transparency, where we are actually building, expanding our data models to offer a standard for ESG in the industry and, of course, with our applications, to also move customers to the circular economy with our intelligence spend portfolio, et cetera. So the portfolio is very relevant. So the transformation is on a good way. 2 years back, I actually would also say we were in a heavy competition with all of the line of business competitors out there with the Coopers of the world, with the Workdays of the world, obviously, with Salesforce. The good piece is we're, of course, building our software in a complete different way, much less monolithic, which is good. But in the meantime, SAP has a very strong platform to offer where you get the same kind of integration, what you need, your supply chain needs to be connected to your finance application, your finance needs to talk to HR. So all of that is now together on one business technology platform, which also gives us the power that we don't need to compete only best of breed, but we can really also show them the power of our portfolio and land and expand. So that changed quite significantly. On the go-to-market side, 2 years is nothing in a transformation when you have to move 400,000 customers to a cloud and you need to explain to your people that also SAP needs to operate in a different way. So when I look into go-to-market, we are just at the beginning of land and expand. So platform adoption is making really good progress, but we are -- I just was with Accenture, PwC. And for me, the best sign is always when they tell me, "Hey, actually, we want to double the size of the SAP practices inside Accenture, inside PwC in the years to come because we see strong momentum." So more applications going to be built on our platform side by side, extend ERP, not modify the ERP, it's very strong. We see actually a huge demand also in using now the insights we are getting through our cloud and using this medium in this adoption data to also drive further, upsell, cross-sell in our portfolio. So we land with S/4 in the platform, and then we're going to expand into HR, into procurement. So all of that is happening at the same time. Good progress now actually heading into 2023. Of course, we are very keen also now keeping our promise on the top line. The cloud is now growing with 34% at a very large base, so this is very good. Now it's about keeping our promise on the bottom line with the double-digit operating profit expansion, where we also -- where we are very confident also to achieve this target.

Got it. So when we look at sort of the environment right now, obviously, digitization is top of mind. What sort of makes -- or what's different this time around when you sort of look at the structural factors versus the cyclical? Do you think the structural factors will ultimately override what is the more kind of economic cycle indicators because of the need to digitize and maybe some examples of what some of your customers are doing right now to sort of deal with the current world challenges would be great.

Yes, I mean, when I compare this crisis to 2008 and maybe let me start one thing saying -- sharing it before, when you talk in Europe to last week to President Macron [indiscernible] and to my peers in the industry, there is a lot of concern around gas supply. And especially in Germany, there, not everything really went perfect when it comes to energy supply for the country, way too much dependent on Russia. Europe, in general, also still struggles with when it comes to our energy infrastructure. So here in the U.S., it's much less about be concerned on do we going to survive the next winter and have enough energy supply? And the good piece is also, when I compare this to the financial crisis, that when I think about what happened to Lehman, then in this morning, actually, a lot of customers just stopped spending. And when I compare the state of SAP to back then, then we had a recurring revenue share of close to 50%. Now we are above 80%. Our portfolio is so relevant, as I just described, when an ExxonMobil wants to drive their business model transformation, they need a new ERP, they need a new way of doing it. When IBM and Arvind now talks about new consumption-based license models he would like to introduce, there is no way he needs S/4HANA, PRIM to offer more pay-as-you-go consumption-based license models. When you talk about automation, in the meantime, the platform offers so strong capabilities on RPA, on AI, which we can seamlessly plug into finance, HR, procurement, supply chain processes. There's no way that the CEO or CFO would stop that right now when at the same time they are saying, "Hey, my salaries will go up probably next year around 8% to 9%. So I need this type of information -- of automation." And then last but not least, the supply chain. So oftentimes, yesterday, I was together with Gartner, and they said to me, "Christian, ERP is very strong." Yes, ERP is very strong. But let's not forget, we also have something to offer on the supply chain side of the world. So our chance that just told us what you did with Catena, we connected the whole automotive industry now globally, general motor is also now part of that. So from the raw material to the car manufacturer where you can track and trace your materials flow. Think about that. The same is what we are now doing with manufacturing. So we just got the funding that we are connecting the material flow for all manufacturing companies. We start in Europe with some large ones, and then we're going to expand it. And so -- and this is very powerful. And so SAP, the relevance of our portfolio, is also -- is completely different when I compare today to the situation we have been in 2008. And then on-premise, of course, when you do a CapEx business case, a CFO wants to look at this 2 or 3 times. OpEx, cloud is also a different discount. So it's very, very good that we are actually in this transformation and that we are, of course, also betting now way more on cloud than on-prem.

Yes. And I think you sort of noted this on your last call that this CapEx-to-OpEx shift couldn't come kind of at a better time. But for you, it's also because you're kind of in this process where you're kind of rolling out S/4HANA to both new customers, but existing customers. And with existing customers, I think, because of the breadth of the portfolio, you've seen quite a surprisingly strong uplift from, I think, you expected 2x, but I think it's coming in higher. Can you sort of walk us through how you sort of extract this uplift maybe between kind of product up-sell, cross-sell pricing? And is this sort of expansion going to be still resilient even in a maybe more challenging macro environment?

Yes, especially when you look at the transformation projects of our customers which they are now doing with Wise with SAP. I mean, look, Wise with SAP was actually an idea we had 2 years ago. Because oftentimes, when we look at this ERP project or supply chain projects, the technology is not the issue. The issue is how you transform as a company, how do you change your business model, how do you standardize and automate. That's the hardest part. The change resistance in organizations because that leads them, when you change the systems, you get no automation, no matter which kind of technology you're going to supply. So with Wise, we did the acquisition of Signavio. We are benchmarking now the business processes, the business models against the best practices of 100,000 of customers. So we are guiding the customer into the new world. And then on top of that, when you are in this transformation journey, oftentimes, the customers start with S/4HANA. Now with the modularity, they can say, "Hey, finance, supply chain procurement, where do we start?" The good piece is and what I actually don't see coming to such an extent, the technology platform. Now they are using this, and now they are saying, "Hey, we start with some integration scenarios. The good piece is cloud comes out of the box." But there are a lot of applications also, non-SAP applications around the ERP, where they're using now the business technology platform to build the integration with. And then, of course, when you need to standardize the question comes, "Hey, Accenture, Deloitte, IBM, let's not modify the ERP or the supply chain or HR. We're going to build it side by side." And suddenly, you see new applications coming up, and we have thousands in the meantime, which you then can resell to all other clients in the same industry. So that's the land and we expand. So oftentimes, we start with S/4. And then we actually decided, okay, next comes SuccessFactor, Employee Central. So let's modernize EC. Then we move on. Ariba, good piece, not only indirect anymore against the Cooper, but we actually have one procurement platform. So you do direct and indirect out of the box. We have a new design. We have the same kind of automation capabilities. You have the same data model. And then the up-sell, the cross-sell is just much easier because you can show the power of wanting this on one platform still in a different way than on-prem, in a more modular way, but with the same kind of integration qualities and much better extension capabilities. And last but not least, the partners in this transformation, when it comes to up-sell and cross-sell, super important. I mean, Accenture, Julie told me yesterday that they are really now doubling down 80% of their ERP projects are already now running on our business technology platform. It's very important. Move them away from up, up into the new world and let them build side by side new applications, which they then can also then use for the whole industry. And this ecosystem contribution is very, very important. We alone could not do that. It's very important that the ecosystem is with us on that.

Got it. And so you obviously have a very big installed base, both from kind of your -- the history of the company. I think you say 60% of the world's GDP touches a sort of SAP system, but also a lot of mid-market customers that have come from some of acquired assets, but who you've added. So how should we think about sort of the runway in the installed base for some of your products? Because I know that since you've acquired SuccessFactors, even though it's been a decade ago, it seems like there is still a lot of runway left for these assets.

Yes, and especially now with the new strategy, as I also mentioned before, there is still a huge installed base on-prem. When you look at our support revenue, actually, there's enough budget, enough business left to be converted. The good piece, nevertheless, is now with Wise we can package that in a good way. So we can look at the business priorities of the customer of their transformation journey then lock it together. We also have new license models or consumption-based license models where you can really choose in a very flexible way what kind of applications I go first with. So you're not buying the two. You have to buy Ariba or you have to buy SuccessFactors. This is what we launched this year, which also gives the customer the flexibility with regard to their business transformation journey. And then from a technical capability perspective, it's very, very important that the customer sees, especially when it comes to compliance and to cybersecurity, that our apps have all one standard, that they talk to each other, that you can close your books in time, that you don't have to have manually put data from one system to another. And so that was very important that we now did this work. We are there. And the same is true for Ariba and Concur. So actually, oftentimes, now after a customer is in with Wise on the transformation journey, 2 or 3 quarters later, we definitely also have the conversation about other lines of business, and now we can expand from that.

Got it. So S/4HANA itself has seen some pretty strong momentum, kind of an accelerating trajectory in the kind of 80s and 90s in terms of growth. There's a sort of a myth out there or at least people have seen in the past that when you're entering a period of economic uncertainty, ERP or platform sort of upgrades tend to get put on the back foot. You are sort of early in that journey. How do you think, from the customers you have, conversations you have, what sort of impact do you see that if the macro deteriorates, is there a sort of a risk? Or do you feel that the productivity and digital benefits outweigh some of those?

Yes, so from the conversations I have with customers, with partners, I don't see this at all. And what I also sometimes don't like, and this is also what we have to change a little bit, is the narrative around SAP. S/4 HANA, it's not the same ERP anymore as it was 10 years ago. So there is no manufacturing insight. We sell manufacturing very successfully, but in a much low way, as we also now sell HR and procurement in a modular way. And so the good piece is, right now, when you talk to -- as I mentioned -- I mentioned a few customer examples, they don't want to rest on their business model, too. They don't want to rest on when it comes to automating their business processes. With Unilever or Nestle in that industry, we are right now talking about how can we move them more into the circular economy with our intelligence spend portfolio. They don't want to work. They have huge pressure on turning these enterprises in a more sustainable fashion. So these projects won't stop. And the good piece is, as I also said, they can also make their choices on what is high on their priority. Is it manufacturing? Is it shop floor? Is it intelligence spend? Is it procurement? Is it finance? Is it supply chain? And then we go from there all on one platform in a very flexible way. And this is why I don't see any delays. I actually see rather an acceleration in some industries, especially in retail, in manufacturing, oil and gas. So no, this is absolutely not the case.

Got it. And then in terms of just maybe turning to kind of the margin side of the house. The gross margin has been a little bit more volatile. You've obviously got targets out there of 75%, 80% by '23 and '25. But I know you're also talking about the absolute level of your gross profit. Could you just unpack some of the drivers around that gross margin, the new kind of converged cloud infrastructure? And I know there's also been the impact of the kind of private cloud deployments, which are played into. So as we try to kind of bridge the gap to kind of hitting those targets, what are the sort of moving parts that we should be mindful of?

Yes, absolutely. Look, on -- the way our customers transform, of course, there is a big difference between small and midsized enterprises and large enterprises. At Siemens, with 100 factories, you cannot standardize them on one supply chain manufacturing software because it will take some time. It's not impossible. It has nothing to do with technology, has more to do with change management and with process standardization. So these customers go their first steps into private cloud. Nothing bad about that. The absolute gross profit with the multiples, what we are having against the support revenue they are playing today, is absolutely much higher than actually in the on-premise business. Yes, they don't have an 80% gross margin, but a much higher absolute cost profit when you compare it to on-prem. And of course, the weight of this private cloud instances is also higher, given that many large customers just ended the transformation with a private cloud deployment. The bulk of the number of customers in the SME space, they, of course, move public cloud, smaller, not the same kind of complexity sometimes in their business model. So this is why actually we are very confident when it comes to our absolute gross profit target for 2025. The mix, of course, decides on how the percentage margin will look like. But absolute-wise, we are very confident that we are going to hit or probably even overachieve our 2025 target.

Got it. So maybe just turning to S/4HANA again and maybe the kind of product road map. You've obviously built sort of a fully functionally capable version, fully public cloud. But obviously, your customers are very demanding. They want all the industry bells and whistles and then there's a kind of road map. Are there any sort of bottlenecks that you find around perhaps moving quicker? And a common investor question is, should SAP be spending more on R&D now that you're doing less of the larger M&A? And how do you sort of strike that balance in sort of achieving these objectives?

Yes. Look, definitely, in the last 2 years, we invested a lot in our organic growth. And we also ramped up our R&D workforce. This will not continue to the same level. We also said that the R&D ratio will come down to a certain point now that we also reach more scale in the cloud. But it's indeed very true that, especially our industry capabilities, they need to grow. But the good piece is as well that doesn't need to be that every piece of code needs to be written by SAP developers. I mentioned earlier on all of our partners. And we have, in the meantime, thousands of industry cloud apps, which are also built by partners, and which is, of course, they build it on our platform. So the customers don't even realize this is now an SAP or a partner when it comes to the technical integration or security capabilities of this app. And this is how we are building an ecosystem around that. I would say, when you look at Salesforce today, they of course, have a strong SaaS layer. But of course, their platform layer also does a lot of business also coming from the ecosystem. And I guess this is similar to what is happening now around our ERP, supply chain, HR and procurement portfolio. And we're just getting started. So there, I'm actually confident that, without even increasing our R&D ratio, we will strengthen, especially our industry capabilities in the cloud also via our ecosystem. And then, I guess, it's very important that, on S/4HANA cloud, a lot of customers sometimes compare our features and functions to the ones in ECC. And then I'm getting the question, yes, but has the cloud already the same kind of capabilities then in ECC, our older on-premise version of ERP? And I said, no, and it will never be the case. Because when you, for example, come to supply chain planning, that was in the ERP on-prem, but we built a new solution for that side by side, which is absolutely the right thing to do because not every customer needs deep complex supply chain planning. And I want to build an S/4HANA public cloud for the masses and not only for one industry. And in on-prem, of course, you could switch the lights off. But in cloud, you cannot because otherwise, your TCO and your cloud gross margin is not as good as your peers. So we need to stay very disciplined. We need to have a clear view on what do we offer in S/4HANA cloud and what do we build in our supply chain portfolio and our manufacturing portfolio, et cetera. And at the end, I'm sure, together with our partners, we will satisfy all the needs, but we will not quote everything into S/4HANA public cloud as we did it 10 years ago.

So if we think about the gross margin kind of progressively improving or the absolute gross profit, the R&D sort of tapering off to a degree but still growing in absolute terms, as we look at sort of the -- I think you said double-digit operating profit growth from 2023 onwards, which are the primary areas of leverage that you see? Is it simply on the sales and marketing spend where you should get from this continuous accelerating cloud growth? Maybe walk us through kind of why you remain confident on your kind of profitability targets as well.

Look, what keeps me awake at night is, for sure, not the ability to grow our top line. Because the -- for us, there is no lack of market. I mean we are playing in finance, in HR, in procurement, and we are back on track, especially when it comes in procurement against Cooper and Workday. Our win rates are really high there. So then we are playing in supply chain. We are playing in certain parts of CM, not everywhere. That's not good. But where we tailored also then in commerce, et cetera. So there is enough market. Now when it comes to the bottom line and how we can scale this business further, we have the largest total addressable markets. And sometimes, we are playing -- we are now selling our Litmos business. It's a learning content business, really far away from what SAP does in the core. And there are a few more, where I would say more focus sometimes would even help SAP to grow the core even faster. So that's something what we will continue to analyze. And then still, when you look into insight, into SAP, we did some acquisitions as others are doing this as well. Did we always do a good job in gaining also the bottom-line synergies? No. We are now harmonizing our cloud infrastructure, which gives us huge scale next year. This is why we also have our commitment out there to increase profit by double digit. But there are further functions, overhead functions in SAP where I definitely see that upside. And we are going for that. We cannot afford to run that in the same shape or form like we did it. So there is further upside besides now just also getting more scale through our land and adopt strategy in the cloud. The platform, the ecosystem business, the ecosystem business actually comes without sales cost. When Accenture is now building a new cool app for manufacturing or PwC just built Equate app next to SuccessFactors for the well-being of the employees, they sell that, the good pieces. We participate in every deal. And so building out this ecosystem will help us both on the top and the bottom line. So the scale of the platform, the scale of the network, the scale we are getting by harmonizing our infrastructure is on the one hand, and there are further synergies, cost synergies, when you look at the setup of SAP, Insight SAP, which we will definitely also harvest in the next 1 or 2 years.

Okay. So I know sustainability is a big focus for you both personally but also going to see for SAP as a company. You touched on some of the products you're working on with Exxon. But what are the kind of line of products that you're offering to help many of your customers to kind of optimize as well as adhere to some of the kind of the regulations? And then also, what are some of the things SAP is doing as a company to improve your own sort of ESG positioning as well?

Yes. Let's start with the customers because I feel that we have a very powerful strategy, and I know that a lot of tech companies are talking about how can we make our -- turn our customers into more sustainable enterprises. But sometimes I wonder, given their portfolio, where are the emissions in this portfolio? Where is the diversity and inclusion? Yes, you have to drive in that portfolio. When you look at SAP, we are running many supply chains around the world. We are running manufacturing sites. We are running the logistics. And so what we are doing is we are not saying we solve every problem, but what we want to do is we're expanding our data model so that we are not comparing apples and bananas anymore when it comes to ESG. So we are working with the stock exchange, we are working with the auditors, we are working with the World Economic Forum on setting standards. There will be not one standard for ESG, but we will set standards with our standard software. And then on top, we built a sustainability control tower, which we just released, where we also say we're going to aggregate data outside of SAP because ESG is not only SAP, there are also other data out there, which is -- this is for me very, very important because it resonates really well no matter if you talk to the Daimlers, the BMWs or other customers in other industries. Everyone is seeking for this transparency. And now it comes even better. When you would ask now today as CEO, "Hey, what about your ESG transparency?" They maybe say, "Okay. Inside my own 4 walls, I have it, but what we are lacking is end-to-end scope suite." And with the business network, we are now not only tracing the material flow, we're also tracing the emissions you're having down to the raw material. So we're also bringing ESG data together across your supply chain. And so that's where we keep. And we embed this in our core application, which actually makes the business case even more attractive for our core portfolio. And then we are building a few applications on top. For example, when you are designing new products, design it in a sustainable way. We are building a few products around circular economy, where we feel we have an absolute way to win. And this is where we want to play. And this is where we, together with our partners, where we are now going in. And we see really big success already in the early days. Inside SAP, making SAP actually a more sustainable enterprise, absolutely, we want to be at net zero already next year. All our data centers, which is very important, especially in Europe these days, already are sourced via Green Energy. So this also gives us the reliability and security these days. And so also there, no matter if we talk data center, car fleet, everything, there we move to electric cars by 2025, only electric cars. So we, of course, also want to lead by example. For us, this topic is not only there since this year. We're already working on this since many years. It's very important when you're looking -- when you're looking at what is happening out there in the world, the climate change. So we take this topic very serious, and we make good focus.

Okay. We can definitely take some questions from the audience, if there are any. So if you'd like to, please put your hands up. Maybe I'll carry on before we get any questions. So we touched on the sort of competitive landscape at the beginning, and you talked about how that changed and you're kind of less worried about it. Perhaps if we go through the sort of usual suspects and tell us who you still see and your kind of win rates, maybe we start with sort of the Oracle, which has been the primary one, but then I think also Salesforce and Workday in the kind of respective silos. And from your perspective, I mean, as we've seen in prior crisis periods, often that the best of the suite is getting quite important. But I know that you're saying things are still a little bit different now. So maybe walk us through the kind of competitive landscape, but also how big of an opportunity kind of the pendulum swing back to investor suite could mean for SAP?

Yes. I mean, maybe I'll start with the hyperscaler first. We also have the different strategy compared to Oracle. We give the customers choice because oftentimes we feel customers already made their choices when it comes to their cloud infrastructure, not only for SAP workloads, but especially for the non-SAP workload. So when we start with Microsoft, I would say the relationship to Microsoft was never ever better. So we have complete alignment on the go-to-market side. We are running large part also of our customers' ERP supply chain workloads also in Azure. And we are constantly working on further scaling the complete technical stack working on cybersecurity together. So that works. Also the signal that now Microsoft move to S/4HANA end-to-end and supply chain end-to-end and HR end-to-end is a strong signal despite that the Dynamics business, that they really value the partnership with SAP. So I would say there are a few overlaps, but this is really not too a concern. We are very clear on where do we play together and where not. On AWS, same thing there. We are now further also optimizing our database HANA with AWS technology to further improve on TCO. We don't see them in the enterprise application business. So that's good. And so net-net, same with Cooper. On Oracle, we have net new customer share in ERP of 60%. So there, we are gaining market share. I know there's always some talks around SAP wins back and forth. Yesterday, I heard it was less. This is good. And actually also, with some large customers, especially when it comes to business transformation, wanting new business models, wanting new license models, this is where we actually oftentimes also win not only small and midsized customers, but also large customers from Oracle. And then last but not least, when you look into the lines of businesses, obviously, we see the Workdays and Employee Central in payroll. 2 or 3 years, it was really tough, especially here in the U.S. The momentum has clearly changed. A few large ones already come back. I guess it's very important what also -- I mean Workday does actually tries to do the same with finance and HR. They say it's power of one, yes, absolutely, but we have a very strong finance capability. We have a new user experience on SuccessFactors. It's once now on one platform. This is the power of one. And with leading with that, actually, oftentimes, gives us now high, high win rates, not only in our installed base, but also when it comes to net new. That's maybe one region where I still feel where we have to market better our product capabilities. This is here in the U.S. But other than that, internationally, I'm very, very happy with the progress we are seeing on HXM and then on intelligence spend, this is even better, I would say. Cooper acquired a lot of companies. I feel sometimes, when I'm listening to customers, they actually have the same kind of challenge what we had 3 years ago, so how does the whole thing fit together? And with Ariba now, we can offer direct and indirect out of the box. So when you are a manufacturer, you want to have this out of the box. You want to have one procurement platform. And also there, we are not any more competing only best of suite. We are definitely also back to best of suite. And then on the data side, Snowflake is there, Databricks. There we're actually thinking more about partnerships because we are very strong when it comes to the data layer on the enterprise level. But there is also, of course, a lot of non-SAP data. So we are talking about further partnerships with some of those to really also give our customers the advantage to also access non-SAP data in a seamless way. And so also there, actually, I would say the strategy is the right one. We see good progress with the business technology platform also on the data layer. And here, it's more about building now the Wise partnerships to even have a more competitive portfolio going forward.

Great. I think we have a question there. Sean?

Just on the revenue side, you seem more confident than I think I've heard you for some while just in terms of potential for the revenue growth. It's not something that really keeps you awake at night. So I guess 2 questions in that regard. One, what is it that's giving you the confidence in the revenue growth over the next couple of years? And then the second one, I think Mo sort of asked the question, but I just wanted to follow up on that. Is there any risk, as the R&D scales back that, that will longer term lead to that revenue slowing and you should be investing more aggressively on that? So if you could just sort of give me some color, sir, on the revenue growth and then just on how it relate that to the R&D.

Yes, good question. Thanks a lot. So first, what gives us the confidence on the growth on the top line? First of all, the relevance of the portfolio. When -- short term, when you look into the pipeline and how the pipeline developed since February, since the war started, and we are moving into a completely different environment, actually, the pipeline even increased by close to 30% covered which is very good for the second half of the year. Second, to feel the pulse, it's always very important to talk to the customers, to talk to the partners. And when the partners want to invest big time into SAP and they rather face the shortage of resources in our ecosystem, that's, of course, also something what we have to work on, but we see that the demand is very strong also in the ecosystem. And then third, probably I'm the only CEO here in the tech industry who is actually also there now benefiting from the currency development. So actually, I'm very happy when the things -- how they are playing out. We see a lot of tailwind. And this all in combination, a very relevant portfolio, a strong platform, which we didn't have 2 years ago, partners investing into SAP plus also actually currency playing very much in favor actually gives us this confidence on the top line. Scaling back on R&D, you're going to see that we will deliver double-digit growth as we committed on operating profit, but this doesn't mean that we now reduce our investments in R&D. The R&D ratio will come down a bit. Why is that? Because we did our homework. When you actually code with 50,000 engineers on 20 different platforms, 20 different platforms, which you acquired, gives you less scale. Now we did our homework. We are sharing one data layer, we are sharing one security layer, we are sharing the same set of application that makes your development workforce just more productive. When you then combine this with the development workforce of our partners, which is huge, also doesn't give you the need to code everything on your own. Of course, my product owners would love to code everything, but this is not feasible. And we need to leverage much better the ecosystem, especially when it comes to certain industry capabilities. So no, this will not actually temper our ability to grow. It's just about now the fact that we did our homework on gaining further productivity when it comes to the R&D workforce of SAP.

Great. Maybe a last one question. We have a minute left. How do you think about sort of the use of the balance sheet? I know you've committed to a kind of ongoing capital return program, still focusing on tuck-ins. No sort of thinking of going back to doing kind of large-scale M&A, even if there may be some opportunities in the current market?

Yes. Look, I guess, the strategy now to focus on our own organic ability to grow our business was absolutely the right one. And when I see now with Apple, we are working on a few scenarios in the meta works when it comes to supply chain, building a digital twin, we are working on certain metaverse scenarios in commerce. And it's very important to keep really the innovation pipeline really strong. That doesn't mean that we now need to go crazy and completely now -- and a new battleground, another new battleground because there is not lack of market. Now would I rule out now acquisitions? Absolutely not. It's always a question of build, partner, buy, but I want to do it in a very targeted way. When we have a white spot in our portfolio where we say, "Hey, we need to own that. Look at Signavio business process benchmarking analysis and process mining, this is what customers clearly told us. This is SAP, you need to own that." And if there are opportunities like that, we go for that. But for me, it's also very important that we have a strong eye on capital returns. So that's, of course, the other level. And being now in year 2 of the transformation heading into year 3, of course, next year, we will also have a different cash flow situation. And then we, of course, need to also look at what do we do also on the capital returns.

Great. Christian, thank you very much for your insights as always. And thank you, everyone, for joining us.