SAP SE (SAP) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to our financial analyst conference. We are glad to be with you today, and we have a great agenda for you. So before we start, we hope you're enjoying Sapphire so far that you're having a great experience with us here in Florida. It's always a special moment for us to share with the financial community, and it's also a great experience for our customers and partners to talk innovation and come together. But before we start, we have a special guest with us today, Punit Renjen, has been newly elected as the Chairman of the Supervisory Board last week with great success and great voting. So Punit, thanks for being with us. We're very honored to have your presence with us today. Welcome. So welcome to those also watching online. We are -- we gave you last year clarity on our growth drivers and presented a refined view of the big opportunity lying ahead of us. We made clear that after some acceleration on the cloud journey, this year will be a year of inflection staying on the right trajectory, on the right path to our midterm ambition. So today, you will get a comprehensive update on that. We have a great agenda for you today. So let jump right in. First, we will welcome our CEO, Christian to the stage to provide insights on our vision and strategy. Then Scott, Head of Customer Success will provide some insight on our go-to-market and some update also on how our customers are, let's say, transforming their businesses. And following this update, our CFO, Dominik will provide a deeper look into the financials, especially on today's revised ambition that we have communicated to the market. So as you can see, we have an exciting lineup for you. After Dominik's part, we'll take a short break, and our Board members will come on stage for Q&A session with you. So now let's do the safe harbor. During this presentation, we'll make forward-looking statements, which are predictions, projections or other statements about future events. These statements are based on current expectations, forecasts and assumptions that are subject to risks and uncertainties that could cause actual results and outcomes to materially differ. Additional information regarding these risks and uncertainties may be found in our filings with the Securities and Exchange Commission, including but not limited to the risk factor section of SAP's 2022 annual report on Form 20-F. Unless as always stated, all financial numbers mentioned here are non-IFRS, growth rates and percentage point changes are non-IFRS year-on-year at constant currencies. The non-IFRS financial measures we provide should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with IFRS. And with that, I'd like to ask Christian on to the stage. Christian, great keynote this morning. Very exciting to see the announcements around AI, sustainability. So take it away, please.

Thanks a lot, Anthony. Yes, welcome as well from my side to all of you here in Orlando. And to everyone joining us virtually. I have to say, it's even for U.S. standards, it's pretty cold in here, but I will do my best that the numbers and the content will warm us up. So yes, I hope you have seen all the keynotes. And I mean, for me, Q4, Q1 now Sapphire, for me, also personally an important reflection point. It was very important when we did the shift and the significant shift of our strategy and pivoted SAP to the cloud is that we stay consistent and that we deliver what we committed to you. And I have to say I'm really proud about the team and what we have done in the last 2.5 years because we actually accelerated the shift to the cloud. We are this year back to double-digit profit. And what we also have built a much more resilient and a much more stronger foundation for SAP, when it comes to tech and the talents that we are having inside the company. But of course, as always in life, there is no time to rest. So after Phase 1 comes Phase 2. And our plan which we would love to execute again is to further accelerate it -- to further accelerate our growth momentum. And when I talk about growth, I want to underscore to accelerate organic and profitable total revenue growth. With all the innovations you have seen in the morning around AI, around sustainability, and I come a bit later to what else is in our pipeline. And Dominik, welcome on board, still pretty new to the family. Of course, we also have a huge focus on profit and even more so cash flow. Today, SAP is more relevant than ever. And I -- when we crafted a new product strategy, it was, of course, a lot about getting some discipline back into SAP 4 years ago, with all the acquisitions we did because we are running the world's most mission-critical business processes, but that's not enough. Especially in these days, when IT budgets are more tight, you have to have a strong business case. So we thought a lot about how can we connect our technology to the needs of our customers. And the needs of our customers, actually, I want to pick one company ENGIE, ENGIE a French U.S. company in the energy business. And why is SAP so relevant to them? ENGIE is in a big transformation from fossil fuse, divestitures into green energy. So everything around ERP, supply chain needs to be designed completely from a greenfield perspective. And they need the ERP, they need our supply chain to run this new business at scale. Then ENGIE and Catherine and team, they want to have huge profit pressure because they need to fund the new world and get rid of the old world. And so it's a lot about process automation. And what we can do for them to further drive productivity and, of course, finally, profit. And then last but not least, you have seen it this morning. It's a lot about the green ledger because they are getting pressure from investors, from their end customers, from their employees around how can we also build a more sustainable business. And that's SAP. And now you can replicate that to almost every industry to almost every customer we have. When we talk about the next phase of our transformation, I would love to touch base today on 3 points: focus, scalability and innovation. And talking about focus, I would have said we have done our homework. We have built a very cohesive portfolio, an integrated best-of-suite portfolio. Our customers can really bet on our end-to-end capabilities to do what I just have said. And the business technology platform is the foundation. It's the foundation for Datasphere to harmonize the data layer across the company, it's the foundation for the cloud ERP where we land and then expand into the different lines of businesses. But when I also talk about focus, we also have done our homework in divestitures, Qualtrics, Litmos few others. They are not core to SAP. We will, of course, still partner with Qualtrics. But we can do so also as them being an independent company. And still after all the work we have done, we have a total addressable market of EUR 760 billion. And trust me, we have plans for all of these categories to grow much faster than the average growth of the market, which is 11%. Our clear ambition is to grow our business by more than 20%. And for all of these categories, we are set up to be either the #1 or further expanding the market share going forward. So to give you an example, take Ariba, three years back, so, so. Now we have built the market's leading procurement platform, total spend. You can manage your raw materials, your indirect materials, you can manage your external workforce on one platform. You have the one view of the supplier. You have the integration back into the ERP. So we are by far way more competitive than we have been 3 years ago against the Coopers or the Oracles. Now you have seen it in the keynote. The way how we work is not like a bunch of best of breed products. What SAP is about, and I guess the story is told best when you look into the transformation of the business model. So in many, many markets, or many, many customers, I'm also involved in, a lot is going into sell everything as a service instead of products. This is where we are very, very relevant, already with the CPQ into the order management into the billing. But then the next piece is, when you also then want to launch new license model, certainly, you are in EC and Employee Central. You need incentives. You need the payroll, you need the finance to work. And then if you actually say, "Hey, I want to personalize my offerings, what about my manufacturing." So this is the moment when then the Daimlers and the Apples and the other say, "okay, now let's talk about manufacturing cloud or talk about IPP because we really like what we see." And that's about land and expand. And it's not about selling materials and SKUs, it's about selling end-to-end capabilities. That's part of our transformation. Then AI. The good piece is what you have seen this morning with Microsoft, with Google, with IBM or Databricks, we don't necessarily need to come to them. What do all of these companies like so much about us. When it comes about the value of AI, you need to touch the business of the customer and who is better served to do this than SAP with our applications. We did something 5, 6 years back with SAP Leonardo, the plant was good. The rest was not so good because we didn't embed our AI into our solutions. So to directly touch the supply chain planning, to directly touch the manual business processes and record to report and source to pay and the processes where customers really spend a lot of time and efforts to run these processes. This is this time way more different. And this is why all of these partners want to partner with us and also want to have access to our data model. The access comes via the business technology platform. There's no way around it. This is the place where you land in SAP's portfolio, very important when it comes to the commercials and the way how we go to market. And of course, the way how it then turns into revenue and upsell for SAP. AI, just to give you a glimpse, what you have seen this morning is the beginning. My dream scenario and our researchers and our engineering are working on that, that at one point, Dominik or others sitting in front of our solution and asking software question why, hey, how can I reduce my carbon footprint by 5%? And what is the tradeoff? I have to do as a company in procurement from a car fleet, from my data centers, and that the system itself gives back a very intelligent answer, not only an answer, but also recommends actions how to get there in the best possible way. That's the future of enterprise software with embedded AI. When it comes to scalability, what we have started 2.5 years back with RISE with SAP is, we landed with S/4HANA Cloud, meaning oftentimes with finance. Then in the second step, we are expanding. And the business technology platform is the only way how you can integrate SAP to non-SAP, and it's for sure, the best platform to extend and get rid of the customizations you have in the legacy because all the application logic sits on BTP. It's the epic center. It's not a loosely coupled platform like 5 years ago. Nothing works without BTP, including for our ecosystem. And then when you start working with the customer on quote to cash and procure to pay, then you're going to expand into the other areas of our portfolio. RISE gives me way less sleepless night than 3 years before. It's a great success and the potential is unbelievable, EUR 25 billion which is sitting there, which needs to be not only lifted and shifted to the cloud, but really business which we need to transform together with our customers, with RISE with SAP. And of course, it's an ongoing journey. I come to that. First step is the private cloud for the large enterprises, but the journey doesn't stop. The journey continues until we have reached complete standardization with BTP as an extension platform and then, of course, move the customers more and more into our public cloud. But of course, the volume business, the SME, we worked so, so hard on S/4HANA public cloud to make this really an extremely competitive ERP. And now we are there. It's absolutely possible to go live in weeks. We have industry versions of S/4HANA public cloud, and we see huge, huge demand in markets like the United States, in India, in Germany for this new offering. Now I already talked about that. BTP is the glue, holds everything together. But what is so, so important, especially when you think about the growth in the next years. I mentioned in the morning, this customer example, spending 30x more on customizations than for the standard ERP software. That cannot happen ever, ever again. And now let's imagine this 30x more ends up on BTP. We are not customizing in NetWeaver the old legacy stack. And we are building value-adding capabilities for commodity management, which is so key for health care, for oil and gas or we build trade promotion. And not only for one customer, partners are realizing, "Hey, I can resell this IP to the whole industry." It's better for the customer. It's better for me because I'm making more money and more profit. So let's really make sure that we move to BTP and be part of the industry cloud and be part of this community, which is -- which will create a massive flywheel effect. My bet is today, we will see $1 of platform as a service and $5 of SaaS, we will, for sure, hit a ratio of 1 to 2. That's what I expect. And when you compare it to a CRM market, I mean the ERP with all the complexity of the core business processes, there is a huge, huge demand for building on the platform, new extensions, be it for line of business or be it for the verticals in the industry. So if we then move on and say we land it with ERP. We have the technology platform in place, and then you come into discussions with the business and say, "Hey, when I need one now a new business model for take General Motors, discussion what we are having right now. I want to move to EV. I want to of our mobility services. I want to definitely digitize my whole go-to-market and connect it to manufacturing, then you are in these discussions because immediately, you need to connect the personalization, which happens with the car in the front office to the manufacturing. I would not say in the back office, in the highly relevant and strategic supply chain area. And then you connect it to finance to quote to cash, and then you add our partner solutions like Icertis, we use LeanIX for the enterprise architecture. And so we can come in with our partners and make this an end-to-end experience. Happens this in one day? No. But happens it over time for sure. Our win rates by far higher than it was years ago for sure because it comes as one and it comes modular, but it comes as one as an integrated best of suite with one data layer underneath. Then if you want it in Google, if you run it in Azure and for sure, at some point also in AWS, we can also then with Datasphere connect the data layers, the data silos and harmonize it so that you know more about your consumers when they are clicking in the store or when they're clicking on a website, and you have then the SAP, the order data, the supply chain data, combined with all the other data who are sitting in non-SAP data sources. That's not only our vision, this is what becomes more and more reality and this is where our growth will be built on. In our conversations, I often hear about the gross profit and the private cloud and the public cloud. The private cloud and why is with SAP is something which is very, very important for the future of SAP. I would rather say when we would not have done this turnaround 3 years back, the future of SAP would be more doubtful. Because what we are doing is, we are not only lifting and shifting the large enterprise customers to the private cloud. No, no, no. We are coming in with enterprise architects. We're coming in with data scientists. We are moving them and then start working with them on post standardization on the data layer. We come in with our industry expertise. And what we see is that we are not only turning a $1 of maintenance into $3 of cloud revenue. What we are doing is actually we are having a much higher proximity, much closer proximity to this customer, and we can guide them. And we can do what I described before in cross selling our portfolio. And of course, over time -- also, our large enterprise customers. That's absolutely a way that they cannot only replace finance with S/4HANA public cloud. There is a way into HXM. There is a way into manufacturing cloud. There is a way into integrated business planning, all public cloud solution. But the customer cannot do it in one step. When you want such large enterprises, it takes time to standardize business processes but it's very important that we land with the private cloud and that we are not losing the connection to the customer. Innovation, yes, we have increased our R&D spend over the last 2 years. And for me, it was very important when I talked to Thomas and Jurgen and all of our product owners that the innovation, what is coming out of R&D is highly relevant in the market and that it really now helps us in the Phase 2 to further accelerate our total revenue. And I have to say the teams really delivered. No matter if it's on the data layer, no matter if it's with grow in the mid-market, no matter it's around the green ledger. This is highly relevant tech for our customers, and it makes the business case so much stronger. And this is nothing what we just launched. I mean, take sustainability. We are developing on that since 4 years. The green ledger is here. And while there are not only actual data yet in because this is also a journey, we will come more and more to this plan around feeding the green ledger with more and more actual instead of average data and then include Scope 3 with our business network. If we then talk about further innovation in the cloud. You have seen our partnership with Microsoft around generative AI, more to come. The business network, what I just mentioned, it's actually remarkable. 4 years back, I guess, we didn't even realize yet. This crown jewel we got with the acquisition of Ariba, It was more like trading back and forth between the supplier and the buyer. Now we added much more capability to the business network that we can connect the supply chains for the industries we launch today, that we can track and trace the material flows form the car down to the raw material. And we have the carbon calculator to really make sure that you can also measure in a standardized way carbon footprint end-to-end including Scope 3. And then the industry. The launch of the industry cloud, 4 years back was actually also part of our clean core strategy because we saw that a lot of modifications around the ERP happen for good reasons. When the customer is doing that because they see a high value in customizing something. And a lot of that has to do with industry extensions. And in the meantime, we have over 200 industry apps on our marketplace, we are embedding these apps from the partners into our road maps, and we see there also a further leverage for our growth in the upcoming years. And this leads into our updated ambition. And for me, you have to say it's an important day where we can announce that we're going to increase our total revenue ambition by EUR 3.8 billion, the cloud revenue by plus EUR 1.5 billion and the operating profit, gross profit actually by EUR 0.5 billion. And when you look into the levers, I talked about the revenue. When I talk about profit, we have a price premium. First of all, the products are way more competitive. They are sticky. They are relevant. And trust me, when you have one done a migration with RISE to the cloud with your core ERP, you don't want to do this again in 5 years from now. So it's extremely sticky. On cloud TCO, we did our homework on the infrastructure harmonization. But of course, we have idea, which we now can continuously execute on. So our engineering teams know exactly about how to build a more elastic database. They know exactly how to build an even more elastic product. We were going to launch in Q4 a more composable commerce solution targeted to attract more customers, but also designed in a way that we can further leverage TCO optimization. On the go-to-market side, I guess for me, the best thing is the indirect channel, the partner channel already today sees a higher growth than our direct sales, which is good. Because we can never ever sell software with such an addressable market into every corner in this world and into every single buying center. So the ecosystem is so, so important in go-to-market. Of course also our development partners, but especially also in the sales and the services area. And then Dominik will talk later on around how we can further optimize our cash flow. And I have to say, kudos to Dominik, it's a refreshing new perspective on what we can do not only on profit, but also on cash flow. Look, our ambition is to stay the #1 enterprise application company powered by our leading platform. And whoever worked in tech before, one thing for sure, it's all about the people. And when I look at the Executive Board today, and when I look at our next hierarchy in the company and the L2s, the talent we infused into SAP and the strength of our management teams, the product owners we have is way, way better than 4 years ago. We have great people on all of these lines of businesses. We know how to go to market. We have a lot of ideas. But at the end, it's all about team, it's all about the people. And there, I even see now with the turnaround and the accelerating momentum that makes us as SAP even more attractive for a lot of more talent outside of SAP. This is why I'm looking very confident into the next years. I can definitely see that we can further accelerate our total revenue growth also in the years 2025 and beyond, looking at everything what we have in the pipeline. And with that, back to you, Anthony. Thanks a lot.

Okay. Can you hear me okay. Good afternoon, everybody. Welcome -- great opening by Christian. I hope you enjoyed this morning session. For those who I have not had the opportunity to meet, and I think I've met most of you here, I have the esteemed privilege of leading what we call customer success and we take those words literally, the role and responsibility of the part of SAP that is accountable for our customers' success. Now as a part of their success, it also drives out. So I'm going to talk a little bit in the upcoming 10, 12 minutes before also being joined by a very good friend, but also a customer of ours about how our financial strategy and our business strategy equals our customer strategy because they need to be in link. They need to be in tandem. This isn't a disassociation between our financial aspirations versus our customers' aspirations. The beauty of our strategy is that our success can only be intended and delivered when our customers are successful. Now for those of you who joined me 12 months ago, when I was here and I was sharing, I was talking a little bit about the journey we were about to go on. And I hope you remember about the fact that we were moving from a sales obsessed organization that was really driven about deals and wins and gains. We still do that, be assured, but pivoting that to being an outcome obsessed, a customer value obsessed organization, putting the customer at the center of everything that we do. And if you remember, I spoke a little bit about our history of building great products, designing, creating, building these products and then selling them and handing them off. But after that, we didn't see too much. We only knew what was happening when we got a support ticket or a problem. Our strategy is intertwined that we get to through our telemetry through the great technology, we understand at all moments of their engagement. How this -- how successful they are in delivering and gaining value out of SAP. And the point that I want to make to everyone here is 12 months ago, I made a promise that we would deliver sustainable, tangible benefits for our customers but also for SAP. And we have delivered on that promise. There are a few examples of that. And you can see here, I mentioned about the fact that we measure our cloud, our post-sales teams. We measure them not through utilization in how many hours clocked, we measure them by how many customers have gone live with SAP in the cloud. We had an 82% increase. It doesn't sound like much, but that is literally thousands of companies more going live on the cloud with SAP than what they were before, tangible proof through our focus around their success. The second is, and Christian mentioned this, go-lives of ERP cloud, both RISE as well as GROW in a matter of weeks. We've measured the improvement. So we're seeing faster time to value. Our customers, when they invest, the time it takes to get benefit from that investment continues to shrink. And if you think about that from a revenue modeling that means that our revenue ramp is faster, our profitability and return on investments are faster. And we're able to then leverage that to do more on our go-to market and to go to more and more customers because it's an automated mechanism rather than a manual. We also have expanded significantly our partnerships, particularly as it relates to software, and Christian again mentioned this before. Our software partners to extend end-to-end solutions and capabilities. And there are a few of those mentioned this morning, our artificial relationship and in partnership with Microsoft, our DataSphere relationship with Google Cloud and with Databricks and other organizations, extending the power of SAP's capability across a broader ecosystem. And the beauty is that means that there is more value we create for our customers, but also more opportunity for SAP to participate in categories or in areas that maybe we were excluded a little bit from. DataSphere is a good example. If you think about it, customers used to pick up data, ship it across, put it into some data lake somewhere else, now through a federated data platform and the data fabric, we can then not only monetize it, but we create value without moving data. It stays on the SAP cloud. And then last but not least is our ecosystem of partners being powerful, but we're also digitally becoming more efficient, more deals being done through pure digital channels. And when it comes to the efficiency, and I'll talk about this a bit later but our digital route to market an increase, probably not as fast as I would like because customers like talking to SAP people sometimes, but the ability to be able to procure, upsell, whatever you need through a digital channel versus before. To give you some context of why we are so confident and why I am so confident and I get asked by some of you and others in the industry and the market, hey, what's the confidence on pipeline? And I, "Oh, what's the pipeline? Is pipeline good? Is it the size that it was before? Is it exceeding your expectations? Is it at the speed?" Yes, that's important. But I look at it slightly differently. When I think about the shape of our business. And this chart is a pretty simple one. It's what we saw 10 years ago -- 2015 -- sorry, 8 years ago in 2015, we've seen that when you've made a first investment in SAP and the ERP, we've been able to show we are able to then grow an expanded revenue with that same customer 10x. So once they're on the core, the ERP and our business technology platform, their willingness proven in our business, this has proven over time that they will continue to expand and use more and more solutions of SAP. And you can see the spike in 2021 as we pivoted the strategy into a reality. Our integration was easier. The data layer was easier, the process layer was easier which means for customers, they weren't looking at Ariba, for example, and comparing it to their nearest competitor that were looking at the extended ability to be able to do so on an ongoing basis. I can't tell you how important that is because when I think about pipeline, I'm not just looking at the numbers that's sitting in our current, I'm looking at our installed base customers and I look at the amount of solutions that they have acquired with SAP versus what the potential is and then I think about our journey with them and the customer journey with them to be able to achieve that. That is a very different view about our business model and the opportunity of revenue and growth and value creation to further amplify this picture. When you look at cloud ERP because I was using on-prem in the on-prem ERP in 2015, when you look at cloud ERP, we are 4 times more likely to have those customers have more than 4 cloud solutions. Let me just say that again. So Christian talked about our cloud ERP, RISE and GROW. When we have been successful and they've adopted those solutions, we are 4 times more likely for those customers to have 4 or more of our cloud solutions. Because they see the journey with SAP, the value of the solutions and the decision-making that they have, everyone has to do direct and indirect procurement. Everyone needs to manage their data. Everyone needs to manage all of their HR and retain and attract the best talent for their business. Everyone needs to be able to manage at least in industries where supply chain is relevant to manage their supply chain, the logistics their warehousing, their distribution. All of those are extended cloud capabilities of SAP, but it starts with cloud ERP and the business technology platform. And we have proven over the past 2 years were why you saw that spike that the more that they come on to with RISE and with GROW, the more likely they will be. Now that doesn't just happen. It happens because our engagement model shows an extended value that they can do otherwise going somewhere else. It's more economically, commercially quite honestly, it's more simple within their environment. Companies are not interested in discretionary spend right now. They are interested in a simple platform that is able to scale and grow with their business, that's always got the latest innovation. And the great part is, it's matched to our revenue model because we don't earn the revenue and the growth, unless they're going to use and consume. So the 2 go hand in hand. I often get asked, well, okay, if that's the case, what's the distribution around the world and what's the distinction between our existing customers and our new customers. Well, I would say this in very simple terms, our business is incredibly balanced. I'm not dependent on revenue growth on one particular geography. I'm not dependent on one particular category. We know the cornerstone of cloud ERP, but I'm certainly not dependent on that. I'm certainly not dependent on only our installed base customers, but it's also new cloud customers are coming on board. So across the Americas, I'm pleased the 19%, that is an enormous growth given the size of this market, given how competitive this market is, given the nature of competition we have here, the ability to be able to grow at that pace and sustain and we are really bullish about our -- the North America going forward. But then you look at Europe, despite all of the geopolitical, humanitarian and other challenges that we've seen in Europe, together with Asia Pacific they are growing at 26% and the trend line is strong. And you'd be obviously interested to know that our install base customers, which links to my presentation before about the revenue growth, the more that they are with us and over time, it naturally expands, but new customers coming in. So they start the journey, and then we have the expansion plan with them as well. So I look at that and I say, okay, we have huge confidence in our business. I also have confidence in our business because our installed base is a large, large market that we have not yet moved to the cloud. It's an exciting opportunity. I think I said this last year that whilst I love our technology and I love what we do and I love the market opportunity, you'll hear me often say the SAP story is actually the customer story. Companies who have invested in SAP, who have been running their businesses, leveraging SAP to the position that they are today, presents a huge opportunity for us and them tomorrow. We have got a 2 to 3x. We're not limited by that. You can see the 2 to 3x opportunity of $1 of maintenance revenue and then into the cloud revenue, and you've heard me say this before, but the opportunity to be able to move and move quickly is clearly a future opportunity and growth driver for SAP, but we don't just assume that will happen. How do we do it? Well, first of all, commercial strategies matter. It's going to be easy for our customers who are on an existing on-premise estate with certain commercial agreements to move across. So we put a lot of effort, Christian and myself, Julian and the team around the commercial strategy RISE was a transformation offering, but it was also a commercial strategy to bring to life how to move and move easily. We've also got a further and further simplified conversion program. When we launched RISE 2.5 years or 2.25 years ago, we got a lot of questions of why do you really need to do this? No one questions anymore, but they do ask how, how do I do that? In fact, Punit, when I were in a meeting with one of the large government agencies at lunchtime today. And the conversation was about how do we go through the journey, but they weren't -- no one debated the destination. No one is worried about that destination, but the conversion, the simplification of that, the method, the tools we've invested heavily in that capability. You will hear a lot about the Clean Core. The Clean Core is about simplifying a further simplification of that too big environment so that the big heavy customizations that maybe when you speak to companies, they might say that about SAP that is being built over time being able to simplify that down. And then last but not least is differentiating the innovations. And the best example is the sustainability in the innovation, what we built in the green ledger only being available through the cloud. And that's not just a commercial, it's because the innovation was built in the cloud on our technology platform, embedded and entwined with our S/4HANA Cloud and their ERP cloud capabilities. So it goes without saying that the best way our customers will be able to use and consume the best innovation that SAP brings is through our cloud capabilities. I sometimes get asked about the ecosystem, and I noticed Christian presented this before as well. And I mentioned earlier about we've got 3x the software partners that we had 12 months earlier, and we continue to expand upon that. But the reality is the multiplying effect and the importance of the ecosystem from my standpoint on a go-to-market cannot be understated. First of all, it's got to be a viable revenue stream, profitable revenue stream for these companies. 30,000-plus companies wake up every morning, literally hundreds and hundreds of thousands of employees wake up and SAP is their career. The business model of SAP in the cloud has to match a revenue and a business opportunity for them. Because if it's not, they won't invest in it. If they don't invest in it, then we lose the power of scale of the ecosystem. The good news is that we have a 7:1 ratio. So it's an attractive financial proposition. But it is not unique to one model. People think often about oh there's the systems integrators. But I'm talking about VARs, OEMs, software partners, the resellers. We've got future partnerships where we collaborate together, but we might not even put it into a commercial framework about monetizing first, it's just about opening the opportunity. And so what you'll see is a continued expansion of our growth where it didn't take a single human being from SAP. It took technology to we integrate to allow them to do it but that gives my part of the business, the ability to scale and grow with an efficient model, and I'll come to that in a moment. And then the other thing is we've seen growth. Christian mentioned it, we are growing faster through our channel and through our partnerships than we're doing ourselves. One of the reasons why you've seen such significant revenue growth of SAP over the last 2.5 years, is frankly because our channel -- our partners have stimulated that. They picked up the strategy and then they said, "Well, let's use that as a platform to drive our next generation of growth," and we see so much more. When we unlock the power of the business technology platform, look out. Because that platform has the essential capability, the content that they need to create new business capability for their customers running on SAP. It's not always going to be an SAP application, but it will always be powered by SAP's platform. That's the BTP. So what can you expect going forward? Well, the first is the expectation of sustained growth. I'm obviously very optimistic about it. But that's based on data, that's based on facts of what we've seen, how we measure ourselves, what our future pipeline looks like. We absolutely expect, which is what has led to, at least from a top line point of view, a confidence not only of our financial ambition but the strength of the -- the strategy, the way it's manifesting in the market, the way our customers are responding to it, sustained strong growth. But it is also growth not at all costs. I am reminded and we talk already with Dominik quite quickly as he joined about efficient growth. And that growth being something that for every dollar of revenue we incrementally earn that we're able to do it in more and more efficient ways. Let me put it in very simplistic terms for you. I don't need more sellers to drive this growth. I might need more ecosystem partners, but they're not on my P&L. I need more software technology partners, but again, they're not on the books of SAP. What I need is to be able to take the existing customer base and the new customer base and be able to attract them or then be able to create more value in an incremental way. So as I showed that chart where I'm able to get 10x from the initial ERP investment, the cost of sale, the cost of acquisition, the lifetime value continues to get more and more efficient because they're leveraging the BTP. They're leveraging their ERP, they're leveraging the same capabilities and then it's extending deal our cycles get shorter. We've proven this. Once they are on our cloud ERP, the deal cycles for incremental solutions get shorter. And then last but not least is we can scale it through nonhuman resource means. I've mentioned at the beginning the digital hubs, and we've increased the digital interaction with our customers. So one of the things that I've built in the last 12 months is expanding our digital centers to allow customers to be able to expand. They might have a heavy engagement from SAP on the initial purchase. But once they're there, any of the top-ups, the expansions, extra room, extra capacity do that digitally because honestly, they don't want to have to deal with a highly interactive exercise. They simply want to leverage their capability using a platform we call SAP for Me and then be able to expand upon that. I guess my commitment to both the Executive Board and to our shareholders has been is that the growth is efficient growth in managing the bottom line as we expand and execute upon the strategy of SAP. The best way I can explain it is in customer terms. This is the customer that is about to come on stage. AMD, and I won't take Hasmukh's thunder, but an incredible company in their own right, a technology innovator in their own right, a long-term proud SAP customer. And a number of years ago, I think it was about 20 years ago, they started the journey with SAP with their cloud ERP. There was a fair amount of time before that initial purchase on the ERP that they then looked at a stand-alone basis of SuccessFactors, Ariba and Concur to solve their human resource, their indirect procurement and their travel and expense. They then most recently went to RISE and very successfully moved to RISE. And not only did they move to S/4HANA cloud and the ERP in the cloud, but they then started to leverage our business technology platform, setting the foundation going forward, already further expanding to IBP. The journey of AMD and when you hear Hasmukh in a moment is a journey that literally thousands of customers are either on or they're going on with SAP. And so to say the story better than I ever could, I'm going to welcome on stage Hasmukh Ranjan from AMD. Hasmukh, please welcome.

Thanks for inviting me.

Thank you for being here. So Hasmukh you've been with AMD, you've been in the technology industry for a long period of time.

Yes I have.

We don't have to clear our age up here. That's not what we need to do. But advanced micro devices, maybe for the audience, tell everyone a little bit about who AMD is and how business is going.

All right. I think AMD is not -- I mean, you all hopefully know what we do. But at the industry level, right, this is the most exciting time to be in semi industry. That's how we look at what opportunities are there for AMD and for right reasons. So there are 3 fundamental things going on in the industry. There's a continued digital transformation that enterprises are on and you heard many stories here in this forum and many others in the forum downstairs, right? So that continues, right? You add on top of cloud journey, that many enterprises are there. And then AI, right? So if you combine all those 3, there is a semiconductor behind that, that is powering all these transformations that are going on in every vertical. At AMD, we take pride because we have the broadest set of solutions and computer architectures that address solutions -- that has solutions right from client to server, to graphics and to AI now, right? So we feel very good for the opportunity that it brings and our ability to help the industry as they move into this transformation process.

We're also a beneficiary of that as a partner of yours, Hasmukh. But you made the decision, long-term customer of SAP, leveraging our technology for historical purposes, but you made the decision to move to RISE with SAP. Why did you do it?

Sure. I think when we started making this path of making decisions, we were also going through the integration of one of the largest semi -- in this semi industry, right, we acquired Xilinx and that integration was going on around the same time. And when we said, okay, what are some of the key parameters that we would look at when we would look -- choose a new platform. I think the way we started, -- and just to inform this audience, right? We had Xilinx on Oracle and AMD on SAP. So that -- even that conversation was there that, hey, where should we go because we have now both platforms. So we decided now we first have to look at some of the sins of the past, right? And sins of the past, what I mean is 25 years of ERP implementation wherever you have, it's -- becomes a very monolithic application to maintain and more importantly, to change and scale, right? And that was one of the things that we were suffering through because our previous implementation had gone through its own journey of patching and trying to address the needs of newer business. So look, first is we are not going to be in the business of building the platform. So let's find a partner who can build the platform for us. So RISE was a natural choice. And then we would put something there, which is modular, which is not only for a solution for today or next 3 years or 5 years because we know that, that visibility we have, line of sight is there. But beyond that, what something -- AMD gets into something brand new business, are we structured? Are we -- is the platform there to scale? And if you take all those things in mind because this was our single most opportunity to invest. I said, okay, no, we'll go to RISE. We'll choose this architecture where ERP is a core foundation and we will build on top, hopefully, on bottom too through data lake -- DataSphere solutions that you have. And then we'll go from there and see -- this is a platform for scale, this is a platform for future, and that's a long way to answer your question why we chose it.

I love it. You did way better than I ever could, Hasmukh, I can guarantee you that. But you're obviously now leveraging RISE, and we were together maybe 4 or 5 weeks ago and -- and it was humbling to hear you talk about the success and because there was some anxiety moving, but you're also leveraging multiple cloud solutions of SAP RISE, but also the others that we presented before. Can you tell the audience a little bit about the business benefits. What's the value that is being created. And obviously, that's the way we want to measure our success. What's the tangible benefits that it's brought for you.

I think. At different layers, right, at infrastructure layer, where my group is, there's one part of work that we don't worry about, which is the maintenance of this platform. This is gone. This is somebody else is doing that for us. And whatever shift we had to do in our workforce is about how do we harvest this platform that we have. So that is from an IT perspective. And also, this agility part of it is there. This transformation just so that we put that in right context to this audience, it may not be the important number, but folks downstairs, they will appreciate that more. We did this transformation in about 16 months at this scale. It doesn't happen that quickly unless we had this platform, I don't think if you had to do the same ERP on-prem to another ERP on prem, I don't think it will happen in 16 months. So a lot of things went right into this implementation. So right from start from the infrastructure layer and then you look top-down, okay, for my finance customers who are inside, hey, can the quarter close process be more optimized? Can we get more reports into our users and in that layer and give them this entire structure that you are there and you are there from a perspective of self-service. So that part is there. And then we are building on now moving on to supply chain alignment and streamlining. And we feel very good that we have a base here where the supply chain alignment in whatever architecture we choose, we have the base to scale and align that as well on to this new platform.

The one thing I know, Hasmukh, is that you and the team hold us accountable to those KPIs, those measures, those value drivers, whether it be the technology or the business, but I know you're not done. What's next on your cloud journey. And I -- does it include anything that Christian presented this morning?

Yes, of course. Yes, it is good to hear and at least getting all those ideas reinforced that where we are. So as I said just now, our -- we are in the process of dismantling our Xilinx ERP infrastructure. We will transition that onto this new platform in the next couple of months. And then the other fund work starts. And then largely, we are looking at investments in 3 different areas. The first one is supply chain, automation of supply chain and how do we build our stack. I think Thomas and his team, we are meeting tomorrow to get started on, as we stabilize ERP how do we harvest this investment for supply chain. Next one is AI. We absolutely want AI solutions to be built into our enterprise. We are already working with many other vendors that are working with us, and we want to accelerate our AI deployment, including LLMs and other things that you can integrate into this platform. And the final , which is a big one from our perspective because whenever people talk about AI, in my mind from a IT perspective, all AI applications are about harvesting of data, unless your data layer is architected correctly, none of these AI applications and stories will materialize. So how do I make sure that whatever data strategy we have, we standardize that, how do we look at it and make sure that we put that for future. So those 3 are our priorities for this year and probably the next few years to come.

I could ask you questions for a long time, but I know I've got other presenters. Let me, first of all, say thank you to you and to Lisa and to the AMD team. I know how important you are as a customer to us, but we also recognize the trust that you placed because everything that you just described, if we could then package that and then replicate it for other companies around the world and learn from this relationship, then our company is going to be very successful. So thank you so much, Hasmukh.

I do want to thank you as well because this journey that we have been through for the last 16, 17 months would not have been there without the involvement of you, Jurgen and any other execs who have been partners in making sure that whatever hurdles came, we crossed them very, very successfully. So thank you as well.

Very good. Thank you, Hasmukh, everybody. Thank you Thanks, Hasmukh. Okay. That's it for me. I hope you enjoyed the update. But more importantly, it was insightful around the go-to-market and how that actually manifests with our customers. I now have the privilege to welcome the next speaker. I think the last speaker before we get into Q&A. But I would argue the most important speaker, our CFO, Dominik Asam. Welcome, Dominik.

Yes. Good afternoon, everyone. It's my great pleasure to be here. The first time at a financial analyst conference of SAP. And it is really amazing to see the energy on-site here. Yesterday, we've met a lot of partners. We talked about the system integrators. This morning, I've been talking to customers. And I think the potential of this company is really tremendous. And what I want to achieve today is, of course, walk you through the logic, how that potential is ultimately ending up in our numbers from the top line to the bottom line all the way down to the cash flow statement. So before I do that, I cannot resist the temptation and add by customer testimonial. I mean all of you have been around this company for much longer than I've been here. I've only joined 9 weeks ago. But I dare say, I have a pretty long experience with the company as a customer. More than 20 years in companies such as Siemens, Infineon, most recently Airbus. And maybe these are not bad companies because they tended to have a large share of their revenue base in world-leading positions and they have outgrown their competition. And I can tell you, they all leveraged the technology of SAP in a very, very meaningful way. And that brings me actually into one topic, which I deem to be super important for our equity story, which is really the stickiness of the business. It has been mentioned before, but I want to kind of build on that because I think it's so key here. There is one way you can already measure it which is simply the way the kind of buying center for SAP has migrated up the ranks in the hierarchy of these big companies. 20 years ago, it was kind of buried in the IT department. On the executive level, you didn't talk much about it, and it was just supposed to work. It has completely changed. If I think about the big transformation projects I've been involved in, they were dealt with directly with the steering committee, which was made up of Executive Board. Super important decisions because it's all about the strategy of the company, where we are going because the entire management team was very much aware of the fact that digitalization is key and that the choices we make now are super important for the future and that these journeys are super difficult to go through. It can be a blessing. It can be a curse, depending on how you look at it, but I always jokingly describe these journeys as open heart surgery on patients which are still running. And this is why really the attention from the top management is extremely high. And it is a trend basically in every large group over the last years from a situation where these kind of activities were dispersed. There was a buying center for I don't know, travel expenses somewhere in procurement or Ariba, of course, and there was HR buying some stuff. And then, of course, the core ERP, they now all bundle this into centers of excellence where there's hundreds of people doing nothing but ERP. And actually, I've been in some of these discussions, how do we bundle all this. And then there's a discussion, do we actually name that SAP Center of Excellence or ERP Center of Excellence. So it's really the brand name. And by the way, the largest transformation project, I have been personally involved and in the steering committee every other week was called One SAP. And I personally asked SAP, whether I'm allowed to use that brand name in my internal project. So I think it's just showing how much this company is entrenched in these transformation journeys. That's the stickiness. Now you're all smart financial people, and you can measure stickiness in one measure, which is the ability to pass on inflation. And that's a topic where, frankly, we've been very, very shy in the past. We've been spoiling our customers by really for years, absorbing all the cost increases on our side. And only very recently, it kind of came out beginning of 2023 with a very moderate 3.3% catch-up, so to speak, on inflation. And I can tell you we have the possibility to do that, and you will see us doing more of that. But -- it has been something where the company has been extremely reserved because there was always a strong commitment to the long-term commitment to the customer and a strong focus on that. And honestly, I can also cynically say no incentives to do that for the sales force. Now second point I want to kind of come to on that customer journey. It's the innovation piece. I mentioned the steering committees I've been sitting in. And what I told people is I want to have the SAP standard. I don't want to have this expensive customization stuff. And for every customization that somebody wanted to do in the organization, the steering committee, which was composed of the COO and myself, had to sign off. Why? Because whenever you kind of upgrade the system, you have to bring all that legacy of customization with you. So of course, when you had a special kind of bells and whistles thing in your company, what you want to achieve as an SAP customer is that it becomes part of the standard. Even if you think it's a pretty smart thing and competitors might see it later, because it's so much burden to have this customization in the old world, you try to make it part of the standard. And by virtue of that, we greatly benefited from we, now SAP, I talk about SAP, benefited from the co-innovation with the customers, basically deeply entrenched in optimizing the cloud solution here now. And that's the interesting part. I think on the one hand, the need for the customer to use the cloud is exponentially increasing, and I think also the real capability and Scott and Christian have talked a lot about the integration capability is strengthening. And it's not a kind of lip service anymore. We can really do it now. And of course, the budgets in IT are always constrained. The pressure to push productivity on companies is higher than ever. And you really have to show that value to the customer, and we can do that by bringing innovation and real use cases. There is a flip side, which is the complexity. It's quite complicated in enterprise applications. It's a very, very comprehensive mighty suite of tools. And you have a lot of legacy you deal with. I mean, sometimes people think you decide, you sit in the boardroom and you decide, we go this way or that way. But the truth is, you were confronted with a huge legacy. That's part of the stickiness, but it also means it takes time to kind of move the customer. And it depends very much on what type of business within the customer, you have to move. It's a different story if you move central finance or if you move a kind of factory footprint, which has been growing organically over 20, 30 years with very old systems. So this journey takes the time. And you will see that later in my discussion about the cloud gross margin and the move to the private cloud is the first step. So far from the customer side. And the last comment I want to make on the customer side is the review back on the strategy to move that transformation forward. It was in October 2020, and we all know that it was extremely painful. Christian and team have reduced numbers and pushed it to the right, push the numbers to the right, shock in the capital markets. But I can tell you there was a big sigh of relief in the customer base because we needed SAP so much. And we wanted to see this company being future-proof, invest enough money to make the integration really happen, all the good things you've heard about BTP and so forth, they required really serious heavy lifting. And also, we are making future proof that we can believe in the capability of SAP to bringing the product to the cloud because it's so important to kind of gain velocity and innovation to really use the most recent releases to have a super IT security because we get the patches immediately. To have a flexibility. I mean, if you plan long term, these are 7, 8-year journeys, you don't want to box into a kind of rigid volume you want to be able to breathe in always. And this is what the cloud brings us. And while it's super difficult for large groups to bring it right to the public cloud because of all that kind of specialization, customization, it is the ultimate goal for everyone. Now coming to the numbers, and I want to start actually with some communication principles. What do we care about? What all of us in the management and Investor Relations want to care about going forward even more. It's focus on what matters. And for me, that is not only the numbers but also give you the rationale behind the numbers. So I think we have put ourselves a challenge and let's try how that works today to tell you why it is what it is, not only what it is. Secondly, there's always a debate about what's a good ambition level in guidance. And it's a dilemma because on the one hand, we always want to say what we do and do what we say. Whenever we don't hit our numbers, reaction is immediately, capital markets merciless, so we have to be very careful what we say. But on the other hand, we don't want to lowball too much because that is first of all, guiding you the wrong way. And secondly, it can actually create a very negative self-fulfilling prophecy that the ambition level in the company is not high enough and that our teams, I mean it's very useful to show to the team is what the market is expecting. So it has to have a certain ambition level. And we are fully committed to really find that right balance, to give you numbers that we have a certain degree of confidence and a good degree of confidence in but we also have to keep a certain ambition level. Last point on the communication, Anthony and the team, I think, have made already great progress towards winning more attention from the U.S. investors. I mean I've been socialized. My first job was for 8 years in a bank called Goldman Sachs. I understand the importance of U.S. capital markets. That doesn't mean that European investors are not important, are super important. But there's so much money here on this side of the pond with so many big, highly sophisticated teams and there's huge competition for that capital. So this is where the battle is won or lost, and we really want to move up the attention with US investors even more. So that's what we want to achieve in terms of Investor Relations communication. Now coming to the numbers. The first point I want to make is -- but I personally find it quite remarkable and then Christian, you still have to tell me how you did that kind of you are there, October 2020 and you say we're going there 2025, I mean those of you who know me a little bit, I wouldn't have never dared that, but maybe in this -- under these circumstances, there was no alternative. And we are actually tracking pretty precisely, amazingly precisely on the key KPIs like the top line, you see the data here, what we said, muted growth, and you see a kind of mild-4% growth and then the kind of slight -- flat to slight decline translating into what is it here minus 1% operating profit in 2022. And there were some differences. But given what happened in the world with kind of COVID taking longer, Ukraine crisis, inflation, it was really big hits and still, it was tracking. Now there are some differences. I mean there was a discussion about free cash flow, and I will come to that later in detail. And there were 3 major deviations otherwise. Software revenue was lower in the mix, which was because of the license revenue declining faster than anticipated, but support revenue more resilient. So I think it's a nice KPI for the stickiness we were just talking about so much all the 3 of us. And then there is a difference in revenue mix. Frankly, we underestimated how fast kind of customers can fully jump to the public cloud. So the resistance and the change, the kind of gradient of the transformation process was simply too high, and there's a lot of now private cloud deals. But as I mentioned before, that doesn't mean they will not go to the public cloud actually -- it's not black and white, some large industrial companies put some stuff already on the public cloud where they can. They always want to go there and what's possible they do, but that means you have to really conform your own processes through that template. So that's what has changed. But I would say, so far, so good. I think what has also changed now when we give that ambition is that there is a different level of certainty on that. I mean back in 2020, there were some very fundamental question marks over the strategy and the numbers in consequence, which is well will SAP be really able to kind of go on that journey to the cloud, will the customers follow. Will the hyperscalers accept it? Will they become -- they will become suppliers, basically. Will they accept that? How about the systems integrator. It's a tricky topic. They -- I mean, we talked about this kind of huge money spent on system integration and a little money on the software. And they will make a lot of money, the worse the complexity for the customer the better for them. So now we say we are going to simplify, standardize, it's not really great for them. And I think the biggest change until today is that these major [ democracy boards ] are actually gone. So we are much clearer sight on the numbers here. Now let's look at the numbers. You have seen them. That's the press release we have issued just a good hour ago. And there are 2 topics, basically to look at. One is the Qualtrics divestiture. And what we've done is we've looked at what was embarked in the ambition back then, and that was still the plan for Qualtrics and we've backed that out. And then we have look at all the rest, which is the kind of organic update. The inorganic is the divestiture, organic is what has happened inside. And yes, I understand the U.S. dollar has been stronger. That's clear. And I find it interesting that people in that context always talk about the U.S. dollar. What they don't talk about is Ukraine kind of low to mid-triple-digit million hit just absorbed. And even more importantly, I mentioned the inflation topic. I mean, if you take the difference between revenues, EUR 37.5 billion and operating profit EUR 11.5 billion, well there is EUR 26 billion of cost in between which was strongly affected. And yes, we've been kind of taking some first measures in early '23, but there was a full year of 2022 where basically we were hit by the higher cost and had to absorb that somehow. So I think that just in context, it's not only the U.S. dollar, it's an update for all of that, and this is why we just lumped that together into that bridge here. Now -- with the numbers you see here for cloud revenue. We are actually upgrading on that continuum operations part with all the factors I mentioned, by EUR 1.5 billion to say we can do at least EUR 21.5 billion. And for total revenues, we actually go even higher, and that's simply a reflection of the stronger retention on the support maintenance, the lower kind of decay on that, stickiness is very good. And -- that is a very, I think, decent raise on the numbers and it comes with a certain challenge, of course, on the margin side, and I'll come to that later. Now cloud gross profit. On the cloud gross profit, we see a challenge in the way that we have a different mix. I mentioned the higher share of private cloud deals they come at a lower gross margin. I would argue that our private cloud business is generating best-in-class margins. The public cloud margins are higher. And by the way, I'll give you some hints later on, on the different segments we have. But that's basically explaining why it's only EUR 0.5 billion here. And on operating profit, also EUR 0.5 billion. And you might say, well, but you got more revenues from the kind of maintenance. So where is that going? And Christian has mentioned it, we're investing heavily. We want to really drive growth into the future, and we want to make sure that the growth is not stopping in '25. I mean, somehow with this '25 discussion, we are kind of looking at this almost like an endpoint, but it's not the endpoint, it's the start of it. And mathematically, of course, it's much easier to accelerate when you have already the lion's share of the decline on the license revenues behind you and you can then purely grow or predominantly grow on the cloud business. So in context of the cloud gross profit, what we want to do is really say, what we want to deliver is an absolute amount of cloud gross profit, that is what drives in the end, profit and cash flow. And the margin, as a consequence, is slightly lower than what was previously guided, but the absolute euro is what ultimately should drive the variation, and that's kind of EUR 0.5 billion up. Now free cash flow. That was, I know, a little bit of a kind of discussion on topics. How realistic is it? We had also some discussion around end of last year with I think it was EUR 4.3 billion, if I remember correctly. And now we want to go up to EUR 7.5 billion. And given that we had planned EUR 300 million out of Qualtrics that would leave you with a EUR 200 million downgrade, so to speak. And we thought very long and very hard about that back and forth. Of course, there's always a temptation to say, look, there's always a way to find some money. But we really want to have robust view on what we can really achieve and I will go in great detail later on to show you how we have triangulated what's the right number and why that's the right number. For me, it's more a fundamental question about what's the cash conversion model of this company when you strip out all the noise of phasing topics with payments over the turn, like stock-based compensation volatility, we still had a huge bunch of cash-settled stock-based compensation when the share price goes up and down, cash flow does funky things. So it was difficult on the cash side. But that topic we're also addressing because we have now discontinued in many areas, the cash settled stock-based compensations so we're not hit by this volatility anymore. And the most important factor of that is we have to recognize that aggressive growth in the cloud is it does actually absorb a little bit of cash, not much. But given the magnitude of the growth we're going to show, it doesn't come for free. There needs to be some investment. But honestly, I mean, pick a number, I'll come to that later. If you take EUR 0.10 on EUR 1 of growth on the cloud and you have the typical cloud gross margin, the payback is quite quick. So I would be surprised if any one of you told me, you should not do that and I don't really handcuff on the growth, if we can generate that cloud growth, we should go for that. I want to also make one comment, we are not fans of a long-term guidance because the further you move out in the future, the more ambiguity is out there. There was a guidance '25 and Ambition '25, we've updated this now. We will, of course, as usual, in February, give you a look into 2024, then you will have 2 years of a hard guidance more or less. That's pretty unique. But in the long run, we were not going to give long-term guidance anymore because there's too much ambiguity. And there are a couple of very important reasons for that, not only just statistically, the further you move out, the more opaque the view becomes. There's also one thing which is we don't want to be cornered for any event, including competitor reaction. And I always bring that kind of trauma was actually good for the company I worked for. When I talk about the story between Airbus and Boeing, where basically Airbus launched an aircraft and Boeing didn't react the right way because they were kind of cornered from a capital markets point of view, they couldn't do, they were handcuffed. We should never ever be in that position. That first has to be the right strategy, the right business policy. And it's very hard to anticipate what competitor is doing, what is -- he is doing what M&A and what does it mean for our product portfolio. And this is why I think it's prudent to keep that flexibility. But of course, we are fully committed to kind of draw the line and extrapolate on the trajectory we're giving you. Now a little bit deep dive on the cloud revenue first. There is kind of 3 buckets of cloud revenues we have. There is the Software as a Service. There's Platform as a Service and the Infrastructure as a Service. And the good news is that on the S/4HANA, that's clearly the workhorse. I mean that's the thing that Christian explained is the basis of everything, and it's growing faster. So thing that is kind of seeding future growth is growing fastest. That gets us so excited about it. On the SaaS, the other SaaS lines of business, as we call them, we want to achieve a double-digit growth. So solid growth, but of course, not as dramatic as on S/4HANA. And that means we have a very solid contribution also on the margin side here. On the Platform as a Service, we have massive growth. We have a revenue base of EUR 1.5 billion in 2022. And all of that is, of course, there to drive the integration and development as explained before. And this will expand very, very fast. It will actually be the growth leader in our portfolio. And the beauty is -- and this has the highest margin in the whole offering. And we are going to deemphasize Infrastructure as a Service. It's asset heavy. We talked about free cash flow. It's not one of the things we want to spend a lot of money on, and we will ramp down there. And all of that taken together means that by 2025, with what we foresee we should have about 60% of the revenues on the cloud side, growing fast and basically the declining license revenues will matter less. And this is how just mathematically, if you keep that strong momentum on growth on the cloud, you will see an acceleration between the CAGR we now guide from '22 through 2025. We can also take the guidance '23 to '25, that gives you what we are thinking in the coming years. We think that beyond '25 will accelerate and that will require a little bit of capital, and this is kind of explaining the couple of hundred million on the free cash flow side. With that growth, we think we can double the cloud gross profit because of the margin profiles of the different subsegments, so to speak, of the out business with a strong Platform as a Service business, really boosting profitability with the cost side also improving. The cloud -- the next-gen cloud delivery project is not fully completed. We are currently about to complete it, and we got some good benefits out of that, and you will see that also gradually over the course of this year being helpful for our gross margin. So doubling that pie, which is a 27% CAGR over that 3-year period. On operating profit, quite straightforward. Well, we take the EUR 8 billion we have now. We add that increment of cloud gross profit I've just described on the prior page. And then we have to say how much do we lose on-prem. Of course, a certain dip there. And then this question about how will the profitability on the service portfolio evolve. You've seen us grow quite fast on services with a pretty healthy margin. It's not a strategy per se, but we really want to make sure that the transition journey of our customers is well accompanied. So we're kind of inserting Black Belt teams into the customer projects we have. And we need to lead by example, so to speak. We'll need a lot of support from our system integrators to kind of absorb these 25,000 customers still being there on -- not on the cloud yet, so being on-prem. And that will be some heavy lifting, but we try to contain that because we are very -- very much aware of the fact that it is not the business with the highest margins we have, and we really want to emphasize on the IP creation on these more scalable businesses. Now on the OpEx, thank you, Scott, for your strong commitment to delivering super high operating leverage out of selling and marketing expenses. That leaves a little bit more for R&D to really boost the product portfolio from an R&D side further. And then G&A, it's always tricky. I mean, I mean, I hated that flood of regulation hitting us and other companies. It was just a burden on the company. Now actually, I'm a little bit more ambiguous at SAP because we can also make some nice money with it. If you think about big opportunities like green ledger and so forth and also on the compliance side, I can tell you, compliance is a big driver of some rollouts for SAP. I must say that when the budgets were tight for the SAP rollout, and I could put a label on this, we need that for compliance, it was always very helpful. So regulatory burden mix normally is pushing up G&A and you cannot get to full kind of operating leverage. But on the other hand, we are also seeing some benefits on our growth drivers, 13% operating profit up. This is a super important slide. I mentioned the volatility in free cash flow and how notoriously difficult it is to forecast and predict and kind of get the arms around it, but I think it will be better with the new cloud model, we can, in the future, become more robust. We have more recurring revenues. We'll, of course, focus much more on free cash flow, frankly, also the kind of prior perception of the company was that investors don't care so much. But then some things happen that were a wake-up call for us to say they do care. And honestly, I always cared about it since I had my kind of corporate finance 101 in business school, I do discounted cash flow models. And then I actually did a small test. I asked the team to say, let's get a very thorough analysis of our peer group. Let's look at their free cash flow in 2025 and the cash flow growth between '23 and '25. And actually, that correlation between growth of cash and the kind of free cash flow yield is better than any other multiple. So I do sense you care about free cash flow. And this is what we're going to put emphasis on all the way to also discussing incentives we need to put around it. And here, we want to achieve a 65% cash conversion as compared to non-IFRS operating profit and that would imply a 20% increase, so a higher increase than on operating profit. So we will need to do some work on the cash side. But I want to also say that is, in reality, an even higher growth of the real underlying free cash flow because you remember, Luka Mucic told you in the EUR 4.3 billion last year, there was a significant increase in factoring volume which, of course, is not really underlying cash performance. And so the real underlying performance is actually improving more. And we think this is what we can achieve and commit to. Because it's such a critical parameter and because it's the only one where we had a slight kind of downward adjustment, I really wanted to get a good degree of confidence. And the way we did it is we said, well, it's not rocket science. You just do the bridges from the current performance into the future with all the puts and takes you know, and they are quite obvious. It's the operating profit that is added. It's the planning of the tax planning. It is the payments for stock-based compensation. That's a little bit difficult to plan because it really does depend on the performance of the company, on the share price, so that can change a little bit. And then there's a little bit of working capital requirement for the growth, even if you improve on stuff like payment terms, we need some working capital to grow. And the other thing you can do to profit check is you start from the non-IFRS operating profit and to a cash conversion logic. I mean, what is in between profit and cash. And the good news is it's really pretty reasonably triangulating. So that's how we kind of come up with this view on the free cash flow come 2025. Now the most interesting question. What happens with the cash and my first statement is we have a single A rating, and we like that rating. And I will personally try to defend that rating like my eyeball, because I think a company of the size of SAP with the importance to our customers, there can never ever be any doubt on the creditworthiness. So if you're expecting from me some fancy kind of leveraging up the company and boosting earnings per share by that, that won't happen. But we think that our cash generation and profit generation capability is so strong that we have actually wiggling room even if we want to keep some firepower for mergers and acquisitions. It's not something we need to do because our portfolio is great, as I hope we could show to you in the prior presentations. But of course, if there is a good strategic fit and if there is a reasonable financial rationale to accelerate our development by tuck-ins, that's something we should preserve some flexibility for and in this fast-moving market, you want to keep a certain firepower. We have divested Qualtrics. That was a pretty healthy, I think, transaction. I always say it was really funny calculation. I took the liberty to say, okay, I look at kind of Qualtrics and then I look at continuous operation SAP and what would actually happen if we got the same variation multiple on continued SAP than on Qualtrics, do the math, you will be surprised how the numbers are. So it was a really good divestiture. And now we have the proceeds. And honestly, even if you want to preserve a reasonable cushion for strategic moves there's no good use of all the proceeds, so we said the lion's share of the proceeds we'll return over a reasonable period of time, which we said will be through end of '25 to the shareholders because that's where they are in the pecking order of returns to our shareholders reasonably invested. Just putting them in a bank account doesn't give us much return. We don't need the money because we have so much flexibility anyhow, and this was the decision we've taken. And thanks for the Supervisory Board for supporting us on that one. And there's another effect. I mentioned this whole discussion about stock-based compensation. We clearly understand that issuing shares is not something that has no consequences for shareholders. It dilutes the profits. And of course, we are strongly committed to making sure that, that dilution doesn't hit you. I mean we think there's a big opportunity in growing cash flow and growing profits. And we want to see you, as the shareholders, harvest as much of that as possible by kind of not allowing that dilution to happen. It's a very clear commitment to capital discipline and making sure that there are returns. Now a short wrap-up. I hope I could cover the relevant points. From a shareholder perspective, I'm sure you have many more questions after we finish and after the pause. Yes, there are some risks, but there are also great opportunities. I think it's a pretty balanced view on the world. And I really do believe that the trend is our friend. And coming 2025 and beyond, the best is yet to come. We have gone through a deep J curve. I think that J curve has paid out already quite handsomely. We have still that huge base of recurring ratable support revenue that can be turned at higher factors that are kind of 2 to 3x factors into cloud revenue. Yes, there is a little bit of a shift in the mix towards more private cloud. But the fundamental, I would always say, almost a law of gravity that the ultimate goal is the public cloud is stronger than ever. And for me, it's only a question of when and not of if, when that will happen. And I see it also from my previous experience, whenever we had an opportunity to have some smaller instances somewhere, today, every year, I would say, let's move that straight away to the public cloud. But we also have great customers which have a super heavy footprint, and that needs to be transitioned over time. The ecosystem is super strong. I mean we've not talked about much on the financial model, but all these partners, it's not that we give these partners access to our platform and to our systems and the go-to-market for free. They pay serious money for that, and that's a thriving ecosystem, as Christian mentioned, growing faster than ourselves. We have a super portfolio to cross-sell and upsell. And this is what is really underpinning the focus on the acceleration of the growth post 2025. So these were my comments. And with that, I think we are now going into a short break, a 5-minute bio break, and then we can come back and then enlarged group of Executive Board members will be available for your questions. Thank you so much. [Break]

All right. So we continue with the program, and we have most of the Executive Board of SAP with us. Welcome, Sabine. Welcome, Julia. Thanks for joining us. So we'll have 2 microphones here in the room. We'll take questions in the room. I'm sure you reflected already on what you had. And I see some hand raised already. The only ask from my side would be if you could stand up when you have a mic and state your name and your institution eventually. Maybe as an ice breaker before we take the first question in the room, there is a lot of chatter about demand in that environment. So maybe, Scott, I'll start with you and then we'll take questions from the room. How do you see the demand environment and the pipeline right now? At least what you see and what you hear from customers here on the show floor.

Yes, sure. I'm happy to. Welcome, Julia and Sabine. It's great you join us, hand more questions to you. So to answer the question, Anthony, we track pipeline. And obviously, we're not immune to what's happening around the world and the different macroeconomic changes and conditions. But to give some, I guess, encouraging facts for us, our pipeline is stronger than it was at this time. Our pipeline was stronger than what it was last year, at this time of year and stronger than it's ever been given the size of business and the growth aspirations we have. Probably even more importantly, in terms of the strength of the pipeline is the speed. So the velocity we have seen no decline, in fact, quite the opposite. We've seen an acceleration of time, deals, time to -- compared to what we often get questions. And I think that comes back to the fact that the market are not doing much speculative buying. IT buyers are not saying, oh, I might try that out. They're making sure that their investments are ones that they can put quantifiable returns on that address the fundamental needs of their business, but when they decide, they move. And I guess the good news is -- and it's consistent around the world. We don't see -- we might have some ups and downs in particular countries. But around the world, very strong, very consistent, whether it be in Americas, Europe or in Asia Pacific and Japan.

Very good. Thank you. Maybe we'll take the first question, Mo, on the first floor, if you can stand up. Thank you.

Great. It's Mohammed Moawalla from Goldman Sachs. I had 2. The first one was just maybe for Dominik, as you look at some of the margin levers and in particular, the costs. Could you give us a sense of the sort of the R&D investments you're making? How much of this is around new innovation? And how much are you perhaps stepping up on kind of the core S/4HANA side to get that sort of functionality of the product on the native cloud side? Obviously, some of the benefits you're getting on, on sales and marketing leverage are getting reinvested. And what's your kind of philosophy is around that, in general, that if you sort of start to see revenue upside between reinvesting back in the business versus dropping it through? The second was a kind of more general high-level question. A few weeks ago, IBM talked about 30% of back-office jobs potentially sort of going away from AI. I'm curious, Christian, from your perspective, given the perception historically has been of SAP as a back-office company, obviously, the product set is much broader. How do you sort of navigate -- do you navigate that? And what are the opportunities you see?

Do you want to start or the...

You go first.

Okay. I go first. I mean, on the R&D side, I think I would be much better positioned to answer the question, having gone through on first planning cycle bottom up. But I can give you a couple of headlines. I would say, first of all, we have to make sure that where we want to be present, we really are not falling behind because we are too constrained on R&D. So I really think in the high-tech industry, you either do it full steam ahead or not at all. So it's more about prioritization, than trying to be penny smart and kind of in a low more approach cutting everything. I do see that should actually be the OpEx block where, if I would accept less operating leverage that would be there because I think as we grow the company, we want to accelerate further spin the flywheel. But do we need to grow it as fast as revenues? Maybe not. So there is maybe a little bit of room there. But in general terms, it's kind of -- of the OpEx blocks, the one I like most, so to speak.

Yes. Maybe just a word on the R&D. I guess one important information is that we waited for this moment since now 3.5 years when we started the stack of S/4HANA. We just did the code line split between the public cloud and the west of the S/4HANA ERP deployment models because we reached feature parity for our S/4HANA on-prem versus ECC. And when you look into the stack, I mean there's a lot of business logic built-in in the ECC. In the S/4 on prem, you have a lot of modules with a lot of dependencies. And when you are coding new staff in such a stack, you always have to test, are still all the integration scenarios working, which is really time intensive. So Thomas and R&D team, they can now much -- move much, much faster in the cloud-native world in coding new features. There's a much better test automation built in. So the R&D productivity, especially in the core, will significantly increase. And of course, when you look into the harmonization we did with the BTP, I mean there's much less work you now need on the life cycle management, et cetera. So yes, while we, of course, want to innovate and we want to be in each category, we want to be the clear market winner. I guess, there is definitely a very good chance that we don't need to grow R&D in line with total revenue now. On the other question, for me, it's, I guess, very important when you look at the leverage and the growth potential of the company, I mean also for 2025 and beyond and AI, of course, this will have a tremendous impact. I mean, as I mentioned before, my scenario is that we will completely change the way how end users collaborate with our software and that you don't need 20 analysts to get something out of the ERP in something -- in a meaningful recommendation for the executives in the company. And then inside the company, when you look already now what we are doing in building our own LLMs, large language models for support for the ticketing, we have, each day, over 200,000 tickets, which are just actually about usability, about certain content, where we definitely believe that AI can solve their tickets going forward that we can come up with a much higher automation level for certain tickets. On the software side itself, of course, it will have a tremendous impact. The patching, the cyber, the tests we do today with human beings, they can be heavily automated. Now I was with Arvind in this interview actually. And so I'm actually very confident that you're also going to see in R&D, in support, in G&A, AI will help us to, for sure, not go in line with revenue but much more under proportional. And now while we are heavily -- while we are significant -- see significant growth, now do we reduce the workforce, that's a different question. But what you can definitely expect that we don't have to grow our head count in line with our total revenue.

James, maybe you're the next question in front.

That's great. It's James Goodman from Barclays. So a couple from me. Firstly, on the cloud margins. Christian, I think you mentioned in your presentation that you often get asked about it. So let me ask you again on the cloud trajectory gross margin. I think that you've talked a lot over the past quarters about the upside that the business has been seeing with RISE with SAP. You've been also talking as a management team about some of the margin implications of that. But I think net-net, the idea was that on an underlying basis, we would see more absolute cloud gross profit. There is a little bit more gross profit today, but most of that's sort of in the roundings with FX. So the question is, have you seen even more demand for the single tenant or the private cloud implementation? Is that what we're seeing here, a reflection of an even greater proportion of that? That's the first question. Second question is just on stock-based compensation. If I can ask specifically there. As you said, Dominik, it's a real cost to the business. It's something that's not reflected in the adjusted EBIT guidance that we have for '25. Previously, the business talked, I think, to a EUR 3 billion level for stock-based compensation for '25. Qualtrics now gone. Can you commit to a stock-based compensation level within that '25 guidance or not at this stage?

I can start on the gross margin. I mean when we do a like-for-like comparison of our Wise business case, back then with what happened so far, you're going to see that, for sure, we got positively surprised that more large enterprise customers really started that journey with Wise of SAP. That changed the mix between the private and the public cloud. But still, if you talk to the Siemens, the IBMs, the Microsoft, the Schneider Electric -- Schneider Electric is a good example. They -- we move them to the private cloud. They already have a very clear plan worked out with our architects, with our business process consultants, with Signavio on how to be 100% in the S/4HANA public cloud version in 4 years from now. So today, they're coming in with a 61% margin. They will come in at a massive scale with an 80% plus margin in 4 or 5 years ago. And to Dominik's point, every customer has the same goal. It's about the time until you get there. And then, I mean -- and then you also have to see when you won a Microsoft or a company like Samsung in the private cloud, is -- will they ever end up in a multi-tenant environment? I mean the point is they will reach over time so much scale also in a single-tenant environment, and we are having a lot of ideas for further automation. Frankly spoken, when you would ask Peter Pluim, our Head of Private Cloud, what was his main task in the last 3 years, coping with this incredibly close and getting all of these customers live. This is the first goal. Now it's the time around automation, around how can we automate the onboarding, how can we automate the warning -- one side of the deployment model. And there is enough, enough potential to even further automate our private cloud deployment model. And then last but not least, on the public cloud itself, one strike and cloud harmonization finished, 95% finished, but we are on a very good track. And again, there, I mean, when you look into what we are doing with the hyperscalers on elasticity of the database, there's incredible potential, also for further TCO improvements there, scale-out scenarios, which we have never dreamed of 3 years back are now possible. And I'm really amazed by our engineering team because when I see this, they actually have very good ideas where even the hyperscalers say, hey, really, really good what you're doing with HANA Cloud. And I see the excitement from the applications. And usually, when they have to adapt new technology, it's not so easy to gain their attention always to be the front runner. On HANA cloud, everyone wants to be the front runner, which is a very good signal and actually one of the main TCO improvement levers we have also in the years to come.

Stock-based compensation in terms of financial implications. We'll see a couple of billion roundabouts this year is what we currently plan plus/minus, well, depending on the volatility of the share price because we still have a significant part of that, which is cash settled. We only have the volatility from the share price on that cash-settled portion, not on the equity settle. Over time, that cash settle part will go down significantly. So we have more stability. In terms of trending, I think we've seen the kind of lion's share of the lift by now. So the rest should be more incremental, if any, increase. So you're not -- certainly not see EUR 3 billion in 2025, but a much lower number than that. And on the cash side, that's where we still have non-significant volatility from the kind of mark-to-market because people need to pay out the cash-settled part. And while there is already a reduction in the kind of number of shares which are cash-settled in 2025, we will benefit from that. You've seen it in my bridge on the cash flow statement. If you [ eyeball ] it like, EUR 0.5 billion-ish type of tailwind from that, after Qualtrics being out, and it's all on continuing operations, we still might have some volatility. So it's a little bit more sensitive still on the cash side than on the P&L side.

All right. Thank you. I see Adam Wood in the back. If you can reach there.

Adam Wood from Morgan Stanley. My two -- first of all, was around data and particularly around the Datasphere announcement this morning. Could you help us a little bit with where you want to draw the line between helping customers being able to extract data from SAP systems, put in other locations to extract value, but then protecting SAP's sort of own IP and value that you don't want to become a kind of isolated system of record and you want to be the place where data analytics and innovation happens on your platform and where you're willing to draw that line with the partners? And then maybe secondly, just on the capital return situation. I think on our numbers, even with a EUR 5 billion buyback, you could be about EUR 10 billion of net cash in 2025. Is that ideally where you want the company to be to running a permanent net cash position rather than running some leverage? And should we read anything into the size of that cash position in terms of the ambitions for acquisitions that the company might have?

On the monetization of these partnerships, especially on the data side, I want to give you 2 examples. And Scott, Julia, please feel free to comment. I mean take Google. With -- Google has a clear commitment that on the analytics, SAP set in stone. So they actually incentivize their sellers as well to push analytics cloud, to push planning, to push reporting with SAP. And we also, in a pure data lake perspective, we're actually monetizing the API. So for example, when there's data leaving SAP into Databricks, there's a metering service where we can then monetize and get a certain revenue share from Databricks back. UiPath, to give you another example, the clear requisite was that when we are going to use your RPA chatbots, we actually want you to integrate via BTP. So the landing point has to always BTP. So Adam, this commercial system art, and it's very important how you construct that, but we put a lot of efforts in that we can commercialize it in the right way and that we either push the platform that we monetize the data or actually we put actually also our analytics layer across our joint Google and SAP customer base. Julia?

Well, I think -- less commercial is more from the product architecture, right? Business context is the really valuable part. And that's what SAP Datasphere helps enable and maintains control over, right? Because you're going to have data sitting in lots of places. But if we don't know what it means, then it's not very useful. And so much time with data right now is just people trying to reconstruct context that they've sucked out of an SAP system. So now with SAP Datasphere, we have that context that we manage, we can keep that control, and then it can be set rendering across down to -- lots of places are centralized, but it keeps the context intact within our solution.

Said beautifully. I could not do it.