SAP SE (SAP) Earnings Call Transcript & Summary

Okay. Good morning, everybody. My name is Adam Wood. I look after Software Research in Europe for Morgan Stanley. It's a great pleasure to have Dominik Asam with us this morning, the CFO of SAP. Dominik, thank you very much for joining us in Barcelona.

No, thanks for having me here.

It's a pleasure. So let me get the safe harbor statement out of the way. So during this fireside chat, SAP will 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 SAP's filings with the Securities and Exchange Commission. including, but not limited, to the risk factors of SAP's 2024 annual report on Form 20-F.

So with that out of the way, let's maybe look back a little bit over 2025 and there's been -- I would say there's been good and less good elements. So there was a strong start in the first quarter despite the tariff disruption. And then I think you gave a pretty confident message at Sapphire back in May. I think then in Q2, we saw some real impact from tariffs, maybe also in Q3, but to a lesser extent. And so there was a more cautious message like in September. Q3, though, there was a much more confident message from SAP. Could you talk a little bit about framing the year from your point of view? What changed in October with the third quarter and fourth quarter data?

Yes. And if you go back, to the beginning of the year on the forward looking CCB growth, there was a debate about where should we end the year and we never give a precise guidance, but we said that CCB growth should be slightly down at the end of this year, part of which was the effect of the WalkMe acquisition, where the prior year's comparable would come in Q3. And you've seen that effect also in our numbers. So that was the planning hypothesis. And I say that's still reasonably intact at this point in time. Now where we have seen the variance to our initial thinking was that some deals we wanted to close end of June, we're actually slipping over the turn and the issue is, of course, when you have slippage at that point in time. You are suddenly confronted with the summer period, which is a little bit slower. So many of these are actually then slipping towards the end of Q3, September. And that's exactly what happened. We hoped it wouldn't, but it did happen. And the impact on that on the CCB growth end of the year is, of course, not very dramatic or not there at all, but on Cloud revenue growth, if you -- sorry, on Cloud revenue growth, yes, in 2025, if you're not closing a deal by end of June, where we would still have 4 months of effective revenues from that signature and you're slipping into end of September, you're suddenly down to one month. So on that kind of portion of shift, you do lose a lot of Cloud revenues. And when I say a lot, what I talk about is saying that rather than hitting the midpoint of the cloud revenues, we are more gravitating towards the low end of it, which is 0.7% variance. So it's not that we talk about huge numbers here. But the CCB growth is still what is important basis to jump off for next year. We always say there's probably around about 1 percentage point of attrition from transaction revenues and some other effects, but the lion's share of the growth for next year is, of course, embarked already in the CCB growth and on that one, we continue to stick to what we said at the outset of the year that we are seeing probably like kind of slightly down, including that effect from WalkMe and there's a little bit beyond that. But that's how I want to frame the discussion. And now in terms of very tangible outcomes, while in Q2, we've really seen some slippage. In Q3, it was more that it was a back-end loaded quarter, but we did have a very good closing. You've seen it in a very strong CCB growth where the only effect actually in terms of sequential decline was the M&A stuff, and the underlying was actually 0, which is super good. Now we have to see how Q4 shapes along and Q4 has a lot of material what makes it a little bit harder to predict this time around is that within that kind of pipeline, there are some extremely large transactions, which might kind of meander around the turn. If we can close them this year, it can boost the CCB growth if they are slipping into next year, while it doesn't have necessarily a huge impact on Cloud revenue growth, it does have an impact on CCP growth. So that's the overall situation. And then there's very specific stuff like our Institutional Business in the United States. We have not huge, but it's meaningful enough to move a little bit the needle as was kind of frozen in the first half. And now you've seen that we have signed a deal with the IDIQ deal, which is a framework agreement for procuring up to EUR 1 billion of TCV, and we've already filled that with life with one contract with the U.S. Army. And that's good for that specific customer, but is also a strong signal that we can share with other customers about the confidence of the U.S. government and our solutions even in these times where maybe a German vendor in the United States would be regarded a little more critically. But I think it shows that how strong the product offering is that we, as a foreign vendor, are still considered as a prime vendor here by the U.S. government.

So we look into the fourth quarter because you've even talked about some deals from '26 coming potentially into Q4 from a pipeline point of view, very relaxed, but it's about the execution now of closing it.

I think it's more about the kind of lack of predictability. Of course, when you have seen that slippage, you get a little bit less confident and you say, do I need to extrapolate that slippage also a little bit longer. Now when you see it's getting a little bit more robust, then frankly, you have a little bit more confidence that we can kind of close it towards the end of the year. So that's what we mean about kind of the meandering around the turn of the year, which is always hard to predict. But our sales force is highly incentivized to make sure as much comes in as possible in Q4. But that doesn't mean that then the pipeline was depleted. We always found a strong pipeline and also entering the new year, but we have a strong seasonality that's very well known. Despite the cloudware you'd think that theoretically, it shouldn't be as seasonal as license sales, but it's still a bad habit that has been continued in the cloud era versus the software era.

And if we say looking back for a second that, that slippage from the second quarter, you've obviously made a lot of changes from a restructuring point of view. Changes in go-to-market? Are you very comfortable that, that was a kind of tariff volatility disruption issue and not because of changes in your go to market?

Look, it's hard to really isolate these things. Of course, it doesn't make your life easier when you're transforming things, but also the alternative. I mean there are so many ways to sell these solutions in a better way. And AI is also playing a role there. So I was just over the last couple of days going through all these transformation projects. And when you are transforming the company, it's always a little bit more turbulent and then maybe employees are a little bit less confident. So I couldn't completely rule it out, but what's the alternative. We are pretty sure that everything we do here is ultimately giving us more performance. So even if there was a little bit of a headwind, it's very worthwhile I'm kind of sustaining that or working against that because really the only constant is change, and we review every function of the company. What we try to do a lot is because we are a large corporation ourselves, is to drive AI within our own shop, that's the best way to invite customers and say let's do some tire kicking you come trust, we show you what we do. And given that we have already a pretty clean tech stack in comparison to our customers, they tend to be quite impressed by what we can do already. And then that is another -- and then we say cloud. I mean, if you want this, yes, yes the RISE or the GROW journey you have to embark on to make your own operations more efficient. So this transformation, I always use proverb of Shakespeare actually, too much care kills the cat. So you have to take these risks these days because if the cat is waiting for too long, the mouse is going away or is eaten by the other mouse -- other cat. So we don't think we have a choice. We have to tackle everything that's not working properly, everything that is not fully optimized yet and this is spinning the flywheel. And yes, when you do that, there is a disruption in the system, but I don't see that as something. There has to be new normal. For us and our customers is the same with AI, nothing will stay as it is.

So obviously, you alluded to it, there's a very lively discussion on where your CCB ends the year. I want to bring Gen AI into the discussion. If we ask Joule, what would Joule tell us that the CCB is at the end of the fourth quarter? .

That's a trick question. Joule will probably say, I'm not allowed to tell you exactly.

It's very intelligent Gen AI.

We have relevant, reliable and responsible AI and responsible means the compliance rules would need to be respected. So if tool is properly trained, it would not volunteer a number, it would regret later. So it would be a very smart agent, of course, and a reliable agent. And the truth is, if you have these big white elephant deals, some of them can move the needle, right? And that's why it's a little bit -- the good news is the Cloud revenue growth next year, in case you work to close something in January, it's not a huge impact yet. It's only an impact as we've seen when the slippage is longer, like we've seen now in the summer period. But that slippage -- I mean think about U.S. government. That was just -- it was just there were some negotiations around this IDIQ, which took a long time. And in a normal environment, that negotiation wouldn't even exist. And by the way, I think they do it with job there because they're really consolidating demand, they bring them procurement rigor into things. And so I understand I'm not criticizing them. They do exactly what I would do, if I run such a complex procurement organization. And then think about these manufacturers where all the supply chains are getting s****** up. I mean that they are not having 100% of their bandwidth now on the next digital transformation, but are just firefighting and figuring out. I mean, do I now launch a factory in another place because U.S. is getting more difficult with tariffs and so forth, that's a lot of the distraction. So I'm actually -- if I then see that, that we are still hitting our Cloud revenue band guidance. I mean I'm not too worried honestly.

If we move from the backlog on to the revenue growth, I think your -- the low end of your guide as you've talked about for Cloud revenue implies maybe around 24% for the fourth quarter. I think there's a little bit of nervousness with investors that for next year, again, on our math, you pre need around 24% to be guaranteed of the acceleration in top line. Could you just help us why you're comfortable with potentially ending the year there, but then keeping that revenue through...

Any single quarter in Cloud revenues can have some noise in it, for instance, it's also true by the maintenance. By the way, the year-on-year growth numbers if you had some special effects in the prior years, if you think of Q4 last year, one special effect I remember, and I think we communicated that back then, was that we had one relatively sizable customer that came out of financial distress where we didn't book the revenues for a while because even when you're paid because of the financial distressed situation, we have a very conservative way of looking at that and say, the insolvency administrator might say, that money was not properly given to SAP, and then there was a big refinancing package so we could get some catch-up on the revenues, and that gave us a little bit of a boost. And that is now, of course, making our commerce more difficult for Q4. So I would always encourage you to look at the more kind of 12-month sliding averages and the CCB growth in some way is such a sliding average because it integrates the layers of bookings. So I'd say the CCB growth is the more meaningful number to jump off. And then we should see a very, very roughly 1 percentage point or so from transactional dilution and -- so don't -- there are some quarters which are strong on Cloud revenues, there's a little bit of noise around the trend line. So -- the most important number I would look at is really CCB growth exiting...

That's really helpful, thanks Dominik. We've called SAP the cloud conversion engine. One of the really important inputs that goes into the calculations there is how much of the base has moved. I think when we were speaking last year, if I did the maths around what you were saying, I was getting maybe as low as 15% of the base by value has fully shifted. But then we've heard numbers around 30%, 40% are on the journey. Could you just help us a little bit with how much of the base is moving and deadlines.

I mean the way I look at it is that I look at the maintenance base we have. And then I look at who of these customers in our maintenance base are already on the rise and paying already some form of cloud revenues. So these are basically the customers on the journey. Well, I don't see that anymore is the people who have already completely migrated. But honestly, that's not a huge amount yet because many of the customers have long journeys, especially the large enterprises, which are more meaningful in our revenue mix, and that number, so that kind of hybrid number is about 40% right now of the maintenance in ERP. So you see the full maintenance base you strip out what is a high triple-digit million for some other stuff, which is not ERP-related, so there's about EUR 10 billion of ERP maintenance and roughly 40% of that is already on the RISE journey. The remain to do of that is 60%. The good news is that if you look at the software maintenance numbers, and you then say who of these guys is already subscribed to S/4, it's the lion's share of them. So this is why our confidence that these guys will ultimately end up in our shop is high because they have already chosen SAP as the future vendor with S/4. And so the remain to do is actually very significant. And you're right that, that kind of 40% of hybrid customers, they have not fully materialized their revenue opportunity in cloud yet. This is why we probably come to this 15% plus whatever. So -- but it's, of course, the share is increasing, but the remain to do is still very significant. Now if you think about that EUR 10 billion maintenance base -- maintenance revenue base in '25 roundabouts, in ERP, you can say that more than half of that is ECC and older technologies. And there will be not so many people who go into kind of customer-specific maintenance because it's quite expensive. So we have to assume that, that half will be pretty much done. So you have to assume that there's a slight deceleration of the decline in maintenance revenues, but that's also good for the conversion story because these then will be converted in 2 to 3x in that kind of ballpark, and then put us on the journey to be able to cross and upsell that and of new cloud customer base from the installed base. So there's a lot of gas in the tank as we say, for the conversion story. But also I want to emphasize that we've spent quite some time in Sapphire to highlight net new opportunity in growth and then upsell and the cross-sell. And we have a going as far as saying that kind of 2 to 3x can actually double over a, say, a 5-year migration period because we are driving the suite. We are driving the upsell from new functionality and the best of suite approach. And then, yes, we bring AI to bear and either we monetize it directly with tokens or we gradually increase prices to reflect the higher value added of the software. So all these things are then kind of boosting that initial move to the cloud to something more meaningful over time. And I can see that in the numbers every day. So my confidence in that story is very high. So it's not a one trick wonder. We have several aces up our sleeves. I will say these 3 really new opportunities, we have very little revenues to start with, but it can become very meaningful. It's the AI story, it's the whole data story where it's not only BDC with Databricks now. It's also a Snowflake now. It's with BigQuery. You can monetize that kind of data platform. And then there is the move to tackle a smaller customers. And I have a high confidence that each of these opportunity in isolation would give us EUR 1 billion plus revenue pie and now when exactly that kind of EUR 1 billion plus can be crossed on each of them, not 100% clear yet, but it will happen within a 5-year forecast planning horizon. So if you add that EUR 3 billion incremental revenue minimum and then you compare that to whatever revenue base we will have at that point in time. And you see it's actually a very sizable increment in terms of revenues, which then can kind of take the relay so to speak, when the cloud migration story in 2030 is maybe kind of going down and is constrained to then only the S/4 conversions. We still have then the S/4 customers being converted. And also there, we try to convert them as quickly as possible because any S/4 customer on-prem cannot use our AI. And so the gap -- and by the way, it's also interesting for the migration story, when I -- it's very important. It's -- with AI, it's getting so different that before you could tell the customer, well, I go the first step as for on-prem, and then I go on cloud and then I do all the AI stuff. That is getting more difficult now. Why? Because the AI makes the process in the cloud even more different. So that the blueprinting of the processes is already different. So there's a significant incremental cost to do the detour of on-prem to the cloud. And so most of the customers are now moving straight from ECC to S/4 cloud and not go over the kind of on-prem detour.

That brings me really nicely into the next question. I mean when we speak to partners and to customers, the feedback we get is we love the vision, and we love the Gen AI that is not the problem. The problem is we're on an ECC heavily modified system and the journey is challenging. Can you talk a little bit about what you're doing to try to make that journey easier for the customers?

I mean it's true that the product shift to S/4 is a pretty radical shift. So basically, it's a new process. They want everything. It means you have to reinvent the company, so to speak. And -- but it's also a big opportunity to get the complexity out of the system and reap significant benefits. But it's more complicated journey. The lift and shift to the cloud is not the big issue actually. So that is something people have to do. It's like any platform investment is -- when the base in your house needs to be renovated, that's painful, it's hard to do, but you have to do it sooner later. And then the question is, is there a better solution for them so they would run away from SAP. And luckily, as I said, most of these guys have already subscribed to S/4, but it is a journey. Now there are, of course, new tools, which make the journey less risky, cheaper, and that's all about AI in the transformation journey. So if you have to refactor old ABAP CO to ABAP Cloud to do your extensions in a clean core compliant way, you can automate that to a large degree today. There is this tool for consultant tool where basically all the experience of the best consultants on the planet is at the fingertip of every consultant use it. I think we have recently announced that Deloitte is also now subscribing to it. That is our business transformation suite. You recall that these M&A projects were all in that area. It's about making the process analysis very surgical, facts and figures driven and really measuring the performance of the process today versus what the target stage is and how much money you can save if you go down that journey, it's about the complication of identifying submarine software in the company, doing the enterprise architecture management and seeing what solutions are out there. And then it's the adoption. I mean, we are all creatures of habit. We find it hard to change tools and change the way we work. and WalkMe is a perfect tool to do that. By the way, LeanIX is really a blockbuster. We have quintupled customer count last year on that product. CIOs love it because it's like a radar you put on your enterprise architecture, and you can see everything that's happening. So if somebody builds a small AI bot suddenly, you will find it. And then you can figure out, can we use it elsewhere? Or should I beat it because it's a dangerous thing that is easy to attack or whatever is not compliant with our security requirements. So we have [ venture ] to say by far the most powerful tool suite to do exactly what you say, to drive down the cost of these journeys and to also reduce the risk that the outcome will not be exactly what customers think. And it's super important because we still have a lot of wounds from some SIs having worked on projects and something went wrong and then -- of course, the reputational damage is not necessarily with the SI, but is in many cases with us. So it's super important to make it safer, so to speak, and more predictable.

Can we talk about cloud multipliers again. You've talked about the support to subscription journey being a 2 to 3x multiplier. Maybe first of all, why are we at the low end? What gets us to the high end? And then at Sapphire, Christian talked about even 4 to 5x. How do we go from 2 to 3 to 4 to 5.

Yes. I mean the question is really on the initial signature of the deal. To what degree are we already able to convince customers to embark more content than just the bare minimum of S/4 into that journey. So are they also adding already a procurement solution there or some consolidation software on finance and that drives that kind of 2 to 3x. Now the upsell is really -- we had a nice slide in Sapphire where we show the different sources for that kind of doubling on top of that. It's simply the growth. I mean, contrary to what some people think it's not that the prime driver of our growth of metering is like the seats. It's of time also just stuff like revenues, which are growing. And then is, of course, the cross-sell to add more applications, and we are very aggressive commercially to say, look, guys, if you consolidate more on our platform, you can do that. Then there is the value add with AI, which is coming in. And then also when you move from the old version of SAP to the new version, that new version has more functionality and the customer is also willing to pay more for that. So it's not a huge challenge to double that over, say, a 5-year horizon because if you break it down then in the kind of net renewal rate over these 5 years, if you compound that at a kind of reasonable rate, that's where you are. And yes, this is quite well secured. And is the other big pillar besides the pure conversion that has been giving us a nice uptick on growth in the cloud.

That's helpful. I think the other surprise for me at Sapphire was the scale of the net new business that you talked about, EUR 2 billion with cohort is growing at 20%. Could you just talk a little bit about what's changed in the mid-market from a product go-to market and the opportunity there?

I mean, it's all about the maturity and the go-to-market engine for a product that has not been really existing before, which is a product where you can start kind of if you want to spend EUR 40,000, EUR 50,000 per annum that's the entry ticket to buy GROW with SAP and then to make it easy to implement for young, growing companies or smaller companies and also build an indirect sales channel which was not our forte in the past, and that is still in the making. So I think the best is still to come on that front. So we only have these ducks in a row now. And now you see the inflection actually that now the public cloud is actually in terms of growth rates, gathering momentum and on the bookings, the growth is actually higher on the public cloud now than private. So it's really kicking into gear. One big advantage we enjoy with this tool is that we don't have like a small company solution anymore and a large company solution so we can go to customers and say, even if you are now a smaller tech company, you don't need to replatform because we can run from small companies like a Mistral AI or something like that, all the way to a giant company like Schneider Electric with manufacturing. And that was a huge development effort because we have basically matured and developed ECC over decades. And now we have to do a full kind of native -- and now it's about the maturity of the product, really one, two after the other is dropping that we can suddenly go for higher hanging fruit and have a more complex product that is also fulfilling the needs. And once you have that in that scalable multi-tenant deployment form, you can also get bolt-on small customers easily. So it was a start from scratch basically before we had a tiny different tool, but it was not the focus of SAP, now we have that, and it is a focus of SAP also the large customers. We want to mature this solution so high that with the Clean Core journey from RISE, over time, we can also migrate these people to GROW because that will then be the brave new world where all the upgrades we are doing with AI and new functionality are -- the customer doesn't even notice anymore that there's some work. We all do that for them. On the RISE journey, there's still some deployment work for upgrades, so they do it probably once a year. But on GROW, we can do it really quarterly, and that means we have the velocity of innovation, and we finally shed that impediment of showing our innovation to the customer later than others. And that's the flywheel we are really excited about.

So you've talked about a lot of the drivers, Cloud Perversion, Business Data Cloud, GROW. We've got a whole list. When we think about CCB growth in the midterm rather than just this year, could you help us -- how should we think about -- is it still a deceleration? How should we think about that momentum?

If you look at the PaaS and SaaS layers in our segments, I've seen some steps, and I think they're right from the research houses that SAP has been printing on latest 12 months like 29% U.S. dollar-based growth there. And our competitors -- the market is like mid to high teens in that bucket. So -- and yes, you can look at our direct competitors, Workday, Oracle on ERP and well, we're growing probably about twice as fast. So for the question boils down to how long Dominik do you think you can sustain kind of growing twice as fast as the market, and we have to be a little bit humble on that and say, look, at some point in time, the air will get thinner and you might gravitate more towards a normal X percent plus market than double. So I do see actually that this can gradually decelerate. But it's not a problem because we have that mix effect, which is propelling our total revenue growth I always do the math, no matter whether you look at '24 growth rates in each of these markets, cloud ERP suite, extension suites and the maintenance and the software and the lack of services. And you use the same growth rates for each of these buckets in '24 or first half '25. You can do the same conclusion that where we're able to sustain these growth rates for the next 3 years, we would see a 3 percentage point acceleration in total revenues every year. So it means I can actually afford quite some deceleration and still accelerate the top line. So I mean I'm not expecting compounding 3% growth for the next years that would bring us into high teens type of total revenue growth. And that's not in the cards to be very blunt. It's -- by the way, the overall market, if you look at the sum of software services and cloud is, of course, not at the growth rate either, it's much lower than that. So the truth is somewhere in the middle, and it's all about mitigating that slight decline to the lowest possible number. And -- so you have to continue to expect that kind of slight decline. We have been peaking. I mean, so far, it was an acceleration. I think indeed, we have been peaking now. But we have still a fuel in the tank from the conversion, which I mentioned. And this is why contrary to my habit of not giving long-term guidance, I'm willing to say that total revenue growth should accelerate in '26 and '27 every year. Now in January, we have to then see what we can say for '26 specifically and how much it will be. And I would also go one step further saying, look, there is no logical reason why they should suddenly be a cliff and something should end at that point in time. The fundamental drivers of the growth story are very intact. And yes, at the end of the decade, there might be a slower conversion story. But by then, these 3 new opportunities should have really, really meaningful size and can kind of more than offset, hopefully, that kind of conversion normalization, I'd say.

Maybe from top line on to profitability. You've talked about the aspiration to be a Rule of 40 company, being pretty hard on yourself by using a free cash flow margin. Could you talk a little bit around the levers you still have on profitability? And then what year would you expect to be a Rule of 40 company?

I'm a fundamentalist. And for me, discounted cash flow, the way I learned in the business school is still important. When I was walking over the hallways there, and I've seen 25 years long Stanley Conference, I was thinking back 25 years ago, that was 2000. At that point in time, people started to say cash flow doesn't matter too and then infrastructure was everything. And I was an investment banker at that point in time, and I was able to get more money out of an IPO of a fiber optics company than the enterprise value was 2 years later, fee is higher than the enterprise value 2 years later. So I'm confessing fundamentalists. I care about free cash flow and the growth thereof. And of course, we have to -- I also say that growth in our business is more important than just the margin. So I don't want to take mortgages on the future, but we have decided for us that we really want to shine on the past half layer. I gave you the market share gain numbers we had. Infrastructure, we will do selectively on the sovereign side, there is more and more customers who are nervous about a kill switch in the system, so they might not want to put their stuff in U.S. hyperscalers anymore, which is a pity because our U.S. hyperscaler partners have great products, and they are super cost competitive. So the fundamental model in terms of margin expansion and cash conversion should not change. So we are still seeing that 80% to 90% total expense growth versus the revenue growth we need to activate a lot of AI scenarios to really get there. The cash conversion, we will not change massively. There might be some opportunities to bring customers to the cloud that previously was stuck on-prem because of legal constraints. I mean look at Germany. We are just in the last innings of getting certification by the PSI to move defense customers to the cloud, stuff that we've done in the U.S. for 7, 8 years already. So that's where we are going to invest. And if there are other local partners that can do the infrastructure business for us at lower cost, we're happy to also embark them on our platform. So it's not our differentiator. So -- we think that from that perspective, while it's not the flavor of the month in certain stakeholder groups these days, we still continue to stick to our guns there and do what we have done in the past. Does that makes sense?

Absolutely. Would you give us a year or is that too much?

Year for...

Rule of 40.

No, no, no. Sorry, you were coming from the Rule of 40. So I was just spending time why the cash flow is so important to me and the growth of it. Look, I don't want to speculate on when exactly it's happening. I think we are on the right trajectory. I think you can do your own math with the kind of framework I gave you in terms of the margin expansion, the acceleration of the growth. I mean it's been about -- I mean, it's not so easy to hit it in '27 if you do the math. So -- but when exactly, we don't want to be more specific, but we should see '27 revenue growth higher than what we see in '26 and higher than what we see in '25. And the margin will expand within 80% to 90% rule and the cash conversion will be operating profit, non-IFRS operating profit, minus 30% tax, plus EUR 1 billion for stock-based comp, which is noncash. That's it. And then you can do...

We can build our model. Maybe if we -- the financials, it's amazing this year that we've had this kind of flick in August up until that point, it was all about how positive is Gen AI going to be for you? How do you monetize it? How do you get benefit internally to how disruptive is it going to be for your business? Could you talk a little bit about how you think about this? Is this more of an opportunity or more of a threat to SAP?

I think it's more of an opportunity. The reason being that if you think about what is really needed for AI, what are the key ingredients is good data, reliable, relevant data. And where is that data generated? Actually, sorry to say it's in the app. And then the question is, once you have used that data and turn it into insights, our app is not there to write a report. Our app is there to trigger transactions in companies. So you have to go back to the app. So the starting point is the app, the endpoint is the app. Now of course, there is a lot of data management and a lot of AI in between these days. But we have the full position that the endpoint and start end is in our system. And we have now created a flywheel ecosystem that fills the middle. We have embarked on our platform. Now data platforms, data engineering platforms like Databricks, like Snowflake, like BigQuery, which means there is a monetization opportunity for us when people start using these, the meter is spinning. And that is actually some incremental revenue, too, because before, frankly, for lack of alternatives, we didn't monetize it at all. If you think about software, on-prem software, you sell a software. So all the connectors are simply programmed by the customer. They just change the code and do the APIs they need, and we did some APIs ourselves. And as we didn't have a monetizable offering, we were allowing people to really make us a patient stupid data. And now we have a tool that at least we can monetize it. Now that's one thing. It's also a big benefit for the customer, not only because they use it, but also they can avoid SI costs because it's plug and play. So the money -- the waste we drive out by creating that preconfigured integration with these vendors can be shared between our customers and the 2 vendors who are integrating. So there is a value pool we can tap and then the meter is spinning. And on top of that, what many people forget is the initial idea of SAP was the guy, the founders, they looked over the shoulder of the customer, and were just seeing the same customers are doing the same thing. So why don't we do a standard software for that. We were limited in that approach in the past to our own data in the SAP system. Now with BDC and the other things we have the connector to the unstructured data. I always bring the example of a bottling company. You need weather forecast, which is not in the SAP system for that. Now you can still speculate should every bottling company on the planet to its own kind of forecasting software to decide how much bottles they need to order and when stuff needs to be where? Or is there an off-the-shelf SAP up, which does that. And we see that a lot of customers would like to just activate something that's out of the box because there's always risks when you hold yourselves there's uncertainty about cost, there's uncertainty whether it works. So the fundamental story of SAP simply looking over the shoulder of the customer and trying to do it better than what they could do on their own and using the economies of scale that's fully intact. So -- and we have 25 years of domain expertise in these 25 -- sorry, 50-plus years in 25 verticals we are catering to. We have that functional expertise in accounting, in controlling, in procurement, in travel. And that's the unfair advantage we can use on top of this platform. Let's assume this platform were to some degree, democratized. It's actually not because there are still some features we keep to ourselves like the Rapid One foundation model or the knowledge graph that is really proprietary to SAP to build even better AI than others. But let's even assume that wouldn't exist and it's all democratized. I mean there is also a whole position to develop these apps, and we have the biggest customer base doing exactly that. So why should I have any inferiority complex that I'm not able to also be very strong in everything that's in between with everything we have today. So this is why it's more an opportunity to come back to your initial question than a threat, but it's also true, we have to be very quick on our feet. So it's all about speed, execution. And that's what currently is our key concern to make sure that we are really rapidly grabbing these opportunities. And this is also, while some don't like it, we employ a lot of people very rapidly. We have some shed about 10,000 people last year. You've seen that the headcount is going up. So we've higher more than that again. But these are exactly the new skills we need to win that rate. And I do believe we have an edge on the recruiting there. Why? Because these people -- the people who are interested for enterprise applications. They can either work of some of these generic platform providers, which have very little clue about what's happening in the customer or they can work at specialized start-ups, which are currently eaten alive. So if you would build a small niche-y SaaS index, in the NASDAQ, you would see that performance is not very great. And these people have a lot of stock-based compensation. And this is also the reason why we didn't acquire any of them because already 5 years back, we said you are too expensive and then we reconvene 3 years later, and we say you're too expensive. And that was at half price compared to 2 years ago. So the niche-y guys are under pressure. And then the other opportunity is you do the own development in a company. But if you are developing that stuff in one enterprise, you're doing it from one enterprise. If you joined SAP, that's the pitch to the people who join SAP, think about you're doing a super thing for procurement and you don't do it from one customer. You do it for tens of thousands of customers. Is that much more interesting. So we are pretty strong. And I'd say one of our advantages vis-a-vis our customers is that we probably find it easier to hire because also some of the industries of our customers are under pressure, and we're still a nice house in a nice neighborhood in digital, where there's also some opportunity on stock-based compensation for these people. It's not always going through the roof, of course, but over the cycles, SAP has been a decent story there. So I think we are well positioned. But of course, it has to ultimately be executed, and that's the key focus. So the good news is in our hands, not that we need some magical things from outside to have.

And if we think about the Dual Copilots and the Dual Agents that you're putting in, could you maybe just talk a little bit about the functionality that you're delivering to customers and maybe also the monetization path there?

Yes. I mean you take my specialty, which is, of course, finance and the adjacent functionalities like procurement and so forth, we are also in charge of SAP to do that. Every customer, including ourselves, is currently building these agents to get stuff done on consolidation. I mean, very tedious work where -- I'll give you another easy example, cash collection. If you compare our accounts receivable days outstanding, you will figure out they are too long in comparison to our competitors. And there are some things you can change about that and the AI is a good example. I mean you can done people to death with AI. You basically if you are fighting against the bot, customers tend to have always good excuses why they don't pay. And one classical one is I can't recognize the invoice because the purchase order I have is a different one. And I investigated that as an example, as an agent and said, why do we have these many wrong purchase orders? The truth is when we sign a contract, these contracts are complex. They have hundreds of pages, and then customer puts in a purchase order and they make -- almost every purchase order has some mistake. And when we receive the purchase order from a customer, we don't even look at it today or we did not even look at it to date. Why? Because think about this tedious work who wants to kind of screen the contract and compare it to the purchase order hundreds of pages, no human being in the shared service center will do it, and they don't have to. Why? Because it's not a transaction. That's the kind of just FYI document, and we don't do anything with FYI documents. Now I can build that bot that's doing nothing but comparing literally millions of these purchase orders against the initial contract. And the second we get our own purchase order, sending it back to the customer. And then when I send the invoice next time, I have no dispute. And if I get EUR 100 million, EUR 200 million, EUR 300 million out of this because I can accelerate the DSO and you apply the cost of capital of that, that's a much higher amount of money, I can save. So I can give you -- I just yesterday was presenting to my colleagues the myriad of agents, we are now activating over the next 3 years at SAP, and the way we do it is we do that in our own shop, we then bring customers to us and look at it and say, look, this is what we do. And this is part of the story where we can decouple the total expenses on the top line despite the fact that most of our expenses are personnel expenses, which are inflated every year by merit hikes. So it's very broad, and we should make a big effort at Sapphire to show you more of these things. So please, everyone is cordially invited to join us there. But it's really in the making, and we are at that kind of tipping point where it's coming from PowerPoint to real products and where then with the forward deployed engineering, which we do not only with customers, but also with our own groups internally, we are debugging these things all the time and make them better and better. And this is how we then commit to very heavy productivity goals. I mean you think about finance, we are growing the top line more than 10%. We are going down market with smaller customers. We have a regulatory thing. Yesterday, you have seen the EU has ruled Omnibus, but big customers are not affected. So we have to do all the regulatory burden of the EU. Basically, you said. We understand it's kind of bureaucratic monster. This is why we give relief to small customers, but the big ones, they don't care, they can pay it anyhow. So there's a regulatory onslaught. So I would say our workload in my department is probably increasing high teens every year. And I want to keep the cost. So I need massive productivity gains. And this is -- in other industries, it's a different problem there. The margin is eroding. The top line is stalling and they need to drive productivity.

That's amazing that you can use your company as a showcase to customer...

Of course. We've done that also with the standardization S/4 before and they came to our shared service center in Prague, and this is -- this tire kicking is super important for customers to get confidence.

Can I ask you maybe just finish off on capital allocation. There's been some speculation about bigger M&A deals for SAP. Could you just talk a little bit about what the strategy is on the M&A side?

I mean the fact is that we have not done much except for the transformation suite. And we did SmartRecruiters, which is an application there. The topic was then honestly, it's one of the rare cases where our own organic investment was not very successful, where basically, for whatever reasons, we had a lot of people, had a lot of money for something and there was little output. So we had to plug that tiny hole on recruiting, by buying that application and really making sure that our customers get the best of breed and everything on HR. But that should stay the exception. I'd much rather develop stuff ourselves internally as long as we can. And with the new tools, I think it's even harder to argue to pay a lofty price for these niche-y applications is also we can develop faster, not only our customers, we can use these copilots or tool for consultants, tool for developer, or we can also use GitHub Copilot or Cursor cursor to quote fast. And the truth on the larger applications, and you have seen some rumors, I know exactly what you're alluding to, I want to put it in a very generic way. And I alluded to it before, these SaaS specialized vendors, they have not been performing so well over the last years. And maybe 3, 4 years back, we would have been even more motivated to talk to them. And we did talk to most of them that are relevant for us because it's actually a great story to embark them in SAP, to drive the synergies in the go-to-market, to take some overhead out. It's a pretty easy game for us. Now the problem is there was always a bit ask spread because there -- the sell side wanted to have more money than what we were willing to offer. And my philosophy is I compare it to buying our own shares back. You talked about capital allocation. And I know my plan pretty well, and I have a high degree of confidence around it, whereas M&A is a little bit a cat in the back. So why not just kind of repurchasing my own shares rather than doing M&A, if I don't need to do it. And the good news is if -- we had then reengaged a couple of years, 3 years later with many of them, and it's still the same problem. They think -- they always think next year everything will be better. And we think no, this will be a death by 1,000 customer. It will be worth less and less. And this is why the gap is always the same. And this is why you have not seen us doing big transactions.

Perfect. We're bumping up against time, I've got lots more to go through, but really appreciate Dominik, thank you for joining us.

Thanks for your interest.