Q4 2023 SAP SE Earnings Call

January 24, 2024

Ladies and gentlemen, thank you for standing by.

Ladies and gentlemen, thank you for standing by welcome and thank you for joining the S&P's fourth quarter and full year 2023 results.

Welcome and thank you for joining the SAP's fourth quarter and full year 2023 results.

Throughout today's recorded presentation, all participants will be in the listening.

Today's recorded presentation, all participants will be in the listen only mode.

The presentation will be followed by a question and answer.

The presentation will be followed by a question answer session.

If you would like to ask a question.

If you would like to ask a question you May press cash followed by one on your Touchtone telephone.

Press hash followed by 1 on your right.

I would now like to turn the conference over to Anthony Colletta, Chief Investor Relay.

I would now like to turn the conference over to Anthony Colletta, Chief Investor Relations Officer. Please go ahead.

Anthony Colletta: Please go ahead.

Anthony Colletta: Good morning, everyone and thank you for joining us today to discuss our Q4 and full year results for 2023.

Anthony Colletta: Good morning everyone and thank you for joining us today to discuss our Q4 and full year results for 2023.

Anthony Colletta: We also provide color on our 2020 for outlook in 2025 ambition.

Anthony Colletta: We also provide color about our 2024 outlook and 2025 ambitions.

Anthony Colletta: With me on this call our CEO Christian Klein CFO Dominik.

Anthony Colletta: With me on this call are CEO Christian Klein, CFO Dominique Azam, and Scott Russell, with its customer success.

Anthony Colletta: And Scott Russell will each customer success.

Anthony Colletta: You can find the deck implementing this call as well as our quarterly statement on our Investor Relations website. During this call. We'll make forward looking statements, which are predictions projections or other statements about future events.

Anthony Colletta: You can find the deck supplementing this call as well as our quarterly statement on our investor relations website. During this call, we'll make forward-looking statements which are predictions, projections, or other statements about future events.

Anthony Colletta: These statements are based on current expectations and assumptions.

Anthony Colletta: These statements are based on current expectations and assumptions that are subject to risk and uncertainties that could cause actual results and outcomes to materially differ.

Anthony Colletta: Object to risk and uncertainties that could cause actual results and outcomes to materially differ.

Anthony Colletta: 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 factors section of SAP's annual report on Form 20F for 2022.

Anthony Colletta: Additional information regarding these risks and uncertainties maybe found in our filings with the Securities and Exchange Commission, including but not limited to the risk factors section of <unk> annual report on form 20-F for 2022.

Anthony Colletta: Unless otherwise stated all numbers on this call on non <unk> and growth rates and percentage point changes are non air France, yes at constant currencies.

Anthony Colletta: Unless as always stated, all numbers on this call are non-FRS and growth rates and percentage point changes are non-FRS, you have a year at custom currency.

Anthony Colletta: The non-IFRS financial measures we provide should not be considered as a substitute for or superior to the measures of financial purposes prepared in accordance with IFRS.

Anthony Colletta: The non <unk> financial measures, we provide should not be considered as a substitute for or superior to the measures of financial position compared in accordance with our price.

Anthony Colletta: As a reminder, on December 18, 2023, SAP provided important updates regarding its reporting.

Anthony Colletta: As a reminder, on December 18, 2023, S&P provided important updates regarding each reporting.

Anthony Colletta: These changes are detailed in the presentation on our website and will be reflected starting from QA 2024 onwards.

Anthony Colletta: These changes are detailed in the presentation on our website and will be reflected starting from Q1 2024 onwards.

Anthony Colletta: I would also like to take the opportunity to call your attention to our upcoming financial Analyst Conference, which will take place on June 5th as part of our Sapphire event in Orlando, Florida.

Anthony Colletta: I would also like to take the opportunity to call your attention to our upcoming financial analysis conference, which will take place on June 5th as part of our SAFIRE event in Orlando, Florida.

Anthony Colletta: This will be podcast on our website.

Anthony Colletta: It will be broadcast on our website.

Anthony Colletta: And as we have much to cover today, let I mean without further Ado Christian please over to you.

Anthony Colletta: And as we have much to cover today, let's dive in without further ado. Christian, please over to you.

Christian Klein: Thank you Anthony and thank you to everyone on the line.

Christian Klein: Thank you, Anthony. And thank you to everyone on the line for joining our call today. Welcome to 2024.

Christian Klein: Our call today welcome to 'twenty to 'twenty four.

Christian Klein: 2023 was a great year for CP, we met or exceeded our outlook in all key metrics.

Christian Klein: 2023 was a great year for SAP. We met or exceeded our outlook in all key metrics.

Christian Klein: This clearly underlines that the transformation journey we started three years ago has now reached a new level.

Christian Klein: This clearly underlines that the transformation journey, we started three years ago has now reached a new level.

Christian Klein: With significant business momentum, including in Q4, SCP is stronger and more <unk> than ever as we enter the era of business AI.

Christian Klein: With significant business momentum, including in Q4, SAP is stronger and more relevant than ever as we enter the era of business AI.

Christian Klein: At the same time, the tech industry is moving fast.

Christian Klein: At the same time the tech industry is moving fast.

Christian Klein: We need to keep leading the way as a top enterprise application company and further advance to become the number one business AI company as well.

Christian Klein: We need to keep leading the way at the top enterprise application company and further advance to become the number one business AI company as well.

Christian Klein: This is why, out of a very strong position, we are now accelerating the development of the company with the clear goal to grasp the opportunities of Gen AI.

This is why I would offer very strong position. We are now accelerating the development of the company with a clear goal to craft the opportunities of churn AI.

Christian Klein: This morning, we are sharing a major set of updates first we are announcing our plans to implement a new transformation program.

Christian Klein: This morning we are sharing a major set of updates.

Christian Klein: First, we are announcing our plans to implement a new transformation program. With this program, we are planning to intensify the shift of investments to strategic growth areas, above all business AI, and to drive new efficiencies powered by AI across the business.

Christian Klein: This program, we are planning to intensify the shift of investments to strategic growth areas.

Christian Klein: All business AI and to drive new efficiencies power powered by AI across the business.

Christian Klein: Second, we are sharing our outlook for 2024, including anticipated strong growth in cloud revenue and non-IFRS operating profits.

Christian Klein: Second we are sharing our outlook for 2024, including anticipated strong cause in cloud revenue and non <unk> operating profit.

Christian Klein: Third, we are providing an update on our 2025 ambition that now includes the financial effects of our new transformation program, resulting in an increase of our profit and free cash flow guidance. Let's start by looking at the results for Q4 and the full year.

Operator: Ladies and gentlemen, thank you for standing by.

Christian Klein: We are providing an update on our 2025 ambition that now includes the financial effects of our new transformation, Paul Quinn with solving and an increase of our profit and free cash flow guidance, let's start by looking at these results for Q4 and the full year.

Operator: Welcome and thank you for joining SAP's fourth quarter and full year 2023 results. Throughout today's recorded presentation, all participants will be in the listening position. The presentation will be followed by a question and answer session.

Christian Klein: Q4 provided an exceptionally strong finish to 2023, most importantly in terms of cloud momentum.

Operator: If you would like to ask a question,

Christian Klein: Q4 provided an exceptionally strong finish to 2023, most importantly in terms of cloud momentum.

Operator: Press the hash mark followed by 1 on your right. I would now like to turn the conference over to Anthony Colletta, Chief Investor Relay.

Christian Klein: Cowen cloud backlog increased by a strong 27%.

Christian Klein: Current cloud backlog increased by a strong 27 percent.

Anthony Colletta: Please go ahead.

Anthony Colletta: Good morning everyone, and thank you for joining us today to discuss our Q4 and full year results for 2023.

Christian Klein: That's higher quality than ever before and cloud revenue growth accelerated to 25%.

Christian Klein: That's higher growth than ever before and cloud revenue growth accelerated to 25%.

Anthony Colletta: We also provide color about our 2024 outlook and 2025 ambitions. With me on this call are CEO Christian Klein, CFO Dominique Azam, and Scott Russell, with customer success. You can find the deck accompanying this call as well as our quarterly statement on our investor relations website. During this call, we'll make forward-looking statements, which are predictions, projections, or other statements about future events.

Christian Klein: This great success was powered by strong customer momentum. To name just three examples, Vodafone is betting on rides with SAP.

Christian Klein: This creates success was powered by strong customer momentum.

Christian Klein: To name just three examples.

Christian Klein: <unk> is betting on wise with S&P.

Christian Klein: They have selected Signavio for their business process management, as well as BTP, DataSphere, and Business AI from SAP. This will help Vodafone to boost innovation and drive productivity.

Christian Klein: Have selected sitting RVO for that business process management, as well as PTP data fear and business AI format.

Christian Klein: This will how broad a phone to boost innovation and drive productivity.

Christian Klein: EMS, a leader in the Brazilian pharma market, is migrating its Oracle platform to rise with SAP. The company is looking to modernize operations, enhance scalability, and drive cost predictability for future growth.

Christian Klein: <unk> elite.

Christian Klein: A leader in the Brazilian farmer market is migrating its <unk> platform <unk> with S&P. The company is looking to modernize operations enhance scalability and drive cost predictability for future quotes.

Anthony Colletta: These statements are based on current expectations and assumptions that are subject to risk 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 factors section of SAP's annual report on Form 20F for 2022. Unless, as always stated, all numbers on this call are non-FRS, and growth rates and percentage point changes are non-FRS; you have a year at custom currency. The non-IFRS financial measures we provide should not be considered as a substitute for or superior to the measures for financial purposes prepared in accordance with IFRS.

Christian Klein: Volkswagen has been implementing the first large-scale cloud project in their human resources function based on SAP success factors.

Christian Klein: <unk> has been implementing the first large scale cloud project in the human resources function based on Sap's Successfactors.

They will now also use successfactors to digitize, all essential HR processes and take the employee experience to the next level.

Christian Klein: They will now also use SuccessFactors to digitize all essential HR processes and take the employee HR experience to the next level.

Christian Klein: In addition to these impressive customer stories, there were further highlights in Q4.

Christian Klein: In addition to these impressive customer stories there were further highlights in Q4, we successfully completed the acquisition of <unk> IX and another Great addition to our business transformation portfolio.

Christian Klein: We successfully completed the acquisition of LeanIX, another great addition to our business transformation portfolio.

Anthony Colletta: As a reminder, on December 18, 2023, SAP provided important updates regarding its reporting. These changes are detailed in the presentation on our website and will be reflected starting from QA 2024 onwards. I would also like to take the opportunity to call your attention to our upcoming financial analysis conference, which will take place on June 5th as part of our SAFIRE event in Orlando, Florida. This will be a podcast on our website.

Christian Klein: SAP and NVIDIA are working together to bring advanced generative AI capabilities into WISE with SAP. Additionally, NVIDIA has selected WISE with SAP to make their supply chain more resilient and scale operations.

Christian Klein: S&P and in media are working together to bring advanced generated AI capabilities into wise with S&P. Additionally, and re Jr. Has selected Weiss with HCP to make the supply chain more resilient and scale operations.

Christian Klein: and SEP also made a strong showing at COP28.

Christian Klein: And S&P also made a strong showing at cop 28.

Christian Klein: SAP solutions enable more transparent ESG metrics, helping decision makers to take the right actions to accelerate sustainability.

Christian Klein: <unk> solutions enable more transparent ESG metrics, helping decision makers to take the wide actions to accelerate sustainability.

Anthony Colletta: And as we have much to cover today, let's dive in without further ado. Christian, please, over to you.

Christian Klein: For the full year, we met or exceeded all our Outlook APIs. Current cloud backlog grew 27% to €13.7 billion.

Christian Klein: For the full year, we met or exceeded all our outlook Kpis current cloud backlog grew 27% to 13 7 billion euros.

Christian Klein: Thank you, Anthony.

Christian Klein: And thank you to everyone on the line for joining our call today.

Christian Klein: Welcome to 2024. 2023 was a great year for SAP. We met or exceeded our outlook in all key metrics.

Christian Klein: Cloud revenue was up 23% to 13.7 billion euros.

Christian Klein: Cloud revenue was up 23% to 13 7 billion euros, our operating profit exceeded the guidance range by nearly 100 million euros.

Christian Klein: Our operating profit exceeded the guidance range by nearly 100 million euros.

Christian Klein: This clearly underlines that the transformation journey we started three years ago has now reached a new level. With significant business momentum, including in Q4, SAP is stronger and more relevant than ever as we enter the era of business AI. At the same time, the tech industry is moving fast. We need to keep leading the way as a top enterprise application company and further advance to become the number one business AI company as well. This is why, out of a very strong position, we are now accelerating the development of the company with the clear goal to grasp the opportunities of Gen AI. This morning, we are sharing a major set of updates. First, we are announcing our plans to implement a new transformation program.

Christian Klein: What is more?

Christian Klein: What is more <unk>.

Christian Klein: Total cloud backlog increased 39% to 44 billion euros, giving SAP incredible resilience for the years to come.

Total cloud backlog increased 39% to 44 billion euros, giving us incredible.

Christian Klein: Incredible resilience for the years to come.

I'd like to thank all S&P colleagues for these excellent results in a challenging environment.

Speaker Change: I'd like to thank all SAP colleagues for these excellent results in a challenging environment.

Speaker Change: We had promised to quickly turn SAP into a cloud company, a company with double-digit profit growth, and we can comfortably say we delivered.

Christian Klein: We had promised to quickly turn S&P into a cloud company a company with double digit profit quotes and we can comfortably say we delivered.

Speaker Change: SAP is stronger and more relevant than ever and the figures for 2023 clearly show that the transformation we have been driving for the past three years is now entering into a new phase.

Christian Klein: S&P is stronger and more relevant than ever and the figures for 2023, clearly show that the transformation we have been driving for the past three years is now entering into a new phase.

Speaker Change: Let me now turn to our outlook for 2024 and our 2025 ambitions.

Christian Klein: Let me now turn to our outlook for 2024, and our 2025 ambition.

Christian Klein: With this program, we are planning to intensify the shift of investments to strategic growth areas, above all business AI, and to drive new efficiencies powered by AI across the business. Second, we are sharing our outlook for 2024, including anticipated strong growth in cloud revenue and non-IFRS operating profits. Third, we are providing an update on our 2025 ambition that now includes the financial effects of our new transformation program, resulting in an increase in our profit and free cash flow guidance. Let's start by looking at the results for Q4 and the full year. Q4 provided an exceptionally strong finish to 2023, most importantly in terms of cloud momentum. Current cloud backlog increased by a strong 27 percent. That's higher growth than ever before, and cloud revenue growth accelerated to 25%.

Christian Klein: Starting with the top line, we are guiding 17% to $17 3 billion in cloud revenue for 2024 with an implied growth rate of 25, 5% at the midpoint. This anticipated close puts us well on track to hit our 2025 ambition.

Speaker Change: Starting with the top line.

Speaker Change: We are guiding 17 to 17.3 billion euros in cloud revenue for 2024 with an implied growth rate of 25.5 percent at the midpoint. This anticipated growth puts us well on track to hit our 2025 ambition of more than 21.5 billion.

Christian Klein: <unk> of more than $21 5 billion.

Speaker Change: Our growth formula is working and will continue to propel us through 2025 with total revenue growth expected to accelerate through 2027.

Our clothes formalized walking and will continue to propel us through 2025 with total revenue growth expected to accelerate through 2027.

Speaker Change: The ingredients are clear.

Christian Klein: The ingredients are clear.

Speaker Change: We lead with our Rise and Grow with SAP offerings. On Rise, we are signing up hundreds of net new customers every year. On top, we still have more than €11 billion of support revenue that we can convert to cloud revenue over the long term.

Christian Klein: We lead with our wives and quote with S&P offerings on wise, we are signing up hundreds of net new customers.

Christian Klein: Here on top we still have more than $11 billion of support revenue that we can convert to cloud revenue over the long term.

Speaker Change: We are rolling out targeted migration incentives and methodologies to accelerate device conversion.

Christian Klein: We are rolling out targeted migration incentives and methodologies to accelerate a wise conversion.

Speaker Change: At the same time, Quo is gearing up to be a big success with over 700 new customers signing up since our launch.

Christian Klein: At the same time <unk> is gearing up to be a big success with over 700, new customers signing up since our launch.

Christian Klein: This great success was powered by strong customer momentum. To name just three examples, Vodafone is betting on rides with SAP. They have selected Signavio for their business process management, as well as BTP, DataSphere, and Business AI from SAP. This will help Vodafone to boost innovation and drive productivity. EMS, a leader in the Brazilian pharma market, is migrating its Oracle platform to rise with SAP. The company is looking to modernize operations, enhance scalability, and drive cost predictability for future growth. Volkswagen has been implementing the first large-scale cloud project in their human resources function based on SAP SuccessFactors. They will now also use SuccessFactors to digitize all essential HR processes and take the employee HR experience to the next level. In addition to these impressive customer stories, there were further highlights in Q4.

With why isn't growth comes the business technology platform.

Speaker Change: With Rise and Grow becomes the business technology platform.

Speaker Change: BTP has become a central piece in the architecture of our customers.

Christian Klein: <unk> has become a central piece in the architecture of our customers.

Speaker Change: and our platform as a service solutions now stand at a revenue run rate of 2.5 billion euros with strong double-digit growth.

Christian Klein: And our platform as a service solutions now stand at a revenue run rate of two 5 billion euros with strong double digit growth.

Speaker Change: The flywheel is just starting to spin as more and more customers and partners move to a clean core on top of BTP.

Christian Klein: The flywheel is just starting to spin as more and more customers and partners move to a clean core on top of PTP.

Speaker Change: As customers advance on their rise and growth transformation journeys, we also see increasing levels of cross-sell based on the integrated suite.

Christian Klein: As customers advance on the advance on the why isn't quo transformation journeys, we also see increasing levels of cross sell based on the integrated suite.

Christian Klein: Our top 1000 customers are now on average using for SAP cloud solutions up from three last year.

Speaker Change: Our top 1,000 customers are now on average using four SAP Cloud solutions, up from three last year.

Christian Klein: For our top 100 customers, we add five solutions up from four in 2022.

Speaker Change: For our top 100 customers, we are at five solutions, up from four in 2022.

Speaker Change: Going forward, we will provide transparency on the increasing trends of our cloud ERP suite through our cloud ERP suite disclosure.

Christian Klein: Going forward, we will provide transparency on the increasing trends of our cloud ERP suite through our cloud ERP suite disclosure.

Speaker Change: And then there is business AI.

Christian Klein: And then there is business AI.

Speaker Change: Last week, I had the opportunity to meet with many global leaders and key customers and partners at the World Economic Forum in Davos.

Speaker Change: Last week I had the opportunity to meet with many global leaders and key customers and partners at the World Economic Forum in Davos.

Christian Klein: We successfully completed the acquisition of LeanIX, another great addition to our business transformation portfolio. SAP and NVIDIA are working together to bring advanced generative AI capabilities into WISE with SAP. Additionally, NVIDIA has selected WISE with SAP to make their supply chain more resilient and scale operations, and SEP also made a strong showing at COP28. SAP solutions enable more transparent ESG metrics, helping decision makers to take the right actions to accelerate sustainability. For the full year, we met or exceeded all our Outlook APIs. Current cloud backlog grew 27% to €13.7 billion.

Speaker Change: My conversations all circled around one topic.

Speaker Change: Generative AI is the greatest opportunity since the rise of the cloud, especially for SAP.

Speaker Change: China waiting for AI is created opportunity since the rise of the cloud, especially for S&P I.

Speaker Change: I also received very positive feedback on our plans and use cases for Business AI.

Speaker Change: <unk> also received very positive feedback on our plans and use cases for business AI.

Speaker Change: SAP will completely embed AI in our solutions. We will make it readily available for end users and connect it with all business processes.

Speaker Change: S&P will complete the embed AI in our solutions, we will make it weatherly available for end users and connected with all business processes.

Speaker Change: This will tremendously boost the capabilities of our solutions. It will also fundamentally change how users interact with our systems.

Speaker Change: This will tremendously boost the capabilities of our solutions. It will also fundamentally change how users interact with our system.

Speaker Change: To reflect the central importance of AI for our future, we have updated our ambition to be the number one enterprise application and business AI company.

Speaker Change: To reflect the central importance of AI for our future we have updated our ambition to be the number one enterprise application.

Speaker Change: And business AI company.

Speaker Change: The transformation program, we are announcing today will shift additional resources to business AI in line with the significant growth potential we see for Asap.

Speaker Change: The transformation program we are announcing today will shift additional resources to business AI, in line with the significant growth potential we see for SAP.

Speaker Change: Over the next two years, SAP will invest almost 1 billion euros to develop powerful AI use cases for our customers.

Speaker Change: Over the next two years S&P will invest almost 1 billion euros to develop powerful AI use cases for our customers.

Christian Klein: Cloud revenue was up 23% to 13.7 billion euros. Our operating profit exceeded the guidance range by nearly 100 million euros. What is more? The total cloud backlog increased 39% to 44 billion euros, giving SAP incredible resilience for the years to come. I'd like to thank all SAP colleagues for these excellent results in a challenging environment. We had promised to quickly turn SAP into a cloud company, a company with double-digit profit growth, and we can comfortably say we delivered.

Speaker Change: and AI is not our only fast-growing innovation area. SAP Signabio, SAP LeanIX and our sustainability portfolio are all gaining significant traction.

Speaker Change: And AI is.

Speaker Change: Our only fast growing innovation area, Sep's, Ignacio S&P lean IX and our sustainability portfolio are all gaining significant traction.

Speaker Change: Finally, M&A I already mentioned it.

Speaker Change: Finally, M&A. I already mentioned it. SAP has an integrated portfolio with amazing potential.

Speaker Change: We have an integrated portfolio with amazing potential.

Speaker Change: We don't need to buy growth through acquisitions, but as always, we will keep our eyes open to further complement our portfolio.

Speaker Change: Don't need to buy clothes through acquisitions, but as always we will keep our eyes open to further complement our portfolio.

Let's now look at the bottom line.

Speaker Change: Let's now look at the bottom line. I have already mentioned that we entered a new phase of our transformation.

Speaker Change: I have already mentioned that we entered a new phase of our transformation.

Speaker Change: Building on the significant work we have done in the last few years, we see an opportunity to accelerate profitability beyond our initial ambition for 2025.

Christian Klein: Third, we are providing an update on our 2025 ambition that now includes the financial effects of our new transformation program, resulting in an increase in our profit and free cash flow guidance. Let's start by looking at the results for Q4 and the full year. Q4 provided an exceptionally strong finish to 2023, most importantly, in terms of cloud momentum.

Christian Klein: SAP is stronger and more relevant than ever, and the figures for 2023 clearly show that the transformation we have been driving for the past three years is now entering a new phase. Let me now turn to our outlook for 2024 and our 2025 ambitions.

Speaker Change: The levers supporting this accelerated profit growth are the following.

Speaker Change: The level of supporting this accelerated profit close auto falling.

Speaker Change: and more cloud, an adoption centric go to market model with clear roles and responsibilities along the customer value chain.

Speaker Change: And more cloud adoption centric go to market model with clear roles and responsibilities along the customer value cherney.

Speaker Change: and more focused portfolio concentrating investments on areas that drive major synergies with our core. This allows us to capitalize on the massive market we can address with our cloud ERP suite.

Speaker Change: A more focused portfolio concentrating investments on areas that drive major synergies with our core this allows us to capitalize on the massive market, we can address with our cloud ERP suite.

Christian Klein: Current cloud backlog increased by a strong 27%, that's higher growth than ever before. And cloud revenue growth accelerated to 25%. This great success was powered by strong customer momentum. To name just three examples, Vodafone is betting on Ys with SAP.

Christian Klein: Starting with the top line,

Speaker Change: Comprehensive infusion of business AI across all functions and processes and and then accelerated workforce transformation to ensure we have the best skilled and divide places.

Speaker Change: A comprehensive infusion of business AI across all functions and processes and an accelerated workforce transformation to ensure we have the best skills in the right place.

Christian Klein: We are guiding 17 to 17.3 billion euros in cloud revenue for 2024 with an implied growth rate of 25.5 percent at the midpoint. This anticipated growth puts us well on track to hit our 2025 ambition of more than 21.5 billion. Our growth formula is working and will continue to propel us through 2025, with total revenue growth expected to accelerate through 2027. The ingredients are clear. We lead with our Rise and Grow with SAP offerings. On Rise, we are signing up hundreds of net new customers every year. On top of that, we still have more than €11 billion of support revenue that we can convert to cloud revenue over the long term. We are rolling out targeted migration incentives and methodologies to accelerate device conversion.

Speaker Change: It is important to be clear.

Speaker Change: This workforce transformation will include a restructuring component.

Speaker Change: This workforce transformation will include restructuring component.

Christian Klein: They have selected Signario for their business process management, as well as BTP, DataSphere, and Business AI from SAP. This will help Vodafone to boost innovation and drive productivity. EMS, a leader in the Brazilian pharma market, is migrating its Oracle platform to vice versa with SAP.

Speaker Change: We intend to allocate roughly 2 billion euros for this.

Speaker Change: We intend to allocate roughly 2 billion for this.

Speaker Change: The decision affecting colleagues this way is never easy.

Speaker Change: A decision affecting colleagues this way is never easy.

Speaker Change: But we truly believe it is too wide next step.

Speaker Change: But we truly believe it is the right next step.

Speaker Change: We are setting up SAP for a strong, competitive future that all stakeholders, including employees, will benefit from.

Speaker Change: We are setting up S&P for strong competitive future that all stakeholders, including employees will benefit from.

Christian Klein: The company is looking to modernize operations, enhance scalability, and drive cost predictability for future growth. Volkswagen has been implementing the first large-scale cloud project in its human resources function based on SAP success factors. In addition to these impressive customer stories, there were further highlights in Q4. We successfully completed the acquisition of Lean IX, another great addition to our business transformation portfolio. SAP and NVIDIA are working together to bring advanced generative AI capabilities into RISE with SAP.

Speaker Change: This program is expected to affect 8000 positions worldwide.

Speaker Change: This program is expected to affect 8,000 positions worldwide.

Speaker Change: We will make every possible effort to focus on re skilling and voluntary exits with the aim to mitigate the social impact of the program.

Speaker Change: We will make every possible effort to focus on reskilling and voluntary exits with the aim to mitigate the social impact of the program. Given the reinvestments into strategic growth areas, we expect to finish 2024 with a headcount similar to current level.

Speaker Change: Given the heavy investments into strategic growth areas, we expect to finish 2024 with a head count similar to current levels.

Speaker Change: In summary.

Speaker Change: In summary, SAP had a very strong 2023, putting us well on track to achieve our 2025 ambition. On the top line, our growth formula is clearly working and we are further investing in business AI and other innovation to drive growth. On the bottom line, we see further opportunities to enhance the scalability of our operating model. With that, Dominic, over to you.

Speaker Change: At a very strong 2023, putting us well on track to achieve our 20% to 25% ambition on the top line. Our close Formula is clearly working and we are further investing in business AI and other innovation to drive close on the bottom line, we see <unk>.

Christian Klein: At the same time, Quo is gearing up to be a big success with over 700 new customers signing up since our launch. With Rise and Grow, Quo becomes the business technology platform. BTP has become a central piece in the architecture of our customers, and our platform as a service solutions now stand at a revenue run rate of 2.5 billion euros with strong double-digit growth. The flywheel is just starting to spin as more and more customers and partners move to a clean core on top of BTP. As customers advance on their growth and transformation journeys, we also see increasing levels of cross-sell based on the integrated suite. For example, our top 1,000 customers are now on average using four SAP Cloud solutions, up from three last year. For our top 100 customers, we are at five solutions, up from four in 2022. Going forward, we will provide transparency on the increasing trends of our cloud ERP suite through our cloud ERP suite disclosure. And then there is business AI.

Christian Klein: Additionally, NVIDIA has selected RISE with SAP to make their supply chain more resilient and scale operations, and ACP also made a strong showing at COP28. SAP solutions enable more transparent ESG metrics, helping decision makers to take the right actions to accelerate sustainability. For the full year, we met or exceeded all our Outlook KPIs. Current cloud backlog grew 27% to 13.7 billion euros, and cloud revenue was up 23% to 13.7 billion euros. Our operating profit exceeded the guidance range by nearly 100 million euros. What is more?

Speaker Change: Opportunities to enhance the scalability of our operating model with that Dominic over to you.

Dominic: Thank you very much, Christian, and thank you all for joining us this morning.

Dominic: Thank you very much Christian and thank you all for joining us this morning.

Dominic: A happy and healthy 2024 to everyone.

Dominic: Happy and healthy 2024 to everyone.

Dominic: We once again delivered on our financial targets for the year and are making great progress towards our 2025 ambition.

Dominic: Our financial results demonstrate our commitment to our stated goals and we have thoroughly executed on a strategy we have outlined.

Dominic: Our financial results and demonstrate our commitment to our stated goals and we are thoroughly executed on our strategy we have outlined.

Dominic: This resulted in a strong finish in Q4 exceeding our own expectations in cloud and software revenue.

Dominic: This resulted in a strong finish in Q4, exceeding our own expectation in cloud and software revenue, non-IFRS operating profit and cash flow.

Dominic: <unk> operating profit and cash flow.

Dominic: The strong order intake and resulting current cloud backlog gives us confidence that we will keep the momentum this year.

Dominic: The strong order intake and resulting current cloud backlog gives us confidence that we'll keep the momentum this year, underpinned by the success we've seen with Verizon with SAP, the solution of choice for our customers globally to help drive the end-to-end business transformation.

Christian Klein: Total cloud backlog increased 39% to 44 billion euros, giving SAP incredible resilience for the years to come. I'd like to thank all SAP colleagues for these excellent results in a challenging environment. We have promised to quickly turn SAP into a cloud company, a company with double-digit profit growth, and we can comfortably say we have delivered. SAP is stronger and more relevant than ever, and the figures for 2023 clearly show that the transformation we have been driving for the past three years is now entering a new phase. Let me now turn to our outlook for 2024 and our 2025 ambitions, starting with the top line. We are guiding 17 to 17.3 billion euros in cloud revenue for 2024, with an implied growth rate of 25.5 percent at the midpoint. This anticipated growth puts us well on track to hit our 2025 ambition of more than $21.5 billion. Our growth formula is working, and it will continue to propel us through 2025, with total revenue growth expected to accelerate through 2027. The ingredients are clear.

Dominic: Underpinned by the success, we've seen with lies with SAP.

Dominic: And the solution of choice for our customers globally to help drive the end to end business transformations.

Dominic: This is evident as large cloud transactions with a volume greater than 5 million contributed 55% to our cloud order entry for the full year and an impressive 62% in Q4.

Dominic: This was evident in the large cloud transactions with a volume greater than $5 million contributed 55%.

Christian Klein: Last week, I had the opportunity to meet with many global leaders and key customers and partners at the World Economic Forum in Davos.

Dominic: Our cloud order entry for the full year and an impressive 62% in Q4.

Dominic: Before we move on to the financial updates, as Christian mentioned earlier, I'd like to remind everyone about the reporting changes announced on December 18, 2023.

Dominic: Before we move onto the financial updates as Christian mentioned earlier I'd like to remind everyone about the reporting changes announced on December 18 2023.

Christian Klein: My conversations all circled around one topic: Generative AI is the greatest opportunity since the rise of the cloud, especially for SAP. I also received very positive feedback on our plans and use cases for Business AI. SAP will completely embed AI in our solutions. We will make it readily available for end users and connect it to all business processes. This will tremendously boost the capabilities of our solutions. It will also fundamentally change how users interact with our system. To reflect the central importance of AI for our future, we have updated our ambition to be the number one enterprise application and business AI company.

Dominic: and give you a brief update on the new cloud ERP suite.

Dominic: Give you a brief update on the new cloud ERP suite.

Dominic: Claudia piece of it is our growth engine, representing 82% of our combined SaaS and Paas revenues.

Dominic: CloudAP Suite is our growth engine, representing 82% of our combined SaaS and PaaS revenues.

Dominic: and growing by 33% in fiscal year 2023, up from 32% in the prior year.

Dominic: And growing by 33% in fiscal year 2023 up from 32% in the prior year.

Dominic: We expect Cloudia P Suite to sustain very high growth rates and therefore to represent a growing share of our cloud business going forward.

Dominic: We expect Claudia piece with to sustain very high growth rates and therefore to represent a growing share of our cloud business going forward.

Dominic: Now, let me dive into more details around our financial highlights.

Dominic: Now let me dive into more details around our financial highlights.

Dominic: Current cloud backlog reached 13.7 billion euros, continuing its growth at scale to 27%, the fastest pace on record.

Dominic: Current cloud backlog reached $13 7 billion euros.

Dominic: Continuing its growth at scale to 27%.

Dominic: The fastest pace on record.

Dominic: Total cloud backlog for the year, even grew at 39%.

Dominic: Cloud revenue grew 23% year on year underpinned by cloud revenue growth of 25% in Q4.

Dominic: Cloud revenue grew 23% year-on-year, underpinned by cloud revenue growth of 25% in Q4.

Christian Klein: The transformation program we are announcing today will shift additional resources to business AI, in line with the significant growth potential we see for SAP. Over the next two years, SAP will invest almost 1 billion euros to develop powerful AI use cases for our customers. But AI is not our only fast-growing innovation area. SAP Signabio, SAP LeanIX, and our sustainability portfolio are all gaining significant traction. Finally, M&A. I already mentioned it. SAP has an integrated portfolio with amazing potential. We don't need to buy growth through acquisitions, but, as always, we will keep our eyes open to further complement our portfolio. Let's now look at the bottom line. I have already mentioned that we have entered a new phase of our transformation. Building on the significant work we have done in the last few years, we see an opportunity to accelerate profitability beyond our initial ambition for 2025.

Christian Klein: We lead with our WISE platform and grow with SAP offerings. On WISE, we are signing up hundreds of net new customers every year. On top of that, we still have more than 11 billion euros of support revenue that we can convert to cloud revenue over the long term. We are rolling out targeted migration incentives and methodologies to accelerate device conversion. At the same time, Crow is gearing up to be a big success, with over 700 new customers signing up since our launch.

Dominic: and underlying strong performance across all geographies.

Dominic: An underlying strong performance across all geographies.

Dominic: This is an uptick of two percentage points sequentially for the largest quarter in volume.

Dominic: Cloud revenue now surpasses combined software licenses and software support revenue and.

Dominic: Cloud Revenue now surpasses combined software licenses and software support revenue and is effectively our largest and fastest growing revenue stream.

Dominic: Effectively our largest and fastest growing revenue stream.

Dominic: Our combined SaaS and PaaS portfolio for 2023 continued to grow by an impressive 26%, with SaaS revenue up 23% and PaaS up 46%.

Dominic: Our combined SaaS and Paas portfolio for 2023 continue to grow by an impressive 26% with SaaS revenue up 23% in Pos up 46%.

Dominic: This strong performance was primarily driven by outstanding contribution of Cloud AIP suites, including the business technology platform.

Dominic: This strong performance was primarily driven by outstanding contribution of cloud ERP suite, including the business technology platform.

Christian Klein: With the rise and growth of business technology platform, BTP has become a central piece in the architecture of our customers. And our platform as a service solutions now stand at a revenue run rate of 2.5 billion euros with strong double-digit growth. The flywheel is just starting to spin as more and more customers and partners move to a clean core on top of BTP. As customers advance on their growth and transformation journeys, we also see increasing levels of cross-sell based on the integrated suite. For example, our top 1,000 customers are now on average using four SAP cloud solutions, up from three last year.

Dominic: Total revenue for the full year was up 9% supported by cloud and services revenue.

Dominic: Total revenue for the full year was up 9% supported by cloud and services revenue now.

Dominic: Now let's take a brief look at our regional performance.

Dominic: Now, let's talk a brief look at our regional performance.

Dominic: In the fourth quarter, SAP's cloud revenue performance was particularly strong in APJ and EMEA and solid in the Americas region.

In the fourth quarter Sap's cloud revenue performance was particularly strong in APAC and EMEA and solid in the Americas region.

Now, let's move down the income statement.

Dominic: Now let's move down to the income statement.

Dominic: Our cloud gross margin for the pool year continued its upward trend from last year and expanded by 2.4 percentage points to 72.6%.

Dominic: Our cloud gross margin for the full year continued its upward trend for last year and expanded by two four percentage points to 72, 6%.

Dominic: Driving cloud gross profit up by 27% in the fourth quarter non <unk> operating profit was up 2%.

Dominic: Driving Cloud Cross Profit up by 27%. In the fourth quarter, non-affairs operating profit was up 2%.

Dominic: As a reminder, especially effects in Q4 operating profit was negatively impacted by the accelerated amortization of capitalized sales commissions and which were related to the on premise business higher bonus accruals simply related to the very strong performance in Q4.

Dominic: As a reminder of special effects in Q4, operating profit was negatively impacted by the accelerated amortization of capitalized sales commissions, which were related to the on-premise business. Higher bonus accruals simply related to the very strong performance in Q4.

Christian Klein: For our top 100 customers, we are at five solutions, up from four in 2022. Going forward, we will provide transparency on the increasing trends of our cloud ERP suite through our cloud ERP suite disclosure, and then there is business AI. Last week, I had the opportunity to meet with many global leaders and key customers and partners at the World Economic Forum in Davos. My conversations all circled around one topic.

Christian Klein: The levers supporting this accelerated profit growth are the following, and more cloud computing, an adoption-centric go-to-market model with clear roles and responsibilities along the customer value chain, and a more focused portfolio concentrating investments on areas that drive major synergies with our core. This allows us to capitalize on the massive market we can address with our cloud ERP suite. A comprehensive infusion of business AI across all functions and processes and an accelerated workforce transformation to ensure we have the best skills in the right place. This workforce transformation will include a restructuring component. We intend to allocate roughly 2 billion euros to this.

Dominic: Prior operating profit baseline included a disposal gain of 109 million euros related to the sale of Litmos business.

Dominic: Prior year operating profit baseline included a disposal gain of 109 million relate.

Dominic: Related to the sale of litmus business.

Dominic: For the fiscal year, we kept our promise and delivered double digit operating profit growth of 13% year on year.

Dominic: For the fiscal year, we kept our promise and delivered double-digit operating profit growth of 13% year-on-year, reaching 8.72 billion euros.

Dominic: Reaching eight 7 billion.

Dominic: I'm, particularly pleased that we have snapped back to growth on non <unk> operating profit, especially starting in 2024, we will no longer exclude share based compensation expenses from our non <unk> results.

Dominic: I'm particularly pleased that we have snapped back to growth on non-IFRS operating profit, especially as starting in 2024, we will no longer exclude share-based compensation expenses from our non-IFRS results.

Christian Klein: Generative AI is the greatest opportunity since the rise of the cloud, especially for SAP. I also received very positive feedback on our plans and use cases for business AI. SAP will completely embed AI in our solutions.

Dominic: As announced last month, we will report on this measure going forward, on which we have also turned the corner in 2023.

Dominic: As announced last month, we will report on this metric going forward on which we have also turned the corner in 2023.

Christian Klein: We will make it readily available for end users and connect it to all business processes. This will tremendously boost the capabilities of our solutions. It will also fundamentally change how users interact with our system.

Dominic: Earnings per share increased by 24% to €5.01.

Earnings per share increased by 24% to five year wants them.

Dominic: The IFRS effective tax rate for the full year was 32.6% and the non-IFRS tax rate was 29.3%.

Dominic: <unk> effective tax rate for the full year was 32, 6% in the nano for this tax rate was 29, 3%.

Christian Klein: To reflect the central importance of AI for our future, we have updated our ambition to be the number one enterprise application and business AI company. The transformation program we are announcing today will shift additional resources to business AI, in line with the significant growth potential we see for SAP. Over the next two years, SAP will invest almost €1 billion to develop powerful AI use cases for our customers.

Dominic: Up until the end of 2023, both measures were strongly dependent on the performance of our equity investments, the majority of which are in SEPHIRE ventures, as gains in that portfolio carried a much lower tax rate than our operational business. There was no significant dilutive impact on the effective tax rate by that mechanism in 2023, as we only had pre-tax losses of 165 million in 2023.

Dominic: Up until the end of 2023, both measures were strongly dependent on the performance of our equity investments. The majority of which are in Sapphire ventures as gains in that portfolio carries a much lower tax rate than our operational business.

Christian Klein: A decision affecting colleagues this way is never easy, but we truly believe it is the right next step. We are setting up SAP for a strong, competitive future that all stakeholders, including employees, will benefit from. This program is expected to affect 8,000 positions worldwide. We will make every possible effort to focus on reskilling and voluntary exits with the aim to mitigate the social impact of the program. Given the reinvestments into strategic growth areas, we expect to finish 2024 with a headcount similar to the current level.

Dominic: There was no significant dilutive impact on the effective tax rate by that mechanism in 2023.

Dominic: Only had pretax losses of $165 million in 2023.

Dominic: Please note that in our new non-IFRS net income definition, we exclude the earnings impact coming from fair value adjustments of equity investments. So even in snapping back to profits, the newly defined metric will not benefit from any potential dilution of effective tax rate going forward.

Dominic: Please note that in our new non Opus net income definition excludes the earnings impact coming from fair value adjustments of equity investments. So even been snapping back to profits the newly defined metric will not benefit from any potential dilution of effective tax rate going forward.

Christian Klein: And AI is not our only fast-growing innovation area. SAP Signario, SAP Linux, and our sustainability portfolio are all gaining significant traction. Finally, M&A. I already mentioned it.

Dominic: The main reason why we even exceeded this guidance in 2023 years because of nonrecurring effects.

Dominic: The main reason why we even exceeded this guidance in 2023 is because of a non-recurring effect.

Dominic: S&P expect a mid to long term effective tax rate of 28.0% to 32.0% for non aircraft purposes for 2024, we expect to be at the higher end of such range due to restructuring expenses.

Christian Klein: SAP has an integrated portfolio with amazing potential. We don't need to buy growth through acquisitions, but as always, we will keep our eyes open to further complement our portfolio. Let's now look at the bottom line. I have already mentioned that we have entered a new phase of our transformation.

Dominic: Restructuring expenses which result in the temporary inability to offset foreign withholding taxes in Germany.

Dominic: Restructuring expenses, which resulted in the temporary inability to offset.

Dominic: Withholding taxes in Germany.

Christian Klein: In summary, SAP had a very strong 2023, putting us well on track to achieve our 2025 ambition. On the top line, our growth formula is clearly working, and we are further investing in business AI and other innovation to drive growth. On the bottom line, we see further opportunities to enhance the scalability of our operating model.

Dominic: Free cash flow for the full year was up 16% to 5.1 billion euros, exceeding the revised outlook of approximately 4.9 billion.

Dominic: Free cash flow for the full year was up 16% to $5 1 billion euros exceeding the revised outlook of approximately $4 9 billion.

Christian Klein: Building on the significant work we have done in the last few years, we see an opportunity to accelerate profitability beyond our initial ambition for 2025. The lab is supporting this accelerated profit growth out of four links, and a more cloud and adoption-centric go-to-market model with clear roles and responsibilities along the customer value chain. A more focused portfolio concentrating investments on areas that drive major synergies with our core. This allows us to capitalize on the massive market we can address with our cloud ERP suite, a comprehensive infusion of business AI across all functions and processes, and an accelerated workforce transformation to ensure we have the best skills in the right place. It is important to be clear.

Dominic: While higher payouts for taxes and restructuring weighed on free cash flow in the year, the positive development was primarily driven by profitability.

Dominic: While higher payouts for Texas and restructuring weighed on free cash flow in the year. The positive development was primarily driven by profitability.

Dominic: Improvements in working capital and we also had some positive impact on phasing of capex and leasing which was pushed out to 2024.

Improvements in working capital and we also had some positive impact on phasing of Capex and leasing which was pushed out to 2024.

Dominic: Overall, we are making good progress on our journey to solidify our free cash flow plans, which is a nice segue into our financial outlook.

With that, Dominic, over to you. Thank you very much, Christian, and thank you all for joining us this morning. A happy and healthy 2024 to everyone. We have once again delivered on our financial targets for the year and are making great progress towards our 2025 ambition. Our financial results demonstrate our commitment to our stated goals, and we have thoroughly executed on a strategy we have outlined. This resulted in a strong finish in Q4, exceeding our own expectations in cloud and software revenue, non-IFRS operating profit, and cash flow. The strong order intake and resulting current cloud backlog gives us confidence that we'll keep the momentum this year, underpinned by the success we've seen with Verizon and SAP, the solution of choice for our customers globally to help drive the end-to-end business transformation.

Dominic: Restructuring expenses in the context of the planned transformation program, described already by Christian, are projected to be approximately 2 billion, the vast majority of which is expected to be recognized in the first half of 2024.

Dominic: Restructuring expenses in the context of the planned transformation program. Despite described already by Christian.

Dominic: Projected to be approximately 2 billion the vast majority of which is expected to be recognized in the first half of 2024.

Dominic: I have to caution you, though that we are just starting the negotiations with social partners in some countries and need to make assumptions on the specific mix of measures and geographic composition, which might require material adjustments to this number and the related cash hold.

Christian Klein: This workforce transformation will include a restructuring component. We intend to allocate roughly 2 billion euros for this. The decision affecting colleagues this way is never easy.

Dominic: Simultaneously, we're stepping up our investment in business AI to drive automation. As we see significant growth opportunities lying ahead and want to improve our operating leverage. So any savings we can reap from restructuring in 2024 already will be largely offset by that investment.

Dominic: Simultaneously, we are stepping up our investment in business AI to drive automation.

Dominic: If we see significant growth opportunities lying ahead and want to improve our operating leverage so any savings we can reap from restructuring in 2024 already will be largely offset by that investment.

Christian Klein: But we truly believe it is the right next step. We are setting up SAP for a strong, competitive future that all stakeholders, including employees, will benefit from. This program is expected to affect 8,000 physicians worldwide.

Dominic: The incremental savings will allow us to increase our non <unk> operating profit ambition for 2025 from 11 $5 billion to $12 billion net of share based compensation of approximately $2 billion to $10 billion. Another new non <unk> operating profit definition.

Dominic: The incremental savings will allow us to increase our non-IFRS operating profit ambition for 2025 from $11.5 to $12 billion, net of share-based compensation of approximately $2 billion to $10 billion under the new non-IFRS operating profit definition.

Christian Klein: We will make every possible effort to focus on reskilling and voluntary exits with the aim to mitigate the social impact of the program. Given the reinvestment into strategic growth areas, we expect to finish 2024 with a headcount similar to current levels. In summary, SAP had a very strong 2023, putting us well on track to achieve our 2025 ambition. On the top line, our CROWS formula is clearly working, and we are further investing in business AI and other innovation to drive CROWS. On the bottom line, we see further opportunities to enhance the scalability of our operating model. With that, Dominic, over to you.

Dominic: The benefits of the planned program and from investments in business AI will become more apparent in subsequent years as we capitalized on improved operating leverage at increasing scale.

Dominic: This also allows us to increase the free cash flow ambition for 2025 to 8 billion euros.

Dominic: This also allows us to increase the free cash flow ambition for 2020 528 billion euros.

Dominic: This is net of any cash out for restructuring that might spill over into 2025.

This is evident as large cloud transactions with a volume greater than 5 million contributed 55% to our cloud order entry for the full year and an impressive 62% in Q4.

Dominic: As we have to absorb about €0.4 billion of cash out for pre-existing compliance and related matters and the unwinding of the remaining SAP-triggered factoring, on top of the preliminary estimate of €2 billion cash out for restructuring, the corresponding underlying free cash flow number, net of these effects for 2024 is forecast to approximately €5.9 billion. This is largely in line with the tax-affected projected improvement in our non-IFRS operating profit.

Dominic: As we have to absorb about <unk>.

Dominic: <unk> 4 billion of cash out for pre existing compliance and related matters and the unwinding of the remaining SAP triggered factoring on top of the preliminary estimate of 2 billion cash out for restructuring.

Dominic: Before we move on to the financial updates, as Christian mentioned earlier, I'd like to remind everyone about the reporting changes announced on December 18, 2023 and give you a brief update on the new cloud ERP suite. CloudAP Suite is our growth engine, representing 82% of our combined SaaS and PaaS revenues and growing by 33% in fiscal year 2023, up from 32% in the prior year. We expect Cloudia P Suite to sustain very high growth rates and therefore to represent a growing share of our cloud business going forward. Now, let me dive into more details around our financial highlights.

Dominic: Corresponding underlying free cash flow number net of these effects for 2024 is forecast to approximately $5 9 billion.

Dominic: Thank you very much, Christian. And thank you all for joining us this morning. A happy and healthy 2024 to everyone. We have once again delivered on our financial targets for the year and are making great progress towards our 2025 ambition. Our financial results demonstrate our commitment to our stated goals, and we have thoroughly executed on a strategy we have outlined. This resulted in a strong finish in Q4, exceeding our own expectations in cloud and software revenue, non-IFRS operating profit, and cash flow. The strong order intake and resulting current cloud backlog gives us confidence that we'll keep the momentum this year underpinned by the success we've seen with RISE with SAP and as the solution of choice for our customers globally to help drive the end-to-end business transformation.

Dominic: This is largely in line with the tax effected projected improvement in our non <unk> operating profit.

Dominic: When it comes to improvement in cash conversion in 2025, please keep in mind that in that year, we expect to see a significant reduction in cash out related to share-based compensation.

Dominic: When it comes to improvement in cash conversion in 2025, please keep in mind that in that year, we expect to see a significant reduction in cash out related to share based compensation.

Dominic: The fact that we employ approximately 2 billion of share based compensation in 2025, and the bridge from nonoperating profit prior versus new definition should also give you assurance that we aim to keep deadline in check.

Dominic: The fact that we imply approximately 2 billion of share-based compensation in 2025 in the bridge from non-operating profit prior versus new definition should also give you assurance that we aim to keep that line in check.

Dominic: We want to further improve the attractiveness of this important compensation tool by strengthening the confidence in this instrument based on strong earnings and free cash flow growth momentum.

Dominic: We want to further improve the attractiveness of this important compensation tool, but strengthening the confidence in this instrument based on strong earnings and free cash flow growth momentum.

Dominic: Finally, I'd like to turn to sustainability in our non financial results.

Dominic: Finally, I'd like to turn to sustainability and our non-financial results.

Dominic: Current cloud backlog reached 13.7 billion euros, continuing its growth at scale to 27%, the fastest pace on record. Total cloud backlog for the year even grew at 39%. Cloud revenue grew 23% year-on-year, underpinned by cloud revenue growth of 25% in Q4, and underlying strong performance across all geographies. This is an uptick of two percentage points sequentially for the largest quarter in volume. Cloud revenue now surpasses combined software licenses and software support revenue and is effectively our largest and fastest growing revenue stream. Our combined SaaS and PaaS portfolio for 2023 continued to grow by an impressive 26%, with SaaS revenue up 23% and PaaS up 46%. This strong performance was primarily driven by the outstanding contribution of Cloud AIP suites, including the business technology platform. Total revenue for the full year was up 9%, supported by cloud and services revenue. Now let's take a brief look at our regional performance. In the fourth quarter, SAP's cloud revenue performance was particularly strong in APJ and EMEA and solid in the Americas region.

Dominic: This is evident as large cloud transactions with a volume greater than 5 million contributed 55% to our cloud order entry for the full year and an impressive 62% in Q4. Before we move on to the financial updates, as Christian mentioned earlier, I'd like to remind everyone about the reporting changes announced on December 18, 2023, and give you a brief update on the new cloud ERP suite. Cloudera P Suite is our growth engine, representing 82% of our combined SaaS and PaaS revenues and growing by 33% in fiscal year 2023, up from 32% in the prior year.

Dominic: Our investments in the winning sustainability solution portfolio have been very well received by the market, and we now have approximately 1,000 CloudForce Sustainable Enterprise customers. Q4 was particularly successful, with a key win in Japan, where Matsumoto Precision adopted our sustainability footprint management solution to help manage their CO2 emissions.

Dominic: Our investments in the winning sustainability solution portfolio has been very well received by the market.

Dominic: And we now have approximately 1000 cloud for sustainable enterprise customers.

Dominic: Q4 was particularly successful with a key win in Japan with Matsumoto precision adopted our sustainability footprint management solution to help manage their C O two emissions.

Dominic: We view sustainability as an additional growth space.

We view sustainability as an additional growth space.

Dominic: with market trends such as the convergence of sustainability and financial standards and increasing disclosure requirements playing to our strengths.

Dominic: With market trends, such as the convergence of sustainability and financial standards, and increasing disclosure requirements playing to our strengths.

Dominic: In Q4, we released two new sustainability solutions, including Sustainability Data Exchange, which helps businesses gain transparency on suppliers' CO2 emissions, and Green Token, which enables companies to provide traceability and transparency across the supply chain.

Dominic: In Q4, we released two new sustainability solutions, including sustainability data exchange, which helps businesses gained transparency on suppliers C. O two emissions and green token, which enables companies to provide traceability and transparency across the supply chain.

Dominic: We expect Cloudera P Suite to sustain very high growth rates and therefore to represent a growing share of our cloud business going forward. Now, let me dive into more details around our financial highlights. Current cloud backlog reached 13.7 billion euros, continuing its growth at scale to 27 percent, the fastest pace on record.

Dominic: I'm also happy to confirm that we met our 2023 non-financial metric targets. Our customer net promoter score, NPS, increased two points year-over-year to nine in 2023 within the outlook range of eight to twelve. SAP's employee engagement index remains stable at 80 percent, meeting the upper end of the target range and demonstrating a continued high level of engagement.

Dominic: I'm also happy to confirm that we met our 2023 non financial metric targets, our customer net promoter score NPS increased two points year over year to nine in 2023 within the outlook range of eight to 12.

Dominic: Hippies employee engagement index remained stable at 80% meeting the upper end of the target range and demonstrating a continued high level of engagement.

Dominic: Net carbon emissions were zero kilotons in 2023, meaning the company was carbon neutral in its own operation.

Dominic: Carbon emissions to zero coupons in 2023, meaning the company was carbon neutral and its own operations.

Dominic: Total cloud backlog for the year, EVQ at 39%, cloud revenue grew 23% year on year, underpinned by cloud revenue growth of 25% in Q4, and underlying strong performance across all geographies. This is an uptick of two percentage points sequentially for the largest quota in volume. Cloud revenue now surpasses combined software licenses and software support revenue and is effectively our largest and fastest growing revenue stream. Our combined SaaS and PaaS portfolio for 2023 continued to grow by an impressive 26%, with SaaS revenue up 23% and PaaS up 46%. This strong performance was primarily driven by the outstanding contribution of cloud ERP suites, including the business technology platform. Total revenue for the full year was up 9%, supported by cloud and services revenue. Now, let's take a brief look at our regional performance.

Dominic: In summary.

Dominic: In summary,

Dominic: We have achieved all key objectives in 2023.

Dominic: We've achieved all key objectives in 2023.

Dominic: Our strategy works and remains consistent.

Our strategy works and remains consistent however.

Dominic: However, we must continue to evolve and stay agile while we continuously adapt to a fast-changing landscape.

Dominic: However, we must continue to evolve and stay agile, while we continuously adapt to fast changing landscape.

Dominic: Our outlook illustrates that we are on the right trajectory to achieve our updated 2025 ambition, despite a quite challenging macroeconomic outlook.

Dominic: Our outlook illustrates that we're on the right trajectory to achieve our updated 2025 ambition, despite a quite challenging macroeconomic outlook.

Dominic: Now let's move down to the income statement. Our cloud gross margin for the pool year continued its upward trend from last year and expanded by 2.4 percentage points to 72.6%. Driving Cloud Cross Profit up by 27%. In the fourth quarter, non-affairs operating profit was up 2%. As a reminder of special effects in Q4, operating profit was negatively impacted by the accelerated amortization of capitalized sales commissions, which were related to the on-premise business. Higher bonus accruals were simply related to the very strong performance in Q4.

Dominic: In 2024, we will focus on staying the course and putting the right gradient of earnings growth in place to sustain strong revenue and earnings growth well into the second half of the decade.

Dominic: Delivering on that ambition is also a compelling argument to convince our customers to build intelligent, sustainable enterprises and to attract and retain the best talent to master the challenges lying ahead, despite some difficult decisions we had to take with regards to restructuring.

Dominic: Delivering on that ambition is also a compelling argument to convince our customers to build intelligence sustainable enterprises.

Dominic: And to attract and retain the best talent to master the challenges lying ahead. Despite some.

Difficult decisions, we had to take with regards to restructuring.

Dominic: We continue to focus on stronger execution and remain confident about SAP's future. So thank you very much for your attention and we are now happy to take your questions.

Dominic: We continue to focus on strong execution and remain confident about sap's future. So thank you very much for your attention and we are now happy to take your questions.

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Dominic: Prior operating profit baseline included a disposal gain of 109 million euros related to the sale of Litmos. For the fiscal year, we kept our promise and delivered double-digit operating profit growth of 13% year-on-year, reaching 8.72 billion euros. I'm particularly pleased that we have snapped back to growth in non-IFRS operating profit, especially as starting in 2024, we will no longer exclude share-based compensation expenses from our non-IFRS results. As announced last month, we will report on this measure going forward, on which we have also turned the corner in 2023. Earnings per share increased by 24% to €5.01. The IFRS effective tax rate for the full year was 32.6%, and the non-IFRS tax rate was 29.3%. Up until the end of 2023, both measures were strongly dependent on the performance of our equity investments, the majority of which were in SEPHIRE ventures, as gains in that portfolio carried a much lower tax rate than our operational business.

Speaker Change: Anyone who has a question may press hash followed by one at this time. One moment for the first question, please.

Speaker Change: Wanted to ask a question May press hash followed by one at this time one moment for the first question. Please.

Dominic: In the fourth quarter, SAP's cloud revenue performance was particularly strong in APJ and EMEA and solid in the Americas region. Now, let's move down to the income statement. Our cloud gross margin for the whole year continued its upward trend from last year and expanded by 2.4 percentage points to 72.6 percent, driving cloud cross profit up by 27%. In the fourth quarter, non-Ether's operating profit was up 2%.

Speaker Change: And the first question is from the line of Frederic Poulin with Bank of America. Go ahead, your line.

And the first question is from the line of Frederic <unk> with Bank of America Go ahead. Your line is open.

Frederic: Hello. Good morning, Thank you very much for taking the question.

Frederic Poulin: Hey, good morning. Thank you very much for taking the question. If we can start first of all on the S4HANA and S4HANA cloud migration, if you can give us an update in particular on the traction you're having with large and complex customers. You created that new board position dedicated to cloud growth, headed by Thomas Soesik. So, you know, what problem are you trying to solve in terms of?

Frederic: Scott first of all on the.

On the forehand.

Frederic: And on this one our cloud migration that you can give us there.

Frederic: And the data in particular on the traction you're having with large and complex customers.

Frederic: Created a new board position dedicated to growth added by our commodity risk.

Frederic: With preliminary trying to solve and can move.

Frederic Poulin: Accelerating that transition. And then secondly, if I can follow up on the business AI

Frederic: Accelerating the transition.

Frederic: And then second if I can follow up on the.

Frederic: On the business AI.

Dominic: As a reminder, special effects in Q4 operating profit were negatively impacted by the accelerated amortization of capitalized sales commissions which were related to the on-premise business, higher bonus accruals, simply related to the very strong performance in Q4. The prior operating profit baseline included a disposal gain of 109 million euros related to the sale of the Litmos business. For the fiscal year, we kept our promise and delivered double-digit operating profit growth of 13% year-on-year, reaching €8.72 billion. I'm particularly pleased that we have snapped back to growth in non-IFRS operating profit, especially as, starting in 2024, we will no longer exclude share-based compensation expenses from our non-IFRS results. As announced last month, we will report on this measure going forward, on which we have also turned the corner in 2023. Earnings per share increased by 24% to €5.01. The IFRS effective tax rate for the full year was 32.6%, and the non-IFRS tax rate was 29.3%.

Frederic Poulin: Topic. So can you discuss a little bit the traction you've seen with the Rise Premium offering? What are the biggest use cases where you see the strongest interest from the customers? Anything you can share around the roadmap and ability to price up would be great. Thank you very much.

Frederic: Topics.

Frederic: Can you discuss a little bit of traction you've seen with <unk> premium offering what are the biggest use cases, where you see the strongest interest from your customers anything you can share around the roadmap and the ability to price up.

Speaker Change: Great. Thanks very much.

Speaker Change: Yes, absolutely happy to do so so first of all on large enterprises I mean, you have seen the locals in our earnings announcement and customers like <unk>.

Speaker Change: Yeah, absolutely happy to do so. First of all, on large enterprises, I mean, you have seen the logos in our earnings announcement and customers like, you know, Nvidia or DHL, they really want to use our products to actually scale operations, to drive productivity, to also fight inflation, and also, of course, to build more resilient supply chains. And actually, when you look at the order entry in Q4, it was actually a significant uptick when you look at the deals we are closing above 5 million. And then, of course, you also have seen our total cloud backlog of over 44 billion euro. And that also signals you, I mean, this amount of committed order backlog, which is already sitting in the books, is coming especially from large enterprises who are now going into the design phase to remodel their business models, to also try standardization, to move to the clean core. And then over the course of the next year, you know, we'll, of course, also adopt our business technology platform. So, overall, we are actually very confident and we are very happy with the traction we are seeing in the large enterprise segment. Scott, any further comments?

Speaker Change: <unk>.

Speaker Change: DHL dam really you want to use our products to actually scale operations to drive productivity.

Dominic: There was no significant dilutive impact on the effective tax rate by that mechanism in 2023, as we only had pre-tax losses of 165 million in 2023. Please note that in our new non-IFRS net income definition, we exclude the earnings impact coming from fair value adjustments of equity investments. So even in snapping back to profits, the newly defined metric will not benefit from any potential dilution of the effective tax rate going forward. The main reason why we even exceeded this guidance in 2023 is because of a non-recurring effect.

Speaker Change: To also fight inflation and also of course to build more resilient supply chains and actually when you look at the order entry in Q4. It was actually a significant uptick when you look at the deals. We are closing about $5 million and then of course you also have seen our total cloud backlog of over 44 billion Euro and then.

Speaker Change: Also signaled to you I mean this amount of committed.

Speaker Change: Order backlog, which is already sitting in the books is coming especially from large enterprises, who are now going into the design phase to remodel their business models to also twice standardization to move to the clean corn then over the course of the next year. We will of course also adopt our business technology.

Speaker Change: Form so overly overall, we are actually very confident that we are very happy with the traction we are seeing in the large enterprise segment, Scott any further comments.

Dominic: SAP expects a mid- to long-term effective tax rate of 28.0% to 32.0% for non-aggressive purposes. For 2024, we expect to be at the higher end of such range due to restructuring expenditures, which result in the temporary inability to offset foreign withholding taxes in Germany.

Scott Russell: Yeah, I think we've spoken about it before, Christian, but I would just reinforce customers around the world.

I think it's we've spoken about before Christian but I would just reinforce customers around the world.

Dominic: Up until the end of 2023, both measures were strongly dependent on the performance of our equity investments, the majority of which were in SAFIRE ventures, as gains in that portfolio carried a much lower tax rate than our operational business. There was no significant dilutive impact on the effective tax rate by that mechanism in 2023 as we only had pre-tax losses of $165 million in 2023. Please note that in our new non-alpharized net income definition, we exclude the earnings impact coming from fair value adjustments of equity investments. So even when snapping back to profits, the newly defined metric will not benefit from any potential dilution of the effective tax rate going forward.

Scott Russell: are very clear that to be able to navigate the uncertainty of the macroeconomic and other environments, they need operationally efficient processes. They need to access their data and be able to then find ways to monetize and learn from that data using opportunities with business AI. And the only answer is using cloud with SAP. So the order entry is a reflection of not only the positive sentiment, but frankly, the market demand that we see. And obviously, that has resulted in strong total cloud backlog and current.

Speaker Change: Very clear that to be able to navigate.

Speaker Change: The uncertainty of the macroeconomic and other environments.

Speaker Change: Need operationally efficient processes, they need to access the data and be able to then fund.

Speaker Change: Find ways to monetize and learn from that data using opportunities with <unk>.

Speaker Change: And the only answer is using cloud with this IP. So the order entry is a reflection of the.

Dominic: Free cash flow for the full year was up 16% to 5.1 billion euros, exceeding the revised outlook of approximately 4.9 billion. While higher payouts for taxes and restructuring weighed on free cash flow in the year, the positive development was primarily driven by profitability. Improvements in working capital, and we also had some positive impact on the phasing of capex and leasing, which was pushed out to 2024. Overall, we are making good progress on our journey to solidify our free cash flow plans, which is a nice segue into our financial outlook. Restructuring expenses in the context of the planned transformation program, described already by Christian, are projected to be approximately 2 billion, the vast majority of which is expected to be recognized in the first half of 2024.

Speaker Change: Not only the positive sentiment, but frankly the market demand that.

Speaker Change: We see and obviously that has resulted in strong total backlog and current cloud backlog.

Scott Russell: And with regard to Business AI, we launched

Speaker Change: And with regard to business AI, we launched <unk>.

Scott Russell: Two commercial models, indeed, Vice Premium, Quo Premium, and there we are actually seeing that actually over 50% of our customers actually selecting our premium packages. Also that we are giving our customers the choice of a consumption-based AI offering where they can buy tokens and use them across our portfolio is extremely compelling. And we of course also signed now a ton of new customers and now it's all about adoption, now it's all about making them live to show really real use cases and show the value as we are moving, especially in business AI now, from discovery into execution, so it's all about adoption and the start was very promising.

Speaker Change: Commercial models. Indeed, why is premium quality premium and are we actually seeing that actually over 50% of our customers actually selecting our premium packages also that we are giving our customers. The choice of a consumption based AI offering where they can buy tokens and use them across our portfolio.

Speaker Change: Is extremely compelling and.

Speaker Change: And we of course also signed now a ton of new customers and now it's all about adoption now its all of all about making them live to show really will use cases in shoulder value as we are moving especially in business AI now from discovery into execution. So it's all about adoption and to start was very promising.

Dominic: The main reason why we even exceeded this guidance in 2023 is because of a non-recurring effect. SAP expects a mid- to long-term effective tax rate of 28.0% to 32.0% for non-alibis purposes. For 2024, we expect to be at the higher end of such range due to restructuring expenses, restructuring expenses which result in the temporary inability to offset foreign withholding taxes in Germany. Free cash flow for the full year was up 16% to €5.1 billion, exceeding the revised outlook of approximately €4.9 billion. While higher payouts for taxes and restructuring weighed on free cash flow in the year, the positive development was primarily driven by profitability, improvements in working capital, and we also had some positive impact on the phasing of capex and leasing, which was pushed out to 2024. Overall, we are making good progress on our journey to solidify our free cash flow plans, which is a nice segue into our financial outlook. Restructuring expenses in the context of the planned transformation program, described already by Christian, are projected to be approximately $2 billion, the vast majority of which is expected to be recognized in the first half of 2024.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: Thanks, Fred.

Speaker Change: Thanks, Brett.

Speaker Change: We'll take the next question please.

Speaker Change: We'll take the next question, please.

Speaker Change: The next question is from the line of Johannes Schaller with Deutsche Bank.

Speaker Change: The next question is from the line of your honest shallower with Deutsche Bank. Please go ahead.

Dominic: I have to caution you, though, that we are just starting the negotiations with social partners in some countries and need to make assumptions on the specific mix of measures and geographic composition, which might require material adjustments to this number and the related cash out. Meanwhile, we're stepping up our investment in business AI to drive automation. We see significant growth opportunities lying ahead and want to improve our operating leverage. Therefore, any savings we can reap from restructuring in 2024 will already be largely offset by that investment. The incremental savings will allow us to increase our non-IFRS operating profit ambition for 2025 from $11.5 to $12 billion, net of share-based compensation of approximately $2 billion to $10 billion under the new non-IFRS operating profit definition. The benefits of the planned program and from the investments in business AI will become more apparent in subsequent years as we capitalize on improved operating leverage at an increasing scale. This also allows us to increase the free cash flow ambition for 2025 to 8 billion euros.

Johannes Schaller: Yeah, good morning. Thanks for taking my question. You obviously brought in the new cloud here.

Speaker Change: Yeah. Good morning, Thanks for taking my question.

Speaker Change: You obviously brought in the new cloud ERP suite definition, I think you said 82% of revenues.

Speaker Change: I think you said 82% of revenues. Maybe you can help us understand a little bit better what's in the other 18%. And I think, Dominic, you also alluded on the call in December to potentially taking some action on these other 18%, especially the non-performing parts in the cloud portfolio, if I understood you correctly. So is the current restructuring already targeting some of these areas outside the cloud ERP suite, or is there maybe more to come? And then as a follow-up, could you maybe give us a quick update?

Speaker Change: Maybe you can help us.

Speaker Change: I understand a little bit better what's in the other.

Speaker Change: The 18% and I think Dominic you also alluded on the call in December to potentially taking some action on these are the 18%, especially the nonperforming parts in the cloud portfolio. If I understood you correctly. So is the.

Speaker Change: Current restructuring already targeting some of these areas outside the cloud ERP suite or maybe more to come and then as a follow up could you maybe give us a quick update just on the transactional side of the business and what the dynamics are here right now thank you.

Speaker Change: Transactional side of the cloud business and what the dynamics are here right now. Thank you. Yeah, thanks for the question, Johannes. I start and then handing over to Dominic. Look, the cloud ERP definition, why? I mean, our cloud ERP is now better integrated than any other offering out there in the market. Now, the data model is harmonized between Ariba, SuccessFactors, Concur, our CPQ offering with our core ERP, you know, talking about financials and supply chain. And we have all the identity, the authorization management is now coming out of the box. And that, of course, also tries a lot of cross-sell opportunities. I mean, frankly, Ariba and S4 direct procurement come as one procurement platform. And again, just also highlighting the significant cross-sell potential we have. The businesses which are out there, out of the cloud ERP definition, like our former HANA Enterprise cloud business, I mean, you see they are in decline. We are further accelerating the move, and there is no further restructuring required to actually lift and shift these customers over to our wise with SAP offering. Dominic? Maybe I just also want to give you some quantitative background. On this cloud ERP suite definition, we think it's very important to demonstrate to you the sustained momentum in that I mentioned in my introductory remarks that we see a slight acceleration, actually, from 32 to 33% here. Now, we have gotten sometimes the question from you, you need to accelerate cloud revenue growth to hit your ambition 2025. And actually, that's not precisely correct. If you look at the decomposition of our SaaS path revenue in... 82% of that representing cloud ERP suite running smoothly at 33%, the rest...

Speaker Change: Thanks for the question Johan as I start and then handing over to Dominic look to cloud ERP definition, why I mean.

Dominic: Our cloud ERP is now better integrated than any other offering out there in the market and the data model is harmonized between Alibaba Successfactors conquer.

Dominic: Our <unk> offering with our core ERP.

Dominic: Talking about financials and supply chain and we have all the identity. The Autosave management is now coming out of the box and that of course also twice a lot of cross sell opportunities I mean, frankly I E.

Dominic: And as for direct procurement Commerce, one procurement platform and again just also highlighting the significant cross sell potential we have.

Dominic: This is net of any cash out for restructuring that might spill over into 2025. As we have to absorb about €0.4 billion of cash out for pre-existing compliance and related matters and the unwinding of the remaining SAP-triggered factoring, on top of the preliminary estimate of €2 billion of cash out for restructuring, the corresponding underlying free cash flow number, net of these effects, for 2024 is forecast to be approximately €5.9 billion. This is largely in line with the tax-affected projected improvement in our non-IFRS operating profit. When it comes to improvement in cash conversion in 2025, please keep in mind that in that year, we expect to see a significant reduction in cash out related to share-based compensation. The fact that we imply approximately 2 billion of share-based compensation in 2025 in the bridge from non-operating profit prior versus the new definition should also give you assurance that we aim to keep that line in check.

Dominic: Businesses switch out out of the cloud ERP definition like our former armor enterprise cloud business. I mean, you see they are in decline. We are further accelerating the move and there is no further restructuring require.

Dominic: I have to caution you, though, that we are just starting the negotiations with social partners in some countries and need to make assumptions on the specific mix of measures and geographic composition, which might require material adjustments to this number and the related cashout. Meanwhile, we're stepping up our investment in business AI to drive automation. We see significant growth opportunities lying ahead and want to improve our operating leverage. Therefore, any savings we can reap from restructuring in 2024 will already be largely offset by that investment. The incremental savings will allow us to increase our non-IFRS operating profit ambition for 2025 from $11.5 to $12 billion, net of share-based compensation of approximately $2 billion, to $10 billion under the new IFRS operating profit definition.

Dominic: To actually lift and shift as customers or two hour Weiss with S&P ethylene Dominic maybe I. Just also want to give you some quantitative background, who does cloud ERP suite definition.

Dominic: We think it's very important to demonstrate to you the sustained momentum in that I mentioned in my introductory remarks that you see a slight acceleration actually from 32% to 33% here.

Dominic: Now we had gotten sometimes the question from you.

Need to accelerate cloud revenue growth to hit your ambition 2025, and actually that's not precisely correct.

Dominic: Look at the decomposition of our SaaS Paas revenue in 82% of that representing cloud ERP suite running smoothly at 33% the rest having been a little bit of a pressure in 2023, because we also divested litmus, so that gave a deliberate or a headwind.

Dominic: Having been a little bit under pressure in 2023 because we also divested Litmos, so that gave it a little bit of a headwind. And I'd say on average, that would be more a mid-single-digit grower, the kind of extension suite. And then you look at the decline in the ER's business by minus 16% constant currency light next year. If you do the math and simply take the same growth rates on all these categories for the next two years, you come exactly to our ambition 2025. So it's not an acceleration. It is simply a continuation of the momentum in these different buckets, i.e. strong growth in our cloud ERP suite, a slightly lower growth, a lower growth, frankly, on the extension suite, which Christian mentioned, and then a declining ER's business. On top of that, of course, we have a minor, very minor uptick from the Litmos, sorry, the Lina X integration. So you can really nicely triangulate from that the revenue growth we've guided for 2024. So in addition to jumping off current cloud backlog, you asked about the transactional part of it. You can figure out that, I mean, we said it's about 800 million of revenues. It's kind of flattish in 2024. If you look at the dilution of the CCB by that, it brings you pretty much to our midpoint of the guidance. So it's all extremely circular triangulation 2024 cloud revenues. And maybe just one comment. I mean, because there was also a question around large enterprises moving. I mean, what we typically see is the customers, especially large enterprise customers, they land with finance and logistics. And then we already embed procurement because now, because of the integration, everything's sitting on BTP. There is no need anymore to buy direct procurement for an indirect procurement with Ariba. It just comes as one procurement platform, which also then avoids that we are going into infights against any best of breed players. We are just delivering it out of the box. And then when you land it, then you can talk about, let's modernize travel and expense. And when you actually have finance and logistics, why do not do not predict the sales planning and inventory matching with IBP? And this goes on and on and on. And this, of course, this cross-sell.

Dominic: And I'd say on average that would be more of a mid single digit grow or the kind of extension suite and then you look at the decline in the us business by minus 16% constant currency.

Dominic: Next year, if you do the math and simply take the same growth rates on all of these categories for the next two years you come exactly to our ambition 2025. So it's not an acceleration it is simply a continuation of the momentum in these different buckets I E strong growth in our cloud ERP suite, a slightly lower accruals are lower growth.

Dominic: We want to further improve the attractiveness of this important compensation tool by strengthening confidence in this instrument based on strong earnings and free cash flow growth momentum. Finally, I'd like to turn to sustainability and our non-financial results. Our investments in the winning sustainability solution portfolio have been very well received by the market, and we now have approximately 1,000 CloudForce Sustainable Enterprise customers. Q4 was particularly successful, with a key win in Japan, where Matsumoto Precision adopted our sustainability footprint management solution to help manage its CO2 emissions.

Dominic: The benefits of the planned program and from the investments in business AI will become more apparent in subsequent years as we capitalize on improved operating leverage at an increasing scale. This also allows us to increase the free cash flow ambition for 2025 to 8 billion euros. This is net of any cash out for restructuring that might spill over into 2025. As we have to absorb about 0.4 billion of cash out for pre-existing compliance and related matters and the unwinding of the remaining SAP-triggered factoring on top of the preliminary estimate of 2 billion cash out for restructuring, the corresponding underlying free cash flow number, net of these effects, for 2024 is forecast to be approximately 5.9 billion euros.

Dominic: <unk> on the extension of suite, which Christian had mentioned.

Dominic: And then a declining us business on top of that of course, we have a minor very minor uptick from four minutes. Most majority Linux integration. So so we can really nicely triangulate from that the revenue growth. We've guided for 24. So in addition to jumping off can claw back look you asked about the transactional part of it you can figure.

Dominic: I mean, we said, it's about $800 million of revenues them, it's kind of flattish in 2024, if you look at the dilution of the CCP by that it brings you pretty much to our midpoint of the guidance.

Dominic: So it's all extremely.

Dominic: Circular triangulation 2020 for cloud revenues.

Dominic: And maybe just one comment I mean, because there was also a question of won't larger enterprises moving to wise I mean, what we typically see is the customers, especially large enterprise customers the land with finance and logistics and then we already embed procurement because now because of the integration of everything sitting on PDP. There is no need anymore.

Dominic: This is largely in line with the tax-affected projected improvement in our non-IFRS operating profit. When it comes to improvement in cash conversion in 2025, please keep in mind that in that year, we expect to see a significant reduction in cash out related to share-based compensation. The fact that we imply approximately $2 billion of share-based compensation in 2025 in the bridge from non-operating profit prior versus new definition should also give you assurance that we aim to keep that line in check. We want to further improve the attractiveness of this important compensation tool by strengthening the confidence in this instrument based on strong earnings and free cash flow growth momentum. Finally, I'd like to turn to sustainability and our non-financial results. Our investments in the winning sustainability solution portfolio have been very well received by the market, and we now have approximately 1,000 cloud for sustainable enterprise customers. Q4 was particularly successful with a key win in Japan, where Matsumoto Precision adopted our sustainability footprint management solution to help manage their CO2 emissions. He views sustainability as an additional growth space.

Dominic: We view sustainability as an additional growth space, with market trends such as the convergence of sustainability and financial standards and increasing disclosure requirements playing to our strengths. In Q4, we released two new sustainability solutions, including Sustainability Data Exchange, which helps businesses gain transparency on suppliers' CO2 emissions, and Green Token, which enables companies to provide traceability and transparency across the supply chain. I'm also happy to confirm that we met our 2023 non-financial metric targets. Our customer net promoter score, NPS, increased two points year-over-year to nine in 2023, within the outlook range of eight to twelve. SAP's employee engagement index remains stable at 80 percent, meeting the upper end of the target range and demonstrating a continued high level of engagement. Net carbon emissions were zero kilotons in 2023, meaning the company was carbon neutral in its own operation. In summary, we have achieved all key objectives in 2023. Our strategy works and remains consistent.

Dominic: Our direct procurement of <unk> and indirect procurement with Alibaba. It's just comes as one procurement platform, which also then avoids that we are going into insights and again against any best of breed players. We are just delivering it out of the box and then when you landed then you can talk about less modernized travel and expense and when you actually.

We have finance and logistics why do the do not predictive sales planning and inventory matching with IBP and this goes on and on and on and this of course this cross sell.

Dominic: Synergies, we want a level, which now in the years to come.

Dominic: Synergies, we want to leverage now in the years to come.

Speaker Change: Very clear thank you.

Speaker Change: Very clear. Thank you.

Speaker Change: Thank you, Johannes. We'll take the next question, please.

Speaker Change: Material on us.

Speaker Change: Take the next question please.

Speaker Change: The next question is from the line of Adam Wood with Morgan Stanley.

Speaker Change: The next question is from the line of Adam Wood with Morgan Stanley. Please go ahead.

Adam Wood: Hi, good morning.

Adam Wood: Hi, good morning. Congratulations on the strong end to 23 and thanks for taking the question. Maybe just first of all, in terms of the restructuring plan, you've obviously given guidance for 25. Could you just help us? Are there any further benefits that you'd expect from that plan, both from a revenue accelerator?

Adam Wood: On the strong end of 'twenty three are not just taking the question.

Adam Wood: Just first of all.

Adam Wood: The restructuring plan, you, obviously, giving guidance for 'twenty Hi could you just talk was there any thought about.

Adam Wood: No.

Adam Wood: From a revenue acceleration in cost wise.

Adam Wood: Weiss, Post 2025. And then secondly, as we talk about business AI and SAP, obviously investors have been stressing a lot the benefits of the chip layer for hyperscalers and for large language models, but it strikes us that there's going to be a big benefit for companies that have access to customer data and customer processes. Could you just talk a little bit about how that differentiates SAP and how willing customers are to work with you to share those things?

Adam Wood: Post 2025, and I'm hopefully as me as we're talking about business AI and.

Adam Wood: Machine messages have been certainly a lot better thank you.

Adam Wood: Chip.

Adam Wood: The heightened standards and for large language models, but it strikes us that there's going to be a big benefit to companies that have excellent customer data and customer price losses could you just talk a little bit about how that differentiates <unk>.

Dominic: Market trends such as the convergence of sustainability and financial standards and increasing disclosure requirements playing to our strengths. In Q4, we released two new sustainability solutions, including Sustainability Data Exchange, which helps businesses gain transparency on suppliers' CO2 emissions, and Green Token, which enables companies to provide traceability and transparency across the supply chain. I'm also happy to confirm that we met our 2023 non-financial metric targets. Our customer net promoter score, NPS, increased two points year-over-year to nine in 2023, within the outlook range of 8 to 12. SAP's employee engagement index remains stable at 80%, meeting the upper end of the target range and demonstrating a continued high level of engagement.

Dominic: However, we must continue to evolve and stay agile while we continuously adapt to a fast-changing landscape. Our outlook illustrates that we are on the right trajectory to achieve our updated 2025 ambition, despite a quite challenging macroeconomic outlook. In 2024, we will focus on staying the course and putting the right gradient of earnings growth in place to sustain strong revenue and earnings growth well into the second half of the decade. Delivering on that ambition is also a compelling argument to convince our customers to build intelligent, sustainable enterprises and to attract and retain the best talent to master the challenges lying ahead, despite some difficult decisions we had to take with regard to restructuring. We continue to focus on stronger execution and remain confident about SAP's future.

Adam Wood: And how willing customers ought to work with you to share those things benefit that the wider installed base. Thank you.

Adam Wood: and many others.

Weiss: Look, I can start and then Dominic, please also comment on our close potential 2025 and beyond. I mean, look, the business model, Adam, I mean, when we started this transformation three years ago, you know, there was, of course, a much lower recurring revenue share. And now we have built immense resilience and the total cloud backlog of 44 billion actually signals the immense revenue potential we already have in the books for the years to come. We will now doubling down on lending, expanding on adoption to really drive that hope. And then just to give you another figure, why is Quo, why is actually contributed with 50% net new customers? So 50% install base, 50% net new. So it's not only about converting the install base, the support revenue with a higher multiple to cloud. It's also about winning market share. And then when you look into 2025 and beyond. And Dominic can comment on that. I mean, given now the higher recurring revenue share, giving the lower share of licensed revenue, which will further decline in the years to come, obviously, it's actually just as a result that we see further total revenue acceleration also 2025 and beyond. And with business AI and sustainability and in our very strong supply chain portfolio, we have no lack of new solutions, of new innovations to further also win market share. In the in the upcoming year.

Speaker Change: I can start and then Dominic Please also comment on our close potential 2025 and beyond.

Speaker Change: The business model, Adam I mean, when we started this transformation three years ago.

Speaker Change: There was of course, a much lower recurring revenue show and now we have built immense affiliates and the total cloud backlog.

Speaker Change: 44 billion actually signals the immense revenue potential we already have in the books for the years to come we will now doubling down on landing expanding on adoption to really twice that hope and then just to give you another figure.

Speaker Change: Why it's quo why is actually contributed with.

Speaker Change: With 50% net new customers, so 50% installed base, 50% net new so it's not only about converting the installed base to support revenue with a higher multiple to cloud. It's also about winning market share and then when you look into 2025 and beyond and Dominic can comment on that I mean, given out the higher.

Dominic: Net carbon emissions were zero kilotons in 2023, meaning the company was carbon neutral in its own operation. In summary... Our strategy works and remains consistent. However, we must continue to evolve and stay agile while we continuously adapt to a fast-changing landscape. Our outlook illustrates that we are on the right trajectory to achieve our updated 2025 ambition, despite a quite challenging macroeconomic outlook. In 2024, we will focus on staying the course and putting the right gradient of earnings growth in place to sustain strong revenue and earnings growth well into the second half of the decade. Delivering on that ambition is also a compelling argument to convince our customers to build intelligent, sustainable enterprises and to attract and retain the best talent to master the challenges lying ahead, despite some difficult decisions we had to take with regard to restructuring. We continue to focus on stronger execution and remain confident about SAP's future. So, thank you very much for your attention, and we are now happy to take your questions. Thank you. And Operator, you can open the line, please.

Speaker Change: <unk> revenue share, giving the lower share of license revenue, which will further decline in the years to come obviously, it's actually just as a result that we see further total revenue acceleration also 2025 and beyond and with business AI and sustainability.

Dominic: So, thank you very much for your attention, and we are now happy to take your questions.

Speaker Change: Our very strong supply chain portfolio, we have no lack of new solutions of new innovations to further also win market share in the upcoming years.

Operator: Thank you, and operator, you can open the line, please. Ladies and gentlemen, at this time, we will begin the question and answer session.

Dominic: And maybe then beyond the acceleration on total revenues because of the mixed effects that are playing in our favor, yes, the restructuring program, which is frankly expensive at $2 billion, has benefits beyond the pure kind of uplift of half a billion in 2025. I mean, there's also the reskilling that we need to do to master business design to drive the growth, but also from a pure financial model point of view, what we really try to do is to decouple the cost growth more from the top-line growth. I mean, that was a little bit the Achilles heel, I would say, in our business model, that we have been not very successful to do that in the past, and that was also, I think, there's a good reason for that because we had to invest heavily in the transformation. But now our customers want to see, and you investors want to see, that we can drive efficiencies by business AI. We've done some thorough benchmarking with what other cloud companies are doing, and we really want to converge more to best-in-breed kind of fall-through, i.e., operating leverage, i.e., increasing the cost. We cross-base more slowly, and that should give us, actually, margin expansion beyond 2025. And Adam, on AI and differentiation for SAP.

Speaker Change: And maybe then.

Speaker Change: Beyond the acceleration on the total revenues because of the mix effects that are playing in our favor.

Yet the restructuring program, which is frankly expenses of $2 billion has benefits beyond the pure kind of uplift of half a billion in 2025, I mean thats also the re skilling that we need to do to master business designed to drive the growth, but also from a pure financial model point of view, what we really try to do is to decouple the cost growth more on the top line.

Operator: Anyone who wishes to ask a question may press hash followed by a 1 on their touchstone telephone. If you wish to remove yourself from the question queue, you may press hash followed by 3. If you are using speaker equipment today, please lift the handset before making your selection. Anyone who has a question may press hash followed by one at this time. One moment for the first question, please.

Speaker Change: Growth I mean that was a little bit the Achilles heel I would say that our business model.

Speaker Change: We have been very successful to do that in the past and that was also I think there's a good reason for that because we had to invest heavily in the transformation, but now our customers want to see new investors will see that we can drive efficiencies by business AI, we've done some benchmarking.

Speaker Change: The cloud companies are doing and we really want a converged more to best in breed kind of pull through.

And the first question is from the line of Frederic Poulin with Bank of America.

Speaker Change: Operating leverage increasing the cost base more slowly than that.

Speaker: Go ahead; your line.

Speaker Change: Sort of give us actually margin expansion beyond 2025.

Speaker: Hey, good morning.

Thank you very much for taking the question.

Speaker Change: Adam on AI and differentiation for S&P.

Adam Wood: Just to give you a glimpse, we are developing strong organic products, a strong organic AI platform.

Speaker: We can start first of all on the S4HANA and S4HANA cloud migration, if you can give us an update, in particular on the traction you're having with large and complex customers. You created that new board position dedicated to cloud growth, headed by Thomas Soesik. So, you know, what problem are you trying to solve in terms of?

Speaker Change: Just to give you a glimpse.

Operator: Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press hash followed by one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press hash followed by three.

Speaker Change: Developing strong organic products, a strong organic AI platform.

Adam Wood: So that our co-pilot tool can speak not only finance, but can solve some of the hardest problems our customers are facing across the company. We're going to infuse it right into the business processes. I mean, when you look at what we already can do in predictive sales and optimizing inventory, it can take out a ton of CapEx and OpEx of the P&L balance sheet of our customers. And then when you listen to our partners like Microsoft or NVIDIA, where we just closed another partnership.

Speaker Change: Our co pilot tool can speak not only finance, but can solve some of the hardest problems our customers facing across the company began to infuse it wide into the business processes. I mean, when you look at what we already can do in particular sales and optimizing inventory. It can take out a ton of capex and opex of the P&L.

Operator: If you are using speaker equipment today, please lift the handset before making your selection. Anyone who has a question may press hash followed by one at this time. One moment for the first question, please. And the first question is from the line of Frederic Poulin with Bank of America. Go ahead, your line. Hey, good morning.

Accelerating that transition

Speaker Change: Our balance sheet of our customers and then when you listen to our partners like Microsoft or in retail, where we just closed another partnership.

Speaker: And then, secondly, if I can follow up on the business AI topic, Topic.

Adam Wood: I mean they are keen actually now to combine their co-pilots with our co-pilot to extend our AI platform. Why? Because when you have content

Speaker Change: I mean, they are keen actually now to combine their core pilots with our copilot to extend our AI platform why.

So can you discuss a little bit the traction you've seen with the Rise Premium offering?

Speaker Change: So when you have content from over 30000 customers and access to the most mission critical data.

Adam Wood: From over 30,000 customers and access to the most mission-critical data, I mean, the algorithms become smarter every day. We can actually solve some problems which others can't. The accuracy.

Speaker: What are the biggest use cases where you see the strongest interest from customers?

Christian Klein: Thank you very much for taking the question. I'd like to start, first of all, on the S4HANA and S4HANA cloud migration, if you could give us an update, in particular on the traction you're having with large and complex customers. You created that new board position dedicated to cloud growth, headed by Tomo Soesik. So, you know, what problem are you trying to solve in terms of accelerating that transition?

Anything you can share about the roadmap and the ability to price it up would be great.

Speaker Change: <unk> become smarter every day, we can actually solve some problems, which are dot com <unk> and also actually to also ensure responsible AI is of course, a treasure, but only PFS in the market.

Speaker: Thank you very much.

Speaker: Yeah, absolutely happy to do so. First of all, large enterprises, I mean, you have seen the logos in our earnings announcement, and customers like, you know, Nvidia or DHL really want to use our products to actually scale operations, to drive productivity, to also fight inflation, and also, of course, to build more resilient supply chains. And actually, when you look at the order entry in Q4, it was actually a significant uptick when you look at the deals we are closing above 5 million. And then, of course, you also have seen our total cloud backlog of over 44 billion euros. And that also signals to you, I mean, this amount of committed order backlog, which is already sitting in the books, is coming especially from large enterprises who are now going into the design phase to remodel their business models, to also try standardization, and to move to the clean core.

Adam Wood: and also actually to also ensure responsible AI is of course a treasure what only SAP has in the market.

Speaker Change: Thank you. Thank you.

Speaker Change: Thank you Adam. We'll take the next question and I will kindly ask you or remind you to please stick to one question if possible. Thank you.

Speaker Change: Thank you Adam will take the next question I would kindly ask you will remind you to please keep to one question placebo. Thank you.

Christian Klein: And then second, on the business AI topic. Can you discuss a little bit the traction you've seen with the RISE premium offering? What are the biggest use cases where you see the strongest interest from customers? Anything you can share around the roadmap and ability to price up would be great. Thank you very much.

Speaker Change: The next question comes from the line of Toby Ock with JP Morgan Casanova.

Speaker Change: The next question comes from the line of Tobey Aquifer JP Morgan Cazenove Limited. Please go ahead.

Speaker Change: Please subscribe to our YouTube channel for more videos like this.

Speaker Change: Yes, hi, good morning, and thanks for the question. Just on the CCB growth in Q4, 27% versus the sort of 25% that you've been seeing previously, I know various factors to consider there. Obviously, the lip-moss divestiture lapping, and I think there was obviously a touch of M&A in there from Lean IX. So could you just break down in a bit more granularity and quantify the core drivers of that CCB growth re-acceleration, and then also just the reconciliation between the 27% CCB growth and the 24% to 27% cloud revenue guide for 2024? What are you penciling in there on the transactional side? Thank you.

Tobey Aquifer: Yes, hi, good morning.

Tobey Aquifer: For the question.

Tobey Aquifer: Just on the CCP growth in Q4, 27% versus that sort of 25% that you've been saying previously I know various factors to consider there.

Christian Klein: Yeah, absolutely. I'm happy to do so. First of all, large enterprises, I mean, you have seen the locals in our earnings announcement and customers like, you know, Invidia or DHL really want to use our products to actually scale operations, to drive productivity, to also fight inflation, and also, of course, to build more resilient supply chains. And actually, when you look at the order entry in Q4, it was actually a significant uptick. When you look at the deals, we are closing above 5 million.

Tobey Aquifer: Most divestiture lapping and nothing that was obviously a touch of M&A in that from lean IX. So could you just break down in a bit more granularity and quantify the core drivers of that PCB growth re acceleration and then also just the reconciliation between the 27% CCP growth and the 24% to 27% cloud revenue Guy.

Tobey Aquifer: For 2024.

Tobey Aquifer: What are you penciling in that on the transactional side. Thank you.

Speaker: And then, over the course of the next year, we'll, of course, also adopt our business technology platform. So, overall, we are actually very confident and we are very happy with the traction we are seeing in the large enterprise segment. Scott, any further comments? Yeah, I think we've spoken about it before, Christian, but I would just reiterate that customers around the world are very clear that to be able to navigate the uncertainty of the macroeconomic and other environments, they need operationally efficient processes. They need to access their data and be able to then find ways to monetize and learn from that data using opportunities with business AI. And the only answer is using the cloud with SAP. So the order entry is a reflection of not only the positive sentiment but, frankly, the market demand that we see.

Speaker Change: I'm happy to do that.

Speaker Change: Happy to do that.

Speaker Change: I mean, first of all, yes, I mean, you've seen or you will see in the disclosure and the full report that I think there was a 10 million contribution from DINA-X for the December. So pick 100 million-ish plus as a revenue uplift. That's, of course, boosting our CCB growth at that tune. The rest was frankly just having Scott here, a great, great end of the year in bookings. We really did well in terms of pulling in a lot of deals and signing them and getting them closed. So it's really solid.

Speaker Change: I mean first of all yes, I mean, you've seen or you will see in the disclosure in the full report that I think there was a $10 million.

Speaker Change: Contribution from <unk> for the December so pick a $100 million ish plus as a revenue uplift that's of course boosting our CCP growth.

Christian Klein: And then, of course, you also have seen our total cloud backlog of over 44 billion euros. And that also signals to you, I mean, this amount of committed order backlog, which is already sitting in the books, is coming, especially from large enterprises who are now going into the design phase to remodel their business models and also try standardization to move to the clean core. And then, over the course of the next year, we'll, of course, also adopt our business technology platform. So overall, we are actually very confident and very happy with the traction we are seeing in the large enterprise segment. Scott, any further comments?

At June <unk>.

Speaker Change: The rest was frankly just have.

Speaker Change: Scott here, a great great end of the year in bookings I think it really did well in terms of putting in a lot of deals and signing them and getting them closed.

It's really solid.

Scott Russell: And now in terms of the translation of that CCP growth into the cloud revenue guidance I hinted to that before.

Scott Russell: It is basically the transactional revenue that is the explanation for the Delta who jump of 27% you have an $800 million ish transaction revenue.

Speaker Change: <unk> is pretty much stagnating and has been stagnating 23, and will continue to $2 24, and I think Christian you might want to explain whats happening in our supply network business, which is actually a strategic investment we do there.

Christian Klein: So the good news is that headwind, which is kind of shaving off one five percentage points or so in 2024 will ease over time, because the rest of the cloud business is growing fast and because of the benefits we see from that strategic investment on the supplier side. The supply network. We think we'll achieve a more normal growth I'd say in.

Christian Klein: 2024, so we're not going to snap back to double digit yet, but high single digit is possible in 2025. So that's the trajectory, we frankly don't need any macroeconomic miracles at all for that we just have assumed the kind of continued subdued macro for that.

Scott: Yeah, I think we've spoken about it before Christian, but I would just reinforce that customers around the world are very clear that to be able to navigate the uncertainty of their macroeconomic and other environments, they need operationally efficient processes. They need to access their data and be able to then find ways to monetize and learn from that data using opportunities with business AI. And the only answer is using the cloud with SAP.

Christian Klein: So I think thats, a very very solid way to triangulate the guidance on cloud revenues for 'twenty. Four I gave you that logic also to simply extrapolate the growth buckets, we have within cloud from 23% to 2004 taking into.

Christian Klein: And you can then play that game also from 2004 25, and you see it's super circular.

Speaker: And obviously, that has resulted in a strong total cloud backlog and current. And with regard to Business AI, we launched two commercial models, indeed, Vice Premium and Quo Premium, and there we are actually seeing that actually over 50% of our customers are actually selecting our premium packages. Also, that we are giving our customers the choice of a consumption-based AI offering where they can buy tokens and use them across our portfolio is extremely compelling. And we have, of course, now signed a ton of new customers, and now it's all about adoption, now it's all about making them live to show really real use cases and show the value as we are moving, especially in business AI now, from discovery into execution, so it's all Thank you. Thanks, Fred.

Christian Klein: Solid to bring these data points together.

Christian Klein: So the order entry is a reflection of not only the positive sentiment but the market demand that we see. And obviously, that has resulted in a strong total cloud backlog and current Yeah, and with regard to business AI, we launched two commercial models, Indeed, Wise Premium, and Quo Premium. And there we are actually seeing that actually over 50% of our customers are selecting our premium packages.

Speaker Change: Look, I mean, kudos to Scott and the team. It was an extremely successful Q4. And I guess what is also making SAP so resilient for the years to come, it's of course the 44 billion already sitting in our books. But when you are doing business in over 100 countries, I mean, in quarters like that, you have Southeast Asia walking. Who is actually saying that Germany is not a cloud market? Germany had an outstanding quarter. North America performed extremely well. Large customers like GM signing up to decarbonize, to build this resilient supply chain. And when you are then sitting in Davos, and you're looking at the challenges what business leaders have right now, no matter if it's about automation with business AI, doing things which humans can't do today, which you can do tomorrow with AI, or it's about sustainability with the Green Ledger, which is now hitting the market. And also then. Get transparency also for scope two and scope three. I mean, you are touching actually all the relevant topics. And this is why I'm also so proud on our product teams, because the innovation coming out of this team is really, really strong and gives us, of course, also a lot of confidence regarding order entry for the years to come.

Speaker Change: Yes look.

Speaker Change: Kudos to Scott and the team. It was an extremely successful Q4 and I guess, what is also making sep's so resilient for the years to come.

Speaker Change: Cost of 44 billion already sitting in our books, but when Youre doing business in over 100 countries I mean quarter of like that you are southeast Asia Walker, who is actually saying that Germany is not a cloud market, Germany had an outstanding quarter, North America performed extremely well large customer.

Speaker Change: Like GM, signing up to Decarbonize to build this facility and supply chains and menu items sitting in Davos and Youre looking at the challenges with business leaders have wide now no matter, if it's about automation with business AI doing things, which humans can do today, which you can do tomorrow with AI.

Christian Klein: Also, that we are giving our customers the choice of a consumption-based AI offering where they can buy tokens and use them across our portfolio is extremely compelling. And we, of course, have now signed a ton of new customers. So now it's all about adoption.

Speaker Change: It's about sustainability with decree letter, which is now hitting the market and also then get transparency also for scope two and scope suite.

Christian Klein: Now it's all about making them live to show really real use cases and show the value. As we are moving, especially in business AI now, from discovery to execution. So it's all about adoption, and the start was where we promised. Thank you.

Speaker Change: Attaching actually all the relevant topics and this is why I'm also so proud on our product teams because the innovation coming out of this team is really really strong and gives us of course also a lot of confidence regarding order entry for the years to come.

Operator: We'll take the next question, please.

Operator: We'll take the next question, please. The next question is from the line of Johannes Schaller with Deutsche Bank. Yeah, good morning.

The next question is from the line of Johannes Schaller with Deutsche Bank.

Operator: Thanks for taking my question. Um, you obviously brought in the new cloud. Yeah, definition.

Speaker Change: Thank you. Great. Thank you. Thank you, Toby. We'll take the next question, please.

Speaker Change: Great. Thank you thank.

Speaker Change: Thank you Toby we'll take the next question please.

Speaker: Yeah, good morning.

Thanks for taking my question.

Christian Klein: I think you said 82% of revenues. Maybe you can help us understand a little bit better what's in the other 18%. And I think, Dominic, you also alluded in the call in December to potentially taking some action on these other 18%, especially the non-performing parts in the cloud portfolio, if I understood you correctly. So is the current restructuring already targeting some of these areas outside the cloud ERP suite, or is there maybe more to come? And then, as a follow-up, could you maybe give us a quick update on the transactional side of the cloud business and what the dynamics are here right now? Thank you. Yeah, thanks for the question, Johannes. I will start and then hand it over to Dominik.

Speaker: You obviously brought in the new cloud here.

Speaker Change: Our next question is from the line of Ben <unk> with Exane BNP Paribas. Please go ahead.

Speaker Change: The next question is from the line of Ben Castillo-Benaoz with Exane, BNP Paribas. Please go on.

I think you said 82% of revenues.

Speaker: Maybe you can help us understand a little bit better what's in the other 18%.

Ben Castillo-Benaoz: Good morning. Thanks very much and congratulations for a strong end of the year. Question, I guess, Dominic, around free cash flow conversion. Looked like 23.

Ben: Good morning, Thanks, very much and congratulations for a strong end of the year question Dominic around free cash flow conversion.

And I think, Dominic, you also alluded on the call in December to potentially taking some action on these other 18%, especially the non-performing parts in the cloud portfolio, if I understood you correctly.

Ben: 'twenty three.

Dominic: We're seeing some underlying improvements.

Ben: We're seeing some underlying improvement in the 2020 guidance if we exclude the one offs there, but then some more needed in 2025 and you did mentioned the cash and stock based compensation charge, helping that but I'm curious what other levers are you pulling around working capital cash collection that can give us some extra comfort and did not require traject.

Speaker Change: Gardner, and many, many more.

Speaker: So is the current restructuring already targeting some of these areas outside the cloud ERP suite, or is there maybe more to come?

Speaker Change: but then some more needed in 2025.

Speaker Change: I'm curious, what other levers are you pulling around working capital, cash collection that can give us some cash collection that can give us some

And then, as a follow-up, could you maybe give us a quick update?

Speaker: The transactional side of the cloud business and what the dynamics are here right now.

Ben: At the year 2025.

Speaker Change: Yep.

Thank you.

Speaker Change: Thank you yeah I mean.

Speaker Change: Yeah, I mean, it's actually quite straightforward. You basically mentioned the lion's share of the bridge. It's simply the uplift in the profit net of the tax rate, which we've guided. That is falling through into cash flow, of course, and this is really an improvement on profit. And then you have to always look at kind of the cash conversion on stock based compensation. What's the P&L and what's the cash out? And there is a big improvement looming from 24 to 25. Taking that into account, you have a relatively moderate assumption for working capital, gradual grinding on efficiency, collecting money earlier. We've already made quite some progress. I mean, this is also the reason why in 2023, you've seen an outperformance on free cash flow. And honestly, you've seen in my comments that we have to only digest a couple hundred million of factoring, SAP-induced factoring in 2024. So it tells you something that we've already worked off some of the past year. And so I think also the logic in terms of how you build the bridges from 23, 24, 25 and free cash flow, I mean, any other number would be quite illogical and it doesn't require any miracles. It just requires proper execution. Some are very, very moderate. There are improvements still on operations. So it is something that we feel quite, quite strong about that we can achieve that.

Speaker Change: It's actually quite straightforward you basically mentioned the lion's share of the bridge, it's simply the uplift in the profit.

Speaker: Yeah, thanks for the question, Johannes. I'll start and then hand it over to Dominic. Look, the cloud ERP definition, why?

Speaker Change: Net of the tax rate, which we've guided that is falling through into cash flow of course I'm. Just it's real improvement on profit and then you'll have to always look at kind of the cash conversion on stock based compensation, what's the P&L and what is the cash out and.

Christian Klein: Look, the cloud ERP definition. Why? I mean, our cloud ERP is now better integrated than any other offering out there in the market. The data model is harmonized between Ariba, SuccessFactors, Concur, our CPQ offering with our core ERP, you know, talking about financials and supply chain. And we have all the identity, and authorization management is now coming out of the box.

Speaker: I mean, our cloud ERP is now better integrated than any other offering out there in the market. Now, the data model is harmonized between Ariba, SuccessFactors, Concur, our CPQ offering with our core ERP, you know, talking about financials and supply chain. And we have all the identity, and authorization management is now coming out of the box. And that, of course, also tries a lot of cross-sell opportunities. I mean, frankly, Ariba and S4 direct procurement come as one procurement platform, and again, just also highlighting the significant cross-sell potential we have. The businesses which are out there, outside of the cloud ERP definition, like our former HANA Enterprise cloud business, you see, they are in decline. We are further accelerating the move, and there is no further restructuring required to actually lift and shift these customers over to our SAP Wise with SAP offering.

Speaker Change: There is a big improvement looming from 'twenty four to 'twenty five.

Speaker Change: Taking that into account you have a relatively moderate assumptions for working capital gradual grinding on efficiency collecting money earlier, we've already made quite some progress I mean this is also the reason why in 2023, you've seen an outperformance on free cash flow and honesty.

Christian Klein: And that, of course, also drives a lot of cross-sell opportunities. I mean, frankly, Ariba and S4 Direct Procurement come as one procurement platform. And again, just also highlighting the significant cross-sell potential we have. The businesses which are out there, outside of the cloud ERP definition, like our former HANA Enterprise cloud business. I mean, you see, they are in decline. We are further accelerating the move, and there is no further restructuring required to actually lift and shift these customers over to our wise with SAP offering. Dominik?

Speaker Change: Honestly you have seen in my comments that we have to only digest a couple of hundred million dollars of <unk>.

Speaker Change: <unk> SAP induced factoring in 2024, so telling you something that we've already worked off from some of the past year and.

Speaker Change: So I think also the logic in terms of how you build the bridges from 'twenty three 'twenty four 'twenty five and free cash flow I mean, any other number would be quite illogical and it doesn't require any miracles. It just requires proper execution.

Speaker Change: Very moderate improvements still on operations. So it is something that we feel quite quite strong about that we can achieve that.

Speaker Change: Yes.

Speaker Change: Understood Thanks very much.

Speaker Change: That's it. Thanks.

Speaker Change: Thanks Brent.

Speaker Change: Thanks Ben. We'll take the next question, please.

Speaker Change: Next question please.

Speaker Change: The next question is from the line of James Goodman with Barclays Capital. Please go ahead. Your line is open.

Speaker Change: The next question is from the line of James Goodman with Barclays Capital. Please go ahead.

James Goodman: Good morning, Thank you very much and.

James Goodman: Morning. Thank you very much. Just from me, I mean, very strong cloud outlet. I wanted to just dig in a little bit on the 8% to 10% cloud and software revenue growth. I mean, it seems, you know, in the past, there was perhaps a little bit more confidence that the business would grow total revenue double digit this year, which clearly is possible at the high end of that range and on my numbers. But just wanted to dig into a bit the sort of implied caution there really on.

Dominic: Dominic? Maybe I just also want to give you some quantitative background. On this cloud ERP suite definition, we think it's very important to demonstrate to you the sustained momentum that I mentioned in my introductory remarks that we see a slight acceleration, actually, from 32 to 33% here. Now, we have gotten sometimes the question from you, you need to accelerate cloud revenue growth to hit your ambition of 2025. And actually, that's not precisely correct. If you look at the decomposition of our SaaS path revenue in... 82% of that representing the cloud ERP suite running smoothly at 33%, the rest... Having been a little bit under pressure in 2023 because we also divested Litmos, so that gave it a little bit of a headwind.

James Goodman: Just just from me I mean, very strong cloud outlet I wanted to just dig a little bit on the 8% to 10% cloud and software revenue growth.

James Goodman: As seen in the past there was perhaps a little bit more confidence that the business would grow total revenue double digit this year, which clearly will spill at the high end of that range in my numbers, but just wanted to dig into the.

James Goodman: The sort of implied caution that really on the.

James Goodman: on the support and license side given license

James Goodman: On the support and license side given license decline seem to be tapering is now very small in any case, it really implies quite a steep acceleration I think in the rate of maintenance decline is that.

Speaker Change: Thank you very much for your time.

James Goodman: Something specifically you're anticipating this year.

Dominic: Maybe I just also want to give you some quantitative background on this cloud ERP suite definition. We think it's very important to demonstrate to you the sustained momentum behind that. I mentioned in my introductory remarks that we see a slight acceleration, actually, from 32 to 33 percent here. Now, we have gotten the question from you quite a few times, you need to accelerate cloud revenue growth to hit your ambition of 2025. And actually, that's not precisely correct.

Speaker Change: And if so why or is there an element of conservatism. Thank you.

Speaker Change: Look, I mean, on total revenue, I mean, first, again, we had also good Q4 in the license revenue, as you can see from the numbers. Of course, there were also no customers, actually, who had to still upsell some more users because of their growing business.

Speaker Change: Look I mean on on total revenue I mean first.

Speaker Change: Again, we had also a good Q4 in the license revenue as you can see from the numbers of cost involved in our customers actually will head towards still up sell some more useful because of their calling business.

Dominic: And I'd say on average, that would be more of a mid-single-digit grower, the kind of extension suite. And then you look at the decline in the ER's business by minus 16% constant currency light next year. If you do the math and simply take the same growth rates on all these categories for the next two years, you come exactly to our ambition of 2025. So it's not an acceleration. It is simply a continuation of the momentum in these different buckets, i.e., strong growth in our cloud ERP suite, slightly lower growth, lower growth, frankly, on the extension suite, which Christian mentioned, and then a declining ER business. On top of that, of course, we have a minor, very minor uptick from the Litmos, sorry, Lina X integration.

Speaker Change: Cost over time, you could see.

Speaker Change: A continuous decline as we always projected but of course when you are now having a good license quarter that makes the year over year comparison, a bit more difficult now.

Dominic: If you look at the decomposition of our SaaS path revenue, 82 percent of that represents the cloud ERP suite running smoothly at 33 percent, the rest. Having been a little bit under pressure in 2023 because we also divested Litmos, so that gave it a little bit of a headwind. And I'd say, on average, that would be more of a mid-single-digit grower, the kind of extension suite

Speaker Change: I would also say looking in also in 2024 days of volatility in this number and this license revenue number and lift the underlying growing recurring revenue shelf SVP. It's just a matter of time when we actually report also total revenue growing double digit.

Speaker Change: I would say days so soon likelihood in 2024.

Speaker Change: But for sure in 2025 onwards, you'll see a continuous acceleration of total revenue as you see our cloud businesses walking it's wrong to totally cloud backlog looks very good to transformation is ongoing and also with regard to the maintenance revenue I mean, I have seen a lot of customers now coming back to Asap.

Dominic: So you can really nicely triangulate from that the revenue growth we've guided for 2024. In addition to jumping off the current cloud backlog, you asked about the transactional part of it. You can figure out that, I mean, we said it was about 800 million in revenues. It's kind of flattish in 2024. If you look at the dilution of the CCB by that, it brings you pretty much to our midpoint of the guidance. So it's all very circular triangulation on 2024 cloud revenues. And maybe just one comment.

Dominic: And then you look at the decline in the ERs business by minus 16 percent constant currency light next year. If you do the math and simply take the same growth rates on all these categories for the next two years, you come exactly to our ambition, 2025. So it's not an acceleration.

Speaker Change: Third party support provide us it's actually giving US also there. It shows the resilience of course now. It's also makes it harder on a year over year compare but it's actually a good sign because customers are coming back in a world, which is full of geopolitical conflicts to rely on that.

Dominic: It is simply a continuation of the momentum in these different buckets, i.e., strong growth in our Cloud ERP suite, slightly lower growth, lower growth, frankly, on the extension suite, which Christian mentioned, and then a declining ERs business. On top of that, of course, we have a minor, very minor uptick from the Litmos, sorry, LinaX integration. So you can really nicely triangulate from that the revenue growth we've guided for 2024. So in addition to jumping off the current Cloud Backlog, you ask about the transactional part of it. You can figure out that, I mean, we said it was about 800 million in revenues. It's kind of flattish in 2024.

Speaker Change: To provide all the legal updates to provide all the localisation. So I'm actually extremely confident with regard to our total revenue performance chart also because there will be another pull through of our cloud revenue in the years to come.

Speaker Change: Thank you. Thank you.

Speaker Change: Thank you.

Speaker Change: Thank you James. Next question please.

Speaker Change: Thank you James.

Speaker Change: Next question please.

Speaker Change: The next question is from Charles Brennan with Jefferies, please.

Speaker Change: The next question is from Charles Brennan with Jefferies. Please go ahead.

Charles Brennan: Hi, good morning. Thank you so much for taking my question I just wanted to ask one on execution risk actually the scale of the restructurings, obviously quite a significant sort of evolves.

Charles Brennan: Hi, good morning. Thank you so much for taking my question. I just wanted to ask one on execution risk, actually. The scale of the restructuring is obviously quite significant. It involves a number of people. I think you specifically called out restructuring in the go-to-market organization. What are the chances here of disruption to the sales motion? And should we anticipate maybe some volatility in the early part of 24 that works through by the latter half?

Speaker: I mean, because there was also a question around large enterprises moving. I mean, what we typically see is that customers, especially large enterprise customers, they land with finance and logistics.

Charles Brennan: A number of people I think you specifically called out.

Charles Brennan: Restructuring and the go to market organization.

Dominic: If you look at the dilution of the CCB by that, it brings you pretty much to our midpoint of the guidance. So it's all very circular triangulation on 2024 Cloud revenues. And maybe just one comment.

Speaker: And then we already embed procurement because now, because of the integration, everything's sitting on BTP. There is no need anymore to buy direct procurement for an indirect procurement with Ariba. It just comes as one procurement platform, which also then avoids that we are going into infighting against any best of breed players. We are just delivering it out of the box. And then when you land it, then you can talk about, let's modernize travel and expense. And when you actually have finance and logistics, why not predict the sales planning and inventory matching with IBP? And this goes on and on and on. And this, of course, is cross-selling. Synergies we want to leverage now in the years to come. Very clear. Thank you.

Charles Brennan: Chances here of disruption to the sales motion and should we anticipate maybe some volatility in the early parts of 24 that works through the latter half. Thank you.

Speaker Change: I mean I won't comment on the transformation program will wall. Scott you can comment on on the go to market transformation I mean first.

Speaker Change: I mean, I will comment on the transformation program overall. Scott, you can comment then on the go-to-market transformation. I mean, first, you can also already consider, of course, that there is a plan. It is mature. We know what we do. And when you actually look at what we are doing is, inside SAP, we also announced a few reorganizations. And we're going to try synergies. And I guess now is also the time to scale further our operations internally. We're also going to embed more and more AI internally at SAP that will give us more scale, more productivity in development, in sales, in marketing, in all of the supporting functions.

Christian Klein: I mean, because there was also a question around large enterprises moving to WISE. I mean, what we typically see is customers, especially large enterprise customers, they land with finance and logistics. And then we already embed procurement because now, because of the integration, everything's sitting on BTP. There is no need anymore to buy direct procurement for indirect procurement with Ariba.

Scott Russell: Can also already consider of course that there is a plan. It is mature we know what we do and when you actually look at what we're doing is inside S&P. We also announced a few of the organizations and we garner twice synergies and I guess now. It's also the time to scale further our operations internally, we also gone to embed more.

Scott Russell: AI internally at S&P that will give us more scale more product TVT in development and sales and marketing and all of the supporting functions and in the go to market. We are not touching our our quota carriers, who just delivered also just great results, but their teams around there where we had just harmonizing our wholesome responsibilities but.

Christian Klein: It just comes as one procurement platform, which also then avoids that we are going into an infight and again against any best of breed players. We are just delivering it out of the box. And then when you land it, then you can talk about let's modernize travel and expense. And when you actually have finance and logistics, why do you not predict the sales planning and inventory matching with IBP? And this goes on and on and on.

Speaker Change: and in the go-to-market we are not touching our quota carriers who just delivered also these great results but there are teams around there where we are just harmonizing our roles and responsibilities but over to you Scott to share further comments.

Speaker Change: Over to use got to share further comment yes, so I think there's a few.

Scott Russell: Yeah, so I think there's a few factors. First of all, execution clearly needs to be strong. But if you look at our core metrics, when we think about pipeline and the market data, clearly we've not only had strong order entry, but we have optimism that the way forward that demand continues to be strong. And that's underpinned by more of our large customers doing more multi cloud solutions and the cross sell that Christian mentioned earlier, but also the net new acquisition and a lot of the go to market.

Speaker Change: A few factors first of all execution clearly needs to be strong, but if you look at our core metrics. When we think about pipeline and the market data clearly we've not only had strong order entry, but we have optimism that the whiteboard that demand continues to be strong and that's underpinned by more of that large.

Operator: Thank you, Johannes. We'll take the next question, please. The next question is from the line of Adam Wood with Morgan Stanley.

Christian Klein: And this, of course, this cost cell, synergies we want to leverage now in the years to come. Very clear. Thank you. Thank you, Ioannis.

Speaker Change: Customers doing more multi cloud solutions and the cross sell of accretion mentioned earlier, but also the new acquisition and a lot of the go to market.

Scott: We'll take the next question, please. The next question is from the line of Adam Wood with Morgan Stanley. Hi, good morning. Congratulations, you're on the strong end to 23.

Scott Russell: and many more.

Speaker Change: Transformation is really about accessing and expanding in new markets you considered the potential for <unk> to expand across geographies to be under run supply chains and operations indifferent.

Speaker Change: Thank you very much.

Christian Klein: And thanks for taking the question. Maybe just first of all, in terms of the restructuring plan, you've obviously given guidance for 25. Could you just help us, are there any further benefits that you'd expect from that plan, both from a revenue acceleration, why is post 2025? And, then secondly, as we talk about business AI and SAP. Obviously, investors have been shocked by a lot of benefits to the chip layer, hyperscalers, and large language models, but it strikes us that there's going to be a big benefit for companies that have access to customer data and Could you just talk a little bit about how our product differentiates SA P and how willing customers are to work with you to share those things? benefit that the wider and stool base.

Speaker Change: And different industries, and especially with grow with this IP in the mid market the ability for us to be able to expand in the transformation. They really does allow us to access those markets. So whilst yes. There is an execution element this year the ability for us to be able to manage that and then access to <unk>.

Speaker Change: Thank you for joining us today.

Adam Wood: Could you just help us? Are there any further benefits that you'd expect from that plan, both as a revenue accelerator? Weiss, Post 2025. And then secondly, as we talk about business AI and SAP, obviously investors have been stressing the benefits of the chip layer for hyperscalers and for large language models, but it strikes us that there's going to be a big benefit for companies that have access to customer data and customer processes. Could you just talk a little bit about how that differentiates SAP and how willing customers are to work with you to share those things?

It's used digital modalities use business AI and the way we go to market as well clearly the potential strong.

Thank you Shirley.

Speaker Change: Thank you, Charlie.

Speaker Change: We will take the next question please and distribute.

Speaker Change: We will take the next question, please, and this will be.

Speaker Change: Two questions more.

Speaker Change: So this one and then the next question.

So this one.

Speaker Change: Thanks.

Speaker Change: Yes. The next question is from the line of Michael J <unk> with UBS Limited. Please go ahead. Your line is open.

Speaker Change: Yes, the next question is from the line of Michael J. Briest with UBS Limited. Please go ahead.

Speaker: and many others.

Speaker Change: Yes, good morning. Thanks for letting me on. Just a question around profitability in Q4 and 2023. I mean, you started the year guiding for 23 to 26% cloud growth at Qualtrics, so you came in at the low end.

Speaker: Look, I can start and then Dominic, please also comment on our close potential in 2025 and beyond. I mean, look, the business model, Adam, you know, when we started this transformation three years ago, there was, of course, a much lower recurring revenue share. And now we have built immense resilience, and the total cloud backlog of 44 billion actually signals the immense revenue potential we already have in the books for the years to come. We will now double down on lending, and expanding on adoption to really drive that hope. And then just to give you another figure, why is Quo, why is it actually contributed by 50% net new customers?

Michael Briest: Yes, good morning.

Michael Briest: Let me I'll add just a question about profitability in Q4 and 2023.

Christian Klein: Look, I can start and then Dominic, please also comment on our growth potential in 2025 and beyond. I mean, look, the business model, Adam, you know, when we started this transformation three years ago, there was, of course, a much lower recovery revenue share, and now we have built immense resilience.

Michael Briest: I mean, you started the year guiding to 23% to 26% cloud growth.

Michael Briest: So you came in at the low end.

Speaker Change: And from my understanding, licenses don't retire much quotas. You talked about higher bonuses, but is there any other accruals or anything else that affected profitability? I mean, licenses were 200 million ahead of consensus in Q1 and Q3 we saw.

Michael Briest: And from my understanding licensee.

Michael Briest: Tire much quote something you talked about higher bonuses, but is there any other accruals or anything else that affected.

Michael Briest: The ability.

Michael Briest: I mean licenses with $200 million ahead of consensus and in Q1 and Q3, we saw that.

Speaker Change: That flowed through to the bottom line very nicely.

Michael Briest: That flowed through to the bottom line very nicely.

Speaker Change: Yeah, I mean, we called out already some impacts you mentioned, the kind of back-end loaded strong performance on the go-to-market, which resulted in bonus accruals. We also had continued charges for that amortization on the commissions that was accelerated because we reduced the periods for amortization periods for on-prem related commissions. That has already impacted Q3, but also continued at a similar 260 million-ish in Q4. Some of you might have seen the precise settlement on DOJ, SEC, and Brazilian compliance cases. We accrued 170 million in March. We actually then had the provision move to 155 end of the year. And on the other hand, you've seen about 200 million euros of settlement. And the delta of that is more related to... The civil part of it, which is actually not in the adjustment, but we kept that within the non-IFRS operating profit. So that was another mid-double-digit million to bridge the gaps between the 155 and 200. But these are the factors. And if you kind of depollute Q4 for these factors, including, of course, the strong comparables from the litmus divestiture last year, you see that we are actually continuing to run at a very similar level as the overall kind of growth level. It's not any abnormal quarter in that sense.

Michael Briest: Yeah.

Michael Briest: I mean, we called out already some some impacts you mentioned the kind of backend loaded strong performance on the go to market, which resulted in bonus accruals.

Christian Klein: And the total cloud backlog of 44 billion actually signals the immense revenue potential we already have in the books for the years to come. We will now double down on landing and expanding on adoption to really drive that hope. And then just to give you another figure, why it's actually contributed with 50% net new customers. So 50% installed base, 50% net new.

Michael Briest: We also have continued.

Michael Briest: Continued.

Michael Briest: Charges for that.

Speaker: So 50% of the install base, 50% net new. So it's not only about converting the install base, but the support revenue with a higher multiple to the cloud. It's also about winning market share. And then when you look into 2025 and beyond, And Dominic can comment on that. I mean, given now the higher recurring revenue share, given the lower share of licensed revenue, which will further decline in the years to come, obviously, it's actually just as a result that we see further total revenue acceleration in 2025 and beyond.

Michael Briest: Amortization on the commissions that was accelerated because we reduced the periods for the amortization periods for on Prem related commissions.

Michael Briest: Already impacted Q3, but also continued at a similar $260 million ish in.

Michael Briest: In Q4.

Michael Briest: Some of you might have seen the precise settlement on the Doj FCC and the Brazilian compliance cases, we accrued.

Christian Klein: So it's not only about converting the installed base and the support revenue with a higher multiple to the cloud. It's also about winning market share. And then when you look into 2025 and beyond, and Dominic can comment on that, I mean, given now the higher recurring revenue share, given the lower share of license revenue, which will further decline in the years to come, obviously, it's actually just as a result that we see further total revenue acceleration also in 2025 and beyond. And with business AI and sustainability and in our very strong supply chain portfolio, we have no lack of new solutions, of new innovations to further win market share in the upcoming years. And maybe, beyond the acceleration in total revenues because of the mixed effects that are playing in our favor, yes, the restructuring program, which is frankly expensive at $2 billion, has benefits beyond the pure kind of uplift of half a billion in 2025.

Michael Briest: $170 million in March we actually then.

Michael Briest: Had the provision moved to 155 end of the year.

Michael Briest: On the other end you have seen.

Michael Briest: 200 million euros of settlement and the Delta of that is more related to the civil part of it which is actually not in the adjustment, but we kept that within the non <unk> operating profit. So that was another mid double digit million to bridge the gaps between the $1 55 to 200, but these are the factors and if you kind of Depollute Q4, These factors including of course the strong.

Michael Briest: <unk> from the litmus divestiture last year, you'll see that we're actually continuing to run at a very similar level as the overall kind of growth level, it's not any abnormal quarter in that sense.

Dominic: And with business AI and sustainability and in our very strong supply chain portfolio, we have no lack of new solutions and new innovations to further win market share.

Speaker Change: Thank you. And given the license beat, I mean, do you think that we should see it go back on track to your original plan, which implies, I know, 30, 33 percent decline per annum?

Speaker Change: Thank you and then given the life beat I mean, do you think that.

Speaker Change: We should see it go back on track to your original plan, which implies 30, 33% decline per annum from here.

Speaker: In the in the upcoming year.

Dominic: And maybe, beyond the acceleration in total revenues because of the mixed effects that are playing in our favor, yes, the restructuring program, which is frankly expensive at $2 billion, has benefits beyond the pure kind of uplift of half a billion in 2025. I mean, there's also the reskilling that we need to do to master business design to drive growth, but also from a pure financial model point of view, what we really try to do is to decouple cost growth more from top-line growth. I mean, that was a little bit the Achilles heel, I would say, in our business model, that we were not very successful at doing that in the past, and that was also, I think, there's a good reason for that because we had to invest heavily in the transformation.

Speaker Change: I mean I always highlight that that license revenues are notoriously difficult to predict and this is also why I would like a lot to move to the cloud also from that aspect it gives us much better predictability I mean let's let's see how much of what we have seen in Q4 was phasing versus real kind of longer term sustained demand I always try to be prudent on that because it's hard to plan and we want to be robust in our guidance so I mean this is exactly why we have also some some ranges in the outcomes that's a little bit the kind of swing factor might say so on the revenue side on cloud it's more the transaction business how strong is it really coming and then on the bottom line we have also the question of can we add some more software revenues but I think it's cool to assume a continued decline there because of the structural transition to cloud

Speaker Change: I always highlight that the license revenues look towards fleet difficult to predict and this is also where I would like to lock the move to the cloud or so from that aspect. It gives us much better predictability.

Let's see how much of what we have seen in Q4 was phasing versus really kind of longer term sustained demand.

Speaker Change: I always try to be prudent on that because it's hard to plan and we want to be robust and our guidance.

Speaker Change: So I mean this is exactly why we have also some some range within the outcomes.

Speaker Change: But they can also swing factor.

Christian Klein: I mean, there's also the reskilling that we need to do to master business design to drive growth. But also, from a pure financial model point of view, what we really try to do is to decouple cost growth more from top line growth. I mean, that was a little bit the Achilles heel, I would say, in our business model, that we were not very successful at doing that in the past. And that was also, I think there's a good reason for that, because we had to invest heavily in the transformation.

Speaker Change: I'd say so on the revenue side on cloud, it's more of a transaction business. How strong is it really coming and then on the bottom line. We have also the question of can we have some more software revenues, but I think it is prudent to assume a continued decline there because of the structural transition to cloud.

Speaker Change: Thank you Michael and we will now take the final question.

Speaker Change: Thank you, Michael. And we will now take the final questions.

Speaker Change: And the final question is from the line of Mormeck more one off with Goldman Sachs International. Please go ahead. Your line is open.

Speaker Change: And the final question is from the line of Mohamed Moawalla with Goldman Sachs International. Please go ahead.

Dominic: But now our customers want to see, and you investors want to see, that we can drive efficiencies through business AI. We've done some thorough benchmarking with what other cloud companies are doing, and we really want to converge more to the best-in-breed kind of fall-through, i.e., operating leverage, i.e., increasing the cost. We cross-base more slowly, and that should give us, actually, margin expansion

Mohammed Moawalla: Great. Thank you. Morning. And congratulations on the quarter again. My main question is really around the kind of S4 product cycle. Obviously, we've seen the robust TCB and CCB. In terms of kind of the key constraints you see on kind of converting that backlog into revenue, we've heard about system integrated constraints in the system. How confident are you around that kind of as you get to the sweet spot of this product cycle?

Mormeck: Great. Thank you good morning, and congratulations on the quarter again.

Speaker Change: My main question is really around the kind of explore product cycle, obviously, we've seen the robust TCP and GCB.

Dominic: But now our customers want to see, and you investors want to see, that we can drive efficiencies through business AI. We've done some thorough benchmarking with what other cloud companies are doing, and we really want to converge more to the best in breed kind of fall through, i.e., operating leverage.

Speaker Change: In terms of kind of the key constraints you see on kind of converting that backlog into revenue we've heard about system integrator constraints in the system.

Speaker Change: And are you around that kind of.

Adam: And Adam, on AI and differentiation for SAP.

Speaker Change: As you get to the sweet spot of this product cycle and kind of converting that and are there any other kind of bottlenecks beyond sort of integrated capacity that you see in realizing the value of that product cycle. Thank you.

Speaker: Just to give you a glimpse, we are developing strong organic products, a strong organic AI platform so that our co-pilot tool can speak not only finance but can solve some of the hardest problems our customers are facing across the company.

Mohammed Moawalla: in kind of converting that and are there any other kind of bottlenecks beyond sort of integrated capacity that you see in realizing the kind of value of that product sector?

Speaker Change: Yeah, Mohammed, thanks for the question.

Dominic: increasing the cost base more slowly. And that should give us actual margin expansion beyond 2025. And Adam, on AI and differentiations for SAP.

Speaker Change: Manav thanks for the question.

David This is very helpful to also meet all of our partners actually in only three days and that was one consistent feedback I mean of course in 2020 suite a saw strong momentum the S&P practice was growing faster than anything else in that portfolio, while we were already working with them.

Speaker: We're going to infuse it right into the business processes. I mean, when you look at what we can already do in predictive sales and optimizing inventory, it can take out a ton of CapEx and OpEx from the P&L balance sheet of our customers. And then when you listen to our partners like Microsoft or NVIDIA, where we just closed another partnership, I mean they are keen actually now to combine their co-pilots with ours to extend our AI platform. Why? Because when you have content from over 30,000 customers and access to the most mission-critical data, I mean, the algorithms become smarter every day. We can actually solve some problems which others can't. The accuracy and also actually to also ensure responsible AI is, of course, a treasure that only SAP has in the market.

Christian Klein: Just to give you a glimpse, we are developing strong organic products, a strong organic AI blood, so that our co-pilot tool can speak not only finance but can solve some of the hardest problems our customers are facing across the company. We're gonna infuse it right into the business processes. I mean, when you look at what we can already do in predictive sales and optimizing inventory, it can take out a ton of CAPEX and OPEX from the P&L balance sheet of our customers. And then when you listen to our partners like Microsoft or NVIDIA, where we just closed another partnership. I mean, they are keen actually now to combine their co-pilots with our co-pilot to extend our AI platform. Why? Because when you have consent,

Speaker Change: In 2020 suite to ramp up capacity and that will continue in 2024, we will give them access to our academy academies. We will also launch further enablement programs. We will also on board for the partners for Wise. We just today showed a few announcements on who is joining also here wise movement.

Speaker Change: So there's a lot of traction NDA ecosystem now for 2024.

Speaker Change: Indeed, and we actually refueling, especially for the large enterprise customers. We are reviewing the transformation to fit to stand at the PTP adoption and also where we promising all our partners are also ramping up now AI practices, if they're seeing what is coming on to open up for business AI, which now also needs to come to adoption. So.

Speaker Change: We are investing into mcps. They also remain very confident for the years to come also looking at the pipeline. We are driving together. So yes. There were some capacity challenges, but we are working heavily with our partners to amp up further capacity.

Christian Klein: From over 30,000 customers and access to the most mission-critical data, I mean, the algorithms become smarter every day. We can actually solve some problems which others can't. And also, to also ensure responsible AI is, of course, a treasure that only SAP has in the market. Thank you Adam.

Operator: Thank you Adam. We'll take the next question and I will kindly ask you or remind you to please stick to one question if possible. Thank you. The next question comes from the line of Toby Ock with JP Morgan Casanova. Please subscribe to our YouTube channel for more videos like this. Yes, hi, good morning, and thanks for the question.

Speaker Change: Thank you.

Speaker Change: Alright, Thank you and this concludes our call for today, thanks for joining.

Speaker Change: All right, thank you, and this concludes our call for today. Thanks for joining.

Speaker Change: Thanks a lot.

Speaker Change: Thanks, a lot.

Speaker Change: Bye-bye.

Speaker Change: Hello.

Speaker Change: Ladies and gentlemen,

Speaker Change: Ladies and gentlemen, the conference has now come.

Christian Klein: We'll take the next question, and I would kindly ask you or remind you to please stick to one question if possible. Thank you. The next question comes from the line of Toby Ock with J.P. Morgan Casanova. Please. Yes, hi, good morning.

Speaker Change: Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.

Speaker Change: Okay.

Dominic: And thanks for the question. Just on the CCB growth in Q4, 27% versus the sort of 25% that you've been saying previously, I know various factors to consider there. Obviously, the lip moss divestiture lapping, and I think there was obviously a touch of M&A in there from Lean IX. So could you just break down in a bit more granularity and quantify the core drivers of that CCB growth reacceleration? And then also just the reconciliation between the 27% and the 25%?

Just on the CCB growth in Q4, 27% versus the sort of 25% that you've been seeing previously, I know various factors to consider there. Obviously, the lip-moss divestiture lapping, and I think there was obviously a touch of M&A in there from Lean IX. So could you just break down in a bit more detail and quantify the core drivers of that CCB growth re-acceleration, and then also just the reconciliation between the 27% CCB growth and the 24% to 27% cloud revenue guide for 2024? What are you penciling in there on the transactional side? Thank you.

Speaker Change: Sure.

Speaker Change: Yes.

Speaker Change: Sure.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Sure.

Dominic: CCB growth and the 24 to 27% cloud revenue guide for 2024? What are you penciling in there on the transactional side? Thank you. I'm happy to do that.

Speaker Change: Okay.

Speaker Change: Yes.

Dominic: I mean, first of all, yes, I mean, you've seen, or you will see in the disclosure in the full report that I think there was a 10 million contribution from DINAx for December. So pick a hundred million-ish plus as a revenue uplift. That's, of course, boosting our CCB growth to that tune. The rest was, frankly, just having Scott here, a great, great end to the year in booking. So we really did well in terms of pulling in a lot of deals and signing them, and getting them closed. So it's really solid.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Yes.

Dominic: I'm happy to do that. First of all, yes, I mean, you've seen, or you will see in the disclosure and the full report, that I think there was a 10 million contribution from DINA-X for December. So pick 100 million-ish plus as a revenue uplift. That's, of course, boosting our CCB growth to that tune. The rest was, frankly, just having Scott here; a great, great end to the year in bookings.

Christian Klein: And now, in terms of the translation of that CCB growth into the cloud revenue guidance, as I hinted at before, it is basically the transactional revenue that is the explanation for the Delta. You jump off 27%, you have 800 million-ish transaction revenue, which is pretty much stagnating and has been stagnating in 2023 and will continue to do so in 2024. And I think, Christian, you might want to explain what's happening in our supplier network business, which is actually a strategic investment we do there. So the good news is that this headwind, which is kind of shaving off one and a half percentage points or so in 2024, will ease over time because the rest of the cloud business is growing fast.

Speaker Change: Right.

Dominic: We really did well in terms of pulling in a lot of deals and signing them, and getting them closed. So it's really solid. Look, I mean, kudos to Scott and the team. It was an extremely successful Q4. And I guess what is also making SAP so resilient for the years to come is, of course, the 44 billion already sitting in our books. But when you are doing business in over 100 countries, I mean, in quarters like that, you have Southeast Asia walking.

Speaker Change: Yes.

Dominic: Who is actually saying that Germany is not a cloud market?

Speaker Change: Yes.

Dominic: Germany had an outstanding quarter.

Dominic: North America performed extremely well, with large customers like GM signing up to decarbonize to build this resilient supply chain.

Speaker Change: Yes.

Speaker Change: Yeah.

Speaker Change: Okay.

Christian Klein: And because of the benefits we see from that strategic investment on the supplier side, on the supplier network, we think we'll achieve more normal growth, I'd say, in 2024. So we're not going to snap back to double digits yet, but high single digit growth is possible in 2025. So that's the trajectory we see. We frankly don't need any macroeconomic miracles at all for that.

Dominic: And when you are then sitting in Davos, and you're looking at the challenges business leaders have right now, no matter if it's about automation with business AI, doing things which humans can't do today, which they can do tomorrow with AI, or it's about sustainability with the Green Ledger, which is now hitting the market. Get transparency also for scope two and scope three. I mean, you are touching on all the relevant topics. And this is why I'm also so proud of our product teams, because the innovation coming out of this team is really, really strong and gives us, of course, also a lot of confidence regarding order entry for the years to come.

Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Dominic: We just have assumed a kind of continued subdued macro for that. So I think that's a very, very solid way to triangulate the guidance on cloud revenues for 2024. I also gave you that logic to simply extrapolate the growth buckets we have within the cloud from 2023 to 2024, taking LinaX into account. And you can then play that game also from 2024 to 2025.

Speaker Change: Yes.

Dominic: Thank you.

Operator: Great. Thank you.

Operator: Thank you, Toby. We'll take the next question, please.

Speaker Change: Yes.

The next question is from the line of Ben Castillo-Benaoz with Exane, BNP Paribas.

Speaker Change: Yes.

Please go on.

Good morning.

Thanks very much and congratulations on a strong end of the year. Question, I guess, Dominic, around free cash flow conversion. Looked like 23. We're seeing some underlying improvements. Gardner, and many, many more, but then some more needed in 2025.

Christian Klein: And you can see it's super circular and solid to bring these data points together. Yeah, look, I mean, kudos to Scott and the team. It was an extremely successful Q4. And I guess what is also making SAP so resilient for the years to come is, of course, the $44 billion already sitting in our books. But when you are doing business in over 100 countries, I mean, in quarters like that, you have Southeast Asia walking. Who is actually saying that Germany is not a cloud market? Germany had an outstanding quarter. North America performed extremely well.

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Speaker Change: Okay.

Speaker Change: Yes.

Speaker: I'm curious, what other levers are you pulling around working capital, cash collection that can give us some cash collection that can give us some? Yeah, I mean, it's actually quite straightforward. You basically mentioned the lion's share of the bridge. It's simply the uplift in the profit net of the tax rate, which we've guided. That is falling through into cash flow, of course, and this is really an improvement in profit. And then you have to always look at the cash conversion on stock-based compensation. What's the P&L, and what's the cash out? And there is a big improvement looming from 24 to 25. Taking that into account, you have a relatively moderate assumption for working capital, gradual grinding on efficiency, and collecting money earlier.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Okay.

Christian Klein: Large customers like GM are signing up to decarbonize to build this resilient supply chain. And when you are then sitting in Davos, and you're looking at the challenges business leaders have right now, no matter if it's about automation with business AI, doing things which humans can't do today, which they can do tomorrow with AI, or it's about sustainability with the green ledger, which is now hitting the market, and also then getting transparency also for scope two and scope three. I mean, you are actually touching all the relevant topics.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Sure.

Speaker Change: Yes.

Speaker Change: Sure.

Speaker Change: Yes.

Speaker Change: Okay.

Christian Klein: And this is why I'm also so proud of our product teams, because the innovation coming out of this team is really, really strong and gives us, of course, also a lot of confidence regarding order entry for the years to come. Thank you. Great. Thank you. Thank you, Toby.

Speaker Change: Okay.

Speaker Change: Yes.

Dominic: The next question is from the line of Ben Castillo-Banaus with Exein BNP Paribas. Please go ahead. Good morning, thanks very much. And congratulations on a strong end of the year question, I guess Dominic around free cash flow conversion, like 23, strong, we're seeing some underlying improvement, one off there, but then some more needed in 2025 and needed, helping there. But I'm curious, what other levers are you pulling around working capital and cash collection that can give us some? Yeah, I mean, it's actually quite straightforward. You basically mentioned the lion's share of the bridge.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Sure.

Speaker Change: Okay.

Speaker: We've already made quite some progress. I mean, this is also the reason why in 2023, you saw an outperformance on free cash flow. And honestly, you've seen in my comments that we have to only digest a couple hundred million dollars of factoring, SAP-induced factoring, in 2024. So it tells you something that we've already worked off some of the past year. And so I think also the logic in terms of how you build the bridges from 23, 24, 25 and free cash flow. I mean, any other number would be quite illogical, and it doesn't require any miracles. It just requires proper execution. Some are very, very moderate. However, there are still improvements in operations. So it is something that we feel quite, quite strong about that we can achieve that. That's it. Thanks.

Speaker Change: Yes.

Speaker Change: Sure.

Dominic: It's simply an uplift in profit. Net of the tax rate, which we've guided, that is falling through into cash flow, of course, and this is really an improvement in profit. And then you have to always look at kind of the cash conversion on stock-based compensation. What's the P&L? And what's the cash out?

Speaker Change: Okay.

Speaker Change: Thank you. Thank you. Thank you. Thank you.

Speaker Change: Yeah.

Dominic: And there is a big improvement looming from 24 to 25. Taking that into account, you have a relatively moderate assumption for working capital, gradual grinding on efficiency, and collecting money earlier. We've already made quite some progress. I mean, this is also the reason why in 2023, you saw an outperformance on free cash flow. And honestly, you've seen in my comments that we have to only digest a couple hundred million dollars of factoring, SAP-induced factoring, in 2024. So it tells you something that we've already worked off some of the past year. And so I think also the logic in terms of how you build the bridges from 23, 24, 25 and free cash flow. I mean, any other number would be quite illogical, and it doesn't require any miracles. It just requires proper execution.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Dominic: Some are very, very moderate improvements still in operations. So it is something that we feel quite strong about that we can achieve that. Thanks.

Speaker Change: Okay.

Dominic: Thanks, Ben. We'll take the next question, please. The next question is from the line of James Goodman with Barclays Capital. Please go ahead with your line. Good morning, thank you very much.

Christian Klein: Just for me, I mean, a very strong cloud outlet, I wanted to just dig in a little bit on the eight to 10% cloud and software revenue growth. I mean, it seems, you know, in the past, there was perhaps a little bit more confidence that the business would grow total revenue double-digit this year, which clearly is possible at the high end of that range and on my numbers, but I just wanted to dig into a bit the sort of implied caution there really on the support and license side, given the license... The decline seems to be tapering off. It's now very small, in any case.

Okay.

Speaker Change: Yeah.

Speaker Change: Thank you for watching!

Speaker Change: Thank you.

Speaker Change: Yeah.

Speaker Change: Thank you for watching!

Speaker Change:

Speaker Change: Thank you for watching!

Ben: Thanks, Ben.

Speaker: We'll take the next question, please. The next question is from the line of James Goodman with Barclays Capital.

Speaker Change: ¶¶ ¶¶

James Goodman: Please go ahead.

Speaker: Morning.

Speaker: Thank you very much.

Speaker Change: Okay.

Speaker: Just from me, I mean, a very strong cloud outlet. I wanted to just dig in a little bit on the 8% to 10% cloud and software revenue growth. I mean, you know, in the past, there was perhaps a little bit more confidence that the business would grow total revenue double digits this year, which clearly is possible at the high end of that range and on my numbers. But just wanted to dig into a bit the sort of implied caution there really on the support and license side given the license. Thank you very much for your time. Look, I mean, on total revenue. First, again, we had a good Q4 in license revenue, as you can see from the numbers. Of course, there were also no customers who actually had to still upsell some more users because of their growing business. Thank you.

Christian Klein: It really implies quite a steep acceleration, I think, in the rate of maintenance decline. Is that something specifically you're anticipating this year? And if so, why?

Speaker Change: Okay.

Speaker Change: Yes.

Sure.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Thank you. Thank you. Thank you. Thank you.

Speaker Change: Yes.

Speaker Change: Okay.

Yeah.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

James: Thank you, James.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker: Next question, please.

Charles Brennan: The next question is from Charles Brennan with Jefferies, please.

Speaker: Hi, good morning. Thank you so much for taking the time to answer my question. I just wanted to ask one on execution risk, actually. The scale of the restructuring is obviously quite significant. It involves a number of people. I think you specifically called out restructuring in the go-to-market organization. What are the chances here of disruption to the sales motion? And should we anticipate maybe some volatility in the early part of 24 that works through in the latter half? I will comment on the transformation program overall. Scott, you can then comment on the go-to-market transformation. I mean, first of all, you can already consider, of course, that there is a plan. It is mature. We know what we do, and when you actually look at what we are doing, inside SAP, we have also announced a few reorganizations. And we're going to try synergies, and I guess now is also the time to scale our operations further internally.

Okay.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Thank you for watching. Thank you for watching. Thank you for watching. Thank you for watching. Thank you for watching.

Yes.

Speaker Change: Yes.

Christian Klein: Or is there an element of concern? Okay, I mean, on total revenue. First, we had a good Q4 in the license revenue, as you can see from the numbers. Of course, there were also no customers actually who had to still upsell some more use of that because of their growing business. But of course, over time, you could see, you know, a continuous decline, as we always projected. But of course, when you're now having a good license quota, that makes the year-over-year comparison a bit more difficult. Now, I would also say, looking also in 2024, there is volatility in this number, in this license revenue number. And with the underlying growing, recurring revenue share of SAP, it's just a matter of time when we actually report total revenue growing double-digit. You know, I would say there is a certain likelihood in 2024, but for sure, in 2025 onwards, you see a continuous acceleration of total revenue.

Speaker Change: Okay.

Speaker Change: Yes.

Scott: We're also going to embed more and more AI internally at SAP that will give us more scale, more productivity in development, in sales, in marketing, in all of the supporting functions, and in the go-to-market. We are not touching our quota carriers who have also delivered great results, but there are teams around there where we are just harmonizing our roles and responsibilities. Now, Scott, I want to share further comments.

Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker: Yeah, so I think there are a few factors. First of all, execution clearly needs to be strong. But if you look at our core metrics, when we think about pipeline and market data, clearly, we've not only had strong order entry, but we have optimism that the way forward is that demand continues to be strong. And that's underpinned by more of our large customers doing more multi-cloud solutions and the cross sell that Christian mentioned earlier, but also the net new acquisition and a lot of go-to-market, and many more.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Christian Klein: As you see, our cloud business is working, it's strong, the total cloud backlog looks very good, the transformation is ongoing. And also with regard to the maintenance revenue, I mean, I have seen a lot of customers now coming back to SAP from third-party support providers. It's actually giving us revenue there, too, it shows resilience.

Speaker Change: Yeah.

Speaker Change: Yes.

Speaker Change: Uh huh.

Speaker Change: Yes.

Speaker Change: Yeah.

Christian Klein: Of course, now it also makes it harder to compare year-over-year, but it's actually a good sign because customers are coming back in a world full of geopolitical conflicts to rely on SAP, to provide all the legal updates, to provide all the localization. So I'm actually extremely confident with regard to our total revenue performance, just also because there will be another pull-through of our cloud revenue in the years to come. Thank you.

Speaker Change: Okay.

Speaker: Thank you very much.

Speaker: Thank you for joining us today.

Yeah.

Charlie: Thank you, Charlie.

Speaker: We will take the next question, please, and this will be two questions more. So this one and then the next question. Yes, the next question is from the line of Michael J. Briest with UBS Limited.

Speaker Change: Thank you for watching. Thank you for watching. Thank you for watching. Thank you for watching.

Sure.

Please go ahead.

Speaker: Yes, good morning.

Speaker Change: Yes.

Speaker Change: Sure.

Speaker: Thanks for letting me on. Just a question around profitability in Q4 and 2023. I mean, you started the year guiding for 23 to 26% cloud growth at Qualtrics, so you came in at the low end. And from my understanding, licenses don't retire many quotas. You talked about higher bonuses, but were there any other accruals or anything else that affected profitability? I mean, licenses were 200 million ahead of consensus in Q1 and Q3. That flowed through to the bottom line very nicely. Yeah, I mean, we already called out some impacts you mentioned, the kind of back-end loaded strong performance on the go-to-market, which resulted in bonus accruals. We also had continued charges for that amortization on the commissions that were accelerated because we reduced the periods for amortization periods for on-prem related commissions.

Christian Klein: Thank you, James. Next question, please. The next question is from Charles Brennan with Jeffries. Hi, good morning.

Speaker Change: Okay.

Yes.

Christian Klein: Thank you so much for taking my question. I just wanted to ask one on execution risk, actually. The scale of the restructuring is obviously quite significant, and it involves a number of people.

Speaker Change: Yes.

Speaker Change: Okay.

Christian Klein: I think you specifically called out restructuring in the go-to-market organization. What are the chances here of disruption to the sales process? And should we anticipate maybe some volatility in the early part of 2024 that will work through in the latter half? I mean, I will comment on the transformation program overall, Scott. You can comment then on the go-to-market transformation. I mean, first, you can also already consider, of course, that there is a plan. It is very mature.

Speaker Change: Yes.

Speaker Change: Sure.

Speaker Change: <unk>.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Sure.

Speaker Change: Uh huh.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Yeah.

Christian Klein: We know what we do. And when you actually look at what we are doing inside SAP, we've also announced a few reorganizations, and we're going to try synergies. And I guess now it's also the time to scale further our operations internally. We're also going to embed more and more AI internally at SAP.

Speaker: That has already impacted Q3, but it also continued at a similar 260 million-ish in Q4. Some of you might have seen the precise settlement on DOJ, SEC, and Brazilian compliance cases. We accrued 170 million in March, and we actually then had the provision move to 155 million at the end of the year. And on the other hand, you've seen about 200 million euros of settlement. And the delta of that is more related to... The civil part of it, which is actually not in the adjustment, but we kept that within the non-IFRS operating profit. So that was another mid-double-digit million to bridge the gaps between the 155 and 200. But these are the factors. And if you kind of depollute Q4 for these factors, including, of course, the strong comparables from the litmus divestiture last year, you see that we are actually continuing to run at a very similar level as the overall kind of growth rate.

Speaker Change: Yeah.

Speaker Change: Yes.

Speaker Change: Okay.

Christian Klein: That will give us more scale, more productivity in development, in sales, in marketing, in all of the supporting functions. And in the go-to-market, we are not touching our quota carriers who have just delivered all these great results, but there are teams around where we are just harmonizing our roles and responsibilities, but that's up to you, Scott, to share further. Yeah, so I think there are a few factors. First of all, execution clearly needs to be strong.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Sure.

Speaker Change: Yeah.

Speaker Change: Sure.

Speaker Change: Yes.

Scott: But if you look at our core metrics, when we think about pipeline and market data, clearly, we've not only had strong order entry, but we have optimism that the way forward is that demand continues to be strong. And that's underpinned by more of our large customers doing more multi-cloud solutions in the cross sell that Christian mentioned earlier, but also, the net new acquisition, and a lot of the go-to-market transformation is really about accessing and expanding a new market. We consider the potential for SAP to expand across geographies to be able to run supply chains and operations in different industries and especially grow with SAP in the mid-market.

Scott: The ability for us to be able to expand and the transformation there really does allow us to access those markets. So whilst, yes, there is an execution element this year, the ability for us to be able to manage that and then access new markets, use digital modes, use business AI in the way we go to market as well, clearly the. Thank you, Shelley. We will take the next question, please, and this will be. More, two more questions for this one, and then. Yes, the next question is from the line of Michael J. Briest with UBS Ltd. Please go ahead.

Speaker: It's not any abnormal quarter in that sense. Thank you. And given the license beat, I mean, do you think that we should see it go back on track to your original plan, which implies, I know, 30, 33 percent decline per annum? I mean I always highlight that that license revenues are notoriously difficult to predict and this is also why I would like a lot to move to the cloud also from that aspect it gives us much better predictability I mean let's let's see how much of what we have seen in Q4 was phasing versus real kind of longer term sustained demand I always try to be prudent on that because it's hard to plan and we want to be robust in our guidance so I mean this is exactly why we have also some some ranges in the outcomes that's a little bit the kind of swing factor might say so on the revenue side on cloud it's more the transaction business how strong is it really coming and then on the bottom line we have also the question of can we add some more software revenues but I think it's cool to assume a continued decline there because of the structural transition to cloud, Thank you, Michael.

Dominic: Yes, good morning. Thanks for letting me speak. And just a question around profitability in Q4 and 2023. I mean, you started the year guiding for 23 to 26% cloud growth, so you came in at the low end. And from my understanding, licenses don't require much quota.

Michael: And we will now take the final questions.

Speaker: And the final question is from the line of Mohamed Moawalla with Goldman Sachs International. Please go ahead.

Dominic: So you talked about higher bonuses, but were there any other accruals or anything else that affected profitability? I mean, licenses were 200 million ahead of consensus, and in Q1 and Q3, we saw that flowed through to the bottom line very nicely. Yeah, I mean, we called out already some impacts you mentioned, the kind of back-end loaded strong performance on the go-to-market, which resulted in bonus accruals. We also had continued charges for that amortization on the commissions that were accelerated because we reduced the periods for the amortization periods for on-prem related commissions that already impacted Q3, but also continued at a similar tune, 60 million-ish in Q4. Some of you might have seen the precise settlement in DOJ, SEC, and Brazilian compliance cases.

Great

Speaker: Thank you.

Speaker: Morning.

Speaker: And congratulations on the quarter again. My main question is really around the kind of S4 product cycle.

Speaker: Obviously, we've seen the robust TCB and CCB. In terms of kind of the key constraints you see on kind of converting that backlog into revenue, we've heard about system integrated constraints in the system. How confident are you around that kind of as you get to the sweet spot of this product cycle in kind of converting that, and are there any other kind of bottlenecks beyond sort of integrated capacity that you see in realizing the kind of value of that product sector?

Speaker: Yeah, Mohammed. Thanks for the question.

Dominic: We accrued 170 million in March, and we actually then had the provision move to 155 million at the end of the year. And on the other hand, you've seen about 200 million euros of settlement. And the delta of that is more related to the civil part of it, which is actually not in the adjustment, but we kept that within the non-IFRS operating profit. So that was another mid-double-digit million to bridge the gaps between the 155 and 200. But these are the numbers. And if you kind of de-pollute Q4 for these factors, including, of course, the strong comparables from the LITMOS divestiture last year, you see that we are actually continuing to run at a very similar level as the overall kind of growth level. It's not an abnormal quarter in that sense.

Speaker: All right, thank you, and this concludes our call for today. Thanks for joining us.

Speaker: Thanks a lot.

Speaker: Bye-bye.

Speaker: Ladies and gentlemen, Thank you. Thank you.

Speaker: Thank you.

Speaker: ¶¶ ¶¶ ¶¶ ¶¶ ¶¶ ¶¶ ¶¶ ¶¶ ¶¶ Thank you.

Speaker: Thank you.

Speaker: Thank you for watching!

Speaker: Thank you.

Speaker: Thank you for watching!

Speaker: Thank you. Thank you.

Dominic: Thank you. And given the license beat, do you think that we should see it go back on track to your original plan, which implies a 30-33% decline per annum? I mean, I always highlight that license revenues are notoriously difficult to predict. This is also why I like the move to the cloud so much. Also, from that aspect, it gives us much better predictability. I mean, let's see how much of what we saw in Q4 was phasing versus the real kind of longer-term sustained demand. I always try to be prudent on that because it's hard to plan and we want to be robust in our guidance. So, I mean, this is exactly why we have some ranges in the outcomes. That's a little bit of the kind of swing factor, I might say.

Speaker: Thank you.

Speaker: Thank you for watching.

Dominic: So, on the revenue side of the cloud, it's more the transaction business. How strong is it really coming? And then on the bottom line, we have also the question of whether or not we can add some more software revenues. But I think it's cool to assume a continued decline there because of the structural transition to the cloud. Thank you, Michael.

Operator: And we will now take the final question. And the final question is from the line of Mohammed Moawalla with Goldman Sachs International. Please go ahead. Great, thank you. Morning, and congratulations on the quarter again. My main question is really around the kind of S4 product cycle.

Christian Klein: Obviously, we've seen the robust TCB and TCB. In terms of kind of the key constraints you see on kind of converting that backlog into revenue, we've heard about system integrated constraints in the system. How confident are you around that kind of, as you get to the sweet spot of this product, in kind of converting that, and are there any other kind of bottlenecks beyond sort of integrated capacity that you see in realizing the kind of value of that product sector? Yeah, Mohammed.

Christian Klein: Thanks for the question. I mean... Davos is very helpful to meet all of our partners in actually only three days, and there was one consistent feedback. I mean, of course, in 2023, they saw strong momentum. The SAP practice was growing faster than anything else in their portfolio. While we were already working with them in 2023 to ramp up capacity, and that will continue in 2024, we will give them access to our academies. We will also launch further enablement programs. We will also onboard further partners for WISE. We just today shared a few announcements on who is joining. Also, here is our WISE movement. So there's a lot of traction in the ecosystem now for 2024. Indeed, we are actually reviewing, especially for large enterprise customers.

Christian Klein: We are reviewing their transformation, the fit to standard, the BTP adoption, and it is also very promising. All our partners are now ramping up AI practices as they're seeing what is coming on the roadmap for business AI, which now also needs to come into adoption. So they're investing in SAP as they also remain very confident for the years to come, also looking at the pipeline we are driving together. So, yes, there were some capacity challenges, but we are working heavily with our partners to ramp up further capacity.

Operator: Alright, thank you, and this concludes our call for today. Thanks for joining. Thanks a lot. Bye-bye. Ladies and gentlemen, the, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? , , , , , , , , , , , , , , , , , , , , , R. E. R. E. R. ? , , , , , , , , , , , , , , , , , , ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ??

Q4 2023 SAP SE Earnings Call

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