SAP SE ADS

Good day and welcome to the SAP Q2 2020 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Stefan Gruber, Head of Investor Relations. Please go ahead, sir.

Good morning or good afternoon. This is Stefan Gruber. Thank you for joining us to discuss our results for the second quarter 2020. I'm joined by our CEO, Christian Klein, and our CEO, Luca Mucic. We'll both make opening remarks on the call today. Also joining us for Q&A is Executive Board Member Adair Fox-Martin, who leads our Customer Success Organization, and Ryan Smith, Founder and CEO of Qualtrics. Before we get started, as usual, I would like to say a few words about forward-looking statements and our use of non-IFRS financial measures. Any statements made during this call that are not historical facts are forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. Work searches anticipate, believe, estimate, expect, forecast, intend, may, plan, project, predict, should, outlook, and will. And similar expressions as they relate to SAP are intended to identify such forward-looking statements. SAP undertakes no obligation to publicly update or revise any forward-looking statements. All forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. The factors that could affect SAP's future financial results are discussed more fully in SAP's filing for the U.S. Securities and Exchange Commission, the SEC, including SAP's annual report on Form 20F for 2019 filed at the SEC on February 27, 2020. Participants of this call are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. On our Investor Relations website, you can find our half-year report, our quality statement, and a financial summary slide deck, which are intended to supplement all prepared remarks today and include a reconciliation of our non-IFRS numbers to IFRS numbers. Unless otherwise noted, all financial numbers referred to on this conference call are non-IFRS and growth rates and percentage point changes are non-IFRS as reported year over year. The non-IFRS financial measures we provide should not be considered as a substitute for or superior to the measures of financial performance compared in accordance with IFRS. And finally, as you've seen in our quality statement, we plan to hold a virtual Capital Markets Day in the fourth quarter later this year, where we plan to provide an update on our midterm strategy. More information will be provided in due time. And with that, I'd like to turn things over to our CEO, Christian Klein.

Yeah, thanks Stefan. And welcome everyone to our Q2 earnings call. I hope that you, your families and friends are safe and manage to keep your spirits up in these challenging times. This is our second quarterly earnings call during the pandemic, but our first full quarter under the COVID impact. And given the situation, it was a fantastic one. Of course, the crisis is far from over, but still, Our results reflect the progress we have made as a company since the pandemic hit hard in March. We have adapted to the situation by truly transforming into a virtual organization and allowing our customers to continue with their business. 17,000 customer go-lives in the past six months alone are showing SAP's resilience in this crisis. Also, go-lives in the cloud are happening now in weeks rather than months. This shows how SAP enables our customers to react with agility and speed in this crisis. As we have said before, SAP is crucial to the business transformation of our customers and we are working to emerge stronger out of the crisis. If customers are in a difficult spot financially right now, we will provide commercial relief where needed because we want to build partnerships for life. Inside SAP, We continue to selectively hire into our future growth opportunities, striking a balance between near-term profit and innovation. But we also have an obligation towards society. Our purpose is to help the world run better and improve people's lives. And I'm proud that ever since the crisis broke, we have been supporting the public with projects, financial assistance, donations and technology around the world. Let's move to the quarter now. Luca will take us through the numbers in a minute, but let me say, these results show yet again how well our intelligent enterprise strategy is resonating with customers. They completely understand digitalization is no longer an option, but a must to achieve desired business outcomes, resiliency, profitability, and sustainability. and the results prove as well our own progress in that regard. In June, we completed our first ever virtual Sapphire Now, a milestone event with 130,000 participants and close to 600,000 session views in the first week alone. And during the crisis, digitalization and remote delivery ensured customer service continued without disruption. We have added over 500 S4HANA customers in Q2. Close to 40% of them net new. And we have seen a lot of competitive wins, such as Carrefour, which also subscribed to a set of cloud solutions, including Ariba. Other S4HANA wins included Telefonica, Aeon, BNP Paribas, Neptune Energy, Vedanta, Comix, and Deutsche Börse, making the total S4HANA customer count now to more than 14,600. We have also seen more than 700 customers go live on S4HANA in Q2, including Colgate, Zalando, and Beeline. And you have probably seen that IDC just ranked S4HANA as leader in cloud ERP enterprise applications. Looking at sales performance in the second quarter, it is no surprise we saw a huge demand for solutions that increase resiliency while offering rapid returns. Our portfolio is extremely relevant in the crisis. Commerce obviously had an absolute blowout quarter. As did digital supply chain management, led by our cloud-native IPP solution, which matches rapidly changing demand to supply. Moderna, a US biotechnology company pioneering a vaccine candidate against COVID-19, just selected SAP to help with the distribution of the potential vaccine. We also saw a very significant number of IDP go-lives such as Verizon and Renault Brazil and of course continue to be ranked number one in supply chain management by IDC and Gartner. In addition, our business technology platform showed excellent performance as customers used it to quickly integrate and flexibly extend solutions. Gartner's has just ranked as leader in their magic quadrant on multi-experience development platform and major Q2 deals included L'Oreal and the Australian Department of Defense. Out-of-the-box integration for our SaaS applications remains key for us. We are making excellent progress in delivering a seamless business process integration, including key elements like harmonization of SAP's data domain model, user experience, workflow management, and Wheel Time Steering. We are at 50% done with integration, targeting 90% by year end. SuccessFactors had a good quarter, including an important competitive replacement and a major competitive win with Bosch Group. At more than 8,000 customers, SuccessFactors continue to lead the global HCM market by a wide margin. They are also about to reach their 100 times 100K milestone. 100 global customers using success factors to manage more than 100,000 employees each. And we are very happy to report Google has gone live on Ariba. And finally, Qualtrics has yet another fantastic quarter with strong growth and is helping us to differentiate our core applications by adding experience management. Especially the combination with success factors, the human experience management suite resonates really well with our customers. By now, I'm confident you have all seen the news. Please allow me a couple of remarks before moving beyond Q2. Ryan and I are convinced that a proposed partial IPO marks a win-win situation and creates the best setup for Qualtrics to fully tap the potential Thank you very much. We will also remain its largest and most important go-to-market and R&D partner while giving Qualtrics the independence to broaden its base by partnering and building out the entire experience management ecosystem. Against this background, I want to emphasize that Qualtrics is and continues to be a key element of our intelligent enterprise strategy. Moving beyond Q2, Let me revisit a few key elements of our strategy. Number one, a clear focus in our existing markets. Doubling down on categories where SAP has the right to win. Differentiating via the broadest and deepest suite, end-to-end integration, real-time analytics, fully enabled artificial intelligence with concrete outcomes for our customers, a harmonized user experience, and Very importantly, our leadership in experience management. Our PLM and intelligent asset management partnership with Siemens is a prime example for this new focus. Two market leaders coming together to take over the lead in industry 4.0. Number two, accelerate growth by expanding into new markets. Let me just give you two examples. The industry cloud. All industries are transforming. and every new business model requires data and a strong integration into the backbone, which in many cases is in its ACP's core applications. This is our right to win. We will build modular industry apps, helping our customers to stay competitive in their industry by adapting to new business models with a fast time to value. We are co-innovating on our platform with our partners and customers, the biggest brands in the world. This is a 170 billion euro market. Already this quarter we closed a significant deal with a large utilities provider. Also, we will double down on building the world's largest business network. The crisis shows more than ever. The world is becoming increasingly complex and companies need to react faster and more agile to changing market conditions. This is why we will change the way enterprises run by connecting customers, manufacturers, suppliers, and logistic providers in one network where they can manage cost dependencies in real time, creating win-win situations for all stakeholders in the network. Number three, sustainability and Climate 21. We are expanding our solutions to allow customers to measure and reduce carbon emissions along their value chain. Since earlier this year, we are running trials with customers from industries like auto, chemicals, food, and engineering. With this, SAP takes another important step in turning our customers into sustainable intelligent enterprises, ultimately proving that intelligent enterprises can make sustainability profitable and profitability sustainable. And finally, number four, provide additional options to move to the cloud. Customers want to move to the cloud at their own pace and scope based on their individual situation. We will respond by expanding the options to move, accelerating the cloud migration. Later this year, we will launch a tightly integrated, pre-configured public cloud suite expanding beyond ERP. And we will introduce a new private cloud offering for customers that require high levels of differentiation with an easy-to-consume commercial model. For all our cloud offerings, we will continue to leverage hyperscalers and system integrators to manage most of the cloud ERP infrastructure workloads. Let me now turn to our financial prospects. Luca will talk about the 2020 outlook in a minute. Let me briefly comment on the midterm perspective. Our 2023 ambition remains unchanged from what we announced in Q1 because it continues to reflect our view as of today. That said, we are in the process of updating our strategy. We are refocusing the company, identifying growth areas, evaluating additional business opportunities. We will be ready to give you an update at the capital markets day towards the end of the year. We hope and expect that our assessment of the implications of COVID-19 on our midterm ambition will also be clearer then than it would be today. Now, I know some of you are concerned about SAP might neglect its efficiency focus as part of the process. Let me assure you, we will continue to relentlessly execute the best one program as laid out at our Capital Markets Day last November. Execution is in full swing. We moved from a complex metrics organization to a lean functional setup with clear responsibilities. We have removed overlaps and overheads, making it easier to work with and within SAP. We are streamlining our portfolio, focusing on areas of strength. You have seen the divestiture of digital interconnect in Q2. We are putting customer success first everywhere, including compensation. We are consolidating our event schedule and will continue to build out our digital marketing capabilities. We have continued to work on our cloud delivery efficiency, bringing the cloud cross margin up by seven percentage points over the last 18 months. And if you look at Q2, our operating margin is up almost two percentage points, despite the heavy toll on top line the crisis has taken. But let me make one thing clear. We will continue to manage this company for value, not short-term margin maximization. If we believe a strategic move is right, If we think it makes sense to accelerate the cloud migration of our customer base, if we see an opportunity to grow where we have a right to win, we will investigate and not pass by default, just because wearing your mix shift might have an adverse impact on operating margin and in the short run. And with that, over to you, Luca.