SAP SE ADS

Good day and welcome to the SAP fourth quarter and full year earnings 2020 conference call. Today's conference is being recorded and at this time I'd like to turn the conference over to Mr. Stefan Gruber, head of investor relations. Please go ahead, sir.

Thank you. Good morning or good afternoon. This is Stefan Gruber. Thank you for joining us for today's earnings call to discuss our fourth quarter and full year 2020 results. I'm joined by our CEO, Christian Klein, and our CFO, Luca Mucic, who will make opening remarks on the call today. Also joining us today for Q&A from Singapore is Scott Russell, who will join the SAP Executive Board and lead the Customer Success Organization as of February 1st. Before we get started, I'd 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 US Private Securities Litigation Reform Act of 1995. Words such as 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 filings of the U.S. Securities and Exchange Commission, including SAP's annual report on Form 20F for 2019, filed with 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 the SAP Investor Relations website, you can find the slide deck intended to supplement today's call, available for download. For those of you following the webcast, the slides will be shown as we proceed through the prepared remarks. Unless otherwise noted, all financial numbers referred to on this conference call are non-IFRS and growth rates and percentage rates point changes are non-IFRS at constant currencies 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 prepared in accordance with IFRS. And finally, before I hand over to Christian, I would like to announce that we will hold an event for financial analysts and investors in the coming month. And we plan to do this in conjunction with our user conference, Sapphire Now. More details to follow. With that, I'd like to turn things over to our CEO, Christian Klein.

Yeah, thank you, Stefan, and welcome everyone to our earnings call. Now, if I had to find a headline for the last couple of months, I would say this. SAP is on the move. We have defined our new strategy. and we are in full execution. We have listened closely to our customers and launched right with SAP this week, a milestone offering for holistic business transformation as a service. As part of the new offering, we are unlocking the business process intelligence layer with the planned acquisition of Signabio. Only SAP can help customers to reimagine business models and processes end-to-end to deliver the best business outcomes. We also have expanded the relationships with our hyperscale partners, cooperating more closely than ever, including with our Microsoft Teams integration. We have very successfully completed the IPO of Quadrix. We have as well transformed the SAP organization to make it more simple, lean, and customer-focused. We have tremendously improved the integration of our acquired cloud applications. We doubled down on innovation. We are co-invading with our customers across 25 industries to turn them into more resilient, productive, and sustainable enterprises. We have announced three additions to the SAP executive board, all of them with a strong cloud mindset. And our board now truly represents all global regions, Americas, EMEA, and APJ. And I guess it's now fair to say, not sure about you, Luca and Scott, but our board from now on but most importantly, we have put our customers first. And we already see strong results. Customer satisfaction is up 10 points and we closed a very strong Q4. So let's get started. Lots of ground to cover today. Luca will talk about our Q4 results in a minute. So let me focus on total year performance. First off, We beat all top line parameters after we rise outlook and hit the upper end for profit. This is highly important for us. 2020 was a very successful year for SAP with a very strong order entry in Q4, which provides us a strong tailwind leading into 2021. And that's clearly visible in our total year performance. Overall, cloud revenue was up 18%. Our SaaS pass revenue grew by 27% outside our intelligence band and travel and expense business. Concur was especially affected by the crisis, obviously. The good news here is that this headwind turns into tailwind once travel comes back. And then Concur will be ready as the clear market leader in travel and expense. This year also showcased our ability to work remotely. We delivered stronger than ever. We added more than 25,000 net new customers. Also, together with our partners, we delivered more than 35,000 goalies. In Q4 specifically, we added almost 1,000 additional S4HANA customers. Around 40% were net new. That takes us to a total of around 16,000 customers, up 16% over last year. We are clearly gaining market share with S4HANA. We also saw a massive number of highly important customer wins this quarter. Some of them, again, competitive replacements. In the ERP space alone, we had more than 200 wins against Oracle. So let me highlight just a few wins and go-lives. Gilead has chosen S4HANA to help increase data standards and transparency. Simplify and automate processes and mitigate operational risks. Unilever continued their strategic partnership with us by converting to S4HANA as their future ready ERP system. Shell selected S4HANA to support its upstream business and we are also cooperating on an ambition we share to become net zero emission businesses. CureVac has chosen S4HANA to support the development of their COVID-19 vaccine. In procurement, General Motors selected SAP to transform the spend management processes. At the same time, we post almost 4 billion of spend in our network. For human experience management, we added many new customers this quarter, and we are the only vendor running HR across 100 countries. Google has further expanded use of our cloud solutions, including Qualtrics. We are also exploring, in partnership with Google Cloud, around artificial intelligence to enhance customer value and, of course, by also expanding our strategic relationship. In customer experience, we had the biggest quarter error with regard to cloud order entry. For commerce, we doubled our cloud revenue as only SAP can offer a seamless consumer experience from the online shop, next day delivery, and flexible payment options. Finally, in supply chain, We extended further our number one market positions and we are further expanding our industry 4.0 capabilities to offer the autonomous factory. Now we are fully focused on the opportunities ahead of us. The direction is clear and we are executing our strategy to reinvent how businesses run. Let me take you through the most important updates. I'm extremely proud that we increased the customer satisfaction score by 10 points. Two factors are driving this. We are focusing the entire company on our customer success and strongly drive integration and innovation across our business applications and platform. Also, if there was an opportunity to improve people's lives, it is now. We are honored to support a global fight against COVID. In Germany, with Deutsche Telekom, we are providing the Corona Contact Tracing App. Since launch, the Corona Warn App was downloaded more than 25 million times. About 2,000 users shared their positive test results per day to break the chain of infection. For vaccine production, 17 of the top 20 global vaccine producers won SAP. In the US, Moderna wants SAP S4HANA and supply chain management to support the distribution of the COVID vaccine. And in Germany, CureVac selected SAP in Q4 to scale their production of the vaccine. For vaccine distribution, the Deutsche Rote Kreuz, the Red Cross in Germany and many others won on SAP. I'm very proud of SAP's relevance in the global value chains and our responsibility to help the world run better. On to strategy. Two days ago, we launched Rise with SAP. This is a milestone offering. Together with our ecosystem, we launched this game-changing offering to ensure a holistic business transformation for our customers. A business transformation requires more than just a technical migration to the cloud. And only SAP can do this. But let me briefly go into a bit of detail here. It's important to understand. Rise with SAP is for all customers, no matter their starting point or complexity, whether it is smaller companies with simpler processes or multinationals with a complex, customized on-premise landscape. We are moving our customers' mission-critical core ERP processes to the cloud along a tailored path that reflects the individual customer situation. We make sure customers truly transform their business instead of just replicating Thank you for joining us today. with FastTime to Value. And finally, we are building the intelligent enterprise with S4HANA Cloud for tightly integrated, highly intelligent and automated business processes. The business technology platform, SD Foundation, providing our customers with integration, data to value and extensibility based on one data model and many other world-class application services. And of course, we provide choice on the cloud infrastructure. Be it SAP or Hyperscaler. And we include the access to the world's largest business network. The offering is not only delivering our customers a superior business outcome and return on invest. It is a very simple commercial offering on a single contract, all without high upfront investments and up to 20% lower TCO. From SAP's financial perspective, As we embark on this journey, we shift existing customers out of the upfront software and support model and into the ratable cloud subscription model. And while this leads to some short-term pressure on revenue and profit, we will significantly increase customer lifetime value by delivering more services to customers. So we are increasing our share of wallet and make life easier for our customers at the same time, as they now can turn to SAP as their responsible vendor. That's why we expect to turn one euro of support revenue into roughly two euros of cloud revenue over time. But most importantly, it will help us accelerate our upselling of applications as well as technology and especially drive the platform adoption. Let me now drill into the business process intelligence layer as it provides context for the Signavio acquisition. Business process intelligence will span Over time, across all of our applications, to continuously reinvent how business processes run and to infuse intelligence by analyzing, benchmarking, and configuring business processes based on the insights and best practices from our 400,000 customers across 25 industries. With Signavio, we are not only becoming right away a leading player in the business process intelligence market, But we will also accelerate the business transformation of our customers and with that the move to S4HANA Cloud. And that's the kind of innovation close to our core we are driving. As part of our strategy, we are also forming close, strong partnerships providing great business outcomes for our customers and reinvent how enterprises run. In this context, we have expanded our existing partnership with Microsoft. With Microsoft Teams and SAP coming together, we combine the leading business application suite with the leading business communication platform. With this partnership, we will create a frictionless enterprise and determine the future of work. We will deliver numerous collaboration scenarios for procurement, for HR, for finance, which will increase the productivity of millions of users worldwide. The first use cases will be already launched in Q2, starting with S4HANA and Customer Experience. Let's talk about Qualtrics. This is a fantastic success story for both Qualtrics and SAP. And it resulted in yesterday's successful IPO of Qualtrics. Let me be clear. Wayne, Sig and myself are fully committed to experience management and the Qualtrics XM platform as a key element of SAP's intelligent enterprise. And we absolutely intend to keep up the pace of innovation, expanding our joint solutions quarter after quarter. SAP will, of course, remain Qualtrics' most important go-to-market and innovation partner in order to drive growth within SAP's customer base. But we are now providing Qualtrics with the opportunity to extend its business and serve customers also beyond the SAP universe. So for Qualtrics, the future couldn't be brighter. But let's also remember, we acquired Qualtrics two years ago for around $8 billion. Last year, they contributed more than half a billion euro of cloud revenue, twice of what they used to do when we acquired them. So at yesterday's IPO, Fortrix achieved an implied valuation of close to $18 billion, more than double the acquisition price. And at that end, the first day of trading, the stock increased by about 50%, increasing the implied valuation to about $27 billion. Congratulations, Ryan and team, on a great, great job as part of the SAP family. Now, before handing over to Luca, 2021 will be an exciting year full of opportunities. And I'm happy to end this important year with a very strong leadership team, underscoring our clear focus on customer success and cloud growth. First, I would like to thank Adair, who will depart SAP. We wish her all the best for her future endeavors. At the same time, I could not be happier to announce the addition of two exceptional leaders to our executive board. Scott Russell succeeds Adair in heading our customer success organization. Under Scott's leadership as president for APJ, the region has become one of the fastest growing cloud markets for SAP, always putting the success of our customers at the center. We are happy to have him join us for Q&A in a minute. Julia White joins us from Microsoft, where she led product marketing for Microsoft Office during its cloud transition to 365 and for Azure over the past five years. Julia will take on a new executive board role as SAP's chief marketing and solutions officer. Julia brings a cloud-first mindset to SAP that will tremendously support our own transformation. And Julia perfectly knows how to bridge technology into clear business value for our customers. At SAP, Julia will focus on demonstrating the differentiating innovations and capabilities of our solutions to our customers by strengthening our product, industry, and digital marketing capabilities. So I'd like to extend a warm welcome to Julia and Scott, and once again also to Sabine Bendig, who joined our Executive Board on January 1st as our Chief People Officer. Sabine was the driving force behind Microsoft Cloud Transformation in Germany. and, as we all know, transformations are thriving by winning people and changing culture. It's all about the right talent, the right leadership, the right attitudes and also the right processes. And so I couldn't be happier and more confident to hand over her the Chief Operating Officer role later this year. And with that, let me wrap it up here and hand it over to you, Luca.