SAP SE ADS

Good day and welcome to the SAP P1 2021 earnings conference call. Today's conference is being recorded. At this time, I will 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, Head of Investor Relations, SAP. Thank you for joining us for our earnings call to discuss our first quarter results 2021. I'm joined by our CEO, Christian Klein, and our CFO, Duka Mucic. will make opening remarks on the call today. And also joining us today for Q&A from Australia is Scott Russell, who leads our customer success organization. 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 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 and 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 with the U.S. Securities and Exchange Commission, including SAP's annual report on Form 20F for 2020 filed with the SEC on March 4, 2021. 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 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 to the prepared remarks. 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 at constant currencies year over year. The non-IFIS financial measures we provide should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with IFIS. And finally, I'd like to mention that SEP will hold its Sapphire Now customer conference virtually again this year, kicking off on June 2nd. In conjunction with Sapphire, we will hold a financial analyst event on June 15th. We'll post details on our website in the coming weeks. With that, I'd like to turn things over to our CEO, Christian Klein.

Yes, thank you, Stefan, and welcome everyone also from my side. Before going into the details, let me say this. I couldn't be more proud of what our teams have achieved this quarter. This was just an amazing start into 2021, and our performance clearly confirms our strategy to drive business transformation in the cloud. We saw competitive strengths in our entire cloud business. Clearly winning in a growing market with strong order entry across our portfolio. All on top of our rapidly growing platform serving as the foundation for a modular, integrated and innovative application landscape for our customers and partners. WISE is already a game changer. Only two months after market introduction, The best offering in the market for business transformation. Altogether, on the back of strong new cloud business and an uptick on renewals, current cloud backlog grows re-accelerated sharply. Looking at the bottom line, we achieved the highest Q1 operating profit in our history. So this quarter was one of the strongest quarters in the history of SAP. Let me go now into a bit more detail on the most important part of the business, cloud. Q1 was a blowout quarter in the cloud. We saw the fastest growth in new cloud business in five years, which boosted our current cloud backlog up 19%, the sequential acceleration of five percentage points. On cloud revenue, as we all know, cloud revenue trails business performance. And so exactly as expected, cloud revenue growth has bottomed out at 13%. It's important to look at the breakdown of this growth across our cloud business. Our SaaS path cloud solutions outside intelligence spend show tremendous growth of 24%. That includes a stellar 43% growth of S4HANA cloud. On the other hand, Intelligent Spend Performance, which includes Concur, is still muted by COVID across both transactional and committed business. However, once travel returns, we expect Concur to rebound significantly, building on its market-leading position. Looking ahead, driven by our strong order entry, cloud revenue growth will accelerate from here. Especially since also the strong year-over-year headwinds in transactional revenue are coming to an end in Q2. Rapid cloud growth will continue to drive resilience and predictability of our top-line performance. Already now our share of more predictable revenue is approaching 80%. Also for the remainder of the year, please note that we continue to expect the pressure on our software license revenue to increase again. and we anticipate a pronounced decline for the full year aligned with our cloud first strategy. As growth across our cloud business accelerates and rise with SAP continues to gain momentum. Let's move on to customer success, where the strong start into the year is also reflected in approximately 4,800 net new customers. Together with our partner ecosystem, we delivered more than 6,000 go-lives. and we have now more than 16,400 customers running SAP S4 HANA, our market-leading core ERP solution. In the first quarter alone, we saw more than 250 wins, replacing competitive solutions, underlining our relentless focus on customer value. Let me highlight a few key wins and go-lives this quarter. Biontech has chosen has chosen SAP S4HANA Cloud as the integrated ERP system for their entire core processes. Bill Wu, a global medical technology leader, is speeding up its business and digital transformation with Wwise with SAP. Fanuc, the world's largest supplier of CNC controls, drives an industrial robot successfully implemented success factor, replacing Oracle, similar to Adiseo, a world leader in animal nutrition, who selected success factors over Oracle. It was indeed a strong quarter for success factors, which was also chosen by IKEA, a world leader in home furnishing. Let me be clear. We are in the business of customer success. That's what we prefer to talk about. Still, we cannot let recent unfounded claims made by one of our competitors go entirely uncommented. Personally, I see it as a very positive sign that one of our main competitors spent so much time talking about SAP on their own earnings call. Let me tell you, we have been through their customer list and we confidentially reject this claim. I absolutely encourage you to do your own research, talk to the customers as we did. The latest IDC ERP data also helps to put things into perspective. It shows that SAP has taken significant ERP market share since launching S4HANA in 2015. And to those who attended the earnings call from one of our competitors, some of the customer names on this slide will sound familiar. I leave it at that, because what ultimately matters is that so many companies continue to join our journey to the intelligent enterprise, consuming differentiating business capabilities retiring their old legacy systems. And I couldn't be more proud to talk about two great customers today, Google and Toshiba, who have done just that and show what is really going on in the market. Over the last year, we further strengthened our relationship with Google. They are migrating their financial systems to S4HANA. And as you already know, they also selected Qualtrics and went live on Ariba. We continue to expand our work with Google Cloud to support joint customers in their transformation to become intelligent enterprises. Similarly, Toshiba selected SAP as the vendor of choice and saw tremendous value in replacing their legacy financial systems with SAP. And so, SAP is now front and center of Toshiba's global transformation. And the all-in replacement for a broad landscape of competitive legacy software within Toshiba. Finally, let me give you an update on the execution of our strategy and our financial disclosure. As you know, our strategy is to deliver the intelligent enterprise in the cloud, providing customers with an intelligent, integrated, modular cloud suite, complemented by solutions built by a Wi-Fi and an agile ecosystem of partners, all based on our development and integration platform, the BTP. That has a broad range of aspects, but here are the two main things we are doing. One, take our customer base to the cloud in core ERP, the most demanding but also most rewarding category in cloud. established the SAP Business Technology Platform as the foundation allowing customers and partners to run the enterprise based on one semantical data model and securely integrate SAP and non-SAP applications in the cloud. The Business Technology Platform also provides application and citizen developers the ability to quickly build new apps and extensions using the same services as our own SAP applications. We are done and finalized our work on integration. In fact, the SAP integration suite, an essential part of the BTP, won the Gartner Customer Choice Award 2021 ahead of other third-party platforms like Moonsault. The Rise with SAP offering launched in January tries both of these aspects. This is the answer to the how that customers were waiting for and a perfect match to the business transformation needs exposed by the crisis. We take customers by the hand and transform the enterprise with superior business process intelligence capabilities based on our unmatched process expertise for over 25 industries. And I'm happy to report WISE is off to a great start. We are seeing massive early success, having already closed more than 100 deals in Q1 alone. Now I want to provide you with transparency on our progress in taking core ERP to the cloud. As you know, the overall ERP category is broadly defined. It spans financial management, HR, and procurement capabilities. SAP's cloud ERP revenue one-way is now approaching €6 billion. And if you remove the HR and procurement modules and look at the capabilities offered in S4HANA Cloud, S4HANA Cloud can be really seen as the kind of core ERP. And that shows we have already seen strong adoption here. As of Q1, S4HANA Cloud has achieved a current cloud backlog of more than 1 billion euros. It also shows the momentum we are enjoying. In Q1, S4HANA was the cloud category with the largest new business contribution. And amidst the impact of COVID, revenue and current cloud backlog were up 43%. And that's just the beginning of the journey. Keep in mind, we only launched WISE with SAP end of January. Now, before handing over to Luca, one of our key competitive advantages is coverage and in-depth understanding of 25 industries. As you know, we are making this an innovation priority, either with our own resources or jointly with partners. That's what the SAP Industry Cloud is all about. The recently announced dedicated unit for the financial services industry is a perfect example for this. Over 80% of the top 1,000 financial institutions are already running on SAP S4 HANA. And now we are accelerating the innovation for our customers on top of our platform by partnering with DATIC. They are investing more than half a billion euro into this joint business. And so this partnership is a showcase not only for the importance of the platform and the ecosystem, but also for our strategy of doubling down cloud innovation in key verticals. Let me sum it up. Last year we have updated our strategy, completed the realignment of the company to focus SAP on the success of our customers. Now we are in execution mode and the future for SAP is bright. The one was a perfect start and proof point for our strategy. WISE with SAP already worked as an accelerator for customers' business transformation in the cloud. It is also setting up SAP to become the largest B2B solution platform with innovations built by us and our over 22,000 partners. Last but not least, I'm very much looking forward, together with my dear board colleagues, to welcoming all of you to our financial analyst conference on June 15. Over to you, Luca.