SAP SE ADS

Good day and welcome to the SAP Q1 2022 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Anthony Colletta, Chief Investor Relations Officer. Please go ahead, sir.

Thank you and welcome everyone. Thanks for joining us today on our earnings call to discuss SAP's Q1 2022 results. On our investor relations website, you can find the deck intended to supplement today's call. With me today, our CEO Christian Klein and CFO Luca Mucic will make opening remarks. We also have Scott Russell, who leads our customer success organization, joining us for Q&A. Now let's do the safe harbor. During this call, we'll make forward-looking statements which are predictions, projections or other statements about future events. These statements are based on current expectations, forecasts and assumptions that are subject to 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 2021. Unless otherwise stated, all financial members on this call are non-IFRS. Growth rates and percentage point changes are non-IFRS year-over-year at constant currencies. 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. Before we start, I would like to remind you that we'll hold our Financial Analyst Conference as part of our Sapphire Program in Orlando, Florida on May 11. The event will also be webcast on our website.

And with that, I'd like to turn over to Christian. Thank you, Anthony, and thanks to all of you for joining us today. To start, I want to address a topic that has been at the top of everyone's mind for the past two months. Russia's ongoing unjustified war in Ukraine. Above all, this is a human tragedy on a massive scale. And our hearts and hopes continue to be with the people of Ukraine. Like other companies globally, we have been working closely with governments and implementing all sanctions imposed by the international community. We are also going above and beyond those requirements. We were one of the first technology companies to stop sales and shut down cloud operations in Russia. In addition, earlier this week we announced a structured exit of our direct presence in the country. These decisions have a financial impact, both on the top and bottom line, which Luca will comment on in more detail. But despite the challenging political and macroeconomic environment, Q1 has been another successful quarter and we are reiterating our 2022 outlook for revenue, operating profit and free cash flow today. The war is undoubtedly leaving its mark on the technology sector. With the risk of cyber attacks rising, we see more customers adopting cloud solutions for their mission-critical systems. Geopolitical realities are highlighting the appeal of sovereign cloud solutions like the one we announced with Avato in the first quarter for the German government. And with energy diversification top of mind, our sustainability focus takes on new meaning and importance, which I will describe in more detail later in my remarks. But first, with all of that in mind, let's take a look at some of our top line numbers for Q1. Cloud revenue growth further accelerated to 25% as our cloud transition gains further momentum. Current cloud backlog continued its strong growth at 23%. This is despite typically lower Q1 seasonality and despite the impact of our wind down of cloud operations in Russia. Without Vashia, CCB growth would be 0.8 percentage points higher. This has led to current cloud backlog now standing at nearly 10 billion euros. Current cloud backlog for SAP S4HANA hit a record 79% growth, driven by continued strong adoption of Rise with SAP, our signature offering for business transformation in the cloud. In Q1 alone, we added more than €200 million to our S4HANA cloud backlog. In addition, S4HANA cloud revenue growth increased sequentially by 10 percentage points from 61% to a record 71%. Overall, this strong performance sets us up well for ongoing growth in the West of 2022. In an increasingly volatile world, the unique value of SAP's innovative cloud portfolio continues to be clear. Customers around the world continue to power our quotes as they turn to us for solutions to future-proof their business and make them more sustainable, secure and resilient. And their transformations are enabling our own. We expect continued acceleration of cloud revenue with up to 26% growth by the end of 2022, reflected in our guidance. Our strong quarterly performance is another proof point for the strategy we introduced in 2020. Since then, we have seen the COVID pandemic accelerate cloud-based business transformation around the world. The new geopolitical realities we face amid Russia's ongoing war in Ukraine are also likely to fundamentally reshape the world we live in. Even before the conflict began, supply chains were under pressure worldwide and businesses from grocery stores to auto manufacturers were grappling with an exponential level of uncertainty in their operations. The tragedy in Ukraine has amplified these tensions, revealing even more clearly the importance of resilient supply chains. Across every industry, companies will need to transition their supply chains to make them more resilient, agile and transparent. Our SAP Business Network can uniquely help our customers across industries and value chains in deep ways. The power of the SAP Business Network has also been evident in our relief efforts to support the humanitarian crisis arising from war. Over 2,700 suppliers have raised their hand to provide humanitarian support to Ukraine, and requests for over €100 million of supplies have already been posted on the network, including just recently a requisition for 300,000 first aid kits. Turning to fossil fuels, it's clear that the movement toward renewables must accelerate. Sustainability is now clearly not only an economic opportunity, but a key element of stability, security, and even sovereignty. More than any other software company, SAP is in a position to help governments and industry manage these changes. The scale and depth of our industry expertise The transparency of our solutions to drive sustainable business practices and the ability of the SAP Business Network to create resilient supply chains showing the increasing relevance of SAP's portfolio. Let's turn to an update about WISE with SAP. WISE with SAP is our signature offering for business transformation as a service. Since we launched WISE with SAP in January 2021, we have seen significant increases in customer adoption each quarter. Customers are adopting WISE with SAP for three key reasons. Firstly, WISE enables them to redesign their end-to-end business processes based on best practices developed from working with hundreds of thousands of SAP customers. WISE helps them transition to a new, agile ERP in the cloud. And finally, WISE provides a platform to innovate with industry, custom and sustainability solutions. This quarter, we have seen notable progress with our WISE with SAP offering. Our Business Process Intelligence offering, with cloud revenue almost doubling year over year, has now fully integrated SAP Signabio. We are seeing nearly 80% of WISE customers adopting our business technology platform as part of their WISE solution. Transactional spend on the SAP Business Network has been growing over 95% year-over-year, which will drive further revenue upside. Overall, WISE with SAP drives strong cost and upsell opportunities. with a conversion ratio in 2021 of greater than 2.5. This means we are creating 2.5 times the value from a customer after they have adopted WISE. This has led to our revenue run weight for the modular cloud ERP now exceeding 7 billion Euro, up more than 1 billion Euro from Q1 2021. In summary, Wise with SAP enables us to partner even more deeply with our customers. We offer integrated total solutions with single end-to-end accountability from infrastructure to applications. The success of Wise with SAP in turn draws strong performance across our line of business applications, together with the cloud momentum I mentioned earlier. Let's take a look at our progress. New WISE with SAP customers included Accenture, Microsoft, Wipro, NEC, Ovidu and the Citizen Watch Company. Accenture announced they will be expanding their SOAR offering to help large enterprises drive greater value from running WISE with SAP. They are able to offer bespoke support by drawing from their own experience of running their core financial operations on a single instance of SAP S4 HANA. This quarter, Microsoft announced it would become the first public cloud provider to adopt RISE with SAP internally utilizing SAP S4 HANA to transform its own SAP ERP deployment. This will enable Microsoft to deploy new technologies faster and establish best practices that benefit our joint customers in the market. Accenture and Microsoft together with the repo and IBM are examples of the snowball effect from our partners as they help accelerate the adoption of Wwise with SAP around the world. In March, Oridu Group chose to partner with SAP to overhaul their business and digitize their end-to-end processes to enhance the experience of their customers, suppliers, and employees. In the increasingly important market for electric vehicles, China's Weising Auto and India's Exide Industries also both chose Weis with SAP. Weising Auto is part of one of China's largest auto groups. They selected WISE to support key business processes including forecasting, collaboration with suppliers, and the delivery systems for its electric vehicles. Exide Industries Limited, one of the world's foremost battery companies, selected WISE to support their growth, including the creation of a large new manufacturing facility. EXCITE anticipate that their WISE implementation will help them reduce costs by about 10% and support their battery recycling program, a great example of sustainability becoming profitable. Our success with WISE led to great S4HANA momentum. We now have more than 5300 S4HANA Cloud customers and our win weight against competitors was 63% for net new deals. 4700 of these customers are already live, demonstrating the fast time to value of these deployments. Customers this quarter include Heineken and Zero Motorcycles. Europe's largest beer producer with over 300 global brands is transitioning to a new digital core based on SAP S4HANA. Zero Motorcycle, the global leader in high-performance electric motorcycles and powertrains, has chosen SAP S4HANA over Oracle to help them replace their legacy infrastructure and scale their manufacturing operations to meet rising demand. Our intelligence band and business network portfolio had a particularly strong quarter. Prudence National Health Service Shared Business Services Group selected FEP Ariba for its new procurement system designed to improve and simplify the engagement with its broad and complex supply chain. Air France KLM was another win for Ariba this quarter. We also saw continued positive indications of a return to business travel with Concur transactional revenue increasing by triple digits year over year. L'Oreal, the world leader in beauty, has renewed its contract for SDP Concur for an additional three years. Because there was it. Turning to our customer engagement portfolio, Selling Group, the largest retailer in Denmark, recently invested in SAP Customer Data Platform and SAP MRCS. These solutions will help them improve customer lifetime value and the customer experience. Our SuccessFactors portfolio continues to win significant business over workday. Grupo DPSP, the leading Brazilian pharmaceutical retailer, expanded its SAP SuccessFactors portfolio to better manage, retain, and develop its workforce as part of its overall wise with SAP retail implementation. SAP Business Process Intelligence wins this quarter included Nippon Telegraph, Telephone Corporation, Telos Communications, and Moderna TX. Moderna's success with their COVID-19 vaccine has transformed the company and they will be using SAP BPI to redesign their business processes based on the next chapter in their course. Our business technology platform continues to go from strength to strength as customers adopt BTP as deep backbone to integrate and extend their SAP solutions. We are well on track to establish SAP as a platform company, with this quarter's revenue runway for BTP exceeding 1 billion euros. FEMSA, the world's largest bottler for Coca-Cola beverages, is adopting BTP to optimize the value from each of its products and line of business, along with billing and cash handling across its Latin American markets. Last quarter, I spoke to you about the introduction of SAP Cloud for sustainable enterprises, part of our sustainability portfolio. This portfolio helps companies manage their green line with as much importance as the top and bottom line, by providing radical transparency, insights and data. This quarter, we announced an important partnership with BCG, focused on helping our joint customer base determine strategies for sustainability transformation. Customer adoption of our sustainability portfolio is already strong. So, let me reiterate that this quarter's strong cloud figures continue to show the strength of our strategy, the relevance of our solutions, and the promise of our portfolio. We are powering fundamental business transformation for our customers, which in turn is thriving our own transformation. We are very confident in our long-term ambition and we are reiterating our 2022 outlook. We believe SAP can play a crucial role in helping our customers succeed in an increasingly volatile world. Thank you again for joining us today and let me now hand over to Luca to talk through our results in more detail.