SAP SE ADS

Good day and welcome to the SAP Q2 2022 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Anthony Coletta, 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 Q2 and FASAP 2022 results. On our investor relations website, you can find the deck supplementing to this call. With me today are CEO Christian Klein and CFO Luka Mucic, who will make opening remarks. Scott Russell, who leads our customer success organization, is also with 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 this risk 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 numbers on this call are non-IFRS. Gross rates and percentage point changes are non-IFRS, the other year at custom 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. And with that, I'd like to turn over to Christian.

Yeah, thank you, Anthony, and thanks to all of you for joining today. This has been a good quarter for SAP despite the challenging political and macroeconomic environment. Our cloud and total revenue have exceeded market expectations and are progressing faster than we expected at 34% and 13% nominal respectively. Our top-line cloud performance is clearly ahead of plan. Further accelerated by the current macroeconomic environment and currency tailwinds. Customers are actually turning to us now more than ever to help them address their most pressing concerns. Business model transformation and process automation, supply chain resilience and sustainable operations. We see demand for SAP technology continuing to increase with an increased focus on transforming and automating mission-critical business processes in the core functions of an enterprise. As we have seen in previous economic pullbacks, companies that balance cost efficiency measures with strategic investments in technology are more resilient and better able to offset margin pressure. We are also seeing a powerful snowball effect from our platform and ecosystem businesses as the adoption of SAP solutions accelerates. Let's take a look now at some of our top line numbers for Q2. In Q2, we hit the major milestone of cloud revenue becoming our largest revenue stream for the first time. Cloud revenue was up 24% at constant currency and up 34% at nominal levels. Current cloud backlog growth accelerated at 25% and now exceeds 10 billion euros, another first. Current cloud backlog for SAP S4 HANA hit a record 87% growth and stands at 2.3 billion euros, driven by continued strong adoption of rights with SAP. In addition, S4HANA cloud revenue growth continued to accelerate at 72%. Customers are choosing us for the power of our integrated portfolio. First, core ERP. Second, the SAP Business Technology Platform. And third, our best-in-class solutions. Our strategy is focused on investing in and capitalizing on the integration of these assets. This provides unmatched superior solutions for our customers and extensive cross-sell opportunities for SAP. I'd like to now provide an update on our strategy execution. Since we initiated our transformation almost two years ago, our performance is well ahead of plan. SAP has always been acknowledged as the category leader for ERP. Now, just as SAP invented Thank you very much. Turning to our core line of business solutions. They are all growing by double digits in both cloud revenue and current cloud backlog. We see customers increasingly choosing to adopt the full portfolio from SAP, given the enhanced value from our integrated solutions. For example, many of our customers opt for our intelligent spend solutions to achieve cost savings across their entire direct and indirect spend. as well as travel and expense and third-party workflows. The potential for cross-selling is tremendous. In Q2, we saw Wise with SAP being a cross and upsell catalyst with more than 85% of Wise deals including additional cloud solutions and 77% of Wise customers adopting the SAP Business Technology Platform. We have also entered key new growth markets. Recognizing that no business can succeed in isolation, we pioneered a new approach in building the SAP Business Network. The SAP Business Network allows customers to connect real-time across their suppliers in industry-specific networks. This boosts transparency and provides the resilience so desperately needed in today's environment. Our new sustainability portfolio complements the SAP Business Network. enabling transparency across value chains, helping our customers to meet regulatory requirements and contribute to a sustainable future. Underpinning this leadership position is our business transformation as a service offering, Wise with SAP. Since Wise with SAP was launched at the beginning of last year, we have seen the offering going from gaining traction, to gaining momentum, to becoming the preferred choice for our customers as they move to the cloud. Wise with SAP helps customers with the hardest part of their transition, redesigning how their companies run. We offer customers so much more than a technology transition. Wise with SAP helps them, first, to redesign their end-to-end business processes, second, transition to a new agile ERP in the cloud, and third, innovate on the platform to design their own custom solutions. In Q2, wise customers included Moderna, ABB Information Systems, RWE, Heidelberg Cement and Bridgestone. Moderna's pioneering vaccine is helping the world overcome the COVID-19 pandemic. They selected WISE with SAP to support ambitious growth targets through scalable, automated, end-to-end processes across research and development, sourcing and distribution, and support functions. RWE, the leading German utility company, is adopting WISE with SAP to support its international expansion and its sustainability initiatives as part of its growing green strategy. The success of Rise with SAP in turn shows strong performance across our line of business applications, including S4HANA. We see continued cross and upsell momentum, which means we continue to create about 2.5 times the value from a customer after they have adopted Rise with SAP. We now have around 20,000 S4HANA customers, up 15% year-over-year, with more than 60% of our customers being net new. We are also seeing strong momentum for S4HANA in the cloud, with approximately 6,000 customers and over 600 wins in Q2. We are seeing increasing traction in the mid-market and in the startup community. For example, the French unicorn Dr. Lib is an online and mobile booking platform that helps users find doctors and make appointments. They selected S4HANA Cloud as an easy-to-implement, robust, scalable solution providing fast time to value. Now, our order entry growth for S4HANA Cloud and on-premise clearly exceeded 30%. demonstrating significant gains in market share. SAP's Business Technology Platform enables customer innovation and infrastructure integration. This quarter, the global leader Heidelberg Cement decided to move from their on-premise ERP on Oracle to S4HANA Cloud on Azure. They will be using SAP's Business Technology Platform as an integration and development platform to provide access to SAP services. Our sustainability solutions have taken on an even more important role given the energy crisis. Ergo Group, one of the largest insurance groups in Europe, has chosen SAP to help them navigate the highly regulated sustainability expectations of the financial services industry, of course in Germany. ERGO aims to open new sustainable business practices, create climate-neutral business operations, and create transparency throughout its business by reporting in accordance with the international guidelines set out by the GIA. Our Intelligent Spend and Business Network Division has taken on new meaning as companies plan for continued inflationary pressures and a need to diligently manage costs. Wins Discwater include Beijing, the leading biotech company specializing in anti-cancer drugs. They chose SAP Ariba to quickly build a cloud-based procurement management platform to support different languages and regulations around the world, in addition to improving efficiency. Turning to our customer engagement portfolio. Positivo Tecnologia, a Brazilian technology company, is using SAP CX solutions to automate their marketing campaigns based on customer behavior analysis. This will enable them to personalize their customer engagements and create more opportunities for customer cross-sell, upsell, conversion, and retention. In Q2, Asus, the global leader in personal computer, monitors, graphics cards, and routers, shows SAP's success factors to bring its vision for employees to life. The solution will provide a one-stop service supported by data analysis and insights. SAP Signavio Part of our business process intelligence portfolio is going from strength to strength. Corning, which is one of the world's leading innovators in material science, selected the full SAP Signario suite to drive governance and collaborative process management excellence as they transform their ERP systems. Customers this quarter also include Moet Hennessy and Altana, the German chemicals company. I'd like to spend a little time talking about our outlook. We are entering the second half of the year with a very strong cloud pipeline. Given our strategy maps directly onto our customers' most pressing challenges. We see this shift from CapEx to OpEx spend combined with currency tailwinds completely offsetting the top line impact of our Russia exit. On the bottom line, we are adjusting our guidance based on two one-time impacts. First, our intended full withdrawal from Russia. Second, in the current macro environment, our customers are shifting to the cloud faster than expected as they continue to move from upfront capital expenditure to recurring operational expenditure. This leads to an additional transactional impact on our short-term profitability. with clear midterm upside as our cloud strategy continues to pay off. We are managing a significant portion of these one-time impacts with additional measures around discretionary strength. Looking beyond 2022, we are clearly ahead of plan to deliver upon the promise we made in October 2020 when we announced our new strategy. We are confident we will achieve double-digit operating profit growth in 2023 while keeping the promise of flat to slightly declining operating profits through 2021 and 2022 versus 2020. And we are well on track to achieving all the performance goals for our 2025 midterm ambitions. On the bottom line, the investments we made over the last two years put us in a good position to deliver double-digit profit growth starting next year. Very importantly, we also have a strategic initiative in place to consolidate and simplify our portfolio. This will result in increased focus on our core high-growth solutions, providing even stronger synergies across our suite of solutions complemented by potential acquisitions in our core. We will provide an update on our 2025 ambition in the next quarters, once we have more clarity on the macroeconomic situation. In summary, This has been a good quarter. We made significant investments during 2021 and the first half of 2022, which now enables us to further scale our execution. Our strategy is perfectly aligned to the challenges our customers are facing and we look forward to helping them come out of the current environment stronger and more resilient. Thank you again for joining us today, and I will now hand over to Luca to talk through our results in more detail.