SAP SE ADS

Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the SAP Q4 earnings conference call. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may press star followed by one on your touch-tone telephone. Please press the star key followed by zero for operator assistance. I would now like to turn the conference over to Anthony Coletta, Chief Investor Relations Officer. Please go ahead.

Good morning everyone and thanks for joining us today. With me on the call are CEO Christian Klein, CFO Luka Mucic and Scott Russell, Head of Customer Success. On this call we will discuss SAP's fourth quarter and full year results for 2022. You can find the deck supplementing today's call as well as our quarterly statement on our investor relations website. 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 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 factor section of SAP's annual report on Form 20F for 2021. Unless otherwise stated, all numbers on this call are non-IFRS and growth rates and percentage point changes are non-IFRS year-on-year at custom currencies. The non-HFRS financial measures we provide should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with HFRS. As you know, this is Luca's final earnings call with SAP. So before we start, I would like to take a moment to express my personal gratitude to you, Luca, for the close collaboration over the years, for the great partnership, and for the strong engagement with our investors. Congratulations on 27 years at SAP. and a fantastic ride. So it has been a distinct honor to work with you with lots of great memories. So I wish you nothing but the best of success. On behalf of the SAP family and the broader community, many thanks Luca. And with that, I'd like to turn the call over to Christian.

Yeah, thank you Anthony and really well said and thanks to all of you for joining us today and welcome to 2023. This has been a good Q4 and a very important year for SAP, bringing to a close a year of great momentum. Our results in Q4 show once again a strong demand for our products and services, reflecting the confidence and trust companies have in working with SAP. Let me call out some key highlights for Q4. Current cloud backlog exceeded 12 billion euros, up 24% this quarter against the strong compare last year. Cloud revenue grew 22% and cloud revenue for S4HANA further accelerated once again, growing at 90%. We reached a tipping point in our transformation as we returned to positive operating profit growth of 2%. with a recurring revenue share of 76%, which is up six percentage points compared to Q4 2021. For 2023, this is setting us up to deliver expected accelerated total revenue and our promise of double digit operating profit growth. For full year 2022, we delivered upon all our top and bottom line guidance. with cloud revenue growing 24% up 5 percentage points from 19% in 2021. S4HANA cloud revenue grew 79% for the full year. This is compared with 47% full year growth in 2021 and brings our S4HANA cloud revenue to over 2 billion euros for the first time ever. Our cloud transformation is in full swing. And we have also built a highly resilient business with recurring revenue up from 75% in 2021 to 79% in 2022. I believe we will look back at 2022 as one of the most important years in our history. It is now over two years since we launched our strategy for transformation. We kept our promise and delivered. despite the combined impact of three factors, our exit from Russia, our divestiture of litmus, and the macroeconomic volatility facing the world. Why is our position so much stronger and SAP more relevant than ever? Because our rise with SAP offering is much more than only a shift of our technology to the cloud. It is a true business transformation offering and we are focused on helping our customers solve their biggest challenges. First, we enable companies to transform their existing business models and try simplification and automation of their core business processes to offset inflation pressure. Second, SAP enables supply chain resilience. Supply chains are disrupted and need to be diversified as a result of the pandemic, geopolitical tensions, and shifting business dynamics. We are helping our customers to build more resilient supply chains by connecting the suppliers and providers from the raw material provider to the manufacturer. SAP's business network facilitated over $4.9 trillion of global commerce and 730 million of B2B transactions in Q4 alone. Third, we are delivering the green ledger for every industry and every customer to measure ESG based on actual instead of average data. Data that is fully auditable and based on industry-specific standards with Scope 3 emission tracking across value chains via our network. We will give our customers the ability to act by embedding sustainability into every business process and every company decision. Wise with SAP is at the heart of our strategy and is one of our most successful offerings ever. As stated, it is much more than a technical lift and shift to the cloud for our installed base. It is a true business transformation offering and around 50% of our customers are net new customers to SAP. I'd like to walk you through some of our Rise with SAP Q4 wins. As part of Merck's long-term collaboration with SAP, they will be using SAP S4HANA Cloud to help further digitize their business processes and make them more efficient, agile, and adaptable. This will enable them to react to disruptions and capitalize on business opportunities more quickly. Porsche, the German sports car manufacturer, has selected WISE with SAP to support their move to the cloud and maximize value through innovation and speed. PWC, one of the largest professional services networks in the world, significantly increased their user base for SAP S4HANA Public Cloud. To support Lenovo's Group Everything as a Service transformation strategy, a fundamental change of their business model They will be moving their digital core to S4HANA Cloud. Earlier this month, I had the pleasure of meeting with the leadership team of Alpha Time, a group from the United Arab Emirates. They operate across a number of sectors and will be embarking on a full digital transformation powered by WISE with SAP. We also announced a joint collaboration with ExxonMobil to establish and adopt industry best practices and help them with their sustainability efforts. Finally, we are very proud to announce that we signed a long-term strategic deal with BMW this week based on WISE with SAP. We have been partners for more than 30 years and their cloud strategy is based on SAP across all dimensions and all key end-to-end business processes. The SAP Business Technology Platform is the foundation behind WISE and our portfolio momentum. Already today, more than 80% of WISE with SAP deals include the Business Technology Platform as the foundation for integration and extensibility. This is powered by thousands of APIs, integration flows, and low-code, no-code content packages. Lockheed Martin of the U.S. is an example of this. Lockheed's collaboration with SAP began in 1998. They will be now leveraging Wwise with SAP to move their core business processes to a secure, managed, FedRAMP-compliant cloud. They will be using the SAP Business Technology Platform for emerging technology and the SAP Analytics Cloud to enhance their strategic data management. With S4HANA and BTP at the core, our line of business applications also benefit from a flywheel effect, as it is twice as likely that these ERP customers buy another SAP line of business application. More than 30% of SAP's current customers use two or more SAP solutions, and we see this increasing through this flywheel effect created by the business technology platform. At the same time, coming out of a strong year, we will not rest as we continue to focus on our core strengths to increase both win rates and productivity. In previous quarters, we spoke with you about our continued focus to simplify and consolidate our portfolio with S4HANA and BTP at the core. Our divestiture of Litmos in Q4 is an example of this. In 2023, we intend to sharpen this portfolio focus further. as we continue to build on our core strengths we will be pivoting our cx and industry areas to be more focused on specific industries complemented by a strong ecosystem this focus on our core together with our ongoing optimization of sap structure for cloud success are behind the announcement we made today the intent to carry out a targeted restructuring in select areas of the company. This will impact up to 3,000 positions and will include a headcount reduction amounting to about 2.5% of our workforce. While we know these changes are necessary, it is never easy to make decisions that affect our colleagues in this way. In the same context, SAP has determined to explore a sale of its stake in Qualtrics. This would be a continuation of the strategy we set at the time of the Qualtrics IPO in 2021. SAP believes that this potential transaction could unlock significant value for both companies. For SAP to focus more on its core business and profitability, and for Qualtrics to extend its leadership in the XM category that it pioneered. Since the acquisition, Qualtrics has increased revenue by 3.5x to 1.5 billion US dollar while delivering profitability and has significantly expanded its offerings and enterprise customer adoption. In the event of a successful transaction, SAP intends to remain a close partner. A final decision is subject to market conditions, agreement on acceptable terms, regulatory approvals, and the approval of the SAP SE supervisory board. SAP has retained Morgan Stanley as financial advisor to assist in the exploration of the sale of its stake in Qualtrics. I'd like to close by taking a look at our outlook and ambitions. As these results have shown, the power of SAP solutions in an increasingly uncertain world is clear. We are providing strong guidance for 2023 despite the continued macroeconomic pressures. The strategic transformation we announced over two years ago is in full swing and has reached a significant inflection point. The strength of our recurring revenue base is the foundation which will power our next 50 years at the forefront of business and technology. We will already see a positive impact in 2023, including the promise we made to return to double-digit operating profit growth as well as accelerated cloud and total revenue growth. For our 2025 ambitions, we are ahead of plan. and expect to provide an update to these ambitions later in the first half after the arrival of Dominic Assam, our new CFO. In closing, I can sense both the possibilities as well as the caution that will be required to navigate today's uncertain world. And lastly, on a more personal note, you all know that our CFO, Luka Mucic, is passing the torch to Dominic Assam on March 7. Luca, as Anthony said, you have enjoyed an impressive career at SAP. And of course, the whole SAP family will be always grateful for your commitment and your contributions to our success. I guess today also marks the 37th earnings in your CFO career. And personally, I would like to say you not only many, many thanks, especially over the last two years as a CFO and supporting this significant transformation, But as well for your partner and even more important, your personal mentorship. So many thanks to you, Luca, and all the best.