SAP SE ADS

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the SAP Q2 2024 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 touchtone telephone. I would now like to turn the conference over to Alexandra Steiger, Global Head of Investor Relations. Please go ahead.

Good evening, everyone, and welcome. Thank you for joining us. With me today are CEO Christian Klein and CFO Dominic Assam. On this call, we will discuss SAP's second quarter 24 results. You can find the deck supplementing this call, as well as our quarterly statement on our Investor Relations website. During this call, we will 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 outcome to differ materially. Additional information regarding these risks and uncertainties may be found in our filings with the SEC, including but not limited to the risk factor section of our annual report on Form 20F for 2023. 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 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. Christian, now over to you.

Thank you, Alexandra, and welcome to the SAP family as our new global head of investor relations. It's great to have you on board. A warm welcome also to everyone on the line. My main message to you in this call, we continue to deliver. Despite the volatile environment in the software industry, our growth momentum remains strong in Q2. More and more customers are moving to the cloud, and our portfolio is becoming ever more attractive thanks to SAP's Business AI capabilities. In Q2, we also significantly increased our profitability. We continued to execute on our transformation program with great discipline, with rehiring only for the skillsets we need. As you have seen, we are increasing the volume of the program. That's why we are able to announce an upgrade of roughly 200 million on the bottom line of our ambition 2025. SAP's strong momentum was already evident a few weeks ago at Sapphire. Our customers and partners have never before shared so much positive feedback about SAP's innovative, best of suite portfolio and position in the market. Business AI was, of course, at the center. And there is no doubt that everyone perceives SAP as a major AI player, given how well we are positioned to embed AI in the operating systems of our customers. This perception manifested itself now also in our Q2 numbers. In every ERP and LOB deal we closed, our AI strategy played a key role. And AI had a direct impact on our bookings. In the second quarter, almost 20% of all deals included premium AI use cases. And this is just the beginning. Customers have clear plans to expand the AI consumption on their wise and quote transformation journeys. Let me give you some quick updates on our key items in Business AI. Joule is quickly becoming our new user experience, our one front end. We are making our AI co-pilot an incredible productivity engine for the 300 million people worldwide using our cloud software. Q2 examples include the Indian automotive leader Mahindra and Mahindra and the Belgian manufacturing company Baycard. Besides the dual innovations, we continue to release embedded AI use cases across our portfolio. In Q2, customers selected our CX AI toolkit to boost the productivity of sales teams by up to 10% and e-commerce teams by up to 50%. Our GenAI features in Concur were very popular too. 150,000 users every week now use these features, processing nearly 1 million hotel bills per month. Overall, we have published over 60 GenAI use cases to date and are on track to deliver more than 100 scenarios by the end of this year. Last but not least, our GenAI hub on BTP is buzzing with activity. Since Sapphire, we have seen a lot of additional interest from big customers. Over 90 partner use cases are now in co-innovation, including use cases with big systems integrators. One example is Smart Dispute Management developed by Ernst & Young. The use case streamlines the returns management process, reducing bad manual effort and minimizing errors. Sapphire also helped to significantly boost our WISE pipeline. WISE is not just a lift and shift to the cloud. It's a holistic offering to increase competitiveness through a deep business transformation, to replace the legacy ERP with our modular cloud ERP, and to increase agility and infuse innovation every quarter. The evolution of WISE will include one dedicated enterprise architect for each customer, and it will rely on an integrated business transformation suite. With Signavio, we cover the process layer. With Linux X, we cover enterprise architecture. And once the WalkMe acquisition is closed, we will also cover the end user and guide and enable them to get the best out of our solutions. Together with NVIDIA, we also bring AI capabilities into our wise journey via Joule for consultants and Joule for developers. With the latter, for example, users can generate, understand and test modern ABAP cloud code and boost productivity in coding by up to 30%. So our customers benefit from a significant increase in time to value. And SEB benefits too, as every successful rise journey is an opportunity to cross-sell and generate revenue across the portfolio. Customers will spend less on implementation and custom code, and they will spend more on building innovative applications on BTP. The momentum so evident at SAFIRE in Orlando and Barcelona carried us throughout the whole quarter. Let's see how far in concrete numbers. Current cloud backlog rose 28% and came in at 14.8 billion euros. Cloud revenue expanded 25% to 4.2 billion euros. This expansion was driven by the cloud ERP suite, which came in 33% higher. year over year and reached 3.4 billion euros. Thanks to the increasing share of cloud revenue, total revenue growth entered double-digit territory for the first time since Q1 2019. We also performed extremely well on the bottom line. Our operating profit jumped 35% to 1.9 billion euros year over year. And the operating margin was 4.4 percentage points higher. The diligent and speedy implementation of our transformation program to date was a key factor here. Let me now share some of the customer stories behind these great numbers. ExxonMobil, a leader in the energy sector, has entered a long-term partnership with us to leverage WISE. The deal marks the next chapter in a multi-phase transformation journey with tangible business value in each phase. The overarching goal is to enhance ExxonMobil's operational efficiency and agility. As for Quo, about 60% of customers in Q2 were net new. Among the Quo deals were the international beverage company Campari Group and Fortera, a Silicon Valley firm working on cement production with zero emissions. Quo with SAP is driven by our fantastic reseller partners. To date, we have won almost 1,500 customers. Many of them started their journey with S4 Public Cloud Finance and are now expanding their SAP ERP footprint. Let's now look at an example for Business AI and the BTP. Lenovo is using Business AI to identify supply chain and finance risks, reduce repetitive tasks, and optimize supply chain management. And with the BTP, Lenovo will integrate SAP and non-SAP solutions. As for our SAP Business Transformation Suite, BASF, the world's largest chemical company, is adopting SAP's scenario. The strategic move underlines BASF's commitment to complete its massive ERP transformation quickly and confidently. Beyond these customer wins, we put our partnership with the global HR services leader ADP on a new footing just yesterday. Together, we will shift ADP's entire SAP on-premise payroll offering to a cloud-based solution. As always, you can find a summary of major customer wins in the quarterly statement. They all speak one language. SAP is the operating system of the global economy. Looking at the larger picture, our QoS formula is clearly working. We have the right ingredients in place in our cloud ERP suite. Just to reiterate, WISE brings best of suite ERP to our installed base, enabling large enterprises to transform deeply. QoS is the perfect choice for greenfield projects, for net new customers, and subsidiaries of large companies, always in the public cloud. The BTP brings everything together as the leading platform for B2B transformation. Once we have landed with Rise, Grow and the BTP, we go into the expand mode with our line of business solutions. Finally, business AI is infused everywhere and lifts the whole portfolio to a new level. All of these are SAP sized opportunities. They will allow us to massively increase market share. Side by side with our growth story, the transformation we launched earlier this year is gaining traction. In the second half of 2024, we are strongly focusing on simplifying our go-to-market even further. The goal is to strengthen our channel business and to promote our land and expand motions. At the same time, we are making major progress with the automation of internal processes through AI using the GenAI Hub on the BTP. The expected savings are in the triple digit million range. Given the increased scope of our transformation program, we are confidently raising the operating profit ambition for 2025. In summary, Our growth momentum in the cloud remains strong in Q2 and we continue to execute our transformation program with great discipline. Business AI is embedded in all our solutions and will boost success across the portfolio with more powerful use cases on their way. Given our progress and our exciting product pipeline, we are confident that we will be able to achieve accelerating top line growth through 2027. And with that, over to you, Dominic.