SAP SE ADS

Good morning and thank you very much for joining us today for our Q4 and full year results press conference. A warm welcome to everyone here in the room and, of course, a warm welcome to everyone joining us virtually. As always, Christian, our CEO, and Dominic, our CFO, will share some brief remarks and we will then move into the Q&A session. Everyone joining online, please feel free to submit questions at any time. Maybe one disclaimer as always, unless stated otherwise, all numbers on these calls are non-IFRS and growth rates and percentage points changes are non-IFRS year on year at constant currencies. And with this, let's not waste any time. Over to you, Christian.

Yeah, thank you, Monika, and welcome everyone here at our headquarter in Waldorf, and of course also to those who are joining us virtually from all over the world. I have actually, from my remarks, I have two rather big points. First, 2025, you have seen the numbers. Let me share also some more background on these numbers, and then, of course, also the outlook for 2026 and the years to come. And, of course, there I will also double down on the topic of AI. Now, Talking about 2025, I mean, first, when you look at the set of numbers, I would say I'm very happy with how SAP again once delivered a very successful year. You can look at cloud and software. We achieved our outlook. And please also remember in the half year one, we had a rough start. There were some geopolitical tensions, especially in the public sector. We actually had our challenges to actually do deals and still we achieved our outlook for the year. We overachieved and beat our outlook for operating profit and cash flow. It's not only about cost discipline. It's also the way how we transform SAP, how we make the internal processes more efficient, how we also now applying AI in all parts of the company. I will come later to that when it comes to 2026. Also, in 2025 in Q4, we actually had our best bookings result of the year. So I know there's still some discussions out there on CCB. I will touch base on that in a moment. But actually, Q4 was our best quarter with regard to bookings. We had lower churn than expected. And also, the discounts we have given actually were pretty stable. So actually, net-net in a very good Q4. Now, again... We started our transformation five years back, and we were sitting here, I was sitting here, made a pretty bold commitment about the 2025 ambition we have as a company. There were many doubts out there, but we delivered. The company delivered. I'm super thankful to our 100,000 colleagues worldwide, to the customers, for the trust. Because with Rise and Grow, we made a big bet not only on lifting and shifting our customers to the cloud, but really helping them to transform. And what came out of that is one of the biggest success stories and definitely the biggest transformation in SAP's history. Now, when you deep dive a bit on Grow, I mean, SAP, I know, is known for running large enterprises in the world. And yes, we are very proud about that. But what we also managed over the last years is that actually several thousand net new customers joined from the mid-market. The mid-market is actually by far now the fastest growing market within our customer base. We are expanding our ecosystem because a lot of that will be also covered later. by our partners. And in 2025, and that also shows the success of our cloud transformation, actually our public cloud business was growing five times faster than our private cloud business. And also look at the resilience, what actually SAP in the meantime gained. We have a large recurring revenue share. We actually tripled our cloud revenue over the last year. So definitely I would say a huge success story. We are living in a fast-moving industry. I would say it's probably the fastest-moving industry in the world, and so we can't rest. Now, what we also did, when you look at this half moon, is actually we put a lot of clarity into our product strategy. I mean, we said, hey, all lines of businesses have to come together on one platform. The BTP is now, in the meantime, the platform for integration and extensibility. We put a BDM, a business transformation portfolio together again, helping our customers to do the process transformation, to be world-class in enterprise architecture, and also just help them to transform on the business side. We launched a lot of new innovations around sustainability, the business network, and all these businesses contributing to the overall growth of SAP. Very important, obviously, is also what we did in the last years around AI and the business data cloud. The business data cloud now produced in the meantime over 2 billion of order entry since its launch in January. Shows the success, but even more important, shows the strategic relevance. Because when we talk about AI, we talk a lot about data quality. And for the customer, it's super important to have this semantic layer of bringing SAP and non-SAP data together. And that is also then resulting in the huge success of BDC within the first 12 months. But of course, we are not stopping here. I mean, you have seen our total cloud backlog increase by 30% to 77 billion. I mean, what a number. That also shows why we are so confident on our guidance to accelerate total revenue growth in the years to come. I mean, with this backlog and the contract duration is round about four years, so you can see there is already a lot in the books which will help us to say with confidence that SAP will be a growth company. The cloud business, when you compare these revenue growth numbers here of 26% in 2025, these are on an average 10 percentage points faster than our peers, than our competitors, just shows how also SAP is gaining market share. So net-net, also operating profit, free cash flow, Dominik will talk about that, so no need for me to dig deeper, but also there we beat our outlook and that speaks for itself. In Q4, we closed a lot of business, best booking squatter. Now, I can tell you, share with you a story about all of them. I want to pick two. And I picked those two just to show the relevance of SAP AI in the world going forward. H&M, we all know them, great retailer. And they came to us and said, hey, our business will change a lot as a retailer. And then we prototyped together over the complete year and we closed the deal in Q4. They wanted to see, okay, we are happy with your commerce platform, but in the future, our consumers expect a more personalized shopping experience. So we custom coded for them a prototype on how shopping experience will change. We brought this back into the standard and they said, wow, this is exactly what we need to really address our consumer needs, the consumer trends right in the store online. Second, we talked about certain things about returns claims management, people ordering stuff, selling it back. How can we make this more efficient? How we can improve the consumer experience? Can we actually propose to the consumer a different good if they are not happy with the one thing? What if a certain good is not available in one store? Can an AI agent help to find a wide store to deliver next day or even in the same evening? So, and we showed them, you know, this was the SAP transactional application in the old world. And this is what you get with AI in the new world. And it was tremendous what they have found out on to really personalize the consumer experience, to make the supply chain more dynamic, more agile with regard to also delivering the stuff faster to the consumers. And then finally, of course, they saw all the agents, you know, working together also into the back office into finance. And that is what made this deal happen. It was not only the cloud move and get rid of the legacy. It was really the AI embedded in the different parts of our apps which made this happen. Fresenius, we did a press release already. Super happy about that. We got a lot of feedback, especially in Germany. Hey, you work great in patient management, but why do you not deliver the next generation? Together with Fresenius and Avelius, we are now coding on our platform a new patient management solution, and we started to do that. Avelius is our main partner here, and it will revolutionize how much more efficient we can make the doctors and the nurses to spend more time with the patients of the people in the hospital making them more efficient making more efficient decisions and then just also make the whole operations in a hospital way more efficient than it is today and again ai agents taking a lot of manual work over what the nurses and the doctors had to do in the past and we showed this to many other healthcare customers and they said wow this is it we definitely want to join sap in delivering the next generation um patient management now Talking about the future of AI, talking about the future of SAP, and I know there is a general concern out there in the market about, oh, how will software sustain in the world of AI? Can not everyone code software? I would say clearly no. Because what we are already seeing with many customers is, of course, they're building certain custom agents for cash flow collection, et cetera, with those LLM providers. But what you always see as a roadblock, and this is now what customers see more and more, and that's why it also explains why we sold two-thirds of our deals with AI. They first of all see, oh, an LLM can read when I build a cash flow agent, can read a support ticket. Could be that because of a support of an issue of the customer, customer is not paying. They can read mails. Okay. But what about the P&L data? What about sales negotiations, deals in the pipeline? What about certain payment informations, which are also necessary for the agent to understand why is this customer not paying? So it always goes together. The LLMs are super good in the unstructured data, but you need the business data. And which company has petabytes of data which we are using to fine-tune our AI foundation? This is SAP. And we are using the world's best LLMs for the different use cases, bring this together, have a so-called knowledge graph to correlate the unstructured data with the structured data. And of course, BDC helps to bring the semantical data together for the structured data in a company. And that is the winning formula. And then the second piece is, When you want to change a retailer like H&M, you cannot just go there and say, DIT, embed a certain agent in my operations. You have to fundamentally rethink, like we do in SAP, how will I run a certain industry going forward? How will cash collection work? How will recruiting work? How will workforce management work? So our product managers are just sitting there using the rich knowledge information, knowledge what we have about industries and business processes, to really redefine how these agents have to work. An inventory agent is a matter of fact. You can do an inventory, but if the inventory agent has no clue what is happening on the demand side, the inventory agent is not so intelligent, I can tell you. And then, of course, there are a lot of things that, no, what kind of information can I actually feed into an agent? There are certain security authorization requirements which all sits in our beloved apps. Now, super important for us is business data, business process, security and trust, and, of course, completely rethink how we run those companies, our customers going forward. And so now when I think about the future of AI and SAP, I'm super happy that I have our ERP. I'm super happy that I have our apps because without those apps, I wouldn't have the data. And without the data, I wouldn't have an AI. So I know there is a lot of talk about, oh, what can the LLMs take over? The LLMs can take over coding of software for sure. I mean, because this is unstructured information code. They understand the patterns, how our developers code in the past. But everything related to business data is actually something what SAP can offer, which is pretty unique to us. So when you think about how will SAP grow its business going forward, and I find it pretty remarkable that we, on an already heavily growing business, we said we're going to further accelerate our total revenue. Five pillars where we have a clear why to win. We cannot win everywhere, but we have five pillars which are very important for our customers. When you think about SAP and UX in the past, this was not a big success story. I mean, we know that Google cannot take over today every skill of an end user, but we are getting there. And we will not only take over manual work, we will take over analytical requests, we will train Shule also with correlations to understand not only do analytical reporting, but also give smart recommendations. How to source the best for this good what I'm looking for. How to actually do inventory planning the best, you know, looking into what is happening on the demand side, what is happening on the market side. So Joule will not only be connected to an LLM like GBG, Joule will be connected to our AI foundation to get the two worlds together. And what it will do is, when you think about, you know, how often did I sit in front of my desktop or mobile typing into data into SAP, this will completely change the design, the user experience, the simplicity, and at the end, the productivity of every end user will change. Second, I mean, this is logic. We are running business processes today, transactions, workflows, complex. We are now embedding not further features into these apps, we are embedding agents. So the agents will take over the features and the agents will talk to each other. So we are actually infusing across the most mission critical business process in the world, our agents. And we will train them, again, to also contextualize information because no agent can work in isolation. Otherwise, you are not running businesses. Very important in that space, in the second space, AI assistant. Not every AI assistant will look the same, for example, the cash flow example. So extensibility is key. So you're getting access in our agent builder to, first of all, understand the process better, and then you can also enhance those agents based on individual needs of a treasurer, of a person in supply chain training, and so on. And we have both. We have the tool set for the developers, and we have the local tool set for the business users. Third, industry specific capabilities already today super important I mentioned Fresenius We had another large deal in Q4 where we could show the customer, oh, you're doing last mile delivery with SAP. Now we're going to show you how your trucks arrive faster at your stores with AI in the future, how you can improve load optimization of your trucks with AI. So these things are super, super important because here is the value of a customer. This is how customers can differentiate in their industry. these are the main main capabilities for example trade promotion for a retailer personalized shopping experience supply chain resiliency in manufacturing asset management for the navies of the world these are the things which sap knows how we won it in the past and now we will reimagine those capabilities with ai fourth business data cloud i mean again the biggest roadblocker for business ai is today data, data harmonization, data silos. This is actually what constrains our customers the most. And this is what you have seen in numbers. PTC is a big success because SAP said, hey, We are not a closed shop anymore in really bringing our data together with non-SAP data. BDC, and it's only in BDC, we are going to allow you to harmonize SAP data with whatever other business data you have in your company sitting in non-SAP apps. And then fifth, obviously, this is what is close to our heart for many SAP customers and Christian, just do the wise journey. But guess what? We are paying $1 to SAP. I mean, not exactly $1, but we are paying then $10 more to DSI. I said, that is not good. So what we are doing is, I mean, why can AI not take over, you know, certain parts of the ERP migration? Think about data migration. Think about configuration of the system. Think about test automation. So these things are super important. We are doing this together with our partners because they understand as well, hey, in the world of AI, it's not only about putting a consultant to work. This work can be done way easier, way faster, and way more efficient. And obviously, when we talk about ERP migrations, I think about SAP, and this is definitely a big focus area for us. Then coming to our, I mean, to be credible in AI, we need to use Joule. We need to use our own AI. And yes, does everything already work to perfection? No. But even more important is that we are a role model underpinning our great cash flow results and profit results with the use of AI. And you can ask all of our people, we are pushing this really heavily. So we mean it. So in R&D, code generation tools, tool for developer, ABAN, we have thousands of developers who already see, oh, now I have much more time on developing those agents and making the agent orchestration work and less time about my time producing code. In sales, already in Q4, we did a lot with AI on quoting, on pricing, on packaging, helped me to find the best deal for my customer, helped me now to find in the pipeline the best opportunities for me to close out the year. In HR recruiting, we made the acquisition with smart recruiters, but also on skills, a lot will be handled and we will work smarter with infused ai into our success factor solutions and then of course into our own hr operations so in tech innovations come at a very fast pace the most important thing is next to you know having the right strategy is our people so ai is first of all not only a technology who can run a company smarter it's also about the skills of the people so reskilling is a big topic within sap and we will double down on that because ai will check affect every job and we need to prepare our people for that that doesn't mean that we need less people i want to say this very clearly but we need different skills and honestly there will be a change of the mix of the job profiles going forward But as long as we post such great top line results, we are not thinking about restructuring. We are rather thinking about how we can, you know, reskill our existing employee base to make them fit for the next chapter of our transformation. Now, when we then look forward and in a second, I will hand over to Dominic. Let me just share some geopolitical observations. I mean, SAP is, I guess, by far the biggest tech company in Europe. But what will be very important for the future of SAP and for Europe is clearly, first of all, talent. So we really need to make sure that we are changing our education system and really, you know, our universities give us access to the best talents. That's actually working quite well. But when you think into every job the next generation has to do, it will change. And then super important, and I'm talking about this since quite a while, especially here in Germany. I see a lot of movement now, the willingness to digitize Germany. But when I think about our home market and compare this to the U.S., oh, my God, the regulation. I mean, layers of layers. And that is, of course, something when we are closing deals in Q4 in the U.S., oh, it's FedRAMP. You have clear regulation. We are not even talking with customers about regulation. They are clear. And here you, on the state level, you have regulation, everyone reads a little bit different, the , then on the federal level you find other people who have other ideas on regulations and sovereignty, and then you come to the European layer, and then you have layer and layer and layer. And now that is not good for SAP, but think about all of our startups where you find the same startup like in China and the U.S. And so this digital union to come together and harmonize that, is of such an essential importance because it's not only about funding and access to capital, it's really about speed, and the speed is especially super important for all of the great startups we are having. So with that, I said enough. I'm super confident about our outlook for 2026. Strategy is the right one, and we will also, you're going to see SAP clearly as a winner in AI. And with that, Dominic, over to you.

Thank you, Christian, and thank you all for joining us this morning. I'd also like to wish you all a happy and healthy year 2026. SAP's strong close to the year reflects steady execution against our priorities as we navigated a rapidly shifting macroeconomic backdrop at the beginning of the year We remain focused throughout the year on operational discipline and driving value for our customers in times of unprecedented technological change. Our ability to drive top-line growth while consistently exceeding our profitability and cash flow expectations reflects the consistent execution against the outlook we provided at the beginning of the year. While challenges persisted, We took deliberate steps to reinforce our foundation and align the business for durable, sustainable performance. As a result, we closed the year in a position of strength, and the progress we've made has set the stage for continued advancement towards our financial and strategic priorities in the years ahead. Rise and grow with SAP both remain core pillars of our transformation strategy, serving as go-to solutions for large-scale enterprises and high-growth mid-sized companies undergoing complex end-to-end transformations and modernization efforts. And, as Christian just highlighted, AI and the business data cloud are beginning to show real commercial impact, emerging as meaningful contributors to customer decisions and deal activity. The combined momentum continues to materialize in large cloud transactions with deal volumes greater than 5 million contributing a record 71% to our cloud order entry in the fourth quarter. These results validate our role as a partner of choice trusted by world-class organizations navigating high stakes transformations and speed at scale. Now let me provide more details around the financial highlights. The current cloud backlog reached 21 billion euros up 25%. Quite frankly, this is a more pronounced slowdown than we had anticipated. and more than the slight deceleration we guided at the beginning of last year. Echoing Christian's remark, the outcome reflects a deal mix weighted towards larger transformations, many of which include longer ramp periods or flexible structuring, reducing the near-term CCB contribution. Also, further mounting geopolitical tensions have led to many customers putting even more emphasis on exploring sovereign software-as-a-service solution options. While SAP is extremely well positioned in the segment and we have a significant pipeline of opportunities due to the trust Germany and SAP continue to enjoy on a global scale, it takes longer to negotiate these more complex transactions and also longer to deploy and ramp as compared to plain vanilla offerings done by US infrastructure service vendors. This is particularly true for any state-owned and related entities as well as defense. but starts to also affect commercial customers in certain particularly sensitive geographies and industries. Total cloud backlog for the year grew 30% to a record 77 billion euros. Again, significantly exceeding our current cloud backlog and cloud revenue growth. Cloud revenue actually grew 26% year-on-year in 2025. Again, primarily driven by the strong performance of Cloud Earp P-Suite. CloudEar P-Suite had another notable year, reinforcing its position as a key engine of growth with an increase of 32% in 2025. By the way, if you want to make that comparable to our U.S. competitor at a couple percentage point, if you make this constant currency number U.S. dollar number, then it would have been 34%. This performance is especially meaningful given the expansion of its revenue base over time, highlighting its ability to scale at a sustainable growth rate now accounting for 86% of total cloud revenue for the year. Software licenses revenue decreased by 27%. Finally, total revenue for the full year approached 37 billion, up 11%. Now, down the income statement. Our non-IFRS cloud gross margin for the full year continued its upward trend from last year and expanded by another 1.6 percentage points to 75%, driving cloud gross profit up by 29%. In the fourth quarter, IFRS operating profit increased 27% to 2.6 billion euros. Non-IFRS operating profit was up 21%. Both IFRS and non-IFRS operating profit were negatively impacted by approximately 100 million euros related to a 2025 workforce transformation. In addition, IFRS operating profit growth was negatively impacted by 200 million US dollars related to Teradata litigation expenses. For the full year, IFRS operating profit increased to 9.8 billion euros and non-IFRS operating profit to 10.4 billion euros. The IFRS effective tax rate for the full year was 28.5%. The non-IFRS tax rate was 30.4%, which is below the outlook of approximately 32%, mainly resulting from an increased ability to offset foreign withholding taxes in Germany. Looking forward, we expect the mid-term non-IFRS effective tax rate to be in a range of 28 to 30%, which is the lower half of the previously communicated range of 28 to 32%. Free cash flow for the full year was rounded down 8.2 billion, i.e. at the very high end of our revised outlook range of 8 billion – 8 to 8.2 billion, sorry. The increase was mainly attributable to higher profitability and to lower payments for restructuring and share-based compensation. This result reflects our continued emphasis on disciplined cash management and operating efficiency. building on the progress we've made in strengthening the quality and consistency of our cash flow over time. We are very proud of the progress we've made this year and the business momentum that contributed to our strong net cash position. As a result, SAP has decided to further step up its capital returns with a new two-year share repurchase program of up to €10 billion, scheduled to start in February. This decision reflects our confidence in sustainable strengths of the business and our continued commitment to returning capital to shareholders in a disciplined and balanced way. Finally, non-IFRS basic earnings per share in fiscal year 2025 increased by 36% to €6.15. Now on to the outlook. As you've likely all seen in the quarterly statement published earlier today, we have provided this year's outlook we expect CCB growth to moderate slightly over the course of 2026. While some deceleration is anticipated, it is expected to be meaningfully less than what we saw in 2025. At the same time, we see a path for total revenue growth to accelerate, supported by the foundation we've built and the continued strength of our business. And our operating profit outlook reflects sustained operating discipline, driving expense to revenue growth ratio towards the lower end of our long-term operating leverage objectives of 80 to 90%, lower end being good, giving us the opportunity to continue to drive non-Alpha's operating profit growth significantly above revenue growth. In addition, in 2026, we expect to generate record-free cash flow of approximately 10 billion euros, supported by continued efficiency improvements and operational rigor. Overall, our guidance reflects a balanced view of the opportunity ahead, grounded in disciplined execution and an ongoing commitment to long-term value creation. With now 2025 behind us, we move into 2026 focused on consistency, clarity and execution. The groundwork we've laid across both transformation initiatives and commercial performance puts us in a strong position to deliver against the guidance we outline today. While geopolitical and trade tensions have taken a certain toll on our top-line performance in 2025, The growing need for sovereignty and resilience also offers unique opportunities for those vendors that can offer technologies and tools to reduce dependencies from dominant offerings. As the largest non-US software SaaS and PaaS vendor, there is no company better positioned than SAP to satisfy this rapidly growing demand. Our strategy to design a stack which is not locked into any particular infrastructure as a service vendor is a particular asset in that respect. And our decision to keep developing our powerful SAP sovereign cloud infrastructure, SCI, thereby preserving capability to run infrastructure as service efficiently in our own data centers, brought us with another, now even more valuable option to deploy our SaaS and PaaS offerings. Despite an unpredictable macro and geopolitical environment, our strategy remains clear. and our execution is already driving meaningful progress across the business. Customers are choosing us as their North Star to lead mission-critical change, and we remain committed to helping them move faster, scale smarter, become more resilient, and modernize with confidence. Thank you.