Toby Ogg

Toby Ogg asked for clarification on the EUR 10 billion free cash flow guidance for 2026, which is significantly ahead of expectations. He sought to understand how this improved cash conversion reconciles with previous headwinds such as cash tax, FX, and migration credits.

Answer

CFO Dominik Asam attributed the free cash flow upside to further operational improvements and an increasing delta on stock-based compensation between P&L and cash. He stated that the effective tax rate of non-IFRS operating profit plus approximately EUR 1 billion represents the new sustainable base for free cash flow. He confirmed that the 2026 guidance is the best estimate without future mortgages.

Toby Ogg inquired about the free cash flow guidance of EUR 10 billion, which significantly exceeded expectations and implied a pickup in cash conversion. He asked for an explanation of how this improved outlook reconciles with previously discussed headwinds such as cash tax, FX, and migration credit.

Answer

CFO Dominik Asam attributed the upside in free cash flow to two main sources: further operational improvements that have matured to a point of confident guidance, and an increasing delta on stock-based compensation between the P&L and cash. He noted that the effective tax rate of the non-IFRS operating profit, plus approximately EUR 1 billion, forms a new, sustainable base for free cash flow. Asam also mentioned that while transformation credits are part of overall working capital, the current guidance represents the best estimate for 2026, ensuring no future mortgages and maintaining a simplistic formula for cash flow projection.

Toby Og from JPMorgan Chase & Co. inquired about the current demand backdrop, specifically regarding elongated sales cycles in the U.S. public sector and manufacturing, and sought clarification on the Current Cloud Backlog (CCB) guidance, questioning if a 25% exit rate for 2025 was unlikely given previous statements.

Answer

CEO Christian Klein noted positive momentum in the Q4 pipeline, with stalled deals in the U.S. public sector and manufacturing returning, driven by C-level engagement on cost optimization and AI. He expressed optimism for the CCB exit rate, expecting it to be higher than 25%.

Toby Og with JPMorgan Chase & Co. inquired about the demand backdrop, specifically regarding elongated sales cycles in the U.S. public sector and manufacturing, and sought an update on the current cloud backlog (CCB) guidance, questioning if a 25% exit rate for 2025 was unlikely.

Answer

Christian Klein, CEO of SAP, noted positive momentum in the Q4 pipeline, with stalled deals in the U.S. public sector and manufacturing returning. He emphasized high-value AI-driven business cases connecting with C-level executives, reducing slippage risk. Dominik Asam, CFO of SAP, added that he was more optimistic about the CCB exit rate for the year than 25%, given current business momentum.

Toby Ogg of JPMorgan Chase & Co. asked why the current cloud backlog (CCB) tracked above expectations in Q1 and whether there were different demand dynamics across end markets in March and April due to tariff uncertainty.

Answer

CFO Dominik Asam attributed the strong CCB to a technical effect from late Q4 deal closings, which was expected and will normalize. CEO Christian Klein added that they have not seen a change in demand dynamics, noting that industries like automotive continue to sign large deals focused on supply chain and AI-driven productivity.

Toby Ogg from JPMorgan Chase & Co. asked for the specific contribution of the WalkMe acquisition to the year-over-year backlog growth and inquired about the timeline and key drivers of the upcoming go-to-market transformation.

Answer

CFO Dominik Asam confirmed the 1 percentage point increase in CCB growth was largely from WalkMe, with organic growth being 'virtually flat.' CEO Christian Klein outlined that the go-to-market changes will begin in January and will focus on three pillars: expanding the no-touch partner channel for the mid-market, combining LOB sales teams to drive cross-selling of the suite, and increasing overall productivity.

Toby Ogg asked about the drivers of the 28% cloud backlog growth, questioning if there were macro headwinds or migration credit tailwinds, and what supports confidence for H2 given tougher Q4 comps.

Answer

CEO Christian Klein stated that deal slippages were not macro-related and the strong backlog creates opportunities for upselling and expansion within RISE deals. He highlighted the 'land and expand' strategy, where customers adopt more modules over time. He also emphasized the stickiness of the cloud business and untapped potential in the partner channel, which is not fully reflected in the current backlog.