As a customer, I've always seen a high potential in SAP. The hypotheses I brought with me have, for the most part, been confirmed. If there were any surprises, they were mostly on the positive side, such as the traction this company has unfolded. The stock price has increased by almost 60% in the past twelve months, roughly three times faster than the Dax and 50% faster than the Nasdaq. Of course, it's enjoyable to see such a significant step forward and realize that one has backed the right horse.

When comparing ourselves with our main competitors in the cloud business, we are measured on two major parameters: growth and cash flow. The sum of the percentage revenue growth and free cash flow margin should ideally be at least 40. This „Rule of 40“ is the benchmark in the tech industry. On average, our core competitors are roughly at this level. At SAP, for 2023, we only reach a value of 25: This includes the revenue growth of 9% and the free cash flow margin. The free cash flow of 5.1 billion euros is approximately 16% relative to revenue. How we can move from 25 towards 40 in the near future is a topic we regularly discuss with investors and the supervisory board.

We need to take a closer look at that: On the revenue side, the machine is in full swing with the cloud transformation. We have very high growth rates in the cloud. The total cloud backlog, which includes all contractually agreed cloud revenues, increased by 39% to 44 billion euros last year on a currency-adjusted basis. We see that revenue dynamics in the cloud are accelerating. I am confident that by 2025, we will have closed half of the gap with the competition.

Those are offset by the growth in the cloud. Additionally, the gross profits in these declining sectors are notably lower compared to the business we are transitioning to the cloud. We aim to generate a free cash flow of 8 billion euros in 2025. We now have quite good visibility for this period. If we take our revenue target for 2025, which is over 37.5 billion euros, that would represent a revenue growth of 12% in 2025. The free cash flow margin would increase to 21% – so in terms of the „Rule of 40,“ we would at least be at 33. Additionally, it's part of our transformation program to decouple cost growth more from revenue growth. Artificial intelligence helps us with that.

For example, we want to double our offerings to customers over the next three years, also because we are now making a strong push in the MSE market. With AI, you don't necessarily need twice as many employees to achieve double the output. This doesn't mean we want to reduce staff, but we can accomplish more with the existing team. This year, the cost growth relative to revenue growth is expected to be slightly below 80%, and even lower in 2025. Nevertheless, we don't just see the use of AI as important for financial reasons. If we want to be credible with our customers, we need to demonstrate how we improve productivity within our own organization with AI.

Regarding the dividend policy, I don't see a need for major adjustments, especially since we also have share buybacks as a tool. Regarding capital allocation, the primary investment we are making in 2024 is indeed directed towards the transformation and the requisite restructuring efforts. When I look at the roughly 2 billion euros we allocate for that, plus the dividend and the expenses for share buybacks, there are no major excess funds left. Additionally, there's the possibility of making acquisitions.

We have a stable high „A+“ rating from S&P, and we were just upgraded to „A1“ by Moody's. This gives us room to manoeuvre in the tens of billions. Fortunately, we have strong organic growth. We don't need to buy revenue growth, and we can be very strict with the financial criteria. Currently, we would only consider acquisitions where we see genuine strategic options. In the year since I joined the company, we have looked at several potential targets. But if the price isn't right, we hold back.

In the relatively short time I've been at SAP, I've seen a lot of movement toward the cloud. The explosive development in artificial intelligence and large language models helps with that. Customers now have a better understanding of the acceleration in innovation that's possible here. For cloud customers, we can roll out such innovations much faster. We are also asked as developers to reduce barriers. Using an AI application should be as easy for customers as preparing instant coffee. The additional incentives for switching this year also have an organizational reason. Maintenance for our on-premise SAP ECC system ends in late 2027, with a three-year transition period thereafter. If all customers were to fully utilize this period, there would be massive bottlenecks in consultants and service providers towards the end. Therefore, we are trying to stagger this period somewhat. Additionally, we obviously have an interest in as many customers as possible experiencing how the cloud and AI world works, creating a multiplier effect.

The boundaries between cooperation and competition are blurring. Many AI applications are based on models that can only be trained with large amounts of data, such as anonymized customer data. The AI then draws from this treasure trove when searching for solutions. We have 300 million users in the cloud today. That's 300 million people whose behavior we can learn from. When talking about collaboration, it mostly revolves around the question: Who has power over which data – and how valuable is that data?

I see SAP very well positioned in that regard because a large portion of our data is what we call transactional data. When money, services, goods, and the performance of employees are moved back and forth within a company, it leaves traces in the systems. Our advantage is that we can establish the context for the data. Take, for example, entries in an ERP system: There, a customer enters their data. But the algorithms that the system operates on, the underlying logic – that comes from SAP and is our intellectual property. We can decide how much of that we want to disclose and what we expect in return. We can also integrate data from various sources, such as personnel and financial data or ESG data, which are increasingly demanded by regulations. We have earned these advantages with a lot of money and a lot of sweat.

The European regulations are already very detailed. On the business side, this offers us opportunities, such as developing solutions that allow companies to demonstrate the development of emissions along the value chain. However, we must also invest in ourselves: our budget for projects in the Global Finance Administration area alone will increase by at least 40% this year, not only because we are automating processes but also because regulatory requirements are increasing massively. I would like us to focus more on certain aspects in the EU. The SEC operates with considerably more pragmatism, concentrating on a limited number of key performance indicators (KPIs).

Sustainability is a top priority for European investors, but among US investors, there are already some voices questioning critically how much money we are putting into ESG activities – for example, into our self-imposed goal of being CO2 neutral by 2030. But I say very clearly: we will not relent on sustainability. In the future, it will also be economically crucial how susceptible a company is to rising CO2 prices. Many of the technologies already widespread today for reducing CO2 cost several hundred dollars per ton. I can well imagine that the price per ton could rise to up to 200 dollars – the market for CO2 certificates could become larger than the oil market. Take, for example, a company that emits 10 million tons of CO2 annually. If the price per ton increases by 100 dollars, that would be additional costs of 1 billion dollars in total, that's a lot of money! Investors need to be aware of such risks.

Currently, about 26% of the shares are held by investors from North America. Increasing this share is a long-term task – especially since many European investors are holding or expanding their SAP positions. Nevertheless, the proportion of US investors is growing. We are making progress step by step.

We are very present among European investors. The competition for the attention of American investors is much more intense because they have all the tech giants on their doorstep. My job is to convince investors that it can be worthwhile to invest in SAP alongside Microsoft or Google. It's no secret that the deepest pockets for investments in the software sector are in the US. Some funds can invest billions in a single stock. That's why I spend disproportionately more time with American investors. Nonetheless, it is also important that we are fully represented in our home market in the Dax. The cap of 10% was exotic in international comparison. The increase was a positive signal for us.

Dominik Asam, born in 1969, has been a member of the SAP Executive Board since March 2023 and is responsible as CFO for global finances, administrative areas, investor relations, legal department, and data protection. Asam switched from the aircraft manufacturer Airbus, where he became CFO in 2019, to SAP. Previously, he was CFO at Infineon Technologies. His other stations include RWE, Siemens, and Goldman Sachs. Asam completed his mechanical engineering studies at the Technical University of Munich and the École Centrale Paris and holds an MBA from the European Institute of Business Administration (Insead).