Scott Russell: Let me kick it off and then Christian please add in. So, I think we’ve got to be clear, when customers decide to move to RISE, they’re not just doing a move of their current environments and replicating the same capability. In fact, far from it. They’re trying to transform, operationally process all of their data, all of their capability to serve now and into the future. They’re setting their business up. And so when they look at these, which is why, to answer your question, the larger deals are because they look at a multi-year roadmap of capability transitioning from an older state, including non-SAP. So what we see is many situations where our customers will say, okay, I might be using SAP for core finance, but I’ll then extend, i.e. ERP Suite, the other capabilities, and then we’re able to have a competitive displacement.
That happens on a regular. So whether you look at the SKFs, the Curtiss-Wright and the others that Christian mentioned in his opening and you see the chart of all the other RISE customers, they’re nearly always bringing the BTP, which is displacing other technology platforms and using that as the innovation platform. They’re using other extension, whether it be our [indiscernible] Concur success factors to be able to provide its people its spend. So yes, we are seeing that, but then the compelling event is obviously an initial move and then a multi-year journey when they’re on a large deal, which makes up a big portion of the Q1 results that you see.
Christian Klein: Maybe to shed some more light on top on the numbers is, I mean, what you also see with RISE, it’s not only that we are landing, of course, and converting maintenance with a factor of 2 times to 3 times to the cloud. What we are then seeing after is that, next on land and expand, customers want to replace their HCM module. And this is then oftentimes a double-digit success factor, and pretty central deal. Needless to say, payroll is a massive business, which we are also more and more now shifting to the cloud. So there are a lot of large cross-sell opportunities after we landed with RISE. On BTP, I mentioned one customer. Actually, for BTP, we also oftentimes see now double-digit ACV deals with our large customers as they are not only using the platform for integration, but also for the extension, for the clean core journey.
And then last but not least, when it comes to the volume business growth, that’s rightfully driven by our ecosystem, by our resellers. But oftentimes you start with a EUR500,000 deal with some users, it scales, and then you start finance, HR and then you expand into manufacturing cloud or into billing, etc. And in the meantime, you see that customers are growing from EUR500,000 to EUR2 million to EUR3 million ACV. And of course, this is not the end. But you see that this massive volume business will also further contribute to the growth and these customers will also become after landing and signing deals, net new customers will also become way bigger over time.
Anthony Coletta: Thank you, Jackson.
Jackson Ader: Excellent. Thank you.
Anthony Coletta: Next question, please.
Operator: The next question is from the line of Michael J. Briest with UBS Limited. Please go ahead. Your line is open.
Michael J. Briest: Yes, good evening. Just on your comments, Christine, about applying AI internally. I think you mentioned a figure of triple digit millions. Can you give a sense of where that comes from? And is this a EUR100 million to EUR150 million or a high triple digit million? And over what time you might realize that? And just a quick clarification Dominik on the pre-cash flow, that’s very good. Did that include the final repayment of the factoring of about EUR200 million that spilled over from last year? And obviously, you’re saying that the restructuring is not quite finalized yet potentially. Clearly your EUR3.5 billion number is safe even if that number does creep up a bit. Thank you.
Christian Klein: I can start on the internal rollout of AI. Yes, indeed. It’s a triple digit million of efficiencies and what we are already doing right now, we roll out Joule especially for SAP success factors, so job description, learning, co-pilot, interviews, feedback, that’s all automated now via Joule. In procurement, we have content recommendations rolled out in category tools. In IT or in the cross-function, for example, take F&A, we have to screen hundreds of thousands of contracts every year. That’s now completely automated with generating AI. In Scott’s world — in the sales world, we actually also use now AI for content generation, for demo, actually for the business case creation, which saves a lot of time. So we are rolling out AI development, of course.
We have GitHub, but then also we are using our own SAP built automated code generation tool, for example, for [indiscernible]. And if you think about that, we can increase the productivity of each developer by up to 30% to 40% already this year by our own SAP build solution and also by GitHub. You can imagine the scale and the efficiencies we are going to generate in the years to come also by applying AI internally. Dominik?
Dominik Asam: On the free cash flow side, you talk about the kind of discontinuation of the factoring, I would say, it was the — yes, partially, not fully, because there are some deals which might spend longer term. But we basically, in 2024, discontinue this practice. So you already see a part of the roll-off. I want to highlight though that the bigger thing, so to speak, in Q1 still is that we paid the fines and the famous EUR0.2 billion on DOJ and other authorities. So that was weighing in Q1 and is already digested. So we’re also very pleased with the free cash flow performance in Q1.
Anthony Coletta: Thank you, Michael. We’ll take the next question, please?
Operator: The next question is from the line of James Goodman with Barclays Capital. Please go ahead.
James Goodman: Great. Maybe with investor focus, I think, increasingly shifting beyond 2025. Now I want to just come back just to some commentary around the trends and at a high level and specifically sort of framing that in a financial sense. The maintenance base that still remains in the business today, can you help us a little bit with just how much of that really needs to transition to cloud. I mean I’m conscious that there was sales, for example, of S/4 before the RISE program, for example, came in. And really then just when does that substantially need to be done by given the 2027 deadline, but also the extended support period beyond that. So just how much of the base rate and over what period? And just a related second question, just around the services business only growing 1% this quarter.
I know it’s a slightly tougher comp, but given the demand for implementation work and such like here around S/4 and I might have expected that to be a little higher. Are you expecting it to pick back up? Or is there a structural reason that remains lower? Thank you.
Dominik Asam: Sorry, no, I was focusing on the services. The first one was the [Multiple Speakers] the maintenance — excuse me, okay. So maintenance, a little bit more than half of our EUR11 billion maintenance base we have today is in products, which go out of regular maintenance by end of 2027. And then the question is how much of that will still not convert to cloud, but will go to statements at a higher cost. So that’s the parameter. And I think it’s safe to assume that the lion’s share of all that by 2030 with in some fashion disappear because we will not, as we say, so many times, prolonged maintenance on these products. Of course, the rest being on other products also, of course, on S/4, which you know has a kind of lifetime through 2040. So there’s ample of room there. But indeed, there is an anticipation that there will be an acceleration in conversions from that angle as people need to transition from ECC to cloud, given what I just described.
Christian Klein: On the services business, I mean, Scott, please also feel free to comment. I mean, look, on services, first of all, we are delivering 90% of our projects via ecosystem and the remainder at a 10% share, of course, what we are doing there, yes, there was some seasonality with the Easter holidays now in Q1, we had some onetimes last year in Q1. But in a nutshell, of course, this business will, of course, continue to also show growth going forward. And what is very important with regard to our services business, what we are focusing is more on the high-margin services like when you’re going in, into a RISE deal, you need to equate architect who connect the process, the system and the data layer to drive this holistic transformation.
Then we have the best process experts here when you talk about business model transformation, when you talk about design to operate. Obviously, of course, our consultants need to be leading and also sharing best practices of other customers. While, of course, main part of the technical migration of the technical consulting will be delivered by our ecosystem, rightfully delivered by our ecosystem.
Scott Russell: I just want to add one thing on the – back on to the support revenue that Dominik described. Bear in mind that when we talk on one hand about large deals, when you’ve got these large programs of transformation, that includes a period of coexistence where customers will keep the maintenance of their on-premise capability until such time that they’ve transformed into the cloud. So not only do you have that. So that steady progress accelerated transformation. It’s happening in tandem. So as you see the cloud revenue growth, you will also see the corresponding takedown of the support revenues. But it is in light of a customer’s transformation. So all the RISE customers that were existing customers that you saw in Q1 in quarters in the past, go through that journey. And so, you can see a measured and managed downgrade of the support in light with the cloud lifting in correspondence.
Christian Klein: And maybe one word regarding the maintenance because, I guess, this is an important factor in all the modules. I mean, look, there are certain parts of an ERP. As I also mentioned at the beginning, it’s a monolithic ERP architecture. And in there is, for example, also BW system. And for example, a BW system is not so easily replaced. There’s also a lot of custom code build. It’s a massive reporting engine. And with Datasphere and with our partners, we of course, also now more and more shifting this to the cloud. Will all BWs completely migrated to the cloud by 2027? No. But we will, of course, partially replace them over time. So it’s fair to assume that, of course, some maintenance revenue will also be after 2027.
That’s all moduled in. And I want to see now with Business AI, the upside in accelerating the move of our installed base because every customer now finally gets that in the cloud, there is so much innovation. There’s also with AI differentiation. So I actually expect that we see a further acceleration of our installed base move to the cloud.
James Goodman: Very helpful. Thank you.
Anthony Coletta: Thank you, James. We have time for two more questions. So we’ll take the next one, please.
Operator: The next question is from the line of Mohammed Moawalla with Goldman Sachs International. Please go ahead.
Mohammed Moawalla: Great. Thank you. I have two quick ones, if I may. First one for Dominik. You talked about kind of a minimal amount of the transformation charge taken in Q1. How should we think of the phasing of that over the course of the year? And I kind of understand that you are still have in discussion with kind of affected employees. And how should that kind of pace through the course of the year? And then secondly, for Dominik as well, you alluded to earlier in the year that your kind of — 2025 guidance still doesn’t assume any significant working capital, kind of improvements. But I know there’s seasonality in the working capital, particularly in Q1. Are there any kind of plans or initiatives, whether it’s around sort of shifting the kind of the invoicing to annual or other kind of collections levers that you compress on?
And would you inclined to perhaps pass on some of those savings elsewhere in investments in the business? Or could that be as seen as a potential upside risk? Thank you.
Dominik Asam: Well, thanks a lot of questions in one go, so to speak, almost like a planning discussion. So in terms of phasing, what I mentioned is that, of the EUR2.2 billion accrued for restructuring, very little if anything has been kind of paid already in Q1. So I talked the cash out as opposed to the accrual. The accrual has been taken, and we said the vast majority of the accruals we currently expect have been taken in Q1. The program will run throughout the year and actually into Q1 2025. So it’s not the final number yet. There are voluntary programs in there where we have to wait for the acceptance rate. There are still negotiations with social partners. I did mention that in the U.S., we actually had a very high acceptance rates, which kind of drove that accrual up a little bit.
Also, the share price increase has driven the accrual up a little bit because, obviously, we have to compensate more for the entitlements of the people that are leaving because they are good levers if we want them to leave, so to speak. And — but we also said that let’s see what’s coming beyond that, if anything, of course, we will only go for more reductions than what we have planned in case there is a good business case. Otherwise, it makes sense. So I think you can rest assured on that one. With regards to the cash flow in 2025, you mentioned that we have been not super aggressive in terms of working capital improvements in 2025. We are making some progress as we speak. I want to caution that we have really a very comprehensive transformation program and really executing the head count reduction is of utmost important.
