Earnings Call Transcript
SAP SE (SAP)
Earnings Call Transcript - SAP Q4 2025
Operator, Operator
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 Dominik, 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 point changes are non-IFRS year-on-year at constant currencies. And with this, let's not waste any time. Over to you, Christian.
Christian Klein, CEO
Thank you, Monika, and welcome everyone here at our headquarters in Walldorf and to those joining us virtually from around the world. I have two significant points to discuss. First, regarding 2025, you have seen the numbers, and I want to provide some additional context on these figures as well as our outlook for 2026 and beyond, especially focusing on AI. When we look at the 2025 numbers, I am pleased with how SAP has once again achieved a very successful year. In terms of cloud and software, we met our goals. It's important to note that we had a challenging start in the first half of the year due to geopolitical tensions, particularly in the public sector, which made closing deals difficult. Despite that, we not only met but exceeded our expectations for operating profit and cash flow. This success is attributed not just to cost discipline but also to the way we are transforming SAP, making internal processes more efficient and integrating AI throughout the company. I will elaborate on this when discussing 2026. In the fourth quarter of 2025, we also recorded the best booking results of the year. I understand there have been discussions around CCB, which I will address shortly. However, Q4 proved to be our strongest quarter regarding bookings, with lower churn than anticipated and stable discount levels, resulting in an overall positive quarter. Our transformation began five years ago when I made a bold commitment about our ambitions for 2025. While there were doubts, we have delivered. I am immensely grateful to our 100,000 colleagues worldwide and to our customers for their trust, as through RISE and GROW, we made a significant investment not only in moving our customers to the cloud but also in facilitating their transformation. This has led to one of the most significant success stories and the largest 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 of 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 also be covered by our partners. And in 2025, and that 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. But we are living in a fast-moving industry. I would say this is 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 PDP is now in the meantime the platform for integration and extensibility. We put a BTM 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 EUR 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 customers, 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 increased by 30% to EUR 77 billion. I mean, what a number. And 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 around 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 this revenue growth numbers here of 26% in 2025, these are on average, 10 percentage points faster than our peers, than our competitors, just shows how also SAP is gaining market share. In summary, operating profit and free cash flow will be discussed by Dominik, so I won’t go into detail. We exceeded our expectations, which is significant. In Q4, we secured a lot of business, marking our best bookings quarter. I’d like to share two examples that highlight the importance of SAP AI for the future. One is H&M, a well-known retailer. They approached us expressing that their business would undergo significant changes. We collaborated for an entire year to develop a prototype, and we finalized the deal in Q4. H&M was pleased with our commerce platform but indicated that their customers will expect a more personalized shopping experience in the future. As a result, we created a custom-coded prototype to illustrate how the shopping experience will evolve. We brought this back into the standard. They were impressed, saying it was exactly what they needed to address consumer needs and trends both in-store and online. We also discussed returns and claims management, focusing on how to make the process more efficient and improve the consumer experience. We considered whether we could suggest alternative products if a consumer is dissatisfied, and how an AI agent could find the right store for next-day or even same-day delivery if a product is unavailable. We demonstrated the difference between the previous SAP transactional application and the capabilities of AI in the new environment. They were amazed by how we can personalize the consumer experience and make the supply chain more dynamic and agile, especially in terms of faster delivery. Additionally, they observed how well the agents collaborated in the back office, particularly in finance. This collaboration was crucial for finalizing the deal; it wasn't just about moving to the cloud and eliminating legacy systems, but the AI integration in various parts of our applications that made it possible. Fresenius, we did a press release already, super happy about that. We got a lot of feedback, especially in Germany, hey, you were great in patient management, but why do you not deliver the next generation. Together with Fresenius and Avelios, we are now coding on our platform a new patient management solution. And we started to do that. Avelios 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 people in the hospital, making them more efficient, making more efficient decisions and 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 patient management. Now discussing the future of AI and SAP, I understand there are concerns in the market about how software will thrive in an AI-driven world and whether everyone can create software. I would affirm that is not the case. What we observe with many customers is that, while they are developing certain customer agents for cash flow collection using LLM providers, they encounter significant hurdles. This is increasingly evident, which explains why two-thirds of our deals involve AI. Customers recognize that while LLMs can read support tickets, they struggle to address comprehensive data points such as P&L information, sales negotiations, or payment details that are crucial for understanding why customers are not paying. LLMs excel at handling unstructured data, but to succeed, you need access to business data. Companies like SAP, which possess extensive data reserves, are utilizing this to enhance our AI foundation. We are employing the best LLMs for various use cases, integrating them with a knowledge graph to connect unstructured and structured data. Additionally, BDC facilitates the integration of semantic data within the company's structured data, creating a successful combination. And then the second piece is when you want to change a retailer like H&M, you cannot just go there and say, the IT 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 information and knowledge that we have about industries and business processes to really redefine how these agents have to work. An inventory agent, as 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, what kind of information can I actually feed into an agent. There are certain security authorization requirements, which all sit 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 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 AI. There has been considerable discussion about what LLMs can achieve, particularly in software coding. They can certainly handle coding since it involves unstructured information, and they recognize patterns from how our developers have worked in the past. However, when it comes to business data, that is something uniquely offered by SAP. As we look at how SAP will expand its business, it's noteworthy that we are committed to further accelerating our revenue in a sector that is already growing significantly. We have identified five key areas where we are well-positioned to succeed. While we cannot dominate every area, these five pillars are crucial for our customers. Historically, SAP's user experience hasn't been the strongest suit, and we acknowledge that Joule, our AI, cannot currently replace every human skill. However, we are making progress. We aim not only to automate manual tasks but also to fulfill analytical requests. We will enhance Joule's capabilities to not only generate analytical reports but also to provide intelligent recommendations, such as how to procure the best products or optimize inventory planning by assessing demand trends and market conditions. So Joule will not only be connected to an LLM like GPT, Joule will be connected to our AI foundation to get the two worlds together. And what it will do is, when you think about how often did I sit in front of my desktop or mobile typing data into SAPs, 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 processes 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 low-code 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 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 run it in the past. And now we were reimagining those capabilities with AI. Fourth, regarding business data cloud, the primary challenge for business AI today is data, specifically data harmonization and data silos. This issue significantly constrains our customers, as reflected in our numbers. BDC is a major achievement because SAP has shifted to a more open approach, integrating our data with non-SAP data. With BDC, we enable customers to harmonize SAP data with their other business data from non-SAP applications. Additionally, many SAP customers are expressing concerns about the cost of their RISE journey. They feel they're paying more to DSI, which is not ideal. We are exploring how AI can revolutionize certain aspects of ERP migration, such as data migration, system configuration, and test automation. These areas are crucial, and we are collaborating with our partners to leverage AI effectively rather than relying solely on consultants. To establish credibility in AI, we must utilize Joule, our own AI. While it may not be flawless yet, it is vital that we set an example that enhances our impressive cash flow and profit results through AI. Our teams are actively advocating for this. In research and development, we've implemented code-generation tools to free up developers to focus more on agent orchestration rather than solely on coding. In sales, we've made significant strides with AI in quoting, pricing, and identifying optimal deals and opportunities. In human resources, following our acquisition of SmartRecruiters, we plan to incorporate AI into our SuccessFactors solutions and improve our HR operations. As technology evolves rapidly, our people remain the most critical component. AI is not only a tool for smarter operations; it also necessitates new skills among our workforce. Reskilling is a key focus for SAP, as AI will influence every role. This doesn't imply a reduction in our workforce but rather a need for different skill sets. We anticipate changes in job profiles moving forward, but given our strong revenue results, our focus is on reskilling our current employees to prepare them for the next phase of our transformation. As we look ahead, I'll turn it over to Dominik in a moment, but I want to share some observations on geopolitics. SAP is the largest tech company in Europe, and the future of SAP and Europe will revolve around talent. We must ensure that our education system evolves, allowing universities to provide access to the best talent. This is progressing well. However, every job the next generation will undertake will need to adapt. It's crucial that we recognize the growing desire within Germany to embrace digitization. When comparing our home market to the U.S., the regulatory landscape is overwhelming, with numerous layers. In the U.S., when we close deals in Q4, we encounter straightforward regulations like FedRAMP, and discussions about compliance are clear-cut. In contrast, in Germany, varying interpretations at the state level and divergent federal regulations complicate matters. This situation is not just challenging for SAP; it also affects our start-ups competing with similar ones in China and the U.S. Achieving a digital union to harmonize regulations is vital, as it impacts funding and capital access, but more importantly, it affects the speed necessary for our many promising start-ups. With that, I feel optimistic about our outlook for 2026. Our strategy is sound, and you'll see SAP emerge as a leader in AI. Now, I’ll pass it to Dominik.
Dominik Asam, CFO
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 midsized 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 EUR 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 EUR 21 billion, 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 this 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 U.S. 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 EUR 77 billion, 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 ERP suite. Cloud ERP 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 of percentage points, 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 was down by 27%. Total revenue for the full year was nearly EUR 37 billion, representing an 11% increase. Looking at the income statement, our non-IFRS cloud gross margin for the full year continued to improve, increasing by 1.6 percentage points to 75%, which led to a 29% rise in cloud gross profit. In the fourth quarter, IFRS operating profit rose by 27% to EUR 2.6 billion, while non-IFRS operating profit grew by 21%. Both IFRS and non-IFRS operating profits were adversely affected by around EUR 100 million linked to a workforce transformation planned for 2025. Additionally, IFRS operating profit growth faced a setback of USD 200 million due to litigation expenses related to Teradata. For the full year, IFRS operating profit reached EUR 9.8 billion, and non-IFRS operating profit was EUR 10.4 billion. The effective IFRS tax rate for the full year stood at 28.5%, while the non-IFRS tax rate was 30.4%, which is lower than the expected rate of approximately 32%, primarily due to a greater capacity to offset foreign withholding taxes in Germany. Looking forward, we expect the midterm 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 around down EUR 8.2 billion, i.e., at the very high end of our revised outlook range of EUR 8 billion to EUR 8.2 billion. 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 2-year share repurchase program of up to EUR 10 billion scheduled to start in February. This decision reflects our confidence in the sustainable strength 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 the fiscal year 2025 increased by 36% to EUR 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-IFRS operating profit growth significantly above revenue growth. In addition, in 2026, we expect to generate record free cash flow of approximately EUR 10 billion, 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 outlined 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 could offer technologies and tools to reduce dependencies from dominant offerings. As the largest non-U.S. 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 a 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.
Operator, Operator
Thank you very much, Christian. Thank you, Dominik. We have 30 minutes left, and we are going to move to the Q&A session now. Could you please at the beginning, limit your input to one question only. I have a couple of questions here in the tool already, but I want to kick it off here in the room, of course. Heidi?
Unknown Analyst, Analyst
I have a question related to the topic you mentioned last. You mentioned the better environment in the U.S. as to regulation. And you mentioned your opportunities here given the demand as to more sovereign and resilient infrastructure and solutions offering. But are you facing hurdles there in the U.S., like kind of against the backdrop of growing tensions between the two countries, and maybe there are some hurdles your competitors are facing here. So they might backfire. Are there any indications for that?
Christian Klein, CEO
No, actually, the U.S. public sector was one of the best-performing businesses in Q4, and that has completely changed. And those customers are actually less concerned around is the software coded in Europe or somewhere else. They have a clear regulatory framework, obviously, and it has high standards for very mission-critical parts of the U.S. government, for example, and still standards for other businesses in regulated industries. So there is not a debate about are you from Europe, are you from the U.S.? It's really about adhering to those standards. And that, of course, when you imagine now applying AI to these parts of the world and to their companies, it's very important because now you can really focus on the business value; you can focus on the technological questions. Here, you can find in Europe customers from the same country, asking you for very, very different regulatory standards because, again, there are really these many layers of regulation, and that is something where when we really want to leverage the power of Europe, and I'm all in favor for you. We need Europe more than ever. But then at a certain point, someone has to give up power and say, okay, in order to come to one Europe, we can't regulate everywhere. And I guess that is the biggest difference. Also what we have seen, by the way, in Q4, it was very visible also in all the deal closing activities we had.
Operator, Operator
Thank you. Let me build on that one. We have one question from writers here in the tools to the same topic. Are your solutions intended to diversify? Or are they intended to replace offerings from non-European providers in the long term?
Christian Klein, CEO
I don’t see it that way. In Germany, we've been discussing for years what sovereignty really means. It often leads to theoretical debates about whether it should be a European or U.S. provider. Ultimately, every piece of hardware will eventually come from either the U.S. or China, regardless of personal opinions. The key factor is competitiveness. SAP must enhance its competitiveness, and our AI solutions should surpass those of our rivals. Customers around the globe will purchase based on that quality, and they will also dictate their sovereignty standards. For instance, we are now establishing a new sovereignty standard in India with local partners and doing something similar in France. While this situation is evolving, it remains manageable for SAP. In the past, we adapted our software for over 100 countries, even when there were fewer regulatory requirements related to data and cloud. With the emergence of cloud computing and AI, we are seeing increased regulatory demands, but our history shows we are capable of meeting these changing requirements.
Operator, Operator
You've mentioned a couple of times how the geopolitical tensions impact the business. So how do you expect these tensions to impact the business going forward? I mean, I know there is an outlook, but what impact do you see in this outlook? Do you plan for a scenario in which the tensions might even escalate and maybe a very special question, I've heard that the next SAP leadership meeting is supposed to take place in Washington, D.C. So is there a reason why you have chosen this location? And do you consider changing it against the political backdrop?
Christian Klein, CEO
I can address the question about the leadership summit since it's relevant to my work. When making our decisions, I didn't consider the geopolitical tensions. However, it’s important that we prioritize peace. The leadership summit has been held in beautiful places over the past three years, and as a global company, we enjoy that experience. We also need to support our customers around the world. We made the decision a while back to hold the summit once in the U.S., return to Europe, and then go to another location. We must support our global customers without letting current world events dictate our decisions. Of course, if a serious conflict arose, that would change things. But overall, we are a global company with employees everywhere who want to feel connected to SAP. If I told my 30,000 people in the U.S. that I wouldn’t visit anymore, it would send the wrong message. So, this is our approach, and I believe it's the right way to do things.
Dominik Asam, CFO
Maybe on the outlook, first of all, I want to emphasize that 2025 was not necessarily an easy year to put it mildly in terms of trade issues, geopolitical tensions. And I find it quite remarkable that on cloud revenues, despite all these adversities, I would call it, we have been able to be really within spitting distance to the midpoint of our cloud revenue guidance. That shows you how predictable that number is by now by virtue of the high share of more predictable revenues. So for the way we now scale the guidance for next year, we have basically assumed the 2025 environment to be the new normal. So I think '25 shows that we have a resilience even if some unexpected events hit us. But of course, we're not embarking any meltdown catastrophe scenarios here in that guidance.
Operator, Operator
Okay. Let me continue with questions from the tool because we have a lot of questions with regards to our share price dropped today by 10% for a short time this morning. What is the market not understanding about the company?
Christian Klein, CEO
I’ve been in this role for six years and have experienced many ups and downs. Reflecting on our meeting a year ago when our share price was strong after two good years, I recognize that's not a reason to relax. We need to develop our strategy and execute regardless of the current market signals. This situation isn't unique to SAP; it's reflected across the SaaS industry. Our Head of Investor Relations mentioned that we are currently in a difficult position due to uncertainties about the future of software as everyone can now generate and code apps. Historically, technological advances, like the capabilities of smartphones, began with improved hardware. The same goes for large language models; they rely on solid chips and hardware. However, to create business value, we need to build on this foundation. These agents must comprehend business data and processes to provide real value to our customers, which is essential.
Dominik Asam, CFO
And maybe to add some numbers around it. I mean, it's almost like a philosophical war around where the value is created. Is it on the infrastructure layer, which is currently the flavor of the month where everybody is investing. By the way, that's actually good for SAP because we are agnostic and the more money flowing into that, the more competitive that infrastructure will be to run our PaaS and SaaS services on top. We are actually deemphasizing that business. Maybe that will stabilize at some point in time because of the sovereign debate we just had before. On the other side, if I look at the SaaS and the PaaS layer, which we continue to believe for the reasons Christian mentioned, will be a key layer, we are doing actually great, especially in comparison to competitors. You have seen results of some competitors like Dynamics and ServiceNow over the night. There are others to follow. And if you then adjust to an apples-to-apples dollar comparison, we are actually far ahead of the pack in terms of growth rates. So just to give you some data on SaaS, PaaS. In 2025, we had 30% growth in U.S. dollar terms. So that's what you need to compare our competitors to. And I'd say there are some hovering around 20%. There are some hovering around 10%, some in the mid-teens, but nobody is anywhere close there. So we have a strong degree of confidence. Right now, that kind of SaaS, PaaS layer is not super appreciated by capital markets. But I think the jury is still out what ultimately will happen.
Operator, Operator
Thank you. Before I move to my M&A question here from the tool, any questions in the room?
Unknown Analyst, Analyst
Can you hear me? Yes. I have a question about the tariffs. How are the U.S. tariffs affecting your business, both directly and indirectly via delayed spending decisions by your customers?
Christian Klein, CEO
There are no tariffs on software or software services, which is beneficial. So there is no direct impact, and we hope it remains that way because our customers are spread across the globe. Digital tariffs could have an immediate negative effect regardless of location. Regarding the indirect impact, we experienced some challenges in the first half of 2025, particularly in the public sector due to new requirements and the need for new certifications, but we managed to overcome those issues. Q4 was actually quite strong for us in the U.S. public sector. As of now, there is no direct or indirect impact, and we hope it stays that way, but we will see what happens tomorrow.
Operator, Operator
So back to my tool. The company plans to start a share buyback program. Is there really no other idea to invest for future revenue?
Christian Klein, CEO
I anticipated this question, and it's a valid one. Firstly, regarding the share buybacks, we're also utilizing these shares for our employees through stock programs, which have been well-received. This initiative goes beyond merely repurchasing shares for financial reasons. Secondly, we haven't pursued significant mergers and acquisitions in recent years because we haven't needed to. Our organic growth is reflected in our accelerated total revenue, which is a point that many tech companies cannot claim. However, I wouldn't rule out M&A in the future. At some point, we may engage in M&A, particularly for technological advancements in the data and AI sector. If we identify technology that could enhance our AI and data platform, we have the financial flexibility to proceed with that. After the share buyback, SAP is not lacking in funds.
Dominik Asam, CFO
Maybe to add on the financial aspects of that, Christian. First, I want to highlight that SAP today has an extremely strong credit profile. So we have a very good rating, much better than some of our competitors. And I dare say we have managed to base that rating more and more on recurring cash generation. Think about the EUR 10 billion guidance we have put out, EUR 8.2 billion that we delivered in '25. So we don't need to hoard an excess cash pile to sustain that extremely strong creditworthiness. So that's the philosophy. And frankly, we always benchmark investments like M&A against investing in our own shares. I always say, why should we do an M&A if investing in our own shares would give us more value? So this is why we think it's part of the mix. And I think it also is evidence to the success we have in really coming up on the free cash generation massively.
Operator, Operator
Thank you.
Unknown Analyst, Analyst
You said you won't need fewer people. Does this apply to Germany as well?
Christian Klein, CEO
That particularly applies to Germany, where people are very well protected, and we appreciate that. We are investing in Munich and Berlin, which are becoming major hubs—Munich focusing more on supply chain AI, and Berlin primarily dealing with data. While I've mentioned some of the challenges we're facing, we continuously communicate with our government. Just look at the rapid developments in China and the U.S., where we can agree or disagree with certain aspects, but as long as they align with our values, I prefer to remain neutral. Economically, things are advancing quickly. When it comes to hiring new employees, they can be onboarded in two weeks, which is significant. If you need to upskill your workforce, you aren't waiting to apply new code generation tools. Regulations are far less burdensome. This leads us to question why there isn’t another SAP in Europe. While some causes are evident, it's not solely about that. Great entrepreneurs are needed, as well as CEOs capable of making sound decisions. However, the regulatory landscape plays a critical role, especially for a tech company, since this industry evolves faster than any other.
Operator, Operator
So we'll discuss AI shortly regarding the tool. Are there any other questions in the room?
Unknown Analyst, Analyst
How important are deals with the military for your company?
Christian Klein, CEO
They are as important as every other deal we are closing. We are working with many military defense companies around the world, and we are very proud of it. For instance, we have a project with the Japanese Navy and are doing a lot with Australia. They are part of our customer base just like any other customers. With AI, our focus is not just on warfare; it's about making their operations more flexible and assisting with AI in asset management and fleet maintenance. This approach is similar to what we provide for other industries. Yes, they are part of our customer base. Additionally, considering the size of the industry, the public sector ranks fifth in terms of revenue among the 22 industries we engage with.
Operator, Operator
So two questions from the tool, AI first or current cloud backlog first? Let's start with current cloud backlog.
Christian Klein, CEO
Yes, they go hand in hand. AI is actually included in our backlog. People often inquire about our AI revenue, but AI is embedded within our applications. It enables us to develop our apps, secure deals in SaaS, and attract more developers to our platform. Therefore, it's an integral part of all our activities, and naturally, it's also involved in CCB.
Dominik Asam, CFO
So what's the question? What's the question on CCB?
Operator, Operator
Again, explain CCB.
Dominik Asam, CFO
Yes, I assume the question relates to our actual achievement of 25% compared to the anticipated 26% following Q3. It's important to recognize that when forecasting CCB, we consider the details of all these contracts. If you examine the specific types of contracts we've signed, you'll notice some differences. The main factor we've observed, as mentioned earlier, is that a significant portion of our deals, 71%, were valued at EUR 5 million or more. With these large deals, the ramp-up period tends to be longer because customers usually begin with smaller implementations before addressing the more complex challenges later on. This results in a slight delay in the ramp-up process. Second point is that Christian mentioned the very strong traction we had on the defense side also on the other side of the pond. And there are sometimes procurement laws in certain jurisdictions where we have very mighty procurement departments that can impose a termination for convenience on the vendor. And then we cannot put it into the current cloud backlog because that backlog needs to be contractually committed and that option to walk is there. Now in reality, that option is, of course, sometimes theoretical because these are deeply embedded systems, which are extremely sticky. So we're very confident that the revenues out of this will come. But technically, we cannot put it into current cloud backlog. And the last point is what we discussed that there are more and more customers who say, can I really afford to have an off-the-shelf standard plain vanilla U.S. hyperscaler Infrastructure as a Service? Is there a risk that that might go away quickly for whatever political reasons and look for alternatives? And these alternatives are just about to emerge. Some of them are already up and running. Some are just certified. The certification process takes some time. They also sometimes need to be built. So also from the signing of the contract to the deployment at the customer, it takes time. So these were the three factors that actually explain the delta. Each of them not super big, but if they compound together, we talk about that roundabout 1 percentage point.
Operator, Operator
Thank you. Any other questions in the room?
Christian Klein, CEO
Yes. I mean, I just want to add that when I look forward, I'm proud of all of our initiatives, and we will have great opportunities ahead of us. SAP is strong and confident, and we will show everyone why we are confident that we can take the customers into the next level with our AI and cloud capabilities.
Operator, Operator
Thank you, Christian. Thank you, Dominik. We have reached the end of the Q&A session. Thank you to everyone for your questions.