Good day and welcome to the SAP Q2 2020 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Stefan Gruber, Head of Investor Relations. Please, go ahead, sir.

Good morning or good afternoon. This is Stefan Gruber. Thank you for joining us to discuss our results for the second quarter 2020. I'm joined by our CEO, Christian Klein; and our CFO, Luka Mucic, who will both make opening remarks on the call today. Also joining us for Q&A is the Executive Board member, Adaire Fox-Martin, who leads our customer success organization; and Ryan Smith Founder and CEO of Qualtrics. Before we get started. As usual, I would like to say a few words about forward-looking statements and our use of non-IFRS financial measures. Any statements made during this call that are not historical facts are forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. Words such as anticipate, believe, estimate, expect, forecast, intend, may, plan, project, predict, should, outlook and will and similar expressions as they relate to SAP are intended to identify such forward-looking statements. SAP undertakes no obligation to publicly update or revise any forward-looking statements. All forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. The factors that could affect SAP's future financial results are discussed more fully in SAP's filings with the U.S. Securities and Exchange Commission, the SEC, including SAP's Annual Report on Form 20-F for 2019 filed with the SEC on February 27 2020. Participants of this call are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. On our Investor Relations website you can find our half year report, our quarterly statement and a financial summary slide deck, which are intended to supplement our prepared remarks today and include a reconciliation of our non-IFRS numbers to IFRS numbers. Unless otherwise noted, all financial numbers referred to on this conference call are non-IFRS and growth rates and percentage point changes are non-IFRS, as reported year-over-year. The non-IFRS financial measures we provide should not be considered as a substitute for or superior to the measures of financial performance compared in accordance with IFRS. And finally, as you have seen in our quarterly statement, we plan to hold a virtual Capital Markets Day in the fourth quarter later this year, where we plan to provide an update on our mid-term strategy. More information will be provided in due time. And with that, I'd like to turn things over to our CEO, Christian Klein.

Yes. Thanks, Stefan, and welcome everyone to our Q2 earnings call. I hope that you, your families and friends are safe and manage to keep your spirits up in these challenging times. This is our second quarterly earnings call during the pandemic, but our first full quarter under the COVID impact. And given the situation, it was a fantastic one. Of course, the crisis is far from over. But still our results reflect the progress we have made as a company since the pandemic hit hard in March. We have adapted to the situation by truly transforming into a virtual organization and allowing our customers to continue with their business. 17,000 customer Go-Live in the past six months alone are showing SAP's resilience in this crisis. Also, Go-Live in the cloud are happening now in weeks rather than months. This shows how SAP enables our customers to react with agility and speed in this crisis. As we have said before, SAP is crucial to the business transformation of our customers and we are working to emerge stronger out of the crisis. If customers are in a difficult spot financially right now, we will provide commercial relief when needed, because we want to build partnerships for life. Inside SAP, we continue to selectively hire into our future growth opportunities, striking a balance between near-term profit and innovation, but we also have an obligation towards society. Our purpose is to help the world run better and improve people's lives. And I'm proud that ever since the crisis broke, we have been supporting the public with projects, financial assistance, donations and technology around the world. Let's move to the quarter now. Luka will take us through the numbers in a minute, but let me say, these results show yet again well our intelligent…

Yeah. Thanks a lot, Christian. I'm really proud that our team successfully navigated a very challenging environment to deliver a better-than-anticipated quarter. We were happy to see a strong sequential improvement in software licenses revenue, robust margin expansion, and a strong free cash flow development. In Q2, our current cloud backlog showed a strong growth of 20%, reaching €6.7 billion with continued high demand for digital supply chain, e-commerce cloud platform, and Qualtrics solutions. Cloud revenue was up 19%, reflecting the strength of our contractually committed cloud business, which was partially countered by lower pay as you go transactional revenue, due to the COVID-19 crisis. This cloud revenue growth together with our consistent software support revenue stream, demonstrates the resilience of our business model. Our more predictable revenue expanded by approximately five percentage points, reaching 73% in the second quarter. In Q2, our cloud and software revenue grew by 3%. For the first six months, our cloud and software revenue was up 5% or 4% at constant currencies, a very strong showing given the impact of COVID-19. Before moving to the bottom line, let me briefly give you some color on our regional software results. Software licenses revenue, while still below normal levels recovered more than expected. In particular, the APJ region had a stellar performance backed by a very strong recovery driven by Japan, South Korea, and Indonesia. In the Americas, we saw a modest recovery primarily from a strong sequential improvement in the United States. Now, moving on to the bottom line. Our overall cloud gross margin grew by two percentage points to almost 70%. All cloud business models contributed to this margin expansion. Our SaaS/PaaS margin grew by one percentage point, our intelligent spend margin grew by two percentage points, and our infrastructure-as-a-service margin grew even by…

Thank you. We can start the Q&A session.

Thank you. [Operator Instructions] And we take our first question from Charlie Brennan from Credit Suisse. Please go ahead.

Great. Thanks very much for taking my question and congratulations on a good quarter. Can I just start with a question for you Christian? I think a lot of the focus today is going to be around your comments around updating the medium-term targets. When you're thinking about investing in the business, can you tell us whether those investments include M&A or do you just think about organic investments? And then no doubt the market is going to be speculating between the growth and the margin trade-off. Will you only take margins lower if you think you can accelerate topline growth? Or can you see a scenario where margins need to be lower to support the existing top line growth ambitions? Thank you.

Yeah. Thank you for your question. On the growth side of the house first of all, yes, you heard me talking about the new growth opportunities of SAP like industry cloud. And these growth initiatives are not taking out of the blue, mean these are categories, which are on the one-hand side showing big growth but also clearly where SAP has a why to win with organically built cloud solutions. As a lot of the data and processes you need to verticalize your industry-specific processes are sitting actually in the core of SAP. On top, as you also have seen, our ambition is not to build the industry cloud only by our own. We formed now major partnerships with Siemens on the PLM side to scale Industry 4.0, providing even more value to our customers. We have closed a partnership with Honeywell to also make the real estate industry and intelligent enterprise. And of course, on top, we are constantly screening the market for potential tuck-in acquisitions, but only if it really makes sense to fill white spots in our portfolio, which are also close to the core of SAP. On the margin side, I mean clearly what we see now in this crisis, there is a huge acceleration with the move to the cloud. I mean commerce supply chain we are delivering the solutions even more to the cloud. When I talk to CEOs these days, they are actually afraid of the resilience of running their own data centers. So, this is why I also talked about launching a new business model. Because I believe the business transformation is not only happening by moving your workloads to a cloud infrastructure. And business transformation is happening with the help of SAP with intelligent applications with partners of the ecosystem helping to transform your business processes, and this is what we are going to launch in half year 2. And this will definitely also accelerate our growth in the cloud. Now, we still have to see what does this means with regard to the revenue mix in our P&L. But you can also be very sure, we will also double down on our efforts to really also managing our bottom line in an extremely tight way. We just did one of the biggest reorganizations in SAP now finally gaining also the synergies on the bottom line. And this is why we will do both. And later on this year, when we also see how the market will develop in light of COVID, we will also give you then an update on the mid-term outlook.

Okay. Thank you.

Thank you. Let's move to next question please.

Thank you. The next question comes from James Goodman of Barclays. Please go ahead.

Good afternoon. Thank you very much. Let me come back to the Qualtrics' announcement please. Really just what's prompted the decision now, especially I guess, since such a focus at SAPPHIRE around tighter integration? And I appreciate your comments that you'll remain very focused on the combined go-to-market and R&D. But, is there any effect here in terms of product integration, and particularly, in the sort of HRM area? And then also relating to Qualtrics, can you say anything around either the size of the minority stake you're considering listing and what you plan to do with the proceeds? Thank you.

Yeah, thanks for your question. Let me go first, and then I will hand over to Ryan and Luca can talk about the listing later on. Yeah. So first, I guess in the last three months the person to which I talk the most, is definitely Ryan. Because when I took over the company as sole CEO, of course, a huge focus was on how to also move Qualtrics to the next level. I mean when you look back 19 months, Qualtrics came into SAP. And since then, Qualtrics has beaten all of our expectations, all of the objectives we have set in the initial business case. And you see this also in our external segment. But Ryan and I were actually -- we are never satisfied with the current status quo. So, we kicked around certain ideas and really with the underlying condition to accelerate the growth of Qualtrics. And while we have seen big success with the help of their sales force to sell Qualtrics into our installed base, we also have seen that experience management is really a fast growth category out there in the market. So then the idea of the IPO came up. And actually we figured out that this is a win-win situation. And honestly until today, I'm still figuring out what is actually the downside. But for me, there is no downside as we will continue to further embed Qualtrics within our intelligent enterprise. As part of our product strategy besides human experience management, we now figured out four other categories, which we will launch in the next quarters to come, and which we will also sell together. So there is no change because of the partial IPO. On top, we give Ryan and the leadership team the flexibility to also go out in the market for the non-SAP customer base where there's also huge growth. And we, of course, also make sure that they have the capitalization to also go after that market and also grow the Qualtrics business outside of the SAP customer base. And last but not least, coming back to SAP. Another win is, of course, that it also gives us the financial power to also then go after our own growth initiatives like I just mentioned the industry cloud. And these were in a nutshell the main reasons. And, of course, we also want to retain the great leadership team of Ryan and his key executives. And with that over to you Ryan.

Yeah. So thanks Christian and thanks for the question. It's a good one. Look, I mean, I started Qualtrics 20 years ago in my parents' basement. And from the day one that we got into SAP, they have done a phenomenal job. It's just treating this like a partnership. And it's been probably the most founder-friendly and entrepreneurial -friendly company that a founder could go integrate themselves into because of how it's been treated. So the way this came about was no different than how it's gone the whole time. Hey Ryan what do you see? What do we see? And how do we actually go do something together? And as Christian when he got into the role first thing he said was, hey, how can we really take advantage of this category? And we kicked around a bunch of different ideas. And by the way if I take a step back there's not one of the top five software companies in the world that hasn't thought about this or wanted to do this at some point with either one or multiple assets, because they figured that hey we could go bigger with it. And we could go bigger because of focus and some of that -- some of the benefits of being together, but also the benefits of going after the market but they don't do it because either they don't have confidence that the business can perform as a stand-alone as well with the integrations or when they pull out the integrated product, or at some point they spin out or uncouple a little bit that it will destroy or they don't have the founding team that actually built it, so it’d be a distant cousin of what was there. And a lot of times they're not innovated…

Thanks a lot. So let me then complete the answer just with those three aspects that you've asked for from a more technical perspective. And indeed, I mean, they are probably one of the most asked questions that I've received since this morning. In terms of the IPO sizing, we frankly don't know it exactly yet. I mean, if you look at benchmark U.S. tech IPO is typically -- they float at a rate of somewhere between 10, 15 perhaps a notch above that. And we will not be miles away from that kind of broad size range. So it's clear that also after the IPO, SAP will have the clear majority of the shareholding. In terms of the use of proceeds, we follow two primary objectives here. First of all, we want to make sure that Qualtrics is probably capitalized, so that they can pursue their investment plans. And can properly seize the opportunities that exist out in the market. But clearly, we also expect that there will be proceeds after having satisfied this purpose that will go to SAP. And on those proceeds we will clearly use them in order to foster our own strategic growth priorities, whether they will be organic or also perhaps selective tuck-in M&A activities. And in terms of the timing of a listing, that is really something which we cannot comment on it at this point in time. Clearly we need to prepare all of the documentation in the U.S. As you know, this is a quite sophisticated process to go through. The good news is that we actually have a pretty good basis to work from, because Qualtrics have been going very far there already. But it still will take us couple of months before we are ready. And then, it's really going to be a question of the market conditions that are prevailing, at that point in time. But you will of course as the rest of the market then receive updates, when we are ready to file.

That's great. Okay. Thanks, Stefan and all the best for the RPA.

Thank you.

Thank you. Let's take the next question please.

Thank you. The next question comes from Mark Moerdler from Bernstein Research. Please go ahead.

Absolutely, Luka, cash flow was real strong this quarter. In the press release you draw -- you discussed the main drivers of lower payments to suppliers and tax rates. Can you give us some more clarification on lower payments to suppliers? Is this just the T&E? Is there the reorganization? How sustainable do you see that? And then quickly for Christian, can you give us some more color on the mix of all the SAP customers you added this quarter? I think it surprised people that you added so many. Thank you.

Yeah. Thanks a lot. I'll start with the cash flow question. So behind lower supplier payments are really the combined efforts that we have taken to trim down on discretionary expenses, but also some of the natural savings, that we have seen in the first half year. So it's of course things like T&E spend which has been dramatically down in Q2 as you might guess. But it's also facility-related spendings during the office lockdowns that we have seen. It's additional discretionary spending on things like, IT hardware and so on and so forth. You have seen as well that our CapEx even against the very low level that we had reached already last year is further down. So we are really double-clicking and challenging any of those expenditures for whether they are truly necessary. And that basically shows in this aspect. But also to be clear, the main effect of the significantly improved cash flow is mainly, lower restructuring-related cash payouts as well as substantially lower tax payments, because last year we still had a huge amount of significant one-time effects there. And this year we are not seeing any, as I shared during my prepared remarks. We're actually getting cash back from a tax perspective, very likely later this year. So that's actually not a headwind anymore, but a tailwind to our cash flow progress.

Yeah. And on the mix of the customers we onboarded this quarter, I will hand this over to Adaire, maybe just one quick comment. I mean, I of course was personally very happy to see also again the huge net new customer share for S/4HANA cloud. This clearly demonstrates that we are not only moving our installed base customers to the cloud, but that we are also winning out there net new, which also proves the value of the solution. I'm actually also very excited about, the November release coming for S/4HANA public cloud, as there will be again major improvements in there, like a new business configuration, opening up more features and functions for our customers. The integration then had done by 90%, enabling us to cross-sell our LoB cloud applications in a much better way. But for now over to Adaire, to give you more details about the customer mix.

Yeah. Thank you. Thanks for the question Mark. Thank you, Christian. Net new name acquisition is actually a very important focus for us in the execution of every single quarter. And it was very refreshing in this particular quarter to see net new names added right across our customer segment base. So in some cases that would be a competitive win back, particularly in the enterprise space and in the general business space, this was the transition of companies to enterprise-grade software as their business is growing. I also think a very important element of our success in net new names aside from the focus that we put on it directly with our own sales team is the role of our partner ecosystem, particularly in the general business space, where more than 80% of the net new names that are delivered to SAP in this space are delivered by our very vibrant and very active partner ecosystem.

Okay. Thank you. Let’s take next question, please.

Thank you. The next question comes from Stefan Slowinski from Exane BNP. Please go ahead.

Yes. Good morning, good afternoon. Thanks for taking my question. Maybe just Luka, a question for you on the Qualtrics' potential IPO and the impact on cash flows. I appreciate there's going to be a lot of moving parts and we'll get a full update later this year. But on the one hand as an independent company, it sounds like Qualtrics is going to go for growth and maybe we won’t see a cash flow improvements there but we now in the mid-term that maybe we would have hoped. But on the other hand I guess, the stock based compensation will be coming down as they move to a more traditional U.S. style stock option plan. Can you give us any indication as to the stock-based comp at SAP? And what percent maybe is kind of Qualtrics-driven?

Yes, absolutely. So I think you are right on this assumption. I would argue that actually Qualtrics has even been before we acquired them actually quite – I wouldn't call it frugal but quite successful in managing to a positive cash flow situation. So the business has all of the ingredients to even in a high-growth scenario be a positive cash flow growth, that's primarily because of its very high efficiency in terms of cloud gross margins, so the business scales very effectively. So I wouldn't bet against them being able to be quite pleasing on – in terms of cash flow performance also after an IPO. When it comes to the share-based compensation, you're right at SAP, obviously, share-based compensation is cash-settled after an IPO, the thesis that this U.S.-listed company will employ U.S. equity-based stock compensation is obviously accurate so this will be some relief on the cash flow side. At the moment, we have a couple hundred million USD of options or RSUs on the SAP side outstanding for management and employees from Qualtrics. And obviously, that over time will then go away after an IPO. So on that side you're very accurate.

Great. Thanks for the detail. If I could just squeeze in one other one for Adaire. Just wondering if you've seen anything in July that has changed from what you saw in Q2, any ships, anything's opening up closing back down that would give us a window on what's going on today. Thank you.

Thanks. I don't really think that we saw much of a significant difference between July and some of the activities that we saw throughout Q2. Because I think Q2 has the whole gamut of various different geographies navigating the COVID situation from first lockdowns in some parts of the world to the reoccurrence in others and then the closing of cities or jurisdictions as a result of that. So nothing in July that initially gave us any additional cause for concern or movements that differentiate it very significantly in any way from what we experienced during the course of Q2.

Okay. Thank you.

Thank you. Let's take the next question, please.

Thank you. The next question comes from John King of Bank of America. Please go ahead.

Yeah. Hi, everybody. Thanks for taking the questions and congratulations on the quarter. I just want to follow-up on one of the weaker areas in the quarter. Concur, obviously a big slowdown there and again the rest of the cloud assets seem pretty robust. I'm just wondering I think, I got the sense that actually transactional wasn't such a big part of Concur. So, was that all the transactional business slowing down? Or was there any kind of pausing of subscriptions anywhere there, just given the soft environment I suppose that we see for travel? So that would be the first one. And then, maybe I'm not sure if this is for Luka or Christian, but on the -- second point was around CapEx. Could you just -- I appreciate you've already given us a big insight into your thinking around the Analyst Day coming up and I know it's not all finalized. But on the CapEx itself, I think you mentioned that you will continue to partner with hyperscalers. So, does that suggest that CapEx should continue to be constrained? Thank you.

Yes. Let me take the first crack at both questions. So first of all, on the CapEx side, you have seen we had already at our Capital Markets Day last year guided to pretty much flat CapEx year-over-year. We saw perhaps the potential for a slight increase in line with the growth of the business. But this year, actually we believe that, we will not see an increase over last year. Given the results in the first half year, I think there is scope to even have a lower CapEx spend in 2020 than in 2019. And I would expect that also over the course of the next couple of years, CapEx will actually remain pretty flat with the main contributing factor being obviously the partnerships with the hyperscalers. But beyond that there are also other sources of CapEx like facility CapEx for example and there with some of the new trends on the future of work that we are seeing now emanating from COVID more hybrid work models. I think the needs for expanded CapEx spend also in this area will be probably more restricted than what we might have planned perhaps one or two years ago. The second point on the transactional revenues. You're right. Of course, Concur has been most hard hit. Don't underestimate the transactional element of their revenues. They actually have on a per annum basis something like a couple of hundred million. So they are the second largest source of transactional revenues after Ariba and that basically has almost disappeared. So, usually they would have a couple hundred, €200 million to €300 million. They posted a low double-digit million figure of transactional values in Q2. And that of course has an impact. So these revenues were down more than 80%. But it's not the…

And John as usual, our CFO already answered that question in a very professional manner. Tough to maybe one comment from my side as there's a lot of talk about the hyperscalers and the partnerships we are having. And that will be very clear. I mean, we of course stay were we committed to those partnerships as we don't want to play in the cloud infrastructure market. But what is also very important for me is that, our customers also understand that the business transformation is not only happening by moving workloads to a cloud infrastructure. This is only happening if you're transforming business processes, if you are adapting to new business models. And this is why together with Adaire and team, we are working also on offering to make sure that our customers really get growth on the one-hand side the move to the cloud, but also with our SI partners the transformation of that business. And this is something what we are working on to really bring the partnership to the next level.

Thank you.

Thank you.

We move to the next question please.

Thank you. Next question comes from Adam Wood of Morgan Stanley. Please go ahead.

Hi. Thank you very much for taking my question as well. I've also got two please. Maybe just first of all probably for Christian. On the integration side, you've spoken about this quite a lot now. Would it be possible to get a little bit of feedback from what the customer response has been and how much do you think that could accelerate and drive the migration to S/4HANA more quick than would have been the case otherwise? And then maybe just secondly, you've talked about SAP doubling down in areas that you have the right to win. Could you talk a little bit in terms of where we are on the reallocation of resources from areas you're deprioritizing to areas you're focusing on? And if you could give any examples of how that's benefited you that would be really helpful? Thank you.

Yes. I mean two points on that. So first, Adam, when we talk about S/4HANA and the integration, by the end of the year 90% of that will be done. And also as I said in the past, this will not only be a technical integration. I mean, we're also harmonizing our data domain model as the semantics of the data have to fit together when you talk about seamless business processes, when you talk about a 360 stearing of the business. And that again can only be done by SAP. And when we then put our data domain model on our platform -- by the way the platform also becomes more attractive for our ecosystem to build new applications as it's now much more easier to expand and extend our core applications. And with that of course also comes a much better cross-sell potential. In our installed base mean our ERP customers are used that an HR solution talks to a finance solution that a procurement solution talks to again also to a finance solution for procure to pay and this is what we are now building. And with that of course, we see an acceleration both for S/4HANA cloud, but also of course for our Coca-Cola LoB applications as there's still a huge potential also to do cross-sell into our existing ERP customers. And then last, but not least, when we are talking about the new growth initiatives, I mean the industry cloud is for me just a natural expansion of our core application portfolio. As I mentioned before, when you talk about Industry 4.0 on digitizing a factory again for predictive maintenance you need data from ERP from the supply chain. And this is what we are now delivering. And there it's all about focus. You heard…

Maybe can I perhaps add to that? Maybe just add a little bit of color to that Adam. When you look at our customer base and our expectation around migration to S/4, integration is absolutely one of those expectations. And we can see a very clear road map across four clear end-to-end business processes that will be complete by the end of this year. This has an incredible impact on the business case that underpins the migration to S/4. And the business case has a series of costs in it. If of course the cost of integration is removed from that business case then the total cost of ownership is much lower for the customer. And aside from the value that S/4 itself delivers as a business transformation piece of software, the cost of ownership becomes much more attractive and much more tangible for our customers. And then I would just like to add in addition to the double-down which Christian has mentioned in many of our product and engineering teams that is a end-to-end double-down. So where there is a focus for instance on a particular solution, a particular industry, a particular investment that focus includes the go-to-market engine of SAP to ensure that there is alignment between what our colleagues and product engineering are designing and delivering and the capabilities of the go-to-market team to clearly articulate the value propositions of those solutions to our customers.

Okay. Thank you. A – Stefan Gruber: Let’s take the next question please?

We take our next question from Phil Winslow of Wells Fargo. Please go ahead. Q – Phil Winslow: Congrats on a great quarter and [Technical Difficulty] two questions. First for [Technical Difficulty] A – Stefan Gruber: Phil, you’re breaking up. Q – Phil Winslow: …the conversations discussed. A – Stefan Gruber: Phil, we can't hear you. The line is to see you’re breaking up. Maybe operator, can you take the next question please? And then we switch to Phil Winslow later on.

Certainly. The next question comes from Kirk Materne from Evercore ISI. Please go ahead. Q – Kirk Materne : Yes. Thanks very much. I'll echo the congrats on the quarter. Actually, my question is for Ryan, if I'll pull them back in as he's going to have to get used to answering analyst questions more often now. But Ryan, I was just wondering could you just give us an example of how you think the separation is going to help you accelerate the business meaning? And Christian please add on as well. But were there partners that you thought you could do more with that maybe were a little bit now nervous about the ownership structure or is it just the ability for you to hire salespeople at a more rapid pace? So I was just kind of curious obviously this is all about sort of expanding or accelerating Qualtrics growth and expanding the category. Can you just give us a couple of examples of your conversations why you think this is the right way to go? A – Ryan Smith: Yes. It's a great question. So I think first, when we created this category in 2017 and I remember going on our first roadshow. I don't know how many people can say that, but we're going to be able to say that. Going on first roadshow, I think the market was going hey what's this experience management it makes sense it's intriguing. We just see that there's so much more that we can do to help create that category. That's going to be a lot easier to do with one microphone and one voice. And SAP has been the ultimate amplifier and has the global reach that is unprecedented and I think that we continue to get that. From…

And just from my side I mean talking about the SAP side of the house. I mean, look I mean even in the new model going then forward once we went IPO for SAP and Qualtrics it will be even more important than to build out continuous revenue streams. And we did a lot of work in the last three months on the product strategy side. Adaire and team together with Qualtrics build out a sales engagement model, which really perfectly works. Today, we won some very large transformational deals in Q2 with the help of the SAP sales force and that will just continue in the future.

Okay. Thank you.

Thanks.

The next question, please.

Thank you. The next question comes from Phil Winslow from Wells Fargo. Please go ahead.

I think my IP [Technical Difficulty] congratulations on a great quarter and [Technical Difficulty] maybe Adaire can chime in too [Technical Difficulty] changes in customer conversation in terms of…

The line breaks up again. So we probably give you a question on the next earnings call. I think operator we need to switch to the next question please. Sorry, Phil

Thank you. The next question comes from Julian Serafini from Jefferies. Please go ahead.

About a €300 million safety cushion being baked into the free cash flow guidance. Luka in terms of free cash flow guidance for 2020, you talked about a €300 million safety cushion being baked into the guidance. Is that still included in your guidance today? Or has that been removed? And then second of all, just in terms of new business. Are you able to provide any color just in terms of the new cloud bookings in terms of how that has performed in the quarter? I know you don't disclose the metric anymore.

Yes. So, on the second one that is really the answer. We have replaced it by the current cloud backlog and you have seen that those numbers were very healthy. And we've given some individual color commentary. So very well developing solutions in the quarter where commerce -- where digital supply chain management was obviously Qualtrics. And so from that perspective, that's about all that we can do here. But in terms of the free cash flow guidance, so we have basically increased it by €500 million. There may still be scoped to be quite honest to do more, but that depends very much also on how the payment behavior of customers will develop in the second half year. I must say that in the first half year we have seen a pretty good development in this respect to our initial concerns that we had as we enter the crisis, we're not coming through. But still of course, we want to cater to this risk and therefore have still left ourselves a bit of a cushion in particular given that our CapEx assumptions for the second half year probably still quite conservative. So, if everything goes well, and we don't see a major deterioration on the customer front in H2, I think there is scope to do a little bit more.

Okay. Thank you.

Yes. Thank you.

Thank you. We've time for one final question.

Thank you. The final question comes from Mohammed Moawalla from Goldman Sachs. Please go ahead.

Great. Thank you very much. Just a quick one. I mean, your unchanged guidance for 2020 essentially assumes no meaningful acceleration in the second half. And I know you had said that you anticipated the environment to sort of progressively improve. So is it just you being conservative? And maybe can you give us a sense aside from the strength you saw in Asia, how the other geographies are sort of coming back particularly in North America and the European market and sort of how the pipeline is and how you kind of expect second half seasonality to develop? Thank you.

Yes. So on the regional color, I will hand over to Adaire in a second, but on the guidance let's be real here. I think we are very confident now based on how we have ended the first half year. But this is not yet the time to frolic or break any champagne corks or anything like that. Let's not forget while the guidance assumes a continued improvement of the demand environment, we cannot take this for granted necessarily. There is still substantial uncertainty in the system. What about the development of infection rates? Is there a risk of a segment lockdown? I think nobody can rule this out at this present time even though everybody is hoping of course that it will not occur. And let's also not forget that the seasonality for software licenses is becoming much larger in the second half year with the Q4 in particular that has a much higher weight on software licenses. And given that uncertainty, I think, it is absolutely understandable that we don't want to get ahead of ourselves. We are glad that we did well in Q2 better than we expected ourselves, but that is not a guarantee for success in the second half year. We need to have our value story right for the customers. We need to rely on our collective efforts to achieve customer success across all functions of the company. And then we are able to demonstrate the transformational value that our solutions can bring to our customers and even in difficult times rightfully asked for an order. But in that sequence and we need to first prove that out.

Perhaps, Mohammed, I'll just maybe add a little bit of regional color, and then just a little bit of the sentiment of the team looking forward into the second half to conclude. As you saw from our Q2 results, we had a very strong showing in Asia and this was certainly related to the emergence of certain geographies from the lockdown environment. But of course, we also saw a resurgence in China and specifically in Beijing right at the tail-end of our quarter in fact. And for us 45% of our sales force are located in that particular office in that jurisdiction. So these are the unknowns that we are going to have to navigate as we go into the second half. The team have taken as Luka has already indicated a value-based and a customer-orientated and empathetic approach towards the business in the second half. We have come out of a large digital SAPPHIRE, the first time that we ran a digital event, whilst there are different nuances about an event of that scale at a digital level. One of the benefits for us was our ability to deliver that event in five languages in the time zones of our customers across the world. And so we were able to reach a much broader audience. We're also really focusing very much in the second half as we did in Q2 on the ability to control the controllable. So those things that are within our control, the execution of our engagement with our customers, our creativity and engaging with our customers, and the value propositions that we present. And I think as long as the team executes well controlling the controllable that's pretty much all that we can ask from them going into the second half.

Are you good?

Thank you very much.

Well, this concludes the second quarter 2020 SAP earnings call. Thanks so much for joining and you can now disconnect. Thank you.

Thanks a lot.

Thank you so much.

Take care.