Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the SAP Q2 2023 Earnings Conference Call. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question-and-answer session. If you would like to ask a question, you may press hash followed by one on your touchtone telephone. I would now like to turn the conference over to Anthony Coletta, Chief Investor Relations Officer. Please go ahead.
Good day, everyone. Welcome. Thank you for joining us. With me today are CEO Christian Klein, CFO Dominik Asam, and Scott Russell, who leads Customer Success. On this call, we will discuss SAP's Q2 and first half 2023 results. You can find the deck supplementing this call, as well as our quarterly statement on our investor relations website. During this call, we'll make forward-looking statements, which are predictions, projections, or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties that could cause actual results and outcomes to materially differ. Additional information regarding these risks and uncertainties may be found in our filings with the Securities and Exchange Commission, including, but not limited to, the Risk Factors section of SAP's Annual Report on Form 20-F for 2022.
Unless otherwise stated, all numbers on this call are non-IFRS, and growth rates, percentage point changes, and our 2023 financial outlook are non-IFRS at custom currencies. The non-IFRS financial measures we provide should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with IFRS. Before we start, I would like to remind you that SAP completed the sale of its stake in Qualtrics in June of this year. Therefore, all figures shared on this call are based on SAP Group results from continuing operations. With that, I'd like to turn the call over to Christian.
Yeah. Thank you, Anthony, and as always, thanks for joining us for our earnings call today. This has been a good Q2. At the halfway point of 2023, SAP continues to perform well despite a macroeconomic environment that remains uncertain. After reaching the turning point in our transformation, our sharpened focus has yielded real momentum, and we are seeing strong demand across our portfolio. Customers are looking to our game-changing solutions to foster sustainable end-to-end business processes across diverse industries on a global scale. It is also worth pausing on the watershed moment we are experiencing with generative AI. It's clear that generative AI will fundamentally change the way businesses run. In the business world, no one is better positioned than SAP to empower businesses to take advantage of this transformational moment, giving them the solutions to harness AI to improve business outcomes.
We believe we are uniquely placed to become the leader in business AI. At our most recent SAP Sapphire conference in May, we shared specifics of our AI approach with SAP Business AI. Later on in my remarks today, I will talk in more detail about our ambitions on this front. Let's first turn to a summary of our numbers. In Q2, operating profit grew at an impressive 28%, up from 12% in Q1, clearly demonstrating the strength of this new phase in our transformation. This puts us in a strong position as we work towards our goal of double-digit operating profit growth in 2023. Current cloud backlog stands at over eleven and a half billion euros, with continued strong growth, up 25% this quarter. Cloud revenue continues to grow steadily at 22%, and total Q2 revenue grew at 8%.
For S/4HANA, specifically, cloud revenue grew 79%, up from 75% in Q1, and current cloud backlog grew 70%. Our results this quarter demonstrate the strength of our solutions in addressing the specific needs of our customers during challenging times. Customers are choosing SAP to help them transform their business processes, collaborate across their supply chain, and operate sustainably. RISE with SAP continues to be the preferred choice for customers adopting the SAP portfolio to transform their end-to-end business processes in the cloud. Key new RISE deals this quarter include Bayer AG and Bacardi-Martini. As one of the world's largest pharma and biotech companies, Bayer chose RISE with SAP to facilitate its extensive business transformation program known as CORE. Bacardi is the world's largest privately owned international spirits company, with a portfolio of more than 200 brands.
They have chosen RISE with SAP to meet their ambitious growth targets. There were also a number of important RISE go-lives this quarter, including HanesBrands, Levi's, Tech Mahindra, and Versuni. Tech Mahindra of India deployed RISE with SAP in record time, going live in just 3.5 months. Versuni, a new company formed from Philips Domestic Appliances, undertook one of the largest RISE transformations ever, and it was completed in just 18 months. The success of RISE with SAP is clear. This is SAP's signature offering, which helps customers move to the cloud and transform their business processes at the same time. It's also very important to emphasize that SAP's newest innovations and capabilities will only be delivered in SAP Public Cloud and SAP Private Cloud using RISE with SAP as the enabler. This is how we will deliver these innovations with speed, agility, quality and efficiency.
Our new innovations will not be available for on-premise or hosted on-premise ERP customers on hyperscalers. For example, new ERP capabilities, as well as sustainability and carbon accounting solutions, and all our new AI innovations will only be available in the cloud and delivered via RISE and GROW with SAP. Last quarter, we introduced the powerful new offering, GROW with SAP, designed for mid-market customers who are new to SAP and likely to be growing quickly as they build their businesses. GROW has quickly become popular, just like RISE with SAP, for which around half of the customers are net new to the SAP family. The momentum I've described with both RISE and GROW with SAP is underpinned by the SAP Business Technology Platform. This is the foundation for integration and extensibility across our portfolio.
We have reached an important milestone this quarter with over 20,000 live BTP cloud customers. This quarter, new wins included Visa, the world leader in digital payments, and Santander, the Spanish financial multinational, who are using SAP Business Technology Platform to revolutionize and streamline the banking experience. Increasing adoption of S/4HANA and the SAP Business Technology Platform is also driving significant cross and upsell opportunities across our portfolio. Let's now discuss the latest updates to our approach with SAP Business AI. As I said earlier, we believe we are uniquely placed to become the leader in AI built for business. Customers will benefit from new AI-powered solutions that step change how processes can self-learn and self-automate to self-optimize business outcomes. For example, imagine supply chains that automatically initiate a different delivery route based on weather and congestion data.
There will be a step change in how employees can interact with solutions in radically more efficient and personalized ways. For instance, imagine your ERP system using embedded ESG data and business data to decarbonize the supply chain by 5%, simply by asking for it. There will be a step change in uncovering new insights that lead to better business decisions. Imagine one trusted data layer across your entire company that enables AI to pull together the right data in seconds. This will bring us significant opportunities for market expansion through new AI-based solutions and new premium offerings. Based on external forecasts and our own calculations, we see a potential doubling of our addressable market to $1 trillion by 2028, with AI being a key contributor.
We will be introducing new premium RISE offerings with an uplift of up to 30% in the fall. Our approach with SAP Business AI is unmatched in the industry, delivering our customers the most relevant, reliable, and responsible AI built for business. Firstly, our AI is relevant because it's embedded into every part of our portfolio. More than 24,000 SAP cloud customers today can already use SAP Business AI across hundreds of built-in AI capabilities and partner use cases. To provide a couple of new tangible examples, in SAP Transportation Management, generative AI will save up to 55% of the processing cost of delivery notes. The new intelligent collections in SAP S/4HANA Finance can reduce the time between invoice and payment by up to 10%. Secondly, based on unique business data and business process context, we can deliver the most reliable business AI.
Reliable AI hinges on applying the right data to the right model. By using SAP Datasphere to leverage substantial, context-rich, industry-specific data, business AI system can drastically improve accuracy, generate more relevant content, and minimize AI hallucinations. Thirdly, responsible AI is not a buzzword for us. Our customers trust us with their most critical data and can confidently deploy our AI offerings, knowing we prioritize the highest levels of security, privacy, compliance, and ethics. We comply with the highest standards when it comes to customer consent, security, GDPR regulations. This is what SAP stands for. We will continue to innovate and deliver by creating an AI ecosystem for the future, combining SAP and partner innovation built on the SAP Business Technology Platform. Let me give you some examples of this approach.
At SAP Sapphire, we announced a partnership with Microsoft to collaborate on joint generative AI offerings to help customers address the talent gap with new recruitment and development tools. Last week, SAP Sapphire Ventures, the technology-focused VC backed by SAP, announced that it will dedicate $1 billion to AI-powered enterprise technology startups. Earlier this week, we announced strategic investments in three leading generative AI companies: Aleph Alpha, Anthropic, and Cohere. In the fall, we plan to announce new AI solutions and capabilities across our portfolio. All told, we see a huge opportunity with new innovation in AI, and believe SAP is uniquely poised to help customers take advantage of this watershed moment. As our Q2 results show, SAP continues to deliver. We are optimistic about the future based on SAP's core value of delivering technologies that build stronger companies.
As we start the second half of the year, we remain fully committed to delivering on our promise of accelerated revenue and profit growth. This is reflected in our increased guidance for cloud and software revenue and for operating profit. In closing, let me quickly look back on what we have accomplished in recent years. Our own transformation into a cloud company, our leaner and more agile operating structure, new offerings that bring the power of SAP to more companies, solutions that harness the power of data wherever it resides, and tools that create sustainable business processes across industries. Now is another threshold moment. While nearly every company is working on the AI revolution in some way, no one sits at the nexus of technology and business like SAP, and we think there is enormous opportunity ahead. Dominik, over to you.
Thank you, Christian, and good afternoon, everyone. We're very pleased with our second quarter's growth in non-IFRS operating profit, putting some upward pressure on our outlook on that metric for the full fiscal year 2023. In Q2, we also maintained a steady growth of our cloud business, with current cloud backlog and cloud revenue again growing by 25% and 22% year-over-year, respectively. The trend towards larger cloud transactions continued, with deals greater than EUR 5 million in volume contributing to nearly half of our cloud order entry. As a reminder, on June 28th, SAP completed the sale of its stake in Qualtrics. Therefore, the following results are for continuing operations. Let me talk you through our financial performance in more detail.
Current cloud backlog was EUR 1.5 billion, growing by 25%, with S/4HANA current cloud backlog growing by 70%, driven by the continued strong adoption of RISE with SAP. Our combined SaaS and PaaS portfolio continued to grow by 26%, with SaaS cloud revenue up 22% and PaaS cloud revenue up 45%. This sustained momentum was again fueled by the strong contribution of S/4HANA Cloud and the Business Technology Platform. Software licenses revenue saw a decrease by 24%. Total revenue was up 8% year-over-year, demonstrating the great resilience of our overall business in the current market environment. Let's take a brief look at our regional performance. In the second quarter, all regions delivered strong cloud performance. Germany, Brazil, and India had outstanding cloud revenue growth, while the United States, the Netherlands, France, China, and Chile performed particularly strong.
Moving further down the income statement, our cloud gross profit grew by 24%, supported by the completion of SAP's next-generation cloud delivery program. This marks a key milestone in terms of portfolio integration and harmonization for our customers. This, in turn, resulted in cloud gross margin improving from the year ago period, expanding by 1.1 percentage points to 72.2%. In the second quarter, both IFRS as well as non-IFRS operating profit increased by 28%, mainly driven by sustained high growth in cloud revenue, the completion of the next-gen cloud delivery program, efficiency gains resulting from spending discipline across the entire organization, as well as gradual relief from the impacts of the war in Ukraine.
Additionally, our IFRS operating profit benefited from restructuring expenses in Q2 last year, but was negatively affected by higher share-based compensation expenses, primarily due to share price development over the quarter. Finally, the operating margin landed at a 27.2%, a 4.4 percentage point improvement compared to the prior period. Earnings per share in the quarter increased 12% to EUR 1.07. The IFRS effective tax rate for Q2 was 33.8%, and the non-IFRS tax rate was 30.4%. The reduction of the IFRS effective tax rate from Q1 to Q2 mainly resulted from the increase in profit before taxes. Looking to our cash generation.
Free cash flow for Q2 significantly increased to EUR 604 million, driven by the strong expansion of operating profit and the reduction of payments, primarily for share-based compensation, but also for CapEx and leasing. Let's move on to our financial outlook. As you've seen in today's release, we are updating our revenue and operating profit outlook for the full year for continuing operations. The outlook range for cloud and software revenue is being narrowed by moving the lower end slightly up, despite moving the upper end of the range for cloud revenues down. The latter being mainly driven by lower than anticipated transactional revenue. As a result of this slight shift in mix and overall marginally higher midpoint of our cloud and software revenue outlook, the operating profit outlook range has been increased accordingly.
Note that this update implicitly leaves the overall margin profile intact for the year and provides confidence in achieving the free cash flow outlook, which is reaffirmed. As you know, our 2023 financial outlook is based on constant currency assumptions, i.e., a prior year's exchange rate of 1.05 USD per EUR. Let's now discuss our non-financial targets. The non-financial outlook for 2023 is reiterated. In Q2, SAP once again achieved net carbon emissions of 0 kilotons. Our focus continues to be on reaching net zero emissions across our value chain by 2030. To get there, we are establishing a multi-phased supply chain engagement program with our suppliers to significantly reduce our upstream greenhouse gas emissions.
As a first step, we are working with our top 100 suppliers to ensure they report emissions at product level and follow a net zero plan, leveraging our own technology to do so. Our first half results give us confidence that we are heading in the right direction and continue to be well-established and positioned to achieve our revenue and profit growth goals for the year. The resilience of our businesses, combined with a focus on cost discipline across the organization, are evidenced by strong profit growth. Q2 results continue to demonstrate that SAP has entered the second phase of its transformation, characterized by sustained cloud momentum, now turning into significant profit growth. We are laser focused on our core and continue to streamline the business, as demonstrated by our successful divestiture of Qualtrics in the last quarter.
We firmly believe that we offer best-in-class solutions to our customers, serving as their trusted strategic partner in their digital transformation journey. Thank you, we will now be happy to take your questions. All right, I would like to kindly remind you to only ask one question, if possible, when prompted. Operator, please open the line.
Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press hash followed by 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press hash followed by 3. If you are using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press hash followed by 1 at this time. 1 moment for the first question, please. The first question comes from the line of Toby Ogg with JP Morgan Cazenove Limited. Please go ahead.
Hi, and thanks for the question. Perhaps just firstly on the cloud revenue side, Dominik, you mentioned the transactional revenues there as the driver of the shortfall. Could you just give us a sense for, you know, what you're seeing there with respect to those transactional revenues? Whether you're seeing any other macro headwinds across any of the other lines of business applications outside of S/4HANA? Thank you.
I think on the transactional side, and you know what types of businesses are in there, it's the kind of travel expense, Concur tool, external workforce, contingent labor, Fieldglass, business network transactions. Where we really took a little bit of a hit was on the Fieldglass contingent workforce side. There, indeed, the macro with low flows and reduced levels of contingent workforce was actually slightly shrinking. That was a little bit of a headwind, which was not expected to that degree. Otherwise, I'd say, it's pretty much in line.
Yeah. I guess, Toby, maybe just to build on that, Scott can also give a sentiment on the pipeline. I mean, being out there, you know, we definitely see no slowdown in our, you know, SaaS and PaaS business. I mean, S/4HANA, the cloud revenue even accelerated once again. The BTP, the platform, sees more and more adoption now also with the clean core. It's not only very important for the integration, but also for building the extensions for building new apps, either by our customers, partners, or SAP. Then certainly, I mean, for half year two, also, when you look at, you know, the geopolitics, I guess we see really strong demand also still on relying on SAP in order to be able to do business in over 130 countries.
Just coming back from China, we see a huge demand on, you know, for our software of doing business in China, for China. When you look at the utilities or retail and auto, I mean, they continue their transformation full speed, and you need the ERP supply chain procurement systems there in order to run these new businesses. Last but not least, as we are building already, you know, hundreds of UI use cases for machine learning and embedding that with generative AI, we definitely also see now stronger demand on, you know, also moving now to the next generation ERP in the cloud, because only there our customers can consume all these new innovations. That will help as well to drive further momentum. In a half year, too.
That's great. Thank you.
Thank you. We'll take the next question, please.
The next question is from the line of Frederic Boulan with Bank of America. Please go ahead.
Hi, good good evening, Fred at Bank of America. A question on the balance sheet now that Qualtrics is now closed. Any further thoughts on, you know, what's the optimal leverage for SAP, what's the right capital allocation? Would you consider increasing the EUR 5 million buyback, absent any large M&A opportunities, or we want to keep, you know, powder dry considering opportunities in AI and elsewhere? Thank you.
Yeah, indeed, our balance sheet right now is very strong. I think we have snapped back to a net cash position of EUR 4.2 billion. We've already announced that the lion's share of the proceeds will be invested in a share repurchase, which will stretch through 2025. This will be commenced very shortly. For the time being, let's also look at what opportunities there might be on the M&A side for the time being. I don't want to kind of make more commitments than what we have already said with regards to the 5 million share repurchase. It is true that we have a very strong balance sheet and are very much able to act.
Thanks, Fred. We'll take the next question, please.
The next question comes from the line of Adam Wood with Morgan Stanley. Please go ahead.
Hi, thanks very much for taking the question. I wanted to come back to that subject of AI. I wonder if you could talk a little bit about how you're applying AI internally, and what cost benefits you see from that, and how that balances against the need for you to increase R&D investments to deliver on the AI functionality you're talking about putting in apps. Could you talk a little bit about how the timeframe of delivering on those two things might be different, and one might come before the other? Thank you.
Yeah. Adam, thanks for the question. To shed a further light and give you a bit better insights into the product and the tech and the commercials and how we go to market. First, it's very important to emphasize, we have today round about 300 AI use cases, and for example, take Lidl, Kaufland. They actually have massive demand forecast data. Over 400 input levels going into their demand forecast. We are taking this data, petabytes of data, and analyzing it to predict better demand, and now they can actually have optimized their inventory and their supply chain costs by over 10%, which is massive for a company of the size and scale of Kaufland and Lidl, and this is here.
Now we have certain scenarios on cash flow automation and where we actually could actually improve the DSO by 10%. We have many of these examples. Now, with generative AI, I mean, think we really sit on a data of over 400,000 customers, and the material flows, the financial flows, employee, customer data. Now we are taking this data not only with Signavio to benchmark and give business process recommendations. I mean, we see it in the first prototypes that we are going to be able to not only that the system can self-learn on these data on how to improve process workflows. No, no. The systems itself will also drive further automation of workflows going forward. They can look into the customization of an ERP, which is huge in on-prem.
They can help customers to generate code on the platform to build differentiating capabilities to fasten the time to value. Last but not least, I just did something yesterday where we said, "Hey, when I have a skill gap here in my company, in that and that space, from where did I hire the best skills in the past, in which country, from which university?" The system gives you unbelievable smart recommendations. This is something what SAP can do. This is where we're going to launch further generative AI use cases. They will come with a 30% premium because we believe in the immense value, and we see how customers respond to that, and we are going to embed that in every RISE, in every GROW, in every LOB deal going forward.
This will not be like, "Okay, here's our generative AI portfolio." No, no, this will be embedded because there we also believe that our sales team and our partners can sell it best when it comes integrated with our application portfolio.
Thanks, Adam.
Very helpful. Thank you.
We'll take the next question, please.
Before the next question, I will remind you that if you want to raise a question, you have to press hash followed by 1 on your telephone. The next question is from the line of Michael Briest with UBS Limited. Please go ahead.
Thank you. Good evening. Just on the cash flow, actually, Dominik, I noticed that you've cut your CapEx outlook for the year by about EUR 50 million, and obviously, you've raised the profit target by EUR 50 million, left the free cash flow goal for the year unchanged. It still feels like free cash flow is part of the business that needs maybe more work than other parts. What are you actually doing to improve it, and how linear should we think about the progression to the EUR 7.5 billion in 2025 to be?
... I mean, the key levers on free cash flow are quite obviously on the profit side first, and then working capital, and of course, also the CapEx and leasing part of it, which should be kept as low as possible. We are, as we speak, starting to initiate pressure on these matrices to improve the cash flow and conversion. I think for the current fiscal year, we are on a good trajectory. If you just look at the phasing of H1 versus H2 , as we've seen in prior year, you take that kind of receivable sale into account, that kind of was at the year end last year into H1 , Q 1, to be precise.
This year, you see that we're actually a little bit ahead of that kind of completion rate. For this year, we're fine now. How linear or not that will be through 2025, I find it challenging to predict because that is really notoriously difficult to predict. Obviously, we have that kind of ambition, 2025, very firmly in mind, and would need to show some progress between 2023 and 2025 to give you confidence about that kind of materializing.
Thank you. Thank you, Michael. We take the next question, please.
The next question is from the line of Johannes Schaller with Deutsche Bank. Please go ahead.
Yeah, thanks for taking my question. Christian, you referred to those, three strategic investments you made on the AI side, Aleph Alpha, Cohere, and Anthropic. Can you maybe talk a little bit more about what each of those really bring to the technology side for you, and where you feel those assets are really uniquely positioned, and then how they can help you become more competitive on the AI side? Thank you.
To give you two examples, take Aleph Alpha. They have very good technology. Not that they can only, you know, integrate their large language models with our own, but they actually also are able to put their large language models and their technology in the customer's data center. You can imagine, when you talk to a public sector customer in the European Union, this is actually a unique selling point for them, to keep their data in their data center, while actually also having access to their SAP data, and then, you know, really build one model for generative AI for these type of customers. Cohere, we are seeing that they have unbelievable good also technology for businesses, for B2B.
We are using them in retail and in some others, where we are already in some concrete customer projects, where we are applying our technology and also go to market together. Of course, you're doing these investments also to have a seat at the table. I mean, we want to have them as part of our huge ecosystem, because while we are sitting on immense, valuable data, our offering becomes even stronger if we can also embed non-SAP content and data. This is what we are also doing with these investments, to have them on our side and make our AI offering even more valuable.
Thank you, Johannes. We'll take the next question, please.
The next question is from the line of James Goodman with Barclays Capital. Go ahead.
Yeah, good evening. Thank you. I wanted to ask on the EBIT upgrade of EUR 50 million. I think the beat this quarter was over EUR 100 million. I think it was EUR 50 million last quarter. Really, the question is, why not a little bit more generous in terms of the EBIT upgrade? I think the low end of the full year guide now implies a decline year-on-year in the second half. Just, I guess as part of that, the statement notes that you completed the Converge Cloud project, I think early in Q2. Is that right? If so, why not more of an impact on the cloud gross margin, SaaS? Thank you.
Maybe on the upgrade, I mean, this was, again, a pretty mechanical update. You've seen that we basically took the midpoint of the cloud revenue guidance down by EUR 100 million. We took the overall software and cloud revenue up by EUR 50, there's EUR 150 million offsetting that. If you think about the delta in gross margin between cloud and software, and the slight increment, that gives you exactly that EUR 50 million kind of uptick. It was quite mechanical. It is true that we are on a very good trajectory in H one on the cost side. Honestly, we have to also say that on the EBIT side, the comps were quite easy, Q2 is more difficult if you think about prior years impacts we had.
we think we have a high degree of confidence on reaching the new kind of updated guidance on EBIT, on IFRS operating profit, to be precise.
All right. Thanks, James.
On Converge Cloud?
Converge Cloud is largely now done. It is actually benefiting our gross margin. I think from now on, the kind of increase in gross margin will be a little bit more modest. I think the best way to think about it is you start from Q2, the gross margin we have. While there will be fluctuations quarter by quarter because of some seasonality, we then will kind of gradually go up to reach that overall cloud gross profit target, which we've in our ambition for 2025. I want to reiterate that the main thought for us is really to deliver that absolute EUR amount of cloud gross profit. We've also highlighted at Sapphire that the private cloud deals have slightly lower margin than public.
On the other hand, they give us a huge boost on volume, and we're really on a good trajectory, I think, to hit that kind of gross profit target for 2025.
All right. Thank you.
Thank you. We'll take the next question, please.
The next question is from the line of Ben Castillo-Bernaus with Exane BNP Paribas. Go ahead.
Good afternoon. Yeah, thanks very much for taking my question. My question is on the embedding and the selling of the generative AI and the uplift that you mentioned, Christian, the 30% uplift, I think, in the fall. My question here is, you're embedding this in every new RISE project or migration rather than being sold as a sort of opt-in bolt-on. You know, is this a choice for customers, or is this kind of mandatory part of the package? And I guess following that, customers who have already begun their RISE roadmap, do you then go back to them and add this on retrospectively, give them the option to? I'm just curious how this sort of go-to-market and the rollout of that happens and the timeframe. Thanks.
Yeah, I can start, and then, Scott, please feel free to comment. I mean, first, it's very important also, as I shared in my opening remarks, this is also quite a bit of a change of our strategy. We are not offering AI, generative AI, sustainability capabilities, also quite differentiating capabilities in our LOB products in on-prem. Also, when a customer decides to go to a hyperscaler and get hosted with still customizations and not aligned data models, doing this outside of RISE, this offering is not available. Because we cannot apply AI with high quality, with high data quality, you know, in a hugely customized ERP on-premise system, as AI is anyway only available in the cloud. That's very important.
Now, on RISE, the customers have choice, and we give them, you know, our standard offering with RISE and the methodology on standardizing and simplifying business processes, reducing the custom code, building this one data layer, which is important, otherwise AI, the quality and the accuracy will fail. Then we actually then say, "Hey, you can get a premium offering as part of RISE," where we're then gonna embed generative AI capabilities. To really, for example, improve decision-making, or to improve process automation, or to improve transportation management. That actually comes on top. To the existing customers, they, of course, also can now decide to buy the premium and actually consume it out of the box. This is also something where we actually also expect, of course, also an uptick on the existing RISE installed base.
Yeah, maybe let me add a little bit more at the macro context then how that will apply for the customers. I guess I just want to reiterate what Christian Klein had mentioned in the beginning. Digital transformation and the demand for the digital change in their core businesses for customers around the world continues unchanged. Demand level is very high, we definitely see across that all parts of the world in the regional performance. Customers are also seeing with RISE, we've now got a large set of customers that were the early movers that have now successfully transformed and are operating and are proof points in that success journey. Part of that digital transformation is to be able to drive value and early return on that investment, that's where the AI becomes an accelerator.
If you're a new customer, the embedding of that into RISE, into GROW with SAP to accelerate value in the use cases that were described is a reason to move forward quickly. For our large number of customers that have already moved across, as Christian mentions, they've got the ability to not only have the transformation in the cloud existing, but they then have a premium uplift, and the ease of innovation adoption is one of the beauties of this program. Whilst there is definitely markets there's a level of prudence out there in terms of the return on investment and making sure these digital programs are delivering the outcomes, the use of AI embedded into our processes and technology, is one of the factors that is driving the strong demand that we continue to see.
That's helpful. Thank you.
Thank you, we can take the next question, please.
The next question is from the line of Charles Brennan with Jefferies. Please go ahead.
Great. Thanks so much for taking my question. I just wanted to ask one actually on the interplay between the CCB growth and the cloud growth. When I think about assets like Concur and Fieldglass, even in normal economic conditions, I wouldn't expect them to be doing mid-20s growth. Is it likely that cloud growth will always remain below the CCB growth? In the context of your updated cloud revenue guidance, can you just give us some insight on how you expect the CCB to evolve in the second half of the year? Thank you.
Actually, if you look at the historic data, for instance, now, we have guided basically what's happening on cloud revenues for the year. We've updated that and narrowed the guidance. Compare that to the CCB growth a year ago, it's fitting actually quite nicely. Indeed, as you mentioned, the transactional volume was a little bit of a headwind in this context. It usually is, because, as you say, the growth in that business has not been as frothy as overall. Don't forget, the other thing that's driving our cloud revenue is the ramp embedded in the RISE deal, so. That is the bigger thing. There you still have a good traction, and we do believe that the 25% current cloud backlog growth is actually a meaningful indicator.
I don't think we've guided, second half numbers for current cloud backlog, so I would like to stick to the methodology of what we guided, not kind of add another KPI guidance beyond what we have. It should be good enough to get to the numbers we have updated today.
Thank you.
Thank you. We'll take the next question, please.
Yes, before we take the next question, once again, a short reminder how to raise a request to speak, to ask a question. You have to, press hash followed by one on your touch-tone telephone. Now, the next question is from the line of Mohammed Moawalla with Goldman Sachs International. Please go ahead.
Yes, great. Good evening. My question was really focused on the non-S/4 side. Dominik, you talked about Fieldglass and the transaction revenue side. Was there any softness you've seen on Ariba or Concur? In thinking about the kind of rest of the line of business portfolio, what sort of impact have you seen there? Obviously, S/4 remains pretty strong, but curious to get any color on sort of SuccessFactors and some of the other line of business products. Thank you.
I mean, we don't guide that now by line of business and line of business, but what you can do is, of course, decompose and look at SaaS and what's embarked in terms of S/4HANA growth in there, then you get some indication. Don't forget to also adjust for the infrastructure as a service piece of it, which is declining, and that's by intention and by design. Within the transactional part, indeed, Fieldglass was a little bit of an outlier to the downside, with really significant negative numbers in growth terms because of the macro on that front. Otherwise, I'd say it was pretty much in line and was maybe a little bit decelerated, but not much.
Got it. Yeah.
Thank you, Mo. We'll take the next question, please.
Well, the next question comes from the line of Patrick Walravens with JMP Securities LLC. Please go ahead.
Oh, great. Thank you. Hey, Christian, do you feel that SAP needs more PhD- level data scientists to do advanced research in all the AI topics that are relevant to SAP?
Oh, my God! I mean, look, first of all, you know, I don't have a PhD in data scientist. In my time in leading S/4HANA, actually, I learned a lot about our data model, you could almost need a PhD, as we are sitting on a ton of data. Seriously spoken, look, we have actually someone with a PhD leading our AI organization. He's one of our best engineers. When I see what we are doing here as a team, I mean, actually, almost every day, we are going through all the use cases, which are not only exist on PowerPoint, we are looking into the prototypes. We are measuring the business value. We are aligning on the commercials. We are talking about the go-to- market. Of course, we have lined up our vision very well.
Now, did we have to lift and shift some R&D capacity to AI? Absolutely. Are we really well equipped on the leadership level with great data scientists? Absolutely. I have high confidence. Look, even our line of business leaders, when you take a Muhammad Alam, responsible for ISBN, when you take a Jan Gilg , responsible for S/4, I mean, they are deep on AI, they know their stuff, so this is really a team effort. Again, what we did is we lifted and shifted some capacity, because now with generative AI, we see further powerful use cases, so we deprioritized some other things on features and functions, while we put more capacity on AI. One thing is also very important.
Yeah.
You learn a lot, by the way, this is also very important. You learn a lot by all these AI startups. We're exchanging a lot of knowledge and best practices. I mean, the reason why we are doing these investments is to team up technology-wise and go-to-market wise. We, of course, also exchanging a lot of thoughts, a lot of insights on how to build best this LLM model. We are also gaining a lot of knowledge and insights by these investments, what we are doing, not to forget.
Yeah. Yeah.
Okay.
All right. Thank you. I think this will conclude our call for today. Thanks for joining. Operator, you can close the call. Thank you.
Thanks a lot, everyone.
Goodbye.
Thank you.
Thank you.