So that’s the key priority right now. There are certainly opportunities. We did mention that the 10 — sorry, the EUR8 billion free cash flow ambition for 2025 was assuming no spillover of restructuring cash out into 2025. So that is kind of the potential risk there that if you spill over some cash out from 2024 or restructuring in 2025, that well weigh on that. But then the question is, I mean, to what degree can we offset? So I don’t want to kind of go into more details at that point in time. But obviously, that is one of the questions as we mature our restructuring program, we have more clarity on how many people are leaving at what cost with the phasing of the cash out, we can sharp the pencil and update either.
Christian Klein: Yes. And maybe one word from my side on the workforce transformation. I mean — it’s — as Dominik is saying, yes, we are a little bit ahead after we started the restructuring program on people leaving SAP and we do this in a very controlled manner. We have identified the job profiles which we either reskill or actually want to reduce also via restructuring. And then second, we bring all the data scientists, new capabilities also on board for the platform, which we need to capture our future growth opportunity. And if there are more levers, of course, the business case needs to make sense. So you can actually expect that we also then, of course, manage this also tightly in the next quarters.
Anthony Coletta: Thank you, we will take one final question now.
Operator: Yes, the final question for today comes from the line of Charles Brennan with Jefferies. Please go ahead, your line is open.
Charles Brennan: Great. Thanks very much for squeezing me in. I was wondering if you could just say something very quickly about the cloud incentives that you rolled out in Q1. I know you started those in Q4 of last year. It sounds like they were a bit more extensive in the quarter. Do you think that made much of an impact to the accelerating CCB? And I know the incentives were only for the first year of this transformation, does that actually act potentially a headwind to the CCB? And then secondly, can I just squeeze a financial clarification just on the stock-based comp. I think you said it was EUR100 million incremental charge in the quarter, but what are you assuming on a full year basis and in your unchanged EBIT guidance, what’s helping to offset that higher share-based comp? Thank you.
Christian Klein: I mean, Scott, I can go first, and please build on it. I mean, first of all, on the migration incentives. I guess the major change which we did, which is not impacting margins is that, we are not only incentivizing now anymore S/4HANA finance, but we are incentivizing Cloud ERP. And we have to also move our monolithic ERP on-premise system to the cloud. And there we are talking about HR, travel, procurement, all the modules I mentioned already at the beginning of the call. And they are now also incentivized to migrate, which just makes a ton of sense, because you actually have a onetime migration fund, but then you actually have a building a recurring revenue stream. And these deals, you also see in the multiple, the multiple has not going down are extremely healthy.
And then while you have this onetime efforts on the migration fund, you see then the recurring revenue coming in, the cross-sell, the upsell we do over the course of the year. So I actually see this as a very positive incentive for our customers. And it will also — of course, also help us to further expand our footprint in the installed base. Scott?
Scott Russell: Yes. I think just two things to add to what you described, Christian. The first is, these customers, many of these customers have invested heavily with SAP over a long period of time. And we acknowledge that with those investments made in the past, our role about helping them on the transformation becomes more important than ever. So the transformation incentive to be able to migrate is a part of a broader picture, helping them on an ongoing road map, to drive to that clean core architecture and making sure they can leverage the Business AI. So it not just provides a financial benefit, but is also the role and the method and the tooling that SAP brings to help them on that journey. And the truing combination then becomes a more compelling factor for our customers to drive.
And then secondly, it can be applied in multiple ways. So the incentive can be used against not only on the — maybe their maintenance, but also for services and for other capabilities, including our ecosystem partners to help them drive that.
Christian Klein: Yes. And one last word on the TCO and on cloud gross margin. I mean, you have seen, if you would now exclude the stock-based and the higher share price in Q1. Actually, we have a very healthy expansion of our cloud gross margin. And what is coming from a TCO perspective in the next weeks, months, quarters is, we are now embedding ARM processors into our solutions. We are moving more and more of our solutions also now to HANA Cloud in a nondisruptive way, it’s already all baked in. Also cost wise in our guidance, which will also give us enormously more scale to also balance peak workloads much better in the future. And then when you look at the RISE journey, I mean the customers are now at 20% to 30% of the migration done.
And of course, the more workloads you are putting on the architecture, on the infrastructure, the more economies of scale you are getting. So we are also very happy with the progress we are seeing on margin, especially profits in the private cloud. So now actually, we — I’m very confident also about a further gross margin expansion then also not only this year but also in the years to come.
Dominik Asam: Maybe on the stock-based compensation, Charles, so the kind of EUR135 million increase was kind of the order of magnitude, which was unexpected because we actually said that we had EUR2.2 billion stock-based compensation last year in 2023. We said that in our ambition update when we included stock-based compensation we included about EUR2 billion in 2025, we also said that 2024 will be somewhere in the middle. But we now see that because that very, very strong share price increase in Q1 that kind of EUR135 million increase will basically feed through the year. Why don’t we think that will reoccur? Because simply, there are two parts to that, which drove it up. One is the exceptionally high increase in the share price.
I mean if you think about the 29%, 30% we’ve seen in Q1 and you compare it to the normal standard deviation you have in any given quarter over the last 10, 20 years, it’s actually a 2.3 to 2.4 standard deviation variance. So it happens once every 100 quarters actually from a statistical point of view. Secondly, we are losing the sensitivity, so to speak, because this was the last kind of fully cash settled tranche under this move 2021 program, which is by far the largest. And as we move to more equity settle, which is not flowing through the P&L, we don’t expect that sensitivity to stay so high. So now, yes, we did compensate to a certain degree in our guidance, and that’s simply that we kind of grind on all corners to see how we can make up for that, because we don’t want to kind of be burdened by that, but compensate.
It all demonstrates how important it is to embark stock-based compensation in the overall equation. It’s a real factor, and actually it becomes more and more valuable, the better the company performs. So from that perspective, I think it was the right decision to make sure, we manage it holistically the cost base, including stock-based compensation.
Anthony Coletta: Thank you, Charlie, for your question. Thanks, Christian, Scott and Dominik, and we will conclude the call for today. Thanks for joining.
Dominik Asam: Thank you.
Christian Klein: Thank you. Bye-bye.
