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Edited Transcript of SAP.DE earnings conference call or presentation 18-Jul-19 12:00pm GMT

Q2 2019 SAP SE Earnings Call

Walldorf Jul 20, 2019 (Thomson StreetEvents) -- Edited Transcript of SAP SE earnings conference call or presentation Thursday, July 18, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Adaire Rita Fox-Martin

SAP SE - President of Global Customer Operations & Member of Executive Board

* Christian Klein

SAP SE - COO, Head of SAP S/4HANA & Member of Executive Board

* Jennifer B. Morgan

SAP SE - President of Cloud Business Group & Member of Executive Board

* Luka Mucic

SAP SE - CFO & Member of Executive Board

* Stefan Gruber

SAP SE - Head of IR

* William R. McDermott

SAP SE - CEO & Member of Executive Board

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Conference Call Participants

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* Adam Dennis Wood

Morgan Stanley, Research Division - European Technology Equity Analyst

* Charles Brennan

Crédit Suisse AG, Research Division - Research Analyst

* Michael Briest

UBS Investment Bank, Research Division - MD of Global Technology Research Group & Head of the European Technology Research

* Mohammed Essaji Moawalla

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Philip Alan Winslow

Wells Fargo Securities, LLC, Research Division - Senior Analyst

* Stacy Elizabeth Pollard

JP Morgan Chase & Co, Research Division - Head of Software and IT Equity Research

* Stefan Julien Henri Slowinski

Exane BNP Paribas, Research Division - Research Analyst

* Walter H Pritchard

Citigroup Inc, Research Division - MD and U.S. Software Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the SAP Q2 2019 Half Year Earnings Conference Call. Today's conference is being recorded. And at this time I would like to turn the conference over to Mr. Stefan Gruber, head of Investor Relations. Please go ahead, sir.

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Stefan Gruber, SAP SE - Head of IR [2]

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Thank you. Good morning or good afternoon. This is Stefan Gruber, head of Investor Relations at SAP. Thank you for joining us to discuss our results for the second quarter 2019. I'm joined by our CEO Bill McDermott; and Luka Mucic, our CFO, who will both make opening remarks on the call today. Also joining us for Q&A are board members, Adaire Fox-Martin, President of our Global Customer Operations; Jennifer Morgan, President of our Cloud Business Group; and Christian Klein, our COO, who leads Intelligent Enterprise Group. Before we get started, 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. Factors that could affect SAP's future financial results are discussed more fully in our filings with the U.S. Securities and Exchange Commission, the SEC, including SAP's annual report on form 20-F for 2018, filed with the SEC on February 28, 2019. 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 quarterly statement, our half year report and a financial summary slide deck, which are intended to supplement our prepared remarks on this call today, and include a reconciliation from 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 prepared in accordance with IFRS.

Now looking forward to the end of the year, on November 12, we will hold a special Capital Markets Day in New York City. Here our senior executives will lay out the details of several new initiatives to create and accelerate operational excellence and value creation. We're looking forward to seeing you there. And with that, I'd like to turn things over to our CEO, Bill McDermott.

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William R. McDermott, SAP SE - CEO & Member of Executive Board [3]

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Thank you, Stefan. Good morning, and thanks to everyone for joining today's call. SAP's strong first-half puts the company in position to deliver on our targets for the full year. Thanks to the continued trust of our customers, we are a profitable growth company. The key growth drivers performed as we expected they would in the first half, giving us enormous confidence in our top line for years to come. We're also a disciplined value creation company, since we issued our revised margin aspirations in April, we've already made progress.

SAP will deliver significant shareholder value as we target approximately 500 basis points in margin improvement by 2023. So let's take a look at some of the details before Luka gives you the overall financials. In Q2, we delivered a solid double-digit growth quarter across the board. Cloud revenue was up 40%, growing faster than key competitors. Both cloud and software revenue and total revenue also grew in double digits. As software license overall was good, even with the minor headwinds in Asia due to trade uncertainties, which did postpone some deals and specifically, we'll get -- we didn't get everything we wanted in Asia, I'm going to expand on that in a minute, but don't worry about it. Let me start off with that.

The clear headline for Q2 is that SAP continued to grow fast in the cloud, and it was driven by experience management as the real, real catalyst. IDC and other analysts have said XM is the new frontier. And we actually agree with that. XM is also the new front-end to every segment in the enterprise application software industry, including HCM, CRM, ERP and beyond.

The concept of category creation is actually worth discussing here. Since 2000, there were 4,500 companies in the IT industry that were founded and took a Series A investment, only 75 of them made it to an IPO, only 36 became the dominant category winners. Those winners now own 76% of the entire addressable market in their respective categories. So when it comes to experienced management, you're going to hear plenty of noise out there from others who'd like to catch this wave. The question is who created the category. And the answer, of course, is Qualtrics, which is why we couldn't be happier to have the SAP global distribution channel behind their XM platform.

In its second quarter, Qualtrics is proving to be the growth catalyst we expected and more. Brian Smith and his team are already making a huge positive impact, and we're only getting started. If you look at our HCM business is one example, SuccessFactors is an early adopter of the XM vision with employee experience. By combining the Qualtrics and SuccessFactors offerings, we have differentiated against legacy HCM. That's why our SuccessFactors portfolio had a strong quarter, growing bookings in high-double digits year-on-year, with multiple wins against Workday and Oracle. Market-leading companies like Merck in Germany are shifting away from old HCM in favor of employee experience. In the quarters to come, we will use all aspects of XM as the differentiator for the intelligent enterprise, including employee, customer product and brand experience. Experience management has superseded standalone digital transformation talk. I personally share this message with CEOs around the world, the reaction is unanimous, every one of them wants XM. Balancing our healthy top line, operating profit was also up double digits for the company. This quarter you're seeing a dip in the IFRS operating profit. This reflects updated estimates from our restructuring program, which was actually more subscribed than anticipated due to more volunteers in Germany than planned.

Luka will take you through the one-time effects in a few minutes, including M&A, tax and share-based compensation. The non-IFRS operating profit was up a healthy 11% year-over-year, which is another significant feature in this double-digit growth quarter. On an organic basis, there's actually a margin improvement in the core underlying business, when you back out the dilutive effects that Luka will discuss. We also saw a 3-point improvement in our share of predictable revenue in the quarter, which continues to signal the broader success of the company's business model transformation. So overall, we feel strongly about our top line and increasingly confident about the bottom line trajectory for the company. Our best run SAP review is designed to accelerate this operational track record. We now have support from a highly regarded external partner who is helping us identify opportunities across all corporate functions. Even as where in the early stages, the initial indications strongly reinforced our stated aspirations. For example, the underlying cloud gross margins improved 4 percentage points in the current quarter, reflecting a success of our off-Oracle converged cloud initiative and accelerating partnerships with hyperscalers. We look forward to the Capital Market Day in November, where we will unveil the comprehensive roadmap to deliver on the approximate 500 basis point margin improvement we fully expect by 2023.

In terms of the challenges in the quarter, on the software revenue, the macro environment related to global trade, especially in Asia was a factor. What you see here is large multi-national companies carefully recalibrating their operations and global supply chains. In some cases, this causes a short-term delay on technology purchasing decisions. In our case, you actually see a net positive impact on the pipeline of SAP. Many of our market units in Asia, for example, have higher pipeline forecast at this time in 2019 than they did one year ago. And the forecasts across the company are in good shape. I triple check every detail. This is because the companies that decide to make changes due to trade uncertainty look to SAP to support their plans to reroute channels or invest in new geographic markets. So overall, while we've noticed the trade effect, our customers demand more from us as they adapt to it. In other words, the bill of materials is getting bigger on the deals. One more note on this. The temptation here might be to lessen the focus on China, which we believe to be a mistake. I was just in Beijing for meetings with Premier Li a few weeks ago, while the short-term uncertainty over trade negotiations is having an impact in many industries, everyone recognizes these are the natural effects of globalization.

I can tell you that the long-term health of the economy in China is obviously secure, and keep in mind there are more than 70 million enterprises operating in that country. So it's pretty good business opportunity. In terms of SAP's vibrant China business, while some transactions were delayed past Q2, that's a fact. Our pipeline in China remains ever robust, and we have a very good prognosis for Q3 and Q4. Another theme embedded in the quarter is in our cloud business, where we initiated our strategy to embrace our public cloud infrastructure partners. As a result, some workloads on certain SAP HANA Enterprise cloud deals moved in favor of joint engagements with our cloud infrastructure partners. This strategy will pay dividends for us in the quarters and the years to come. And significantly, it will help us continue improving cloud gross margins, which we have committed to do through 2023 and beyond. When you exclude the infrastructure as a service, tech business, our cloud bookings grew 27% year-on-year in Q2, which again reflects the overall health of our solutions portfolio. And I'm not even discussing network and consumption based cloud revenue, which you never see.

So big picture, for years, the belief has been businesses have the data they need, they just can't access it. What you're seeing in this experienced economy is this data assumption is wrong. Businesses don't have all the data they need because nearly all of their existing data was created by the business itself, we call this operational data. Today's imperative is to go out and create a new data set, experience data that comes directly from the consumers and employees themselves. Only when you layer the 2 data sets together, the operational data from the business and the experience data from the people, can you deliver true experience management. This is the catalyst of our intelligent enterprise strategy. This is a message and a strategy that only SAP is delivering.

Experience management is a paradigm shift for how CxOs run companies from the legacy inside out, to the visionary outside in. And armed with the right mix of experience data and operational data, intelligent enterprises will always know the next action to better serve their customers and their employees. This, ladies and gentlemen, is the future of business. And our ambition is not only to lead the XM movement, it is to help our customers win it. This is the growth elixir that will uplift every solution in our portfolio as you saw with HCM in Q2.

Overall, SAP continues to be the rarity in the industry, with S/4HANA adoption up to 11,500 customers globally, our core business is rock solid. With solutions like Concur, continuing to grow in double digits on a global scale, our cloud portfolio couldn't be stronger. Our technology assets SAP HANA in the cloud, SAP Cloud Platform, SAP Leonardo and SAP Analytics Cloud have the strongest pipeline we've ever seen. And if you look at brands like Burger King Brazil, Hitachi, Kawasaki, NH Hotel Group, Delivery Hero and many others, it's clear that SAP's entire solution portfolio is resonating strongly on a global basis. Add marquee partnerships and the story gets even stronger. Intel, a great company, and SAP have entered into a partnership to optimize the features and technologies in SAP HANA for Intel Xeon Scalable processes, and Intel Optane DC persistent memory. This will deliver customers industry-leading performance and TCO advantage for SAP S/4HANA. We will also jointly establish a center of excellence, so customers can evaluate, innovate and adopt Intel and SAP jointly developed technologies that power intelligent enterprises. I'd like to give my good friend, Bob Swan, a big salute for his outstanding friendship and cooperation. SAP is also partnering with Infosys to help clients invest in purposeful innovation to become an intelligent enterprise. Innov8 for Embrace, leverages Infosys industry knowledge. This is a platform delivered on a cloud hyperscale environment, with SAP digital solutions delivering end-to-end business outcomes at an accelerated pace. They are new multiyear partnerships we couldn't be more excited about. These are ones that we're counting on and that will deliver upside big time.

In closing, even in the seasonally smaller Q2, the fundamentals of the company are rock solid. We're poised to continue fast growth in the cloud, we're focused on expanding our margin profile, promises made will be promises kept. Our XM Intelligent Enterprise strategy is winning big time, our partner ecosystem is fired up, our employee morale is very high, our brand value is higher than ever. When you think about SAP's customers, the will inside our company to do what's right for them has never been stronger. The best, do run SAP. And our commitment is to run this company at its very best. So we can continue to power a new generation of economic growth, environmental sustainability and societal progress. That's what SAP is about, helping the world run better and improving people's lives. I thank you for your time and attention today. I look forward to taking your questions after Luka completes his remarks. Luka, over to you.

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Luka Mucic, SAP SE - CFO & Member of Executive Board [4]

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Yes, thank you very much, Bill. Let me start by echoing Bill's comments that the fundamentals of SAP are very strong. Just look at our cloud momentum. We have now grown our cloud revenue at 40% or higher in the last 4 quarters. That's impressive for a company at our scale. I'm also pleased that our operational excellence measures have allowed us to achieve double-digit non-IFRS operating profit growth. This is also remarkable, considering our second quarter revenue in software was inflicted by the recent short-term trade-related uncertainty in Asia. Let me now provide you with some background on the key drivers behind this quarter. First, both cloud and software revenue as well as total revenue grew 11% this quarter. Cloud revenue was obviously again a big driver of this. Our cloud revenue surged 40%, and as Bill said, we saw an amazing performance of our Qualtrics Experience Management solutions. New cloud bookings were up 17% to EUR 494 million, and up 27%, excluding our infrastructure as a service business. Our customers are doing more infrastructure as a service business directly with our hyperscaler partners. This is a good trend for SAP as it is positive for the margin profile of our cloud business. And you can already see that immediate positive effects on our cloud gross margin this quarter, which I'll talk about in a few minutes.

In addition, as Bill mentioned, our SuccessFactors offerings have strong double-digit bookings growth, driven by rapid early adoption of Qualtrics Employee Experience. Software license and support revenue continues to grow at a solid 2% in the second quarter, even with the well-publicized global trade effect. If you look through the half year numbers, we had a great 4% growth performance in our rock solid cloud business. Our business is also becoming increasingly resilient, as Bill said in Q2, the share of more predictable revenue had a strong 3 percentage points uptake and it is now already approaching 70%.

Now to the regions. We had a solid performance in the EMEA region with cloud and software revenue increasing 9%. Cloud revenue increased by 46%, with Germany and Spain being highlights. In addition, Germany had another solid quarter in software license revenue. France and Italy had a strong quarter in software license revenue. In the Americas region, we had a strong performance. Cloud and software revenue increased by 16%, cloud revenue increased by 37%, with the United States, Canada and Brazil being highlights. In addition, the U.S. also had a solid quarter in software license revenue and Canada had a strong quarter.

The APJ region, we had a solid performance, despite the trade related micro-headwinds. Cloud and software revenue was up by 8%. Cloud revenue increased by 41%, with Japan being a highlight. The software license revenue, Australia and India had a strong quarter.

Now let's look at profitability and gross margins in the second quarter. First of all, we're very happy to report that all our individual cloud gross margins were again up year-over-year, leading to an overall cloud gross margin of 68%, which is up 2 percentage points sequentially and up sharply at 4 percentage points year-over-year. Now our most profitable cloud business, the Intelligent Spend Group, formerly Business Network, the gross margin increased by 1 percentage point year-over-year and reached 78%. The gross margin of our other SaaS/PaaS business expanded massively by 8 percentage points year-over-year, reaching 69%. More importantly, this gross margin improved sequentially by 5 percentage points as we saw the first full quarter of SuccessFactors running solely on the converged cloud HANA base platform. This is a crucial milestone as it gives us the ability to embed real-time predictive capabilities and cutting-edge future innovations by providing expense relief as we retire duplicate infrastructure, reduce third-party support fees and rationalize resources. For HANA Enterprise Cloud, which is our infrastructure as a service offering, the cloud gross margin improved by 11 percentage points to 22% year-over-year. As we said, we expect to reach a level of 30% to 35% in 2020. We see infrastructure as a service becoming a smaller share of the cloud mix going forward as we continue to accelerate our hyperscaler partnerships. Overall, our cloud and software gross margin was a solid 81% for the quarter, our services gross margin was down 2 percentage points to 24%, as we hired more consultants to specifically address the strong S/4 implementations backlog. Overall, operating profit was up 11% year-over-year, driven by a combination of a strong top line, more focused hiring and continued efficiency gains in our cloud business. This led to a stable operating margin in Q2, even with an acquisition headwind of approximately 40 basis points in the quarter. For the first half, we were able to expand our operating margin by 20 basis points.

Now turning to IFRS operating profit as well as EPS and taxes. Q2 IFRS operating profit and EPS were both down 21%, impacted by higher acquisition-related charges as expected. In addition, IFRS operating profit was impacted by higher share-based compensation, both due to the Qualtrics acquisition but also particularly as a strong SAP share price increase over the second quarter. As well as additional restructuring charges, mainly due to the higher-than-expected estimated participation rate in the voluntary redundancy and early retirement programs in Germany. Since these are very significant effects this year, let me put some numbers to it. If we compare the first half of 2018 to the first half this year, we now have close to EUR 100 million of higher acquisition-related charges and revenue adjustments, mainly from the acquisition of Qualtrics. We also have more than EUR 600 million higher share-based compensation expenses at approximately EUR 1 billion higher restructuring charges. But to be clear, as a consequence, we obviously expect IFRS operating profit to be sharply up in 2020, at even significantly higher growth rates than on a non-IFRS basis, as there will be no meaningful restructuring expenses and a general downwards trend of acquisition-related charges.

Moving onto EPS, we saw a strong 11% increase year-over-year for the fourth quarter -- for the second quarter and 17% for the half year on a non-IFRS basis. Year-over-year, our IFRS and non-IFRS effective tax rates decreased slightly. The IFRS rate decreased by 0.9 percentage points to 28.6% while the non-IFRS rate decreased by 0.5 percentage points to 27%. Our operating cash flow was EUR 2.7 billion, down 10% in the first 6 months. As explained at our Capital Markets Day, we expected our 2019 operating cash flow to be impacted by several items. I'd like to provide you with an update for the first half 2019. First, operating cash flow experienced a year-over-year benefit of roughly EUR 185 million from the application of IFRS 16, which we neutralized in an adapted definition for our free cash flow, just to remind. Also compared to the prior year, we had higher restructuring payouts of close to EUR 200 million. Higher share-based compensation payouts of around EUR 230 million and higher tax payouts of more than EUR 400 million.

For the total year 2019, again, as compared to the prior year, we currently expect higher restructuring payouts of somewhere between EUR 550 million to EUR 750 million, higher share-based compensation payouts of around EUR 400 million and higher tax payouts of around EUR 600 million. Due to the adverse impact of the items just mentioned, we now expect 2019 operating cash flow to be slightly lower than in 2018. Similar to IFRS operating profit, we expect a steep increase in operating cash flow in 2020 as restructuring and tax payouts will sharply recede, and we also do not expect significant increases of payouts for share-based compensation. Free cash flow for the first half also decreased by 10% to EUR 2 billion, reflecting the lower operating cash flow, but partially offset by CapEx, which came in at EUR 279 million lower. We expect that this trend towards lower CapEx will also continue in the second half.

Before I conclude, I would like to give you an update on our nonfinancial performance and sustainability highlights as well. Our CO2 emissions remain flat year-over-year at 75 kilotons despite the addition of Qualtrics. Our goal remains to be carbon neutral by 2025. For our sustainability policies, we have been able to achieve cost avoidance of EUR 238 million over the last 3 years. Further, we have now updated our global environmental policy and introduced the new target to phase out single-use plastic completely by 2020. We continue to make progress on the social front as well. As we continue to work to achieve gender equality, we are now at 26.2% women in management, on track to achieving our goal of 30% by 2022.

So to summarize, Q2 was a solid quarter, as we continue our journey towards an SAP that is leaner, more agile and even more customer-oriented than before. We are very confident that the opportunities for operational improvements will continue. We remain as confident in our 2019 outlook as we are in our midterm ambition. And like we've said before, we will provide additional details on our operational excellence initiatives and capital allocation policy at our special Capital Markets Day on November 12, in New York City. Thank you. And we will now be happy to take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we will take our first question from Walter Pritchard with Citi.

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Walter H Pritchard, Citigroup Inc, Research Division - MD and U.S. Software Analyst [2]

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I think everybody understands the impact from the hyperscalers qualitatively. Could you help us understand as we look forward in the year, how much on the IaaS side we expect to see the hyperscaler -- shift to hyperscalers impact the cloud business? And does it impact at all your longer term goals around cloud?

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Christian Klein, SAP SE - COO, Head of SAP S/4HANA & Member of Executive Board [3]

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Yes. Just to kind of net it out, the hyperscalers will be a growth opportunity for SAP. The SAP Cloud Platform is at a mature phase now, where it can grow into the hyperscaler environment that will lead the customer to many more of the cloud-based solutions that SAP offers. And that is the factor that probably no one out there is counting on, but it's coming. And secondly, the HANA Enterprise Cloud now is being run by some real pros. So instead of a low margin business, that was uninteresting financially, it's now improving steadily. And you're already over 22% with the margin performance of HEC and it'll get into the mid-30s. And it's actually performing at a quality standard commensurate with the hyperscalers now. It wasn't always, it is now. We have turned back on the valve, many of our customers want the white glove treatment that comes along with their complete portfolio of SAP solutions and they want the HEC, and they are going to get it, the HEC is the HANA Enterprise Cloud. Similarly, many of our customers have migrated and will migrate to the hyperscalers. And we're very well-positioned and, I think, what you are not counting on is just how much cloud revenue will come SAP's way by leaning into those strategic partnerships. So to be very clear, the bookings scenario in the company is ever strong. The pipelines are entirely commensurate with what you would expect and what we guided for. And count on the cloud to come through in the bookings and the revenue in the back end of the year, command, performance in the cloud on its way.

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Operator [4]

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And we will take our next question from Charles Brennan with Crédit Suisse.

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Charles Brennan, Crédit Suisse AG, Research Division - Research Analyst [5]

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Can we just drill into what feels like it's been a bit of revenue weakness during the quarter? I know you called out the trade wars in Asia, but can you just remind us, are the Asian customers primarily on premise or does that also impact the cloud? And if it's not the Asian customers who are impacting the cloud bookings, what's the bottleneck that's holding the cloud bookings back to high teens on an organic basis.

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William R. McDermott, SAP SE - CEO & Member of Executive Board [6]

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Yes, a couple things. First of all, the Asian markets is fine, China in this particular quarter wasn't as strong as we're used to see in China. China usually grows steeply in both the on-premise and the cloud, and there was postponed decisions in China. So we did see that. What you're seeing in this environment is there are a lot of companies, that were manufacturing things in China, that are actually moving, supply chains and manufacturing facilities to alternative locations. Those locations include places like Malaysia, Vietnam and even Mexico. So while that dislocation takes place, it does impact Asia to some extent, China specifically. So that's the scenario. And then, what you do is you go in and you look at okay, well, what did the pipeline do, post quarter because don't forget, we ended the quarter on a Sunday on June 30. And the G20 discussion was happening at the end of that week in Japan. So there was a lot of people hovering for the outcome of G20 in terms of some of their strategic calls. Most of those deals that were hanging out there have either closed or the bill of materials has expanded because when you change a supply chain, you open up a new manufacturing facility, you start operations in a new geography, even if it's in the similar region, you have governance, you have complaints, you have many things to consider. And I think that's one of the reasons why our Digital Supply Chain cloud business grew in triple digits. Because many of the customers are now counting on SAP to help them. So that's the big picture, and as I look at Q3 on a pipeline and a forecasted level in that region, right now, I have Adaire sitting next to me if she'd like to make some color commentary, she is more than welcome. Everything looks very strong. The coverage that we have in the pipeline is as good, if not better than what's been all year long. Adaire?

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Adaire Rita Fox-Martin, SAP SE - President of Global Customer Operations & Member of Executive Board [7]

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Yes. Thanks, Bill. Certainly, as we enter Q3, we're entering it with a multiple of coverage, but also more importantly, with the conversion history in this quarter and that will ensure a good outcome for us in terms of our business in Asia. And I think when I look at SAP's position there, of course, the supply chain impact was significant on our China business, but we've got to remember we've been in Asia Pacific, Japan for 30 years now. We have very strong teams and very strong businesses across the region, which allows us to support our customers as they move these manufacturing capabilities into other regions. And we are now working with those customers who delayed some of those decisions to provide both commercial flexibility and certainty and from an SAP perspective in the place of what is political and economic uncertainty. So we're very comfortable as we move into Q3, that we will be able to manage those transactions that did not happen in Q2, but also deliver a very strong Q3 from Asia for the company.

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Charles Brennan, Crédit Suisse AG, Research Division - Research Analyst [8]

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Are you able to give us a quantification of the revenue slippage from Q2 and to Q3?

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William R. McDermott, SAP SE - CEO & Member of Executive Board [9]

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You can basically look at -- the only thing you can point out, right, is the license. You're negative 5 or negative 6 depending on what currency you want to look at it instead of flat or up or down 2. And you can attribute it to that region primarily. So that's why we're talking about Asia today. But you've got to remember these are a few percentage points. If you look at Q2 last year, put the global trade thing on the shelf for a second, our license in Q2 last year was down 5%. It's a very similar thing to this year. So you got a lot of things going on in SAP's Q2. You got SAPPHIRE, you got a Sunday quarter close on a June 30, you got the G20, you got the Asia supply chain and manufacturing dislocation. So I, like, wouldn't react to this because we're reiterating the guidance, the pipeline in Asia is the highest coverage in terms of the pipe to the conversion of the license in the company. So whatever didn't happen will happen and it will happen at a larger scale billing material. We're also very well-positioned politically, and I think it's very important in these trying times that companies and their brands and their leadership is highly regarded at the top government offices around the world. And SAP's positioned positively whether it's Europe, the United States or Asia and specifically China very, very well. Our brand is very highly thought of there and we'll be in good shape.

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Stefan Gruber, SAP SE - Head of IR [10]

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Let's take the next question, please.

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Operator [11]

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And we will take our next question from Phil Winslow with Wells Fargo.

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Philip Alan Winslow, Wells Fargo Securities, LLC, Research Division - Senior Analyst [12]

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Obviously, you have spent a lot of time on Asia on the call this quarter. But what I want to focus on Europe and Germany, in particular. So the trends that you're seeing there, obviously, industrial production data points have not been great for Germany for several quarters, but SAP keeps delivering this high single-digit 10% growth rates. Bill, in a day or 2, for that matter, when you're talking to CEOs and customers what continues to drive that performance in Europe but also particularly Germany?

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William R. McDermott, SAP SE - CEO & Member of Executive Board [13]

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Phil, thank you for the question. I think it's pretty well-known that the SAP brand is so highly regarded in Europe. Digital transformation, SAP is at the epicenter of changing business processes, whether it's the S/4HANA flagship platform or its the line of Business Network and now XM cloud solutions. If you look at Germany, we grew double digits in Germany in our business. And I don't know too many companies in tech that are growing double digits in Germany. And our Core business is rock solid in Germany and our cloud business is doing extremely well. Again, I'm on the European Round Table. I think I might be the only American on the European Round Table running a substantially sized company. I also enjoy that new business round table in the United States, and I can tell you that SAP is revered in Europe. And one of the examples I gave on the experienced management side was Merck, you can't talk to a CEO in Germany, France, the U.K. or anywhere else that isn't talking about SAP HANA, S/4HANA, the cloud connections and now especially experienced management. Don't forget we're in the big omnichannel e-commerce world, it's mass personalization at scale. Europe is very concerned with privacy of consumers, we're the British Standards Institute platinum example of a company that protects the data of the customer and the consumer. And in, Europe especially Germany since you mentioned it, that's a really big deal. So again, SAP pristine reputation and we'll continue to do very well and double-digit is absolutely where we need to be in Europe and we'll stay there.

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Adaire Rita Fox-Martin, SAP SE - President of Global Customer Operations & Member of Executive Board [14]

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I feel very comfortable and very positive about our business in Europe and in Germany, in particular. We have a very strong installed base in the German market. And a number of our larger transactions this quarter were transactions that were transformational in nature, transactions that were moving our customers to the next generation of SAP (inaudible). And transactions that we're taking into consideration how experience management could add to the business outcomes of those consumers. We have a strong team, right across Europe, with tenure, and we have deep relationships with many of our customers. So we're looking forward to the on growing migration of our customers in Europe to next-generation technology and next-generation experiences for their customers in the market.

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Stefan Gruber, SAP SE - Head of IR [15]

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Let's take the next question, please.

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Operator [16]

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And we will take our next question from Stacy Pollard with JP Morgan.

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Stacy Elizabeth Pollard, JP Morgan Chase & Co, Research Division - Head of Software and IT Equity Research [17]

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Networks. Just looking at networks flow to 17% constant-currency growth in Q2. Can you give some product trends there, maybe say, where the weakness is coming from, or relative weakness? And then is teen sustainable range? Or do you think it could get back up to above 20%?

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Jennifer B. Morgan, SAP SE - President of Cloud Business Group & Member of Executive Board [18]

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Yes. This is Jennifer. So in our business, I feel really good about the intelligent span, I don't think there's anything to be concerned about. A couple of the Ariba deals slipped into the -- first, second week of July, but we feel really good about where we're going with the network business. We've got some great innovation underway and we'll be talking about that a little bit more at our Capital Markets Day. So we feel very good about the direction of that and the growth.

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William R. McDermott, SAP SE - CEO & Member of Executive Board [19]

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And Stacy, one thing that's very important, Stacy, Fieldglass is doing great. And Concur is the bellwether of all cloud assets in the network and it's doing very, very well. So there is no reason to think that this thing is slowing down, it's going to be ever steady. And I think you're going to actually see the growth rate pick up in the Q3 and Q4 timeframe as well.

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Jennifer B. Morgan, SAP SE - President of Cloud Business Group & Member of Executive Board [20]

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Especially, over here in Asia, Concur really blew it out in Q2 over here in Japan, I am in Singapore right now, and we're doing some pretty interesting partnerships with some of the banks that we're working with. So we're excited to share more of that at the Capital Markets Day with what we're doing with the network.

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Stefan Gruber, SAP SE - Head of IR [21]

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Let's take next question, please.

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Operator [22]

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And our next question comes from Adam Wood with Morgan Stanley.

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Adam Dennis Wood, Morgan Stanley, Research Division - European Technology Equity Analyst [23]

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I've got 2 if I could. Just, first of all, on margins. Margins are flat on a constant-currency basis in the first half. I think if I look at the implied guidance, we're looking for maybe a 60 basis point improvement for the year. Luka, could you just maybe talk a little bit how you feel about that? And maybe help us with the phasing of how restructuring benefits starts to flow through to P&L. Did we see most of that already in the second quarter? Do we see more of that through the full year? And maybe the same on the cloud side, do we have most of the benefits already in the P&L or is there more to come? So you just help us on the linearity and how you feel about where you are this year versus the full year guide on margins that would be great? And kind of linked to that, Bill, obviously you got some fantastic opportunities around cloud and particularly bringing Qualtrics into the business and broadening that out. Could you just talk a little bit as a CEO, how you balance driving the efficiency in the business and driving margins higher while making sure you're not cutting things that are important to take advantage of the opportunities things like Qualtrics bring?

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William R. McDermott, SAP SE - CEO & Member of Executive Board [24]

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Why don't I go first, Adam, and then we'll finish up on the important financial questions with Luka because I think it's a really important questions that you've asked. Very clearly, SAP is a growth company, okay? And we are going to remain a growth company. And the way I look at growth, I look at HANA as the biggest best-kept secret of all time, we're going after the database market with all we have. I look at S/4HANA as the flagship platform. We got lots more growth coming with S/4HANA, especially as more and more of it comes in the cloud. We have a new release in Q4, we'll start marketing it in Q3, we're going after the upper market and the large enterprise and that hasn't even taken off yet. And meanwhile, we get 50% of our customers as net new. When I think about the line of business, the network experience management we only scratched the surface. With Qualtrics as the front end, to employee, to customer to this whole idea of brand and ERP, it's going to set the world on fire. It's a sensational breakthrough and the way companies can now think of the world from the outside in instead of the inside out, and we have the fundamental tools to enable business model innovation at mass scale for companies and individual consumers alike. Huge growth story. Now blending that with efficiency. We will not be hiring people that do not develop software in SAP. They have to develop software, they do not necessarily have to be domicile in Germany or the United States for that matter. We can develop software with the greatest minds in the world and we can do that, where the work needs to be done where the best people are. And often that's in lower-cost locations, I might add as well. As it relates to sales, customer-facing assets, whether you're selling a customer, pre-selling a customer, putting together the composition of the perfect enterprise and the way we design the experience management and how we engineer that value for a customer and how we implement our software, particularly, the multifaceted nature of our business, we will invest in those kinds of people. But the things in the middle, HANA can do it and the ERP systems that we run the company on called S/4HANA can do it, we don't need people. Now what I will do, and I have the complete backing of the CFO and the entire Executive Board, we will manage headcount with an iron fist, meaning what we hire into the company falls into what I just told you and they have to be evaluated by several different people before we hire them. We have to have the best people in the world in the company. So that's kind of the deal where you get not only the growth, but you also gain the efficiency. Now I'll tell you another thing. I feel for you watching the restructuring and the oversubscription of it and all that. But I will also say, look, that's what gives us the bright horizon. We cleaned up the business model, we consumed a great company in Qualtrics, and we gave ourselves some room to make sure that the margin can step up 1 percentage point per year between now and 2023. And even on the cash flow basis, the bad news is kind of out the window. And all the good stuff is coming your way in 2020. So I'll let Luka give his color on it. Did I answer your question, Adam?

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Adam Dennis Wood, Morgan Stanley, Research Division - European Technology Equity Analyst [25]

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Yes, that's great, thank you, Bill.

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Luka Mucic, SAP SE - CFO & Member of Executive Board [26]

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Then let me complete the answer with the margin progression and let's be clear, first of all, we have very confidently reiterated our guidance for the full year so you can absolutely take it for granted that we will see the implied margin increases that are implied in this guidance. We are getting started right now. And in the first half year, we still had to fight couple of headwinds from an acquisition front, while at the same time, the benefits from our restructuring program are really only now is starting to trickle in, actually the lion share of the improvements will come towards the far end of the year and then going into 2020. We always believed that the margin uptick in 2019 would be more pronounced in the second half year, first of all, because of the operational excellence initiatives needing sometime to kick in, but equally importantly, because the bar is getting lower in the second half year as well. If you remember in the second half of 2018, we didn't necessarily have the best progress and best growth rates from a profit and margin perspective. Now we have set up our cost basis, in particular, in the cloud we have focused hiring on those areas where we can really add value, we have been extremely disciplined, and therefore, entering the second half year with a much better opportunity coupled also with the relatively lower comparisons on the software license figure, in particular, in Q3 to really outperform and therefore, grow the margins. Similarly on the cloud, no, of course, we are not seeing the end of the journey in terms of our efficiency improvement potential. Actually, it's the beginning as well. We have been extremely successful through centralizing cloud delivery and our infrastructure portfolio management, including the purchase of hardware to bring down the CapEx inside to the company that was one of the sources that allowed us to expand the cloud margin. This is something that we can continue to piggyback on and further drive down. The change in the depreciation of hardware that we were able to achieve due to the successful renegotiation of maintenance contracts with our hardware providers is going to benefit us all the way through the year. And we had in Q2 the very first quarter of getting the benefits from SuccessFactors. Just to give you an idea, in Q2, alone, due to this move, we saved already almost EUR 20 million, EUR 18 million to be precise, so we are perfectly in line to harvest those round about mid-double digits that we originally projected for the first year and then the low triple digits going into 2020 from that measure alone. And there are still 2 quarters to come that will see this benefit. And so from that perspective, we are on a very strong trajectory towards the 75% cloud gross margin target for 2023. In fact, when we started to talk about this 1 year ago and also our targets for 2020 when we were hovering around 62%. I think I've been hearing a lot of concerns and question marks about our ability to pull this off, while fast forward 1 year later, we have already made half of the way into these 2023 targets that should give everybody a lot of confidence.

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Stefan Gruber, SAP SE - Head of IR [27]

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Let's move to the next question, please.

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Operator [28]

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And our next question is from Mohammed Moawalla with Goldman Sachs.

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Mohammed Essaji Moawalla, Goldman Sachs Group Inc., Research Division - Equity Analyst [29]

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Firstly, Bill, can you just give us an update on the cross-selling of Qualtrics, where you are in terms of pipeline and sort of how quickly should we start to see this, sort of, getting unlocked and where you see this was the biggest opportunities in the near term? Second point was just to clarify what you said regarding the infrastructure revenue in the cloud that will sort of go away? Just to clarify you will be able to fully offset with incremental revenue from, sort of, the HANA cloud platform sales. Could you clarify that? And then thirdly, for Luka, just, are we still on track in terms of the migration of Ariba off of Oracle? And I assume that the bulk of that benefit is still ahead of us in terms of gross margin in 2020. But could that -- when do you expect that migration to happen and the first quarterly benefit of that to come through?

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William R. McDermott, SAP SE - CEO & Member of Executive Board [30]

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Thank you very much for the question, Mohammed. What I'll try to do is kind of give you the big picture on Qualtrics, Jennifer Morgan can build on that. I also will start off answering your question on the infrastructure side by saying very clearly the bookings and the cloud growth trajectory of SAP will continue at the robust cliff you are accustomed to. You can say in certain cases, the lower of large numbers, but I can also say there's very large geographies that are still unconquered with solutions already in our portfolio. And don't forget S/4HANA we're driving an organic growth strategy in this company and we will take the S/4HANA roadshow in the cloud all over the world and that is going to be big. Don't forget also HANA as a service will be hitting hyperscalers clouds near you and it's a whole new vector of growth along with analytics and on the SAP Cloud Platform, there will be a tremendous opportunity with the SAP Cloud Platform between that and the up-selling opportunity of experienced management, yes. Any dilutive effect to moving the infrastructure as a service and the Embrace program will be compensated for. And I want to also be clear, I think Q2 is a little of an anomaly on the HEC business in general because we had new management in there, who is doing a great job, on making sure the operational excellence of the performance is at the standard of the hyperscalers at least. And also to make sure that the business we put into the HANA Enterprise Cloud was at a margin rate commensurate with our commitment to the 70 -- mid-70s gross margin, that Luka just talked about in the cloud gross margin. So we're just being a little bit more thoughtful. When you get a little bit more thoughtful what happens? People say what does this mean and it does slow things down in the HEC business a little bit. But that we are going to reinforce with the all hands of the company, the white-glove business is wide open for business, the Embrace is wide open for business, the FCP component of that and then also turning on the hyperscalers to illuminate the various solutions in the enterprise of SAP is open for business. And I gave you some color on our flagship products and how we intend to take them to the cloud and rotate them around the global economy to drive the growth machine. So don't be nervous about SAP's cloud ambition, it could not possibly be more resilient, perseverant and committed on the part of this management team. I think Jen might want to add some color on Qualtrics and then I think, Luka's got you on a couple of financial points.

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Jennifer B. Morgan, SAP SE - President of Cloud Business Group & Member of Executive Board [31]

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Thanks, Bill. So we're really pleased with the talent and the momentum, there is kind of 3 areas where we really see the focus. Number one is, Qualtrics has done a fantastic job, just continuing on their own pipeline, building sales execution and conversion of their pipeline. So that's been a great source of continued growth. Second is we put a real strong focus of enablement and execution with our SuccessFactors sales team, and they have exceeded all expectations we had of that business in Q2. We had great growth and success factors, and I really think much of that was driven by the broader conversation from simply talking about HR systems to really employee experience. So that was fantastic. and then obviously, with our CX sales team. So those 2 sales motions through those special teams have been really great, and we exceeded our expectations quite significantly with that, the synergies of those team. And then finally, just the overall curiosity and excitement from our entire customer base with our global sales teams. And really talking about what experience management means, how O is the what, X is the why. This past week, Ryan Smith and I were in both Korea and Japan at our SAP Select Events. And those are our CEO events. We had several hundred CEOs in both countries and this was the focus, and I can tell you this plays very, very well in Asia when you think about just the (technical difficulty) brand have already on understanding experience. We had a great week, the pipeline is off the charts now, we closed our first deals in Korea last week. And I think we're off to a really great start. State Department closed, as Bill said Merck closed, we closed Chalhoub Group in UAE. So it feels really good that we're continuing to execute individually with Qualtrics as they continue their growth and get great synergies working together with our team. And we'll continue that focus.

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Luka Mucic, SAP SE - CFO & Member of Executive Board [32]

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Yes. And then finally, Mo, just a very quick update on Ariba. So on Ariba, all of the applications both on the sourcing and on the procurement side have been migrated successfully by now to HANA, the same for all of the Ariba analytics. We are in process of finalizing the migration for the network elements of Ariba, this will also be done this year and that will set us up then for the significant gross margin increase that we also expect through the migration of Ariba off Oracle similar to what you're seeing now from SuccessFactors. As you know, our target for the Intelligent Spend Group cloud gross margins is to exceed 80% by 2020. Currently, we are at around 78%, and that full year benefit from being off Oracle and on HANA in Ariba will be a big component of achieving this gain.

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Stefan Gruber, SAP SE - Head of IR [33]

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We have time for 2 more questions, please.

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Operator [34]

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And our next question will come from Michael Briest with UBS.

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Michael Briest, UBS Investment Bank, Research Division - MD of Global Technology Research Group & Head of the European Technology Research [35]

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I'll start by congratulating you on the cloud margin performance. Luka, I think at the 2017 CMD, you said that SAP would not engage in debt finance buybacks. And at SAPPHIRE this year you said that capital returns will be paid for from the higher profitability in the business. Are you ruling out using debt to do further buybacks from here?

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Luka Mucic, SAP SE - CFO & Member of Executive Board [36]

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As you know, we will update the Capital Markets on our capital allocation policy thoughts, and I will give also a clear picture on how we see the cash flow progression for the company for the next few years. So I don't really want to spend, at this point of time, any thoughts on taking the thunder away from this special Capital Markets Day on November 12. So you will give -- get a full update there. And we are preparing for this properly at this point in time, we are still under consideration.

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Michael Briest, UBS Investment Bank, Research Division - MD of Global Technology Research Group & Head of the European Technology Research [37]

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Okay. Or maybe I could ask on the maintenance, it grew 2%, which is the low end of historical range. Are you seeing more of a shift now from maintenance customers into the cloud? And specifically on S/4 Public Cloud, maybe Jennifer could talk about the adoption there either from net new or from Installed Base customers?

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Luka Mucic, SAP SE - CFO & Member of Executive Board [38]

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Yes. Let me handle the first part with the maintenance profits and then I will actually hand over to Christian, who is running the S/4 for business for some color commentary on the pick up of S/4HANA cloud. So on the maintenance side, there is absolutely no change in paradigms, our maintenance at-risk rates including the extensions towards cloud or our on-premise solutions are actually below the level that we're internally planning for. So we are still seeing a very high stickiness in the maintenance offering. Why is the growth rate smaller in Q2? Well, you need to look back 1 year to Q2 in 2018, where we had an exceptional 7% growth in support revenues. That came from the fact that back then, we had a very, very steep drop in sales allowances due again to a very healthy development of our customer relationships in adoption of our solutions. This level of sales alone has kept at this low level, but of course, therefore, the growth that we are seeing sequentially as well as quarter -- year-over-year is smaller. So our support fundamentals are in great shape, and we continue to be right where we wanted to be. And you can see also for the half year with 3% growth, this is very robust and you absolutely should expect a similar performance for the full year. So nothing more to add on that, except for handing over to Christian.

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Christian Klein, SAP SE - COO, Head of SAP S/4HANA & Member of Executive Board [39]

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Yes, thank you, Luka. I guess, so first of all, let me outline, I mean, Q2 was definitely one of the best quarters ever for our S/4HANA business. And on-premise side, we have seen double-digit growth, we already surpassed after half year 1, the EUR 1 billion license number and this also, of course, will have a very positive impact on the correlating support revenues. So this also clearly shows that the hybrid strategy we are following is clearly the right one because also we see a very decent business together with Idea also in the upcoming quarters. So S/4HANA cloud, I mean, this is not anymore a small business. I mean, when we look at the bookings number, clearly, this solution contributed the most cloud bookings, new cloud bookings after conquering Q2. The cloud revenue number already doubled year-over-year. And for 2020, we will generate a significant revenue run rate for SAP's cloud subscription revenue stream. As the high share of new customers coming and also just to outline to give you an example how broad the solution in the meantime is, we're still serving in the meantime over 17 industries. So 17 industries and the Installed Base is growing and growing. On the product side, we will deliver this year over 2,000 new features across 21 end-to-end processes. So this will be clearly the most comprehensive ERP cloud suite by the end of the year. On the AI side, I mean, this was always our target to also deliver an innovative cloud suite. We're more than confident that we also can increase the productivity for our S/4 cloud customers in their corporations by at least 20%. And then in Q4, the analytics cloud integration comes. So the real-time integration and then with that a real-time steering across the company and Qualtrics will be natively integrated to our S/4 core as well also by Q4. So net-net, we are very confident also for the half year 2 outlook.

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Luka Mucic, SAP SE - CFO & Member of Executive Board [40]

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And perhaps just to conclude, what Christian essentially said now is that by now the combination of Digital Supply Chain management and S/4 is actually already representing more than 60% of our on-premise license revenues. And that is actually very good news because it is stabilizing use. This part of the portfolio still grows on-premise and it will continue to grow while the rest has already to a large extent migrated to the cloud, and that will also stabilize our on-premise performance in the quarters and years to come quite nicely. So our midterm projections in terms of negative growth are certainly still prudent.

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Stefan Gruber, SAP SE - Head of IR [41]

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Now we move to the last question, please.

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Operator [42]

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And our final question will come from Stefan Slowinski with Exane BNP.

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Stefan Julien Henri Slowinski, Exane BNP Paribas, Research Division - Research Analyst [43]

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Just 2 kind of related ones. One on growth, one on hirings. So on cloud sales growth, you mentioned the efficiencies in terms of headcount going forward. That could create headwinds in terms of your ability to drive growth. So I'm just wondering what kind of organizational or other sales adjustments you're making that on their own can help you to continue cloud growth? And kind of associating to that, outside of the hiring discipline that you've outlined, can you give us other examples of steps that are already being taken or already in place as part of the operational excellence program?

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William R. McDermott, SAP SE - CEO & Member of Executive Board [44]

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I'll comment on the overall cloud sales growth, and then I'll let Luka comment on the efficiency piece of your question, Stefan. A couple of things, we are hiring salespeople all over the world. I mean every day, I get a new string of e-mails on welcoming the next 50 great associates into the company, with their pictures and their LinkedIn accounts and just how happy they are to be here. So don't take anything away from the impression of growth in sales headcount, we will continue to grow S, but we will cut back on is G&A because we have HANA and we have S/4HANA and I think Christian gave you a good account of how great that product is. So it does the work of like thousands of people, okay. So G&A down, S up. And that's kind of where we're going as a growth company. I also want to make it clear the members of the Executive Board are accountable for organic growth. So we have Jennifer Morgan now running the Cloud Business Group. We built some things and we bought some things and the things that we bought she's accountable for making them even better and growing them around the world. And she has a very specific sales force and pre-sales force that works in conjunction with the Adaire Fox-Martin on the Global Customer Operations in this way we can be best of breed and best of suite in the manner in which we manage the customer relationship. So the customer gets the best of both worlds from SAP and the coordination between Jen and Adaire has been long-standing as they both managed Global Customer Operations together and have been friends for a long time. So the other piece is Christian Klein is accountable for the organic development of the S/4HANA flagship. And obviously, he's giving you great feedback that it's going extremely well. And Juergen Müller has HANA, this whole movement of database-as-a-service in the cloud as well as analytics and Leonardo. And all of these solutions will be front-ended by experience management as we compose the intelligent enterprise for our customers. So what's different, I'll tell you. What's different is lots of focus on S, lots of focus on organic innovation, a very disciplined capital allocation strategy, a very brisk pace and our pursuit of 1 point of margin improvement on a per annum basis. And holding people accountable for doing a great job. And I do mean accountable. So that's kind of the environment we're working in and what I want to do is start talking about revenue per employee. And how that metric is going to start growing. So that gives you an indication of how the place is being steered. Luka?

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Luka Mucic, SAP SE - CFO & Member of Executive Board [45]

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Yes. And just to complement this of course just hiring discipline is another holistic strategy. So we have multiple pillars of operational excellence initiatives that we're currently working on. Again, I don't want to go into too much detail here, but just to give you a couple of examples, we are just currently going through the portfolio round, and as I have also talked about at SAPPHIRE, we have various areas of portfolio overlap that we are currently in process of rationalizing which will benefit the R&D efficiency. It will allow us to continue to invest into developers, but invest that not in a duplicative sense. The cloud efficiencies very, very important and they are next to the off Oracle initiatives we have, the cloud infrastructure centralization, the benefits and gains that we get from there. We have an excellent best practice example with Qualtrics, at the moment, I mean, they're running their cloud margins at around 90%. So we're looking deep into architecturally from an operations perspective, from an elasticity perspective, what can we learn and adopt and bring over to the rest of the portfolio, which is a great opportunity for us, as only we can really now as deeply inspect this. And then also we have great opportunities on the G&A side that we're starting to tap into, obviously, G&A at the beginning of the year, got a headwind because of the acquisition of Qualtrics and there is plenty of opportunity to bring that down over time, but we're taking for example also steps such as lifting and shifting one complete shared service center in the finance area into Manila, in the Philippines in a very low-cost location, therefore, you see in G&A a little bit more hiring than you would expect at the moment, but this is low-cost hiring, that once the work is handed over, we reside in reductions elsewhere and will benefit us on the G&A side. And again, there are many more examples that are already underway, but even more importantly, new ones that we're just in the process of starting that we will be able to talk more about on November 12.

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Stefan Gruber, SAP SE - Head of IR [46]

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Thank you very much this concludes the second quarter 2019 earnings call of SAP. Thank you all for participating and goodbye.

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William R. McDermott, SAP SE - CEO & Member of Executive Board [47]

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Thank you, everybody.

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Luka Mucic, SAP SE - CFO & Member of Executive Board [48]

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Thank you. Goodbye.

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Operator [49]

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And this concludes today's conference. Thank you for your participation and you may now disconnect.