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Edited Transcript of SAP.DE earnings conference call or presentation 24-Apr-19 12:00pm GMT

Q1 2019 SAP SE Earnings Call

Walldorf Apr 29, 2019 (Thomson StreetEvents) -- Edited Transcript of SAP SE earnings conference call or presentation Wednesday, April 24, 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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* Alexander William Tout

Deutsche Bank AG, Research Division - Research Analyst

* Gerardus Vos

Barclays Bank PLC, Research Division - Senior Analyst

* John Peter King

BofA Merrill Lynch, Research Division - Research Analyst

* Michael Briest

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

* Ross Stuart MacMillan

RBC Capital Markets, LLC, Research Division - Co-Head of Software Sector

* Stefan Julien Henri Slowinski

Exane BNP Paribas, Research Division - Research Analyst

* Stewart Kirk Materne

Evercore ISI Institutional Equities, Research Division - Senior MD

* 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 Q1 2019 Conference Call. Today's conference is being recorded. And now 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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Yes. Good morning or good afternoon, this is Stefan Gruber. Thank you for joining us to discuss our results for the first 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, as usual, a couple of words on forward-looking statements and our use of non-IFRS financial measures. Any statements made during this call that are not historical facts are forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. Words such as anticipate, believe, estimate, expect, forecast, intend, may, plan, project, predict, should, outlook and will and similar expressions as they relate to SAP are intended to identify such forward-looking statements. SAP undertakes no obligation to publicly update or revise any forward-looking statements.

All forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. The factors that could affect SAP's future financial results are discussed more fully in 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 and financial summary slide deck, which are intended to supplement our prepared remarks 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.

I'd like to tell you now about some exciting investor events coming up this year. First of all, we would like to invite you to our Customer Conference SAPPPHIRE NOW in Orlando, Florida, which runs from May 7 to 9. SAPPHIRE is a great opportunity to learn more about our strategy and our product portfolio and will offer a special program for financial analysts including a small conference on May 8. Then on November 12, later in the year, we'll hold a special Capital Markets Day. Here our senior executives will lay out the details of several new initiatives to 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, and hello, everyone, and I appreciate you joining today's call. Q1 2019 is a continuation of SAP's profitable growth story. We are a rarity in the enterprise application business with a strong core, fastest-growing cloud at scale and enterprise software and impressive operating profit growth driven by expanding cloud gross margins.

Let me share some highlights from our exceptional first quarter. Let's start with the top line. Cloud revenue exceeded EUR 1.5 billion for the first time in a quarter. That was up 48%. This is a validation that SAP is the fastest growing business software company at scale in the cloud. Cloud and software revenue accelerated, growing at 16%. Total revenue growth was an impressive 16% as well. Customer demand for our intelligent enterprise and experience management solutions continues to soar. Our combined new order entry across on-premise and cloud is up 17%.

Looking at our peer group comparisons, SAP is growing faster than our competitors in the core and in the cloud. The 48% growth in SAP's total cloud revenue is over 22 points faster than Salesforce, which is growing at 26%. This is equivalent to an 80% higher growth rate. And 10 points faster than Workday, which is growing at 37.5%. This is equivalent to a 30% higher growth rate than Workday. We also performed exceptionally in driving margin expansion and increasing our operating income. Our overall operating margin grew by 50 basis points. This is particularly impressive considering we consumed the market leader in experience management with Qualtrics in the quarter.

In Q1, the operating margin improvement was driven by strong cloud gross margin improvement. The cloud gross margin was up 400 basis points sequentially and 300 basis points on a year-on-year basis. And this does not yet include any of the further incremental cost benefits from the successful migration of our flagship cloud solutions to SAP HANA. That will kick in, in Q2, and we'll start reaping those benefits very soon. Our improved gross margins and efficiency measures resulted in operating profit that was up 19% year-on-year. Free cash flow also saw a double-digit increase year-on-year. We really couldn't be prouder of these results. The metrics speak for themselves.

Let's step back for a moment and look at the big picture for SAP. The facts are, we have an incredibly strong core business with a market-leading retention rate in our support business, demonstrating tremendous customer loyalty. We have a high growth cloud portfolio powered by some of the best M&A in the enterprise software industry. These cloud businesses have years and years of runway for continued growth. We have an incredible franchise with 72% of our revenues now coming from highly predictable revenue streams. This is due to our strong cloud and solid on-premise support businesses.

We're perfectly positioned to capitalize on major secular trends such as the move to the cloud, digital transformation, Industry 4.0 and business process automation driven by AI and ML. Together, these trends contribute to a total addressable market of over EUR 350 billion, growing in double digits.

With a successful Q1 now behind us, we are initiating the next phase of value creation and innovation for all SAP stakeholders, including our employees, customers, partners and shareholders. We strongly believe that with the scale of SAP and accelerated executional excellence in our public cloud businesses, we will be able to deliver significant margin expansion across both our core and cloud businesses. We have decided, therefore, to update our midterm 2023 ambition to reflect our renewed focus on operating margin expansion. We expect the margin expansion from this quarter will continue through 2023.

We will target an average of 100 basis points of margin improvement per year from this year through 2023, resulting in approximately 500 basis points of margin improvement by 2023. We will drive this margin expansion by executing on continued improvement in cloud gross margins. We're targeting 75% cloud gross margins by 2023. This will represent 1,200 basis points of improvement from 2018.

We expect that this cloud gross margin expansion will be driven by 3 factors: moving off of Oracle; standardizing our platform and infrastructure; and shifting our mix towards more public cloud solutions versus private cloud. We will also continue to abide by the covenant we shared at the February Capital Markets Day around our M&A strategy. We will continue to focus on organic growth, supported only by highly opportunistic tuck-in M&A. We are confident in our strategy and we believe in our long-term value creation opportunity. In recognition of this opportunity, we are evaluating a multiyear share repurchase program to enhance our return to shareholders.

Finally, there will be no change in our other metrics, including more than tripling our cloud revenue and reaching over EUR 35 billion in total revenue. To showcase our confidence in executing this plan, we are raising our operating profit guidance for 2019. Our new operating profit guidance calls for up to 12.5% growth. Luka will talk more about the specifics shortly.

To showcase our commitment to operational excellence, we have instituted a special Executive Board Committee to evaluate and execute on operational efficiency measures across all functional areas of SAP. Functional areas will include: go to market, innovation and cloud delivery, and efficiency across the board. The goal is to drive greater operational efficiency, faster time-to-market, higher product quality and superior market fit. Simply put, to be the best-run SAP. This is the right time for this initiative at SAP. This will be my personal focus as the CEO, and we have an Executive Board fully united behind this effort.

Let me be clear, this is not about cost reduction, this is about doing things better, smarter and faster. Coming out of our restructuring, this is about hiring intelligently, lesser in quantity, but greater in quality. It will result in more investment where it counts, which is where our customers need SAP to invest for their success. SAP will win strategically and SAP will also win operationally. We firmly believe SAP has the potential to achieve both superior revenue growth and consistent margin expansion every year for the foreseeable future.

We will host a special Capital Markets Day in the fall of this year to lay out the specific details on how SAP will accelerate operational excellence initiatives that it started last year. At this Capital Markets Day, we will announce the results of the operational review and the multiyear capital return analysis. And we will set definitive milestone targets around how we will execute on the margin expansion ambitions we have outlined today.

Looking briefly at our solutions, SAP's real-time intelligent enterprise portfolio is unrivaled and highly differentiated. World-class global companies like PUMA, Levi's, AEG, Schaeffler Technologies, AmerisourceBergen, Cirque du Soleil and Bumble Bee Foods are all turning to SAP to transform their business.

S/4HANA adoption grew to more than 10,900 customers, up 30% year-on-year. SAP S/4HANA cloud was recently named as the leader by IDC in an assessment of cloud-enabled operational ERP apps. C/4HANA is helping businesses manage their entire front end with a single view of their customer across all channels. Only SAP can connect demand to fulfillment engine in one end-to-end value chain. SAP C/4HANA cloud revenue continues to grow in triple digits. In their second half 2018 software tracker, IDC has elevated SAP to #1 in commerce. And we are the only vendor to increase CRM market share on a year-over-year basis.

This brings me to Qualtrics and the new category of Experience Management, or XM, a category and market that SAP is creating. We're in an experience economy. And while 80% of the CEOs out there believe they are delivering a superior experience, only 8% of their customers actually agree. This gap, the gap between what we might believe is happening and what is actually happening, is the experience gap. To close that gap, you need the O-Data that SAP has been the leader on for nearly 5 decades. O-Data is the operational data that gives insight from business operations and tells you what's going on. And you need the X-Data, the experience data that gives you insight into human sentiment and tells you why behind what's happening with your consumers, your products, your brand and your employees.

SAP is now the only company that has both and we're already seeing our customers recognize the value of this. For example, CVS Health is just one of many companies realizing the power of X-Data plus O-Data as they chose S/4HANA and Qualtrics this quarter. At SAPPHIRE NOW will showcase the power of Experience Management to help differentiate every operational solution of SAP. We couldn't be happier to have Ryan Smith and the Qualtrics team as part of the SAP family. And frankly, I think they're very happy to be here as well.

X plus O is the defining equation to win in this experience economy. Our new SAP HANA in the cloud unleashes the power of experience intelligence, combining X-Data with the O-Data powered by HANA real time in a cloud-scale environment gives you experience intelligence. This experience intelligence will be embedded in all line of business cloud apps, all running on HANA. This enables digital engagement to be embedded in every single SAP application from customer experience to product experience to employee experience. You'll see major SAP HANA announcements in Orlando on May 8.

This leads me to total workforce management, where SAP SuccessFactors has successfully migrated its entire global customer base to run on SAP HANA. This is a crucial milestone for the SuccessFactors journey. The ability to embed real-time predictive analytics capabilities and cutting-edge future innovations will be a powerful differentiator in the Human Capital Management market. Customers also continue to choose our total spend management solutions: Ariba, Fieldglass and Concur. Our business network now transacts more than $3.1 trillion in the global commerce market annually. Of course, financial and product performance are only 2 of the many ways we assess the overall health of SAP. We're proud to be Germany's most viable brand and Europe's biggest technology company.

We continue to increase the number of women in management, now at 26% and climbing. And we are ensuring we pay equally across the company. Our employees remain engaged and motivated with near record high employee engagement. Once again, we were on Fortune's list of the 100 best companies to work for. As we celebrate 10 years of sustainability at SAP, we're showing that we walk the walk by running a waste-free SAPPHIRE NOW for the first time this year in Orlando. It all begins on May 6, and I really can't wait to see you there. We're pumped up and ready to go.

In closing, SAP is uniquely positioned to capture the massive opportunity enabling the Intelligent Enterprise for our customers so they thrive in this experience economy. We have made the critical M&A moves and we will now focus solely on tuck-ins. Our overall SAP 2023 ambition will be driven by an organic growth strategy. We will accelerate operational excellence and drive consistent margin expansion with an even higher, more predictable revenue base delivered on a highly efficient converged platform.

Let me be incredibly clear: we are committed to these enhanced margin targets. The special Capital Markets Day later this fall will give us the platform to share even more about these operational initiatives. As I mentioned, SAP is going to win operationally. What you will see over the next several years is that SAP will become the very best version of itself and achieve our vision for a best-run SAP. This is the motto of the company, the maxim of the brand and the organizing principle on our path to further expand our profitability for our shareholders. We share the same passion for creating shareholder value as you do, especially as nearly all SAP colleagues are shareholders themselves.

We look to SAP's very bright future and thank you for your support of this company. Let me now hand it over to Luka.

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

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Thanks a lot, Bill. Yes, we have indeed had an excellent start to the year. Cloud revenue up 48%, software licenses revenue up 4%, total revenue up 16%, operating profit up 19%, operating margin up 0.5 percentage point against the tough comparable and capital expenditure reduced by 16%. You can see that we're clearly picking up momentum. And on top of profitable growth, our business continues to get ever more resilient as the share of cloud and software support revenue now stands at 72%.

So let me provide you with some further background on the key drivers behind this exceptional quarter. Like total revenue, our cloud and software revenue grew 16% this quarter. Cloud was obviously a big driver of this. Our Cloud revenue surged 48%, exceeding EUR 1.5 billion for the first time in a single quarter. And that cloud performance was driven by a well-balanced, broad-based growth both of our high-scale cloud solutions as well as exceptional growth from our high-potential cloud solutions and including strong contributions from our recent acquisitions, Qualtrics and Callidus. Please note that neither Callidus nor Qualtrics are reflected in our 2018 comparable numbers for Q1.

The combined order entry of our new cloud and software license business was up 17% for the first quarter. New cloud bookings were up 32% year-over-year and software licenses revenue was up 4% year-over-year, clearly beating expectations. With this great result in software license revenue and the continued minimal churn in our support business, our software license and support revenue continues to grow by a very strong plus 6% in the first quarter.

How did it look like from a regional perspective? Well, I'm pleased to say that we had a very solid performance across all regions, starting with the EMEA region, where cloud and software revenue increased by 11%. Cloud revenue grew by 42% with the U.K., Switzerland and Spain being highlights.

In addition, we had strong software license revenue growth in Germany, the U.K. and Spain. I'm in particular very pleased with the really strong performance in the Americas region. Cloud and software revenues increased by 23% there. Cloud revenue increased by 49%, with the United States, Canada and Mexico being highlights. In addition, both the United States and Canada had a strong quarter in software license revenue.

And finally, in the APJ region, we had a solid performance, too. Cloud and software revenue was up by 16% and cloud revenue increased by 55% with China and Japan being highlights. For software license revenue, China, Japan and also South Korea had a strong quarter.

Let's now look at profitability and gross margins in the first quarter, a particularly bright spot. We are happy to report that all of our cloud business models were again up, leading to a cloud gross margin of 66.2%, up 4 percentage points sequentially and 3 percentage points year-over-year. In our most profitable cloud business, the Business Network, the gross margin increased by 1 percentage point year-over-year and reached 78%. The gross margin of our other software-as-a-service and platform-as-a-service business increased by 3 percentage points year-over-year and reached 64%. More importantly though, this gross margin improved sequentially by 5.5 percentage points, so this is clearly trending in the right direction.

On top of that, as Bill mentioned, towards the end of the quarter, we completed the migration of the entire SAP SuccessFactors customer base from third-party databases to SAP HANA. Just to give you an idea of the scale of what we have been moving here, we have moved thousands of customers and more than 1 petabyte of customer data as part of the migration. We redeveloped more than 1,000 store procedures and we migrated more than 90,000 custom reports to the new environment. This is a great success and a crucial milestone for us in 2 aspects: first, leveraging the performance of SAP HANA will allow us to accelerate innovation in SAP SuccessFactors; and second, we'll obviously see an expense relief as we can now retire duplicate infrastructures, reduce third-party support fees and reallocate resources previously working on the migration.

Finally, the most significant gross margin improvement of our cloud businesses came from HANA Enterprise Cloud, our infrastructure-as-a-service offering. Here, we saw an expansion by almost 24 percentage points to 32%. While a significant part of this expansion is attributable to sustainable improvements and increased scale, the Q1 margin also benefited from one-off effects. As we always said, we fully expect to achieve a sustainable level of 30% to 35% in 2020.

Overall, our cloud and software gross margin was a solid 80% for the quarter. Our services gross margin was up 80 basis points to 20.3%, driven again by strong revenue growth of 15%. The combination of a strong top line, continued cloud gross margin improvement and the more muted increase of operating expenses led to the very remarkable 19% Q1 operating profit growth and the expansion of our operating margin by 50 basis points against a very tough comparison from last year's Q1.

Q1 IFRS operating profit and earnings per share were heavily impacted by restructuring expenses of EUR 886 million. While there might still be minor effects from restructuring in the remaining quarters in the one or the other direction, it is important to understand that this amount now represents the total 2019 restructuring expenses currently expected. IFRS operating profit was also impacted by higher acquisition-related charges and share-based compensation, both primarily due to the Qualtrics acquisition. This resulted in an IFRS operating loss of EUR 136 million.

Year-over-year, both our IFRS and non-IFRS effective tax rates decreased. The IFRS tax rate decreased by 5.1 percentage points to 23.2%, while the non-IFRS rate decreased by 1.4 percentage points to 26.1%. The year-over-year decrease in effective tax rates primarily came from positive tax effects relating to changes in taxes and income and taxes for prior years, which were partly compensated by valuation allowances on deferred tax assets. In combination, these effects lead to an IFRS earnings per share loss of $0.10 per share. Whereas, under non-IFRS, we reported a strong growth of 24% to $0.90.

Our operating cash flow in the quarter increased to EUR 2.8 billion, up 9%. As explained at our Capital Markets Day in February, we expect our 2019 operating cash flow to be impacted by several items. We'd like to provide you with some additional transparency on these for Q1. First, operating cash flow experienced a year-over-year benefit of roughly EUR 80 million from the application of IFRS 16. Second, payouts related to share-based compensation amounted to around EUR 100 million. Again, please keep in mind that, as opposed to our peers' equity set of share-based compensation programs, SAP's programs are mostly cash settled. This is much more efficient from a tax and administrative perspective, but it also means that we show the economic affects in our cash flow statement instead of diluting our shareholders through the back door. Finally, restructuring payouts and tax cash outflows had a negative impact of roughly EUR 100 million.

Free cash flow for the quarter increased by 10%, as we saw a significant reduction in capital expenditure by 16% continuing the positive trend started in 2018. Please note that as already explained in January, we updated our free cash flow definition, so that it is not positively impacted by the application of IFRS 16. For the full year 2019, we continue to expect a roughly flat operating cash flow as the adverse impact of the items outlined before will be more pronounced in the remainder of the year.

Now let's come back and talk again about the operational excellence and our enhanced margin targets. Over the last 12 months, we have been intensely focused on improving our business processes and accelerating the speed of innovation and decision making. The restructuring program that we initiated earlier this year was an initial step in this process. As Bill just articulated, the comprehensive review is taking this focus now to the next level.

So let me turn to some specifics. First, both the Supervisory Board and Executive Board of SAP have been fully aligned on these plans during our meetings in April. We have already set up the special committee, the working groups are formed and they are hitting the ground running. Their mandate is to identify, evaluate and execute on operational levels across all functional areas of SAP's business. We are focused on both efficiency and innovation.

An important component of this review is our cloud infrastructure. Cloud gross margins are a strategic imperative to SAP, and we aim to be a best-in-class provider of cloud applications across any type of cloud delivery model. A special Capital Markets Day later this year is going to be an exciting event. It will focus in detail on the operational opportunities at SAP and how we will drive best practices across the organization.

In tandem, we are announcing new operational targets that we are absolutely committed to achieving. First, reaffirming our top line growth ambition through 2023, including at least EUR 35 billion of total revenue and 3x growth in cloud revenue. And then, in January, we set conservative margin targets. We now started the year with strong growth and better-than-expected improvement in cloud gross margins and operating margins. Bill and I have highlighted the tremendous progress already made on the migration to a highly standardized cost-effective converged platform on HANA. We therefore confidently introduce higher-margin ambitions, both a new 75% cloud gross margin target by 2023 and an average of 1 percentage point of operating margin improvement over the next 5 years, totaling 500 basis points through 2023.

You will see these improvements starting now through the efficiency efforts highlighted and importantly it is not envisaged than any of these additional initiatives trigger any additional restructuring plans. We also commit to a disciplined capital allocation approach. As Bill clearly stated, we have all the pieces we need to execute our strategy, and so future M&A will be solely focused on tuck-in acquisitions that complement the existing portfolio. We remain committed to our ongoing dividend and our existing policy of a payout ratio of at least 40% of the prior year's profit after tax.

And additionally, we are now evaluating a multiyear share repurchase program. We are working through this analysis right now and will share our findings at the special Capital Markets Day. We fully understand how important capital allocation is for shareholder returns, and we commit to optimizing it to ensure the best value creation for our shareholders, including organic investment, debt repayment, dividends and potential capital return and also tuck-in acquisitions and our venture capital investments.

So in closing, let me state very clearly that SAP is a company not only with great financial ambitions, but also aspires to be a leader in environmental, social and governance matters. And so I'd like to highlight that 2019 marks the 10th anniversary on our journey towards the roadmap of sustainability. We have progressed in embedding economic, social and environmental impact into our business and make this transparent in our Integrated Report. We remain committed to dedicate our extensive resources to help address the world's biggest challenges and help achieve the UN Sustainable Development goals. On the social side, our focus remains on programs such as Women Forward. We will continue to champion gender equality and are proud of having reached 26% of Women in Management at the end of Q1.

So Q1 clearly marks a strong start to 2019 across all levels and the beginning of a journey towards an SAP that is leaner, more agile and even more customer oriented than today. We are very confident that the opportunities for operational improvements that we have identified will allow us to achieve our updated 2020 and 2023 ambition. So please stay tuned as we plan to provide an update at the special Capital Markets Day, and I'm looking forward to seeing you all there.

Thank you very much, and we are now ready to take your questions.

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Stefan Gruber, SAP SE - Head of IR [5]

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Thank you. Operator we can now start the Q&A session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we will hear first from Gerardus Vos with Barclays.

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Gerardus Vos, Barclays Bank PLC, Research Division - Senior Analyst [2]

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Bill, I had a question on if you could provide some color on the kind of senior staff attrition you've seeing in Q1? And then perhaps a follow-up for Luka. Despite a very decent mix in Q1, I calculate that underlying margin was still down. So if you adjust for M&A effects, but also the divestments and the positive impact from D&A. With the new kind of plan, what give you comfort that you can deliver that ton of base point margin improvement per annum?

And then finally, on the share purchase or the potential share purchase, what kind of balance sheet ratio are you comfortable to run the business with?

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

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Thank you, Gerardus. I'll open up on the senior staff changes. First of all, there were 2 Executive Board members that moved on from SAP. If you added up their combined tenure, they were here more than a half a century. And I do think it is important to give people the opportunity to do other things with their careers. So there is no big report out other than they're pursuing some other interests. One has already ended up in the SAP Ecosystem, where he will be a force multiplier for our enterprise business in combination with Google Cloud Platform. That's Rob Enslin, who is a personal friend of mine and of SAP's and I look forward to his continued success. Bernd will probably end up similarly in the ecosystem when he's ready to come back into the workforce.

Most important thing from a shareholder value creation perspective is the folks that we have running development right now. Jennifer Morgan, running our line of business network and Experience Management clouds in the United States; Christian Klein, running the flagship S/4HANA franchise; and Juergen Müller, running HANA analytics and Leonardo with deep machine learning and artificial intelligence. These are the 3 premier leaders that we've had in the company. I've been here 17 years, I've never seen a better management team.

So take away from this that you would be highly impressed with what's going on. You have an incredibly allied management team on the top line initiatives, the innovation initiatives and now a redoubled focus and energy, a real passion around the operating margin expansion principles that Luka and I laid out today. So if you were in the boardroom with me and this crew, you'd be like wow, this is where I wanted SAP to be.

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

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Yes. Let me add answers to your other 2 questions, at least to the first one. Because I quite frankly cannot follow the logic that our underlying margin would have been down. I mean yes, we did have a divestiture in the quarter that benefited us, but that was basically a wash and neutralized the dilutive impact of the acquisitions that we had roughly at the same amount.

Other than that, you were referring to the change in depreciation of our hardware. That's actually a net operational benefit that we were driving. It's not an accounting gimmick. We have actually successfully renegotiated our terms with hardware vendors for our maintenance contracts, which allow us now to extend the useful life of hardware. And that is an absolute operational benefit, that also will show obviously in continued reduction on the capital expenditure side. So from that perspective, I am extremely confident in our future margin targets. Because we have still great scope for improvement in our cloud gross margins, in particular now that our migration to HANA is completed and we can therefore reap the benefits of that.

We also see that our public cloud business is increasing in scale as a -- in relative terms against our private cloud business, which improves the cloud margin performance obviously, significantly as well. And given the resilience in our core business, this provides a further balancing factor that certainly is going to stay here. So I'm very confident in those targets. And certainly, the margin has not been down underlying, if you take the right puts and takes into account.

And just briefly on the share repurchase, I mean, please understand that we are currently initiating the analysis on the possible scope and size of capital returns in the form of share buybacks. So at this point in time, it would be premature for me to speculate on balance sheet ratios, or the possible size of those. We will carefully complete this analysis and then also align with the boards of SAP. And we will be ready for a very clear update for the Special Capital Markets Day in fall. So see this as a teaser to join us in November.

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Operator [5]

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And the next question will come from Kirk Materne with Evercore ISI.

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Stewart Kirk Materne, Evercore ISI Institutional Equities, Research Division - Senior MD [6]

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Congrats on the quarter. Maybe just a couple questions for Bill and Luka. I guess we just saw you all in February, and I was curious just around your higher conviction around margins. Maybe what's changed since then? Because you guys are obviously much more adamant around this. I think some of the things that you're targeting, you sort of knew about, you knew your moving off Oracle. I was -- So I'm just kind of curious, what's happened on that front to give you even more conviction around that margin guide?

And then secondly, maybe for Bill, just on Qualtrics, can you just talk about how that's going in terms of pull through in both directions? Obviously, there's a lot of opportunity there. I think the feedback's really positive in terms of what Qualtrics brings to you all. But could you just give us a little bit more color on what you're seeing now that you have them in-house for a little bit longer?

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William R. McDermott, SAP SE - CEO & Member of Executive Board [7]

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Yes. Absolutely. So Kirk, thank you very much for the question. Let's first begin with the setup in SAP. It took us a decade. I've been -- I'm in my 10th year here as CEO. We reinvented the core of SAP's enterprise application software with HANA, the true in-memory database platform for the 21st century. We revamped the ERP system with S/4HANA, now the digital nucleus to every well-run business in 25 industries and 193 countries around the world. That was really hard work. Then we went on a bit of an M&A spree, and we bought the most pristine line of business, Business Network and now Experience Management cloud assets in the world.

We have come to the clear conclusion that our customers are getting so much innovation from SAP. They're getting it so fast that they're basically saying, "I'm good with the amount of innovation you've given me, just give me integrated solutions and let's wring more and more value out of the business solution you guys have created for us." So they are ready now to harvest the value from those systems.

Similarly, at our Capital Markets Day, we surveyed you, our dear shareholders, and 6 out of 10 of you said on the Qualtrics survey, I want to see SAP expand their operating margins. We love the revenue story, nobody grows like SAP, but it's time to pull some of the margin out of this amazing franchise now. As we look at our business, our cloud gross margins are improving even faster than we thought they would. The convergence to HANA and this unified cloud infrastructure is happening even faster. So we owed you an update and today we upped our operating income guidance for the year. We thought at the same time we're doing that, let's just tell you what we're seeing. Like this is a runaway margin train now and it's coming at us really fast. So we saw 1 point on average per year as the very disciplined and logical conclusion of the operational excellence committee we have going on in the company.

We just got done with a Supervisory Board meeting and an Executive Board offsite where we spent a weekend together, and we've already completed this plan and we're in execution mode. And we said, "Wouldn't it be nice if you did a Special Capital Markets Day and took our shareholders through the story year-by-year." So we know you wanted this from us. It's the perfect time or the magic moment for us to declare and give it to you. And therefore, our employees win, they're shareholders; you win, you're shareholders. And our customers are serious stakeholders in SAP too. So we're fired up, we're ready to go, we have a really good plan and we have a completely aligned board. After we're done with this call, we'll have a conference call with all of our employees, they're jazzed and energized too. So you got a winner on your hands with SAP, let's roll.

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Stewart Kirk Materne, Evercore ISI Institutional Equities, Research Division - Senior MD [8]

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Second question on the Qualtrics?

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

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Now on Qualtrics, this is even better than actually I thought it would be at this stage of the game. Let me give you an example. In this board off-site, we had Gary [Cassmeyer] demonstrate HANA and show predictive analytics, utilizing Leonardo in various enterprise applications scenarios. Among which you take business processes for example, like recruit to retire. So we can take the whole value chain now on the experience data of an employee. How did you feel about the recruiting experience and the onboarding experience? How's the training going? What do you think of the compensation plan logistics and bonus? All this experience data now comes into the HR system through HANA instantaneously. So if you're managing a person in the organization, you're not just looking at data, the system's telling you exactly what the big data is saying. And it's making predictions on the business decisions you as a leader should be taking. The same is true with your customers externally. The same is true on product feedback or even how your brand's resonating in all the channels of the open Internet market. So all of this is now being built into the SAP solutions will be prominently featured at SAPPHIRE. It's unbelievable.

Second thing that's great is our customers. I gave CVS as one example. They are like wow, I could take all my operating data out of a system like S/4HANA. If I'm looking at my systems of record, whether they're Human Capital Management, customer relationship management, manufacturing, I have all that O-Data, but I never knew why customers were receiving my products well, buying more, buying less. Why one country was doing this and another country was doing the other thing. All of this now can be coalesced in a digital boardroom that composes both the experience and the operational data. And it's really exciting to CEOs who are trying to run companies.

So we're off to a really fast start. Qualtrics is very happy. The management team is totally stable. Our team is working great together. We have Jennifer Morgan here, I'm sure she could give you a few colorful remarks. They like Jennifer very much. And what I really like about Jen is her connection to Christian Klein and Juergen Müller. Because what they want to do is bring that integrated solution perspective to the customer. There's no debates internally. We are one integrated solution machine. And nobody's talking about their turf. We're all talking about how do we give the customer what they want and make SAP the best-run SAP. So that's what I mean about the board that we have now. Jen, you want to give a little color on Qualtrics?

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Jennifer B. Morgan, SAP SE - President of Cloud Business Group & Member of Executive Board [10]

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Yes. I mean we're already incorporating this into our own business. So for us, when we finish out Q1, we -- we're constantly talking to our field. So we understand what went well, what didn't well. And we can already incorporate that real time in the business as we move into Q2. We already have a pulse on the sentiment. We know where we need certain investments. We know where we need certain support, which regions. So it's been great. So we're living that every day.

And I think the key thing, as Bill said, is every company right there has tons of survey data, but our customers are looking for a platform. And what we're able to do is take the experience we have in industries, the experience in the business processes, overlay that platform across those processes and really see where experience becomes a leading indicator to drive a different outcome and talk about where does that show up on the top line? Where does it show up in your SG&A improvements, et cetera? So we're turning this from talking about surveys to talking about a platform that drives results on the income statement. So we're excited about it. It fits real nicely with our portfolio.

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William R. McDermott, SAP SE - CEO & Member of Executive Board [11]

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And one of the final remarks I would make, it now changes the whole context of the CRM conversation, right? Because CRM moves into a category, which is an important category. It's a system of record, just like HCM is a system of record, just like ERP is a system of record. But when you add the Experience Management context to the customer relationship, now you're talking about a whole new system of innovation. And with HANA, you're talking about predictive analytics that's helping decision makers make decisions. So we have fundamentally now moved the cheese. The CRM game is different, but the best part about this, the experience economy is a massive market. But this is complementing our core. This is making the intelligent enterprise more relevant than ever. So it's really good for a new category, but what we're seeing is it's really amplifying the power of the SAP core, or the Intelligent Enterprise vision we've been on for several years now.

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Operator [12]

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Next question will come from John King with Bank of America.

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John Peter King, BofA Merrill Lynch, Research Division - Research Analyst [13]

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First one was on some of the restructuring that's been done and some of the people that have left the business. I noticed quite a few -- there's been a few who can still -- ABAP developers and leaders in the R&D department that have departed. I wonder kind of what that means basically for that code base and what that means for customers. You've obviously got a big installed base of ABAP code. How committed are you to that? And essentially what's the future for that? What do these departures mean? That's the first question. I've got a follow-up.

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Christian Klein, SAP SE - COO, Head of SAP S/4HANA & Member of Executive Board [14]

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Yes. Okay. Let me answer this question, Christian Klein here. So first of all, when you look at the restructuring we have done in R&D, it's not all about having developers leave SAP. What we did is, first of all, to increase the productivity of our development workforce. So we took several measures. And that included, for example, we looked into the ratios of our engineers versus product managers. And we increased actually the ratio to get to a higher ratio of developers in the future.

Second, what we did, we looked into the productivity of our development workforce with regard to the locations we are having all over the world. So we are now also reducing the number of locations we are having to develop on one product, so this also will increase the effectiveness. So this has nothing to do that we are now downsizing our development workforce on ABAP or on any other programming languages. This was just about increasing the effectiveness of our development workforce to shape faster innovations in the future. And you had a second question...

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William R. McDermott, SAP SE - CEO & Member of Executive Board [15]

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And I just want to build on this, John. I want to give you a little feel for this. There's very important information that you all need to have. SAP has great ABAP developers. We will continue to have amazing ABAP developers. They are little blogs that sometimes go out in the heat of a restructuring. There was one in particular that had to 2 ABAP developers featured prominently and that got around the Internet pretty good. Both of those ABAP developers are actually not only working here, they're in their dream job. So don't believe everything you read on the Internet, is one thing I will give you for sure.

The second thing I would say to our shareholders out there today, companies don't become great by the number of people that work in them. They become great by having the absolute best quality and the absolute best talent. And when I give you my word on -- and I know Luka and all of the Executive Board colleagues fully back this, is when we do bring people into the company now, they will be the most-skilled people in the world at what they do. People like data scientists; I was at our new facility in Newport Beach, California on Friday. If you think about UC Irvine and what we're doing to capture the hearts and minds of data scientists in Orange County, it's incredible. Come see our facility.

When we bring people into this company, they will code software, or they will be very on the front lines with the customer relationships. We don't need the middle layers, we already have enough of that and our HANA software can give us all the insight we need. So you're not going to see us bringing in middle management and thick layers in this company. People are going to be writing software and people are going to be backing customer relationships in the field. We're going to grow this company and we're going to expand the margins in this company and run a profitability machine.

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Operator [16]

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And the next question will come from Ross MacMillan with RBC Capital Markets.

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Ross Stuart MacMillan, RBC Capital Markets, LLC, Research Division - Co-Head of Software Sector [17]

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Maybe one for Bill and then one for Luka. Bill, just a nice positive surprise in the license results in Q1, but I think the cloud bookings organically were maybe a little bit more than we were expecting. I'd love just your comment and color on the seasonality of Q1 with regard to the organic cloud bookings. And then Luka, obviously a very strong cloud gross margin. Some onetime items, but a lot of sustainable pieces in there. Can you just help us think through how we should think about that sequential progression on the cloud gross margins into Q2 and into the back half of the year?

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William R. McDermott, SAP SE - CEO & Member of Executive Board [18]

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Ross, thank you first of all for the question, Ross. I have been saying now for many quarters that the core license business for SAP is rock solid. And while you could have a scenario, because we're not going to give away our software or price it inappropriately into the market. So with that in mind, you understand how quarterly upfront software sales go. If somebody at the end of a quarter doesn't want to pay the full value for our software, we'll pick it up the next quarter at the fair market value of that software. So that can always give you a little bit lumpiness, but the pipeline for the core software is outstanding. And obviously, it grew on a year-over-year basis in Q1. And what's fascinating about our core, you know the maintenance base of SAP is Fort Knox. It's near 100% loyalty. And now you even have growth in the license sales of SAP in Q1 and there's no reason to believe we can't maintain that steady state in the core license business of SAP.

Couple that now with the next point of your question, which is the organic cloud bookings growth of the company. And as I stated today, the line of business cloud, the Business Network cloud -- and don't forget, keep this in mind: when you look at our organic cloud bookings numbers, you are not seeing the new Business Network cloud revenues that do not show up in bookings. You're just seeing the bookings on the SaaS model. We have new models now that are kicking in on the network itself and that network effect is delivering a nice chunk of growth. So I'm not surprised, I'm actually where I thought we would be. I think the company right now is clicking on all cylinders.

And I believe as the year progresses, the big story that's going to invigorate not just the cloud, but also the core is Qualtrics. Because this is a smoking hot category, and they are by far the de facto standard. So with all that firepower count on solid growth in the quarter, count on continued strong cloud bookings in the line of business, the network and, of course, Experience Management. And overall, count on the operating margin and the profitability expansion we talked about today. This is that magic moment you all have been waiting for.

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Luka Mucic, SAP SE - CFO & Member of Executive Board [19]

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Yes. And perhaps to answer your question on the progression of the different cloud gross margins. Of course, there are different drivers at play. First of all, the most predictable progression that we have had on last few years was on the Business Network side. These are all scale assets that are progressing very nicely towards their 2020 targets and that are calling already for an above 80% gross margin. Here, we will continue to see a steady progress but with a small positive bump starting as of Q3, when we have finalized the migration of Ariba onto HANA. That is absolutely safe to be concluded now in time for the respective third-party maintenance contract to run its course in Q2 and then will help us in the second half year. So by the end of 2019, we should definitely see this at around 80% already.

Then you have the HANA Enterprise Cloud Infrastructure-as-a-Service business, which has seen a very, very nice uptick. Now a smaller portion of that is a one-timer indeed, a release of accruals for partner credits. But that's a single-digit million amount, the rest is actually sustainable. We have a 2020 target for HANA Enterprise Cloud of between 30% to 35%. Very important here is that we're seeing our ecosystem being able to take on more of the respective work. So we're working in a very nice partnership model with the hyperscalers and we are focused in HANA Enterprise Cloud on the right high-margin opportunities. So while I don't expect, given the one-timer that we had in Q1, that the 32% that we have seen now is already in 2019, the norm. We will definitely make significant double-digit progress from 2018 into 2019 and that will be now pretty balanced and stable for the remainder of the year. And finally, in software-as-a-service and platform-as-a-service, it will only get better from now.

So you will see an acceleration of cloud gross margin improvements for 2 factors. First of all, the weight of Qualtrics versus superior growth rates and a very high gross margins of round about 87% that they are having in the cloud will take more of an overweight role as a part of the whole SaaS/PaaS portfolio; and then secondly, with Q2 you will see in our applications technology and services segment, in the ATS segment, the significant positive impact of the off-Oracle migration for SuccessFactors. So those steps in combination will drive us significantly forward. So you can see and expect a continued stable progress and increase of the cloud gross margins as we march through the year. In previous years, Q1 was always among the strongest quarters. I believe in 2019, there will be further increases as we progress through the year due to those factors.

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William R. McDermott, SAP SE - CEO & Member of Executive Board [20]

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And I just want to add one thing to what Luka's saying because you all have a right to know this. A couple of years I had the privilege to appoint 2 great leaders to the Executive Board on behalf of the Supervisory Board and one was Jennifer Morgan, who you heard from today, the other is Adaire Fox-Martin. And we haven't really talked about the go-to-market and the cost of sale coming down as a ratio. But I firmly believe that it will. And I also believe that the synergy and the trust that Jen and Adaire had as co-Presidents of GCO will now play out on the bigger stage, with Jen running all of the cloud, network and Experience Management businesses and Adaire running the Salesforce. And together, they will come up with new coverage strategies that cover more turf at a lower cost of sale and a lower percentage of sale and marketing in the revenue mix of SAP. So I have both Adaire and Jenna on the line so if you guys want any questions directed at them today, I'm sure they'd be happy to talk to you.

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Operator [21]

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

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Stefan Julien Henri Slowinski, Exane BNP Paribas, Research Division - Research Analyst [22]

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Just -- I guess a bit of a follow-up on what you're just discussing which is the acceleration of public cloud adoption for S/4HANA. Do you expect that to reach a tipping point this year or next year? You mentioned, Rob, moving over to GCP, are you seeing those large cloud partners increasingly helping in the sales process as well? And then what does that mean for your own HANA Enterprise Cloud business? You mentioned margins improving, but would you be kind of deemphasizing that over time?

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Jennifer B. Morgan, SAP SE - President of Cloud Business Group & Member of Executive Board [23]

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This is Jennifer, I'll take that. So one of the things we worked through really hard on over the last 9 to 12 months is defining the reference architecture for us for -- on the hyperscalers by industry. So we worked very closely with all of them, so that we can be much more prescriptive with the customers and we'll talk more about this at SAPPHIRE on. What is the reference architecture for the move to S4. What are the set cloud properties that will help you make that move and help you with orchestration, integration and extension of an SAP system? And that will do 2 things, it will drive the S/4 moves in that revenue stream. It's also going to drive further cloud revenue for us as well in the form of our cloud platform. So that's a win-win. It's a win-win for our customers who've asked us to come together and help them with that. How do we do this? And how do we do it most efficiently? And so SAP is really certified that market approved journey for that move. It's a win-win for the HyperScalers and most importantly it's a win-win for the customers.

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Operator [24]

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We have the next question from Alex Tout with Deutsche Bank.

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Alexander William Tout, Deutsche Bank AG, Research Division - Research Analyst [25]

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Just zooming in on the sales and marketing line. I saw that, that sell quite nicely year-over-year as a percentage of revenue in the first quarter and that is despite IFRS 15 now acting as a headwind rather than the tailwind as it was last year. Are you expecting this sort of meaningful improvement for the year overall? Was there anything kind of specific that drove an exceptionally strong performance there? Or is that some specific moves that you've made, for example, around double and triple comping this is kind of paying off?

And just as a small follow-up. On the -- I saw there was quite a big finance income inflow in the quarter offsetting the higher interest charge. Is that some kind of one-off? Or is that something sustainable in there that we should bear in mind on the EPS side for the rest of the year?

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

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Yes. Alex, I'll be happy to answer those. Very good questions. First, quickly on the finance income. The main positive factor contributing here was again a stellar result from our Sapphire Ventures, venture capital fund. They again had value accretion across their portfolio of more than EUR 80 million just in one quarter. So they are definitely a value generation machine for SAP now. We couldn't be proud of what we do with the folks from Sapphire Ventures, and that's the main reason. And so of course as everywhere in venture capital there can be ups and downs. But the team has really proven that they can drive outsized returns and I've every trust and confidence in them continuing to do this in the quarters and years to come.

And actually, quickly on the sales and marketing ratio and perhaps Adaire can expend on this. But I think it's really a function of very nice increases in sales efficiency. We have a record sales productivity across the company in 2019. We have worked on simplifying the motions that we have been talking about this already last year. We do think the number of lines of business and corresponding sales specs to make sure that we can run a more holistic and simple go-to-market approach. And that is paying off. You rightfully know that this is happening against the headwind from IFRS 15 from the amortization of the sales commissions, but I'm very confident that Adaire and her team as well as working in close lockstep with Jen and CPG we'll be able to continue to drive this trend. Adaire, anything to add?

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Adaire Rita Fox-Martin, SAP SE - President of Global Customer Operations & Member of Executive Board [27]

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Yes. Thank you very much, Luka. I mean, certainly we're seeing momentum and continue off the back of the very strong Q4 into our Q1. And the customer's sentiment have been exceptionally positive. At the moment myself and 2 of my Board colleagues from Development, Christine and Juergen, are with our largest 15 customers globally at our executive advisory board. And it's very clear to see that with these customers, the SAP strategy is resonating regardless of the industry or the location. And I would also say that we've had a very strong focus on segmentation to maximize our coverage, a very strong focus on pipeline. And a very strong focus on net name acquisition, of all of which contributed to the momentum that we're seeing in the business.

And of course, as we are in Q2 now, we will look forward to SAPPHIRE creating a compelling event for us in May around which we can showcase to our customers the innovations of SAP and support the implementation of those innovations and on behalf of our customers with our large ecosystem and leverage our own services organization. So many different aspects of the sales and marketing element, many different elements of the strategy that we put in place came to fruition for us in Q1.

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Operator [28]

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We'll hear next 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 [29]

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Two for me as well. Just following up on the question to Jennifer about the sort of HyperScalers. Reading the operational excellence press release you've talked about working as a best-in-class provider across any type of cloud delivery model. Can you talk about the maybe the CapEx implications of this? Should we assume that in later years maybe CapEx comes down?

And then secondly, Luka, I think at the Capital Markets Day in February, you committed to the 80% gross margin target for the SaaS/PaaS business in 2023, is that still in place? And also in terms of headcount, should we assume that after this year or in 2019 and beyond the headcount growth is going to slow. Because I think you did say you'd exit the year with more than 100,000 people?

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Luka Mucic, SAP SE - CFO & Member of Executive Board [30]

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Yes. Perhaps, I can answer the questions, and then Jen by all means feel free to expand on this. So first of all, with our strategy, we definitely are seeing now the advent of capital expenditures coming down. You've seen that in Q1. We have actually made great progress, not only through our partnership model with the HyperScalers, but also we have moved to consolidated cloud infrastructure organization that is run in Christian's board area. And actually, the work there that is done by Gary [Latos] who is leading this area and to consolidate the procurement activities on hardware, negotiate, renegotiate the terms so that we can utilize the hardware in an economical sense for a longer period of time, it's still a very successful. So in combination all of those measures, I think, give us the opportunity to probably not only put to further increase of CapEx to a hold, but actually start to clawback slightly as you're starting to see it now in Q1.

So the second point on the SaaS/PaaS margins, absolutely, the target is intact. Actually in an ideal world, we might even be able to do slightly better than that quite frankly for SaaS/PaaS. And on the headcount side, let's be clear, what you've seen in Q1 is a headcount addition that was almost entirely due to the acquisition of Qualtrics. We have been extremely disciplined. As Bill has said, we're hiring the right talents, but we're not necessarily focused on just the quantity of people that we bring on board. So therefore, definitely you will see in 2019 that our organic hiring volume will be significantly smaller than what we have seen in 2018. We will likely past the 100,000 mark, but not by much quite frankly. And also in the future years to come you should certainly see hiring rates at SAP that will substantially trail the ones that you have seen in the years 2017 and 2018.

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Operator [31]

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And the final question will come from Walter Pritchard with Citi.

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Walter H Pritchard, Citigroup Inc, Research Division - MD and U.S. Software Analyst [32]

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Two questions, one for Luka and one for Jen -- Jennifer. On the new could bookings and on the new order entry, could you help us understand what impact Qualtrics and Callidus had on those metric? And then I'm curious on the Salesforce side, how much of the Salesforce at this point is selling Qualtrics and how does that roll out throughout this year and into next year?

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Luka Mucic, SAP SE - CFO & Member of Executive Board [33]

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Perhaps, Jen, you can take the question on the Salesforce. In terms of the new cloud bookings, so we don't disclose an exact contribution from Qualtrics. Suffice it to say that they were off to a good start and certainly we expect them to continue to contribute very nicely. And on the sales -- perhaps on the sales motion for Qualtrics, Jen?

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Jennifer B. Morgan, SAP SE - President of Cloud Business Group & Member of Executive Board [34]

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Yes. So we're off to a great start. I spent the last 2 weeks really digging in with each of the management teams across all the lines of business. And we have some incredible assets, which give us a lot of levers to pull and a lot of areas for growth. So for me it's real strong focus on the execution of where we're going to put our dollars, where we're going to grow. SAPPHIRE comes at a perfect time with Qualtrics everything else and we're excited for a great Q2 and second half with these 2 being real strong growth drivers for CPG.

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Stefan Gruber, SAP SE - Head of IR [35]

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Very good. Thank you very much. This concludes the SAP Q1 2019 earnings call. And we look forward to seeing you at SAPPHIRE in Orlando. Thank you very much.

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William R. McDermott, SAP SE - CEO & Member of Executive Board [36]

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Thank you, everybody.

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Operator [37]

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Ladies and gentlemen, this does conclude your conference.