SAP SE (SAP) 2003 Q1 法說會逐字稿

Good day and welcome to SAP's 2003 first quarter preliminary results conference call.

Today's call is being recorded.

This presentation will be hosted by Hasso Plattner, Henning Kagerman, Werner Brandt, and Stefan Gruber.

I would now like to turn the call over to Mr. Stefan Gruber.

Please go ahead sir.

Yes, good morning or good afternoon.

This is Stefan Gruber, Head of Investor Relations.

Thank you for joining us today to discuss SAP's first quarter 2003 results.

With me on the call are Hasso Plattner, Co-Founder, Co-Chairman, and CEO;

Henning Kagerman, Co-Chairman and CEO;

Werner Brandt, CFO; and Leo Apotheker, President, Global Field Operations, the Member of the Executive Board.

Before we begin the call, I will make a few remarks about forward-looking statements.

Werner will then discuss the financial results for the quarter, Henning will provide some details about the market, our product strategy and discuss our regional results, and Hasso will provide some closing remarks.

Following these prepared remarks, we will open the call for questions.

Please note that any statements made to you in this call that are not historical facts are forward-looking statements as defined in the US Private Securities Litigation Reform Act of 1995.

Words such as believe, estimate, intend, may, will, expect, and project and similar expressions as they relate to the company are intended to identify such forward-looking statements.

The company undertakes no obligation to publicly update or revise any forward-looking statements.

All forward-looking statements are subjected to various risks and uncertainties that could cause actual results to differ materially from expectations.

The factors that could affect the company's future financial results are discussed more fully in the company's filings with the US Securities and Exchange Commission, including the company's Annual Report on Form 20-F for 2002 filed with the SEC.

Participants are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates.

Now, I will turn the call over to Werner.

Thank you Stefan.

Hello everyone and thank you for joining us today.

SAP makes good progress in the first quarter of 2003 despite the tough selling environment caused by difficult economy and uncertainties in the global political arena.

We are in a stronger strategic and financial position today than we were a year ago.

In the first quarter, we continued to make progress with our initiative to expand our margin demonstrating increased efficiencies of our organization.

Operating income for the first quarter of 2003 was 298m euro, up 60%.

Operating income, before stock-based compensation and acquisition-related charges was 304m euro, which represented an increase of 28% compared to the first quarter of 2002.

Operating margins for the first quarter before stock-based compensation and acquisition-related charges was 20% compared to 14% for last year's first quarter, a gain of 6 percentage points.

This improvement in the operating margin was a result of our continued focus on improving operational efficiency.

We continued to place tighter control on cost associated with sales and marketing and general and administrative expenses.

Income before taxes for the first quarter was 311m euro compared with 127m euro for the comparable period last year.

This is an increase of 145%.

Earnings per share for the first quarter was 0.60 euro, which was an increase of 186% from the 0.21 euro reported for the first quarter of 2002.

Excluding stock-based compensation, acquisition-related charges and impairment-related charges earnings per share for the first quarter was 0.64 euro compared with 0.35 euro for the first quarter of last year.

This represents an increase of 82%.

A reconciliation of reported net earnings per share to pro forma earnings per share can be found in this financial section of today's first quarter results press release.

Total revenue for the first quarter were 1.5b euros compared to 1.7b euros reported for the same quarter last year.

However, on a constant currency basis, total revenues were up 1% year-over-year.

Looking at revenue results on a constant-currency basis, there was a better indication of our performance since this really shows our volume growth.

License revenue for the first quarter was 352m euros compared to 402m euros for the first quarter of 2002.

However, on a constant currency basis license revenue were down only 4% year-over-year, which is much better than the results of our competitor, who unlike the SAP actually benefits from a strong euro.

Maintenance revenues were 608m euros and consulting revenues were 476m euros for the first quarter of 2003.

Maintenance revenues were little lower than expected.

The main reason for this as follows: Number 1: There is a currency fix every quarter and the first quarter of 2003 that is not different.

Due to the strong euro, this currency effect lowered reported maintenance revenues by approximately 50m euros.

Number 2: For large portion of our customers, the invoice maintenance once a year in advance.

Based on the outlook of collectibility, we recognize [Inaudible] loans for those customers from whom we believe the collection is at risk.

Once collectibility is ensured, we recognize revenue for those customers.

In light of the current weak economy, we set up respective deferral at the higher level than last year.

Historically, the portion of the deferral, which would actually be lost is relatively low.

That's why excluding currency pick, we believe maintenance revenues will increase going forward.

Consultant fees were also a bit lower than expected.

The main reasons are as follows: Number 1: There was a currency effect, due to the strong euro; there is a negative impact on consulting revenues.

Number 2: We had less third party consulting arrangements, which resulted in lower revenue, and Number 3: Utilization is seasonally low in the first quarter as a result of some fall off from the high utilization rate in the fourth quarter, which is when many customers don't like the best-of-best.

Let's take a look now at our performance on a regional basis.

The federal political environment and persisting economy pressure negatively impacted sales in EMEA where revenues were up 854m euros in the first quarter, which is down 3% on the constant currency basis from the first quarter of last year.

In Germany, first quarter sales were 363m, which is down 3% from last year.

The restructuring of the sales force and a strength in sales organization in the United States has already shown positive results.

Total revenues in the Americas region for the first quarter were 486m euros, which represented a 1% increase from last year on a constant currency basis.

Asia-Pacific delivered outstanding results with revenues growing 20% year-over-year on a constant currency basis.

Our performance in Japan was particularly strong as we continued to see considerable interest from companies for our EFP solution.

On the constant currency basis, sales in Japan were up 37% higher than last year.

Henning will talk of more about this region than many places during this call.

Our cash flow from continuing operations for the first quarter was 793m euros.

Capital expenditure was 37m euros, leaving free cash flow of the 756m euros.

Part of that cash flow was used to buy back shares during the first quarter.

In the first quarter, we purchased 71m euros of stock.

As set forth in a proposal scheduled for the annual general shareholders meeting in May, the company is seeking approval to continue its share buy back program approved at last year's annual general meeting.

As in the past the company will conduct all of its share repurchase in accordance with applicable laws and regulations especially in a manner that should not materially impact the share price as stated under German law.

At the end of the first quarter of 2003, [SAP’s] stock stood at 4.4m shares.

While we are still looking to increase efficiency and to make SAP even more streamline, we also remain committed to investment in ANDY the backbone of our company.

ANDY spending this first quarter of 14% of total pay, which is 1 percentage point up on the year, on the year comparison.

At the end of the first quarter, headcount was down by 143 employees, compared to the fourth quarter of 2002.

This deduction was mainly the result of attrition and the reduction of some redundancy.

The total number of full time equivalent at the end of the first quarter was 28,654.

We continued to have a restrictive hiring policy in place, meaning that we will look to higher employees, only specific area.

Q1 has been a good quarter particularly against this current economic and political backdrop. 2002 maybe a tough year, as it may also be for all companies in all sectors across the globe.

However, we are executing on our strategy and we are well positioned for the future.

I will now turn the call over to Henning, who will provide some more color on the SAP's operational and strategic development during the first quarter.

Our first quarter results demonstrated our success in executing our strategy, of gaining markets share, of improving productivity and getting ready for the next market upturn.

Our global market share climbed to 54% at the end of the first quarter of 2003, compared to 51% at the end of the fourth quarter of 2002.

We measure our market share based on license revenues against our next five largest competitors which were PeopleSoft, Oracle, Siebel, i2 and [Inaudible] .

If we calculated on a rolling four quarter basis, to remove the fluctuations of seasonality.

Let us look at things regionally.

I am very pleased with the numbers we are reported from the US.

As you all know no other market is as tough to sell software over the past few years than the US.

Last year, we reorganized our US sales force and realigned it to be more in line with the customer needs and to improve more internal efficiency.

First quarter license revenues in the US were $76m, which represents 24% growth on the local currency basis.

We also saw a strong increase in contribution and in customer satisfaction.

We continued to gain market share in US, and we remain the number one business software application vendor in this market.

Based on our calculations, an estimate of our US market share compared to the next five largest competitors was 29% at the end of the first quarter of 2003, compared to 26% at the end of the fourth quarter of 2002. [Inaudible] in the first quarter is in the US, where these companies are including Computer Science Corporation, Conaco-Phillips, and Hasbro.

Moving East, New York was very challenging and economic environment continued to deteriorate.

It's hard to predict when it will turn around, but we continue to focus on the bottom line with costs and head count [Inaudible] mainly under control.

While the number of contracts were slightly above the first quarter of 2002, companies chose to purchase in smaller increment with the option for increased deployment when the economy stabilized.

In the [Inaudible] license revenues where 205m euro representing a 22% increase on a constant currency basis. [Inaudible] deal with companies like [Inaudible].

License sales in Germany were 86m euro, which is down 13% from last year.

In the Asia-Pacific region, I am pleased with our result, especially in Japan.

Last year's first quarter was particularly tough for us [inaudible].

But we have turned this around and delivered strong operational performance.

License sales in the Asia-Pacific region were 59m euro, which represents an increase of 49% on a constant currency basis.

License sales in Japan were 153% higher at constant currency.

Sales in Asia include deals with Citipower, Shanghai Pudong Development Bank and Daewoo Ship Building.

While regional device was mixed application sales were very strong across the Globe.

Revenues for My SAP CRM were 74m euro accounting for 21% of our total license in revenue.

We clearly continued to take market share away from the CRM leader.

On a rolling four quarter basis, our CRM software revenues represented 86% of the number one CRM vendors' software revenues at the end of the first quarter of 2003 compared to 65% at the end of the fourth quarter of 2002.

Revenues for My SAP SCM were 83m euro and represented 24% of our license revenues.

Today, no one really competes with us in supply chain management.

Our core ERP sales for the quarter were 118m euro and continued to be a strong area for SAP.

Looking at order entries, 86% our new order entries were for My SAP Business Suite with 71% coming from the install base and 29% coming from new customers.

Only 15% of order entries were deals larger than EUR 5m.

Let me talk a moment to expand what Werner said about our convising revenue.

While convising revenues were lower, we have been successful in reducing sub-contracting expenses and improving productivity.

We continue to increase and broaden the skill level of our convisants and we now have more convisants with knowledge on new products like [Inaudible].

Convising continues to be an important part of our business, but I need to stress that we are primarily focusing on product revenues.

Our goal is not just to increase top line in convising but rather to be focused on profitability, customer satisfaction and quality issues in SAP and partner-led projects.

Again we have been successful in delivering in all these goals.

In times like these demand for traditional classroom training declines and we have started to address our infrastructure to offer more onsite training.

We will continue to restructure our training business and improve the profitability given to you.

About 30% of our installations are with companies with sales less than 200m euro.

This segment we defined as SMBs.

Our business in this segment is developing according to plan.

We launched our product SAP Business One to the US market, and we feel it was the American Express utilizing their established text and business services unit for smaller companies to promote our SMB operations.

We continue to invest into our product portfolio and made several announcements in the first quarter.

We announced SAP NetWeaver our technology platform to help our customers more efficiently integrate SAP and non-SAP applications [Inaudible] IT environment.

SAP NetWeaver is the application and integration platforms that allows SAP to implement the services base architecture that causes portfolio of solution.

It builds from the experience we gained from the introduced My SAP Technology and includes major new components such SAP Market Data Management.

A key component of the composite applications framework which enables us, our partners and customers to develop erons as well as new innovative business solutions that leverage our customers existing application landscapes because of [Inaudible] .

We also announced our New ERP products, EFP and My SAP.

We are already the market leader in EFP and My SAP, should help strengthen this position even more.

It combined towards best EFP functionality and best technology platform into a highly scaleable extended EFP solution.

In addition, it allows customers to add new solutions like Supply Chain Management and cost mobilization management at their own pace.

For many existing clients, we believe My SAP is a good first step in the [Inaudible] Business Suite.

Going further, SAP Solutions we will be increasingly delivered when appropriate in this form of package solutions, which target specific business issues, could use implementation with and accelerate return of investment.

I would now like to address our full year guidance.

The world economy remains difficult, the geopolitical environment is still unpredictable, and the business climate is extremely tough.

But SAP continues to gain market share, improve operational efficiency, and invest into innovative applications and technology.

Our customer satisfaction goes up quarter by quarter, our partners keep coming back, and we are able to attract [Inaudible] .

The company has not changed its guidance for 2003 and continues to expect its 2003 performer operating margin excluding stock based compensation [inaudible] acquisition related charges to increase by around 1% points compared to 2002.

Pro forma earnings per share for 2003 excluding stock-based compensation, acquisition-related charges, and impairment related charges, I expect it to be in the range of 3.05 euro per share to EUR 3.60%.

And with this I'd like to turn over to Hasso.

Thanks Henning.

Here there's not much to add, I think we are on a relatively good position with regards to our peers.

We have increased the completeness of our offering as Henning explained it with regards to technology, NetWeaver.

We have pretty complete 'E' Business applications suite, and we continue to be very strong in the ERP basis of enterprise applications.

We have improved our position to on one hand super-large, on the other hand, medium-to-large, and now small-to-medium company simultaneously with our suite of software.

We have made significant improvements with regards to total cost of ownership with My SAP All-in-One and we see the first changes in our software with regards to improved usability, we have major projects currently going on.

The first software, which came out with a completely new user interface was CRM last year, and we have a significant impact seen in the market and we will have probably the same impact on other applications like HR and other components of SAP to follow quickly, through our maintenance program.

With regards to my own position, as I have said in the call we had after the announcement, it's a good time to move on to a different position inside SAP, we have an excellent management team in place.

We have demonstrated in the recent 18 months that we cannot only run the company when times are good and revenues are constantly going up, we can also manage in a situation the company, in a situation where revenues are flat or even decreasing and that gives me the confidence that with our product portfolio in place and our management team in place, our infrastructure in place that as Henning said, we are ready for any kind of upturn, probably, when we re-write the history books of SAP.

That was a very important phase for SAP that we were able to reorganize, change our internal structures save cost.

As far as I'm personally concerned, next to the drop, as a Chairman of the company, I will concentrate on vision and future strategy as a working job and I think the contribution I can make here could have more impact when helping to improve marginally, probably, our quarterly results, that is a good opportunity and I completely trust our team here that they will succeed and fulfill Henning's guidance with regards to the full year.

So, I feel, as a significant shareholder of SAP, I feel very comfortable with our current position.

Thank you.

Thank you sir.

Today's question and answer session will be held electronically.

If you would like to signal to ask a question, please do so by pressing the star key, followed by the digit one on you touch-tone telephone.

Once again, that is star one to signal to ask a question.

If you find your question has been answered and would like to move yourself from the queue, you may do so by pressing star two or the pound key.

Once again that is star one to signal and star two or the pound key to remove yourself.

We'll go first to Ross MacMillian with Morgan Stanley.

Thank you.

You can hear me, okay?

Yeah.

Great.

So, I just had a quick question first up on the maintenance revenue.

I hear what Werner is saying about its provisions against potential questionable debts or questionable payment terms.

But, I am trying to reconcile that fact the, by looking at the cash flow, deferred income, it was down year-over-year, I think, 73m, the cash in was down 73m.

Some of that could be explained by currency, but are there any other impact that I should be looking at here on deferred income, perhaps, if you could talk about those?

Yeah, Ross the line was very bad, maybe we look at your question, after previous another question and we will try to get an answer in the meantime.

So, is that better now?

This is now, yeah, thank you.

Maybe a follow-up and just a quick, is a kind of technical question on the star.

Okay, move on.

We will go next to Christian Pegard with JP Morgan Fleming.

Mr. Pegard your line is open, please go ahead with your question.

Everyone please hold the line, you are not disconnected.

You are still connected to the conference call.

We do appreciate your patience, while we are assembling our next questioner.

We will go next to Peter Colman with SoundView.

Thank you very much.

Can you guys give some good information with regards to your -- the different products ERP supply chain and CRM?

I was wondering, if you could talk a little bit deeper with regards to what products within those sets you are seeing the most demands for?

That depends on the regions, on the country we are selling into and it's actually on the industry.

So, therefore, going into more detail, if you look through for example supply chain management, it's normally, is a complete suite, so people are looking for, as you know our APO, which was over [Inaudible] than on optimizer and trying to go for our next step after them.

They normally have implemented the supply chain execution before based on our suite.

In customer relationship management, it depends in some industries, it is more on the side of improving customer base and processes with net sale yielding functionality which we have just recently shipped a lot of customers are interested in the campaign.

Execution as our customers are looking, let's say, for improving the sales force etcetera and not to forget, we have a strong service offering there.

So, if I would say customer relationship management, it grows across the board.

In ERP, it is as always, the key focuses [on] business operations and financials.

Okay.

And if I could ask just on the cost side, you've obviously done a good job of controlling on the cost.

Can you talk a little bit about sort of what the biggest leverages have been there, I mean you haven't really had any meaningful headcount reductions.

So, where you are getting the most savings and how much do you think there still is to be able to ring out?

Yeah, I will take this.

Before I come to the cost side let me answer the question by Ross regarding deferred revenue on the BS.

Ross you are right that we have decreased here of roughly euro 90m.

This decrease is 100% result of the currency effect.

If you look to the US then the currency mix of this difference, 90m and if you add then the currency impact from Brazil another 10m will actually be increased on a constant currency basis.

So, there is nothing to worry about with regard to the first revenue.

Coming to the cost side, this is an interesting question.

Let me first address it from a quarter-over-quarter comparison and if you compare the first quarter of 2002, with the first quarter of 2003, then of course we reduced our third party expenses.

This is something we started middle of last year to replace our third party consultants we used internally with our own employees and this resulted in a strong decrease of third party expenses and on a quarter-over-quarter comparison of cost, also the difference in headcount plays a significant role and our present expenses went down dramatically, and all the other cost lines contributed to this decrease quarter-over-quarter.

If you compare it to the situation in the fourth quarter 2002, then it's again the third party expenses, personal expenses and marketing expenses, which in the fourth quarter are normally higher than in the first quarter.

So these are the reasons for the decrease in our cost, which is a result not of simply cost cutting but more really trying to improve the efficiency of the organization.

Going forward I think we want to continue with the discipline we have in place.

We mentioned several times in the call that we only want selectively higher and I think if you stick to this we have a good basis for the rest of the year.

Okay.

I will turn it over to someone else.

Thank you.

Thank you.

Next question please.

We'll go next to Christian Pecker with JP Morgan Fleming.

Hi.

One question and may be a quick follow up.

Just, do you hear me all right?

Yes, we can hear you.

Yeah.

Just in terms of the verticals and products by geography - I mean I assume that the CRM business was strong in Germany and that perhaps the core financials nature although somewhat weaker there.

Do you think that a lot of that trend is true or if there was any difference in the US, and do you see that trend reversing with stronger financials and NHR in the second half when you launch My SAP, ERP?

I think, we answered already last call that the strongest region is definitely the US.

The strongest region for supply chain managements is definitely Asia, and Europe is some where in the middle, more balanced because of their longer interest market.

So therefore if you look to Europe, CRM is more or less stable, ERP is slightly going down and supply chain going up.

I don't see a trend here to obstruct the quarter, and the overall trend is CRM largest US, SCM largest Asia, new looking balance.

If you look to the E-business piece so that quarters and E-Commerce, what we see is a significant improvement especially in the US, and every thing, which is now fixed into SAP NetWeaver.

So portal business is going up and especially business intelligence.

This makes a lot of sense, because if you look that the sales is mainly driven through CRMs and especially is a combination of CRM, business intelligence and portal makes a lot of sense.

If you look for supply chain management, it's more back-office stuff.

The portal is important visibility but only a few people are associated with it.

Thank you, next question please.

We'll go next to Cameron Steele with RBC Capital Markets.

Thanks very much, you guys have done a good job of really increasing our market share and sales and CRM over the last year.

Can you give comment on the production standards of those licenses, how about of your customers are going live and what your expectations are going forward?

If you look to the new product normally you have a percentage of life customers which is around let’s say between 20% and 30%.

If you look to a more mature product, you end up with something between 50% and 60% which is more[inaudible].

So, that gives you a rough feeling and so this lower number applies to supply issue management in this year-end and the higher number applies to the appeal.

Okay and just one quick follow-up.

I may have missed, but did you comment on the contribution of the Business One and All-in-One product lines to our licensed revenue in the quarter?

It's roughly the same we had in the last year, but as we said in the last call, we are focusing now primarily on new customers.....(audio break)... and what we are pleased is that especially the number of new customers in our SMD business went up roughly 25%.

Thank you, next question please.

We will go next to Kash Rangan with Wachovia Securities.

Hi, thank you very much.

Just a couple of clarifications.

Now you talked about in the press release that you are expecting some modest revenue growth for the year and given that Q1 was especially tough in Europe and overall revenues were down 8%, how should we look at the next few quarters, are you expecting some sort of a significant pick up in business that will offset this Q1 decline and still let the company emerge from 2003 with a modest revenue growth in your perspective?

As a follow up to that, do you need revenue growth to achieve your operating margin targets for the year or do you think you could get there even if we are in a depressed revenue growth environment?

To be precise we have said that our guidance and the guidance is only for profitability and our EPS is based on the assumption on the scenario of modest growth.

So we have not made an explicit guidance in terms of top line, but to answer your question, we are confident that if the year turns out to be difficult in the top line that we can still achieve our guidance.

Okay that's fair enough.

And on the sales and marketing side heading looks like the company had significant leverage there.

What contributed to the bottom line up side from sales and marketing?

And do you think that kind of cost structure is sustainable on a go forward basis?

Yeah.

I would roughly answer and then hand it over to Leo for some specific things.

Overall if you look to our cost structure I think we are very happy, because every line of business improved, especially; and you mentioned it is our sales and marketing.

We are and very happy with that.

And far as I see it, it is mainly because Leo was able to restructure very successfully in the US, but let me add, if you look at all other areas in lines of business you find the same tendency.

So the cost of products improved significantly, services nearly favored despite a really, really bad trading business.

And if you look to support, it has improved as well, and general and administrative but might be Leo can add a few words.

Just to give you a precise example where we can significantly improve quality efficiency and reduce cost.

We reorganized our demonstration systems and we built now a multi-tier demonstration kit between our product units, the industry business units and marketing.

This is now in the field and is widely accepted by our sales force.

So, we have a much better presentation of the SAP capable - product capabilities and the potential, in fact we can have developed products at the customer side.

So, this is more business oriented.

It's easier to understand for people.

And, we have reduced the number of physical demonstration systems from 300 to down to something between 10 and 20, and we will further reduce that.

So, we have a significant cost saving effect on one side and quality improvement on the other side.

And, these are the things we are changing in our company and we have found quite a few of those and can save cost and improve [quality] simultaneously without letting people go.

we did indeed manage to turn the US significantly around in this quarter.

Actually, the trend already started last quarter, and therefore we have a significant marginal contribution out of the US.

I do want to add that we have a similar phenomenon in Asia-Pacific, and, while we are struggling in a very tough environment in Europe, we managed to maintain our inherent profitability in our European operations as well.

So, all together I think we are looking at a sales environment that remains tough, but our execution capabilities increased. [Inaudible] adjusted numbers in the majority of the region.

I should add that sales and marketing, there are also marketed numbers as well.

And the fact that we are operating on a global marketing basis helps us significantly to achieve the synergies on the marketing cost side as well.

Thank you, next question please.

We go next to Richard Leggett with Goldman Sachs.

Hi guys.

Congratulations on a good solid quarter.

I was wondering if maybe you can comment a bit, two questions.

First, maybe just comment a little bit about the vertical market.

I know that the financial services and government and public sector were two key growth markets, maybe give us a sense of how low this market is shaping up for you as you look to the rest of this year.

Then I have a follow-up.

Yeah.

If we look to the verticals and you know we have to carefully look into one quarter.

Only, we could say is that financial services and public services are slightly down 1% points.

And the increase for the first quarter was mainly manufacturing industry, which is not a surprise if we look to our supply chain management numbers.

But this is nothing for the full year, so we expect for the full year every financial services to improve, because some major new products will be launched this year.

You know that our [Inaudible] and many companies are watching [Inaudible] expected at the end of the year.

More revenue here in the public sector, the environment is good, nevertheless deals in the public sector are always difficult to predict in the very long sales cycle.

Even if you introduce twice, you cannot go get, and therefore again here I would expect slightly better business over the year.

But I was also surprised that in the first quarter we had such a big increase in the manufacturing industry.

My follow-up question is just on the services business.

Just wondering if you can comment on the pricing environment, I’m trying to gauge how much of it is seasonal and how much of it is related to pricing pressure and how much of it is just the slower demand environment?

Now I suppose you know the demand is lower and therefore we have some [Inaudible] in the market, which leads to pricing pressure.

If we look to our business in SAP, we were lucky in the first quarter to keep our prices despite this pricing pressure, and we also see in the future that the volume is there so that our utilization will be high.

We will do our best to defend our ways, it will be tougher in the future.

So, therefore SAP's [Inaudible] really is necessary to lower prices, to also lower our unit trust of delivery so as not to affect [Inaudible].

Thank you.

Next question please.

We go next to Michael Briest with UBS Warburg.

Hello, thank you.

A couple questions, but may I firstly, on R/3 Enterprise, could you give us an update on how many customers have said received shipments of the products, and whether that had any impact on the core financials, even without [Inaudible], is that what [Inaudible] in the first quarter and secondly, if you could give us an update on the safe deal pipeline, whether that was behind the solid performance in Germany and [Inaudible] performance against the rest of your [Inaudible], on what proportion your business is coming from safe deal ?

Thanks.

I would answer the R/3 Enterprise.

We were very happy with the quality of our R/3 Enterprise shipment last year and also with the [Inaudible] from our clients base, that's up weight cost us very low and PCO [Inaudible] Enterprises is lower than 4.60, that was our [Inaudible].

And therefore, the board decided to go for general availability for IC Enterprise earlier to [Inaudible] shipped since January 1st, all our shipments are R/3 Enterprise.

So, therefore I think the number is not that important because [Inaudible] shipment now in EAP and might be Leo if you can comment on the safe deals and [Inaudible] .

I will just make the following comments.

We see a trend that continues over the years now for a number of quarters, not just in Germany, but on a worldwide basis, where the average deal size goes down.

We are fortunate enough to be able to compensate partially with [Inaudible] that's [Inaudible] more volume deals, which we obtained not necessarily with our large customers but also with our smaller customer in our local accounts.

As to the German situation, also there we see actually a reasonable volume in our business to and there is another good quarter to measure again because of the geopolitical and the economical situation and safe deals in this quarter slightly below the number of safe deals we had in the similar quarter last year.

Thank you, next question please.

We will go next to Brendan Barnicle with Pacific Crest Securities.

Hi.

Thank you.

Typically, you guys could seasonally in Q2 when you go Q1, Q2.

I know you have given no guidance on Q2, but you know given your comments on the macro environment, will that be muted or you think it should be severe typical seasonality there?

We've said in our guidance, beginning of the years that we expect normal seasonality so that's the answer we expect for Q2, a normal seasonality if you look through Q1, Q2 of last year.

Great thank you.

And are there, did you provide us any matrix on the number of yields over 1m and over 5m and I know you have mentioned 15% of the new deals were over 5m or at least the new pipelines over 5m and any more specifics?

Give us a few minutes.

We'll go to the next question and then we answer this.

Thanks.

Great.

Thanks very much.

Here we have the numbers.

I think in our mind, we segment in the way that we say, above 5m up to 20m in last quarter.

We had six deals of this size heading up to 45m Euros in revenue, which represents 15% as Henning mentioned of our total software revenue.

Great.

So, that was six deals that are 5m this 20m range.

Exactly.

Great.

Thank you.

Thank you.

Next question please.

We will go next Kevin Ashton with Deutsche Banc.

Good afternoon.

I have two questions.

One of the US, is there anything unusual in here in terms of deal size or anything that is unusual, if there is anything other than a regular quarter from a business that is not executing a lot better?

It's my question and then I will follow on if it is possible.

Well, I think what you see in the US is good execution.

We have a very good product offer in presence, world wide available.

But you see now happening in the US, it's that we are simply executing [Inaudible] into our objective.

I'll just give you an example, we have around all of the categories of the SMP also much higher number of deals about 10% more and that shows you that with our reorganization with restructuring that we did in US.

They have attracted the very good management team now in the US.

We are able to execute better than our competitors and therefore if you want from this perspective, it is hopefully a regular quarter that will continue to execute like this going forward.

And just to add, it's Hasso.

While what Henning mentioned before, I think it's important that the combination of NetWeaver Technology, portals included in that and CRM is a very attractive offering and that we, with our open service architecture we can, on top of that developed solutions which even include other software whether it's legacy software or other acquired software, or other software from other vendors.

That's a very attractive offering and I see that taking off in the US market first, probably.

Thanks very much.

One more question if I may.

Thanks to the issue of deferred revenues.

If I understood correctly then you said it is 90 plus - 90m positive from the dollar, another 10, was it from Brazil?

But, even if you add that, you are still in constant currencies flat in deferred revenues year-on-year when given that you sold over 2b of licenses, one would expect an increase.

Is there any comment you could make on that?

Yes, yes, I can.

I think, I mentioned already two facts in the call.

Number one, as we adjusted the currency outside and inside on the maintenance revenue as it has on the accrual side, number one.

Number two is that we really setup a [safe allowance], you could see on a higher level than we did in the first quarter last year for uncollectability of the receivables in this area.

Historically, we did this every year -- first quarter of every year, and over the past years we hadn't a huge amount to actually write off.

So, we are also quite confident that maybe the approach we took may not result in a huge write off and we can collect these receivables.

So, this is not about just allowing customers to differ their payments or reducing rates?

No, no.

Okay.

Thank you very much gentlemen.

Thank you.

Next question please.

We will go next to Bhavin Shah with Merrill Lynch.

Hi, hello.

Given that the markets were impacted in Q1 by the war and all the things that go with it, have you seen any impact on the early stage sideline -- pipelines for your product field that would be the first question.

If you look -- I think this is a little early that the pipeline is building up, it is a given because we work now, since January 1st.

So that was a good news that the pipeline is building up.

Is it more?

But you cannot.

Let's say now where the war is just over more or less and nobody knows exactly what the impact really is on the economic environment is, because we don't know what money has to flow in the future.

Expect a big impact already now on the pipeline.

So we will watch it on a monthly base or weekly base, but I can't see in the last days if you would say that.

Let us say a big piece, [Inaudible] .

If there is a tendency then the tendency will be the decisions will be made and not postponed, but this is what we have to monitor in the next quarter.

Okay.

Fair enough.

Last a housekeeping question, the number of deals in Q1, usually [Inaudible] .

1055.

Okay.

Thank you.

Next question please.

We will go next to Rich Sherman with Goldman Sachs.

Thanks.

I wonder if you could update us on the US operations, what have you done and what remains to be done there?

And just a quick follow up on the previous question.

Could you characterize at all, is it possible to discern how much of the difficult environment that we've seen in the industry in the first quarter is due to this general economic conditions, maybe some worsening there versus the war that might only temporary.

Is there any way to discern and - maybe you just saw business flip at the end of the quarter that might suggest that more war-related versus sort of gradually over the quarter, any thoughts on that?

Rick, let me try to answer the question.

In the US, what you see happening is, as you know, we started to restructure and reorganize US already in Q3 of last year and Q1 status is continuous work in progress.

I believe that from a organizational point of view we are basically free now, we have a good strong management team base with a lot of position happening few weeks ago and I think, we are now ready better than ever to execute our products that is in the market really well.

Henning mentioned earlier CRM, Hasso's point is well taken on the net and we are excited as well.

So, I think that we are in a competitive situation that helps us to win an increasing number of deals.

The point here is, in USA and everywhere else is to get people to make the decision and is to come to a size of deals that is a little bit higher than what we used to see in the past.

Actually, in US we are seeing deals picking up slightly from a side point of view, which is good news [Inaudible] point of view.

We did not have any major synergies at the end of this quarter into this quarter it has not happened.

But we are in US as well seeing some demands picking up where you could start to extrapolate it if nothing bad happens in the overall environment, more structural decisions will be made again in the couple of quarters and may be three quarters down the road.

And if US globally, the impact of the war in the coming year, I would say that it's a question especially in Europe.

I agree with Leo, in Asia, and America where I believe there is a highly chance that there is more to go.

In Europe, we have to see, you know that people in Europe have been more skeptical on the war and what's happening after.

So, it could be first if in Europe it takes a little longer until people make the decision.

Second, it's just always the judgment whether economy in Europe will pick up or not, especially in Germany if you look at the driving conditions, I think economy will be still weak, still it's a mixed message if you look around the globe.

So, for America and Asia, I would say that the impact of economy might be less important than I thought in the quarters to come.

In Europe, let's give us another quarter and see how economy evolves.

Thank you.

We have time for one more question.

We will take that question from Coleen Kaiser with Lehman Brothers.

Hi.

I just had a question around pricing.

In particularly against the competition because we have obviously been hearing a lot as some of your competitors become a bit more desperate in the market to sign some deals where pricing is coming down quite significantly.

So how do you protect yourself against that because obviously once the [Inaudible] is set for lower pricing it's difficult to get that higher pricing back?

This is a good question, Coleen.

Yes indeed we do see our competitors being very aggressive on the pricing side.

We actually managed to resist somehow to this aid by, I believe positioning our offer in a different space than our competitors.

While we have derived into a point of [Inaudible] and of course of ownership.

What you also see is that as price goes down, the last question becomes little bit less important because the actual money involved are not that big and if you can if you can then [Inaudible] expect into a [Inaudible] that helps to protect your first one.

Okay, great.

Thank you.

Gentlemen I would like to turn the conference back to you for any closing or additional comments you like to make.

Yeah.

This is Stefan Gruber.

Again thank you for joining us on this call today and we all look forward to seeing you at SAP Annual Meeting in June.

Thank you very much.