SAP SE (SAP) 2003 Q4 法說會逐字稿

Please stand by.

Welcome to SAP's 2003 Year-End Results Conference Call.

This call is being recorded.

Today's presentation will be hosted by Henning Kagermann, Werner Brandt and Leo Apotheker.

Please note this call is linked to a live presentation in Frankfurt.

Questions following the presentation will be taken by email only and should be addressed to investor@SAP.com.

Please stand by the presentation will begin shortly.

Hello everyone and welcome to SAP's Q4 and Full-Year Analyst Conference here in Frankfurt.

I would also like to welcome those who follow this event on the Internet.

In addition I would like to give you a brief overview of the agenda for today.

We have a comprehensive program.

First of all Werner Brandt, Chief Financial Officer of SAP will walk you through the numbers and the outlook.

He will also talk more specifically about the currency impact on our business in the past year.

Next we have Leo Apotheker, President of Global Field Operations and a member of the Executive Board, who will provide you with an update on the regional developments at SAP as well as for performance in the mid-market.

Finally, Henning Kagermann Co-Chairman and Chief Executive Officer of SAP will speak of SAP's performance versus our peer group and also how SAP prepares itself for the future growth opportunities.

At this time, I would also like to introduce my colleagues from the investor relation's team, Marty Cohen and [indiscernible] from the New York Investor Relations team, as well as [indiscernible] and [indiscernible] from the Investors Relations team in the Waldorf who will be available later on for questions.

As a quick reminder, the conference today is being web cast, so later on you will have to use the microphones so that everybody on the Internet can hear the dialogue.

For those on the web you cannot ask questions by phone, but if you have a question, send them to investor@sap.com.

We make sure we take into account some of the questions we get through the web.

Finally, the safe harbor statement for those listening on the phone.

Please note that except for certain information, matters discussed during today's conference may contain forward-looking statements, which are subject 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 most recent filings with the Securities and Exchange Commission.

With that, I would like to turn things over to Werner.

Thank you Stefan.

Actually for this one here, so I can [indiscernible] to the presentation while we wait.

First of all I want to give you a brief overview on the current impact on our full-year financial performance.

As you can see, all major currencies, which are important for SAP, weakened year-over-year.

You can see the US dollars against the euro beaten by 17%, Yen by 9%, British pound by 9% and the Canadian dollar by 6%.

What are the implications on our financial performance?

First of all, lets have a look to the license revenue and the total revenue growth here.

We have here - if you look to Q4 a decrease in license revenue by 3 percentage points.

If you look at it on a constant currency basis, then we have an increase of 3.5% for Q4.

If you look to total revenue, then you'll see a minus in Q4 of 3% and a plus in Q4 of 4%.

So if you add this up for all the quarters of 2003 you will find that the currency impact on license revenues is 7 percentage points and on total revenue 8 percentage points.

What does this mean for our financial performance?

If you look into total revenue proforma operating expenses and proforma operating income, that's the measurement for our operating business, then you can see if you start with the actions of 2002 there are two impacts.

One is the volume impact and the other one is a currency impact.

Now let's start with the volume impact on total revenue.

It is €190m more revenue, this means 3%.

But this also means that in constant currency our revenue for the full-year would be more than €7.6b.

If you look to this on a quarterly basis, then our Q4 revenue would be more than €990m, this is 3.5% more than we had in the Q4 2003, which was €958m, add 3.5% on top of it, you achieve more than €990m in software revenue in Q4.

That is very close to the amount of €1b, which was mentioned in one of the analyst papers.

If you look then to the currency impact for the full-year, it is €577m and this gives a €7.25b we had as actual total revenue for the full-year of 2003.

The same you do with the proforma operating expenses, you know that we exclude stock based compensation expenses and acquisition related charges.

You will see then on the proforma operating income that the currency impact on our operating income is €218m.

If you only see the increase in volume here, at constant currency our operating performance would be more than €2.1b.

Having said that, let's come to the figures for 2003.

As reported I do want to come back to the revenue line.

We have here the operating income increased significantly.

The margin increased by 3 percentage points to 25% and you can see that going down to earnings per share, our earnings per share increased dramatically although we all know that we had in 2002 a dramatic impact coming from the write down of minority interests, especially Commerce One, with €390m and other investments with €133m.

If you compare this on a actual to actual basis, we will see this on the next slide, then on the proforma earnings per share side, we increased by 24% from €3.80 to €3.84.

EBITDA increased year-over-year and the full-year depreciation amortization is €260m.

The proforma-operating margin is 27%, so a strong 4% increase compared to the full-year 2002.

Effective tax rate is 39%.

If you adjust this for specific items I will mention in a minute, then you come to the 37% I mentioned at the beginning of the year.

Income taxes in total for the year were €696m.

Why do we have this difference in tax rate of 2 percentage points?

There are two reasons.

The first one is that we have impact from former year [indiscernible] on a worldwide basis and we estimate this to be roughly €30m.

The second impact is a non-tax-deductible write-off we had [indiscernible].

So we have an extraordinary impact here on the tax expenses of €36m, if you deduct this from the income taxes then you will arrive automatically to a tax rate of 37%.

By the way, also for next year, we will shoot from this tax rate of 37%.

If you look to Q4, here we have total revenue by type of revenue.

We talked about the license revenue, let's move to maintenance revenue, with €673m.

I think it is a strong growth year-over-year, but also a strong growth if you look at it from a sequential point of view.

From Q3 2003 we increased it from €655m to €673m, that's exactly what it should be if you do the normal math.

On the service side, you can see that revenues are going down.

On the asset [target] side and the currency-adjusted side, we always make clear that a key driver for this business is profitability and not top line growth, so this is what we did in 2003.

You can see the impact here, but later you will see that we increased our profitability of the service business.

The composition of product versus service I think demonstrates that product revenue is key for us, not only in 2003, but also going forward.

Key figures for Q4, you can see total revenue.

We have talked about this, but when you see the operating expenses, if you look to the numbers you argue, you decreased your operating margin by 3 percentage points in Q4 from 34% to 31%.

If we have a closer look at this, you can see that in our operating expenses we have included stock based compensation, expenses and acquisition related charges solely in Q4 of €92m.

If you take this increase out it is €68m and add it to the operating income, you will see that you have an adjusted proforma margin for Q4 of 34%, so that is in line with the performance we had in Q4 2002.

Now, if you look to the operating income, as I mentioned, then you go to income before income taxes and net income, the earnings per share is €1.36 the same applies, as I said, for the full-year.

The key figures of EBITDA, depreciation and amortization for the quarter was €63m, income taxes for Q4 was €275m and what I said regarding the effective tax rate for the full-year fully applies to Q4.

If you look to the proforma EPS the impact here from stock based compensations consists of €0.18 and acquisition related charges is [indiscernible] so that is the bridging from this €1.36 to €1.55.

Let's have a closer look to the gross margin and the cost analysis on a proforma basis.

Let's start with the product margin and then talk about the service margins.

The product margin, as you can see decreased by 2 percentage points.

The reason here is that we had in Q4 2003 some one-time impacts resulting from the strong support of ramp-up of new products.

This is not something, which we will see over the next quarter, it will be something, which was a one-time hedge we took in Q4 2003.

On the service side we improved our profitability on our margins by increasing the utilization of our own consultants and by using them more rather than using third party consultants and, of course cost control [indiscernible] on the service line.

If you look to the proforma cost for the end of this year, one thing is very obvious, the expenses in percentage of sales increased by 2 percentage points.

That's a strong increase.

The reason simply being that we added roughly 818 resources to R&D workforce and this is an increase of 11%.

This is the reason for this increase in R&D spending if you compare quarter-over-quarter.

The sales and marketing is relatively flat to Q4 2002, but it is important to realize that our marketing expenses increased compared to the sales expenses in 2003 compared to 2002 and this actually demonstrated the investment for the future for next year and also demonstrates that the sales efficiency went up and here congratulations to Leo to his team.

By the way, if you take sales and marketing expenses for the full-year, then the decrease in percentage to sales from 22 to 24, we really became much more efficient than in 2002.

You will see [indiscernible] investment and other expenses.

I think there is nothing there worth mentioning.

We made progress on the G&A side and this is also a target for us going forward.

Now total operating costs, in Q4 it was the first time during 2003 that we increased operating expenses.

The reasons being, 1) the full impact of continued hiring during the year of 813 FTEs in total, that's the net amount here.

We invested in marketing to be prepared for 2004 and we had higher travel expenses due to increased business activities compared to the previous quarters.

You can also see the currency impact here, which is as I mentioned in the beginning, significant also on the cost side.

Let's have a look at the balance sheet.

I think there is nothing really worth mentioning.

We increased our liquid assets dramatically now to €2.1b.

We improved our [indiscernible] talk about the cash flow in a minute.

On the shareholder equity and liability side, there is one point I wanted to address and this relates to the decrease in deferred income from €362m to €305m.

One analyst this morning wrote in a note that this is bad for SAP, let me try again to demonstrate that this is not bad for SAP, that it is good for SAP what is going on here, so that we all understand what it really means.

If you look to deferred income the majority is related to periodic maintenance income and this decreased from €144m, and I really compare now the end of 2002 to the end of 2003, from €144m to €124m.

This big decrease is solely related to currency.

Then we have a next block being non-standard maintenance.

This decreased from €90m to €67m and believe it or not, that's good for us, because this shows that we grant in fewer cases non-standard maintenance to our customers and that's good for our business.

Finally, we have in the line of other, included also the totals for the payment terms over 12-months.

If this amount is reduced quarter-over-quarter, year-over-year then it demonstrates that we have less customer instances where we have cases with payment terms above 12-months, so that's also good for us.

So honestly I do not understand this argument.

Coming back to the asset side, there was also a question raised in one of the reports of why we have the significant increase in inventories and other assets.

This is the balance sheet position we have here under inventories and accounts receivable.

It increased from €275m to €570m.

That's really a big increase, but what's behind it?

I think at the end of the day it is in other assets and there's nothing else in the mark-to-market valuation of all of our hedging contracts we did and the hedging of our Star program.

If you hedge on a lower level and then you have to have this mark-to-market valuation, if currency goes up or the option price goes up, then you have this impact, but you do not find this of course in the P&L as additional income, you have to show it mainly in the equity, so you don't have a P&L impact on this one.

I hope that this clarifies the two concerned risk or obvious concerned risks.

If you look to the balance sheet and the cash flow statement.

Cash flow for the year [indiscernible] went down again by 11% year-over-year.

We made good progress in Q4.

If you look to the equity ratio of 59% that is also a good situation to be in.

With regard to cash flow, you can see the operating cash flow is €1.5b with capital expenditure of €218m gives us the free cash flow of approximately €1.3m.

This is 8% less than in 2002.

We have two reasons for this, we analyzed it in detail.

One reason is that we have lower deductions in working capital compared to 2002.

This is mainly driven by a decrease in liabilities.

What has happened in the first quarter, we paid a tax bill of €227m, which related to 2001.

So, what we do, we really at the last day possible and that's exactly what happened.

Of course if you decrease your liabilities, what happens?

Your working capital increases.

The second impact is currency.

The currency impact on our total cash flow for the year was €69m, so that's the reason for this decrease of 8%.

If you look to the free cash flow, what we did in 2003, paying a dividend.

What we gave to our shareholders is the dividend of €186m and a share buy back of €88m and we bought back roughly 450,000 shares with the average price of €84.

Let's come to the headcount.

If you look to this slide you will see an increase net of 813 full-time equivalent and if you look to the locations where we employed, of course the majority is in Germany, roughly 450.

But we also increased our headcount in India by 290, in China by roughly 100 and in Ireland by 200.

So we have a here, quite a mix between our home country and low cost locations.

If we come finally to the outlook.

The key focus in 2003 is license revenue growth, license revenue growth and license revenue growth.

Our target here is to increase it by around 10%.

With the consequence of the proforma operating margin to increase by 1 percentage point and our proforma EPS in the range of €4.20 to €4.30.

The assumptions for this guidance are first of all an average exchange rate dollar to euro of 1.25.

Increased investments, especially in sales and marketing and R&D, this will happen in 2004 and we have prepared the ground already in 2003.

We will operate with a normalized tax rate of 37% and expect an economic rebound in the second half of 2004.

What this guidance means is the assumed constant currency.

If we assume constant currency in 2004 compared to 2003 to really show our volume growth, then you will see that license revenue will increase by around 15%, that's the real volume increase we have.

The margin will increase by 1.5 percentage points and the proforma EPS will be in the range of €4.30 and €4.40.

Three final comments to the guidance and then I am done.

First of all it is a full-year guidance, not quarter-for-quarter, it is a full-year guidance.

Secondly, we have the same seasonality for the full-year as we had in previous years.

So the same seasonality and thirdly, time to market and [accelerate] growth on the top line is more important than accelerating profitability, that's key for 2004.

Let's all I have and I would like to hand over now to Leo.

Good afternoon ladies and gentlemen, I would like to pick up where Werner left it and share with you some data on our performance in the regions and then maybe give you a little bit of color into what actually happened in 2003.

Let me start with some numbers, with your permission, I will only look at the growth rate in constant currency, because these are the only ones that are really reflecting our actual performance.

Let me start with EMEA, we sold in EMEA in licenses about €1.245m in licenses.

That is a decrease of 9% at constant currency.

I will come back to this in a minute and explain why this happened.

On the APA side we did about €275m of licenses, that's a growth in constant currency of 11%.

In the Americas region we did €627m, that's is a growth again in constant currencies of about 19%.

So, altogether €2.147b, that is a growth of 1% in constant currency.

If you take a little bit of a closer look at that, that 1% is already a very good performance, in particular when you compare it to the peer group.

The peer performance is expected by the analyst community that includes you, in the range that is kind of zooming in at minus 19%.

Henning will explain a little bit later on how we performed towards the market, but this is just the first indication of how well we performed against our competition.

In fact, business started to pick up a little bit better and in a more significant way in the second half of the year.

In particular, when you look at our deal volumes.

In the first half of the year we had only 4% deal volume, but we did start to talk about a perception if we were able to accelerate our volume, our number of contracts that we were able to close, and indeed that materialized in the second half.

As you can see in the second half we had a plus 20% increase in our deal volume.

That is a significant number and I think it is very proof of the competitive capabilities of this company.

By the way, this 20% deal volume actually resulted for the second half in a 4%, again at constant currency, increase in our license revenues.

This was driven mainly by the US, which had a very impressive turnaround.

We have been discussing at meetings like these in previous years, the performance of the United States.

I think we can say that we have achieved our objective there.

We have turned the business around.

If you look at the actual performance of the United States or even North America, you will see that we had a 23% growth in US dollar terms in licenses, which is a very, very strong performance, way better than what the market or our competitors did.

Not only were we able to turn the top line around, we also achieved significant improvement in profitability, very increases in customer satisfaction and that was a tribute to a very strong management team that is driving the US.

I believe that in EMEA that stabilized in the second half of the year.

We had a very tough beginning of the year in EMEA with the economic situation, the situation in Iraq didn't improve matters either.

Germany, after a very tough Q1 was able to recover significantly and ended up the year with a full-year software revenue increase of 3%, 17% increase in license sales in Q4, which is a significant number.

We also managed to execute a turnaround in the United Kingdom where we are now starting to grow again.

I just want to share with you that we have made some management changes in hardware recently and I hope that we will be able to execute a turnaround in that country as well.

Very important going forward, but also already for 2003 are our high potential in overseas geographies, mainly China, India and Brazil.

In these three countries we achieved significant double rate growth rates.

Significant double rate growth rates in all of these countries we also consolidated our number one position in each of these markets and we have high hopes going forward that these countries will continue to contribute significantly to our overall performance.

I said right here, roughly at the same time, that we would be the number one in the world market leader in CRM.

I am very happy to be able to confirm that we did achieve this.

We actually start to see the premise of this happening in the second quarter, we achieved it in Q3 and we confirmed and increased our advantage in that market in Q4.

I'll share some numbers with you, and we will continue to drive CRM also in the future.

Henning will speak to that a little bit as well.

Last, but certainly not least, we announced in March of this year, mySAP ERP with the successful product of R3, the new ERP environments we are going to provide.

That product has already started to sell very well in the second half of this year and we see a very strong pipeline going forward as well.

In fact, if I look at some of the customer wins in the last quarter of 2003, if I start with EMEA, then three names are mySAP, ERP deals.

Analysts talk about [indiscernible] the significant wins for us.

They were all SAP customers and they have all adopted the mySAP ERP platform.

I should also like to share with you some of the names that we won in the US, Ashland Oil, and an important oil company that moved to SAP.

Raytheon, a strategic customer that has moved basically all of its applications towards SAP and then Suncor in Canada.

While in Asia Pacific it is important to note we had very successful Japanese names like Mitsui and Sankyo.

The first insurance company in China, New China Life Insurance that is a win for SAP and in Korea Asian Airlines as they are called, are very important for us in our market development in Korea.

In fact 2003 for us as a Company and for the shape of innovation in particular was a year where we had to adapt to new market conditions and we had to adapt to very, very quickly].

We have discussed in the past as well the trend towards smaller average deals, or smaller sized deals.

That's mainly driven by two phenomena.

Phenomena number 1, large customers do want to see their purchases sized up into smaller chunks.

They want to achieve faster [indiscernible], that's perfectly understandable.

They want to see the rollout of their implementations faster, that's also perfectly understandable and therefore the purchase of the software has to be in line with the deployment.

That is something we had to address to.

On the other hand, as we said earlier on, we also wanted to penetrate the mid-market in a more significant way, and for definition, mid-market means smaller deals.

In fact, if you look at the statistics, in 2003 the average deal size declined by about 23% on the year-over-year basis.

Just to illustrate this, deals that are bigger than €5m represented 22% of the order entry, compared to 28% the year before.

We did adapt to that, I think successfully.

We increase the number of deals, transactions that we closed software contracts by 13% in 2003 and by 21% I the last quarter, and, talking about the mid-market, we achieved 21% increase in our mid-market deals over the year. 30% in the last quarter, which shows that we are accelerating our penetration in that market.

We also managed to mitigate the impact of the aggressive discounting that is occurring in the market, that's a euphemism.

We are able to withhold on this pressure, simply be delivering better value and a more competitive offering and superior technology.

We will continue, if we have to, to walk away from deals if the conditions are not acceptable.

Last, but certainly not least, I think that Werner already indicated that when he talked about maintenance, we have been able to defend the value of our maintenance.

Mainly because our customers really do understand the value of the maintenance that we do provide.

You know that we do provide a very comprehensive maintenance program and I think that that has helped us to defend the value of that offer.

Let's maybe talk quickly about the mid-market.

We are very aggressive when moving to this market as an area of growth.

We use two channels to penetrate that market, a direct channel, so we sell directly into this market and, of course an indirect channel.

The indirect channel has both global and local partners.

Just to mention a few of the global ones, the American Express organization, HP, IBM and DELL and a few others.

Just to anticipate a [indiscernible] question, how do define that market?

Well we define that market basically in a little bit of a valuable way.

It depends on the country.

Just to illustrate this, in Germany a company that does €0.5b in sales is mid-market.

In Austria a company that does a little bit more than €300m in sales is already not mid-market.

You have to do this, because each country and each region is different and if you don't make the adaptations for this, you don't have a strategy.

We work very hard to understand and to integrate the needs and priorities of the mid-market customers.

They, more than anyone else need cost efficiency, more than anyone else need short implementation time, low PTO, extreme buiness agility and I think with our mySAP offering we are able to deliver that.

We are also continuing to build other channels, I won't talk about a lot of numbers, you can read them all by yourselves.

I just want to stress maybe one number.

It is the number of Business One customers.

When we acquired the company it was about 900 customers, this year we have developed this business significantly as well and I am hopeful that that number will continue to grow in the future years as well.

In fact, our success in the mid-market - our strong growth in the mid-market is I think really well depicted on this little graph.

If you compare the evolution over the last four quarters you can see an accelerating trend and we are confident that we can keep the dynamics as this [indiscernible].

People sometimes wonder if we actually do business with new customers, or are we simply living off the old base.

Let me try to demonstrate to you that we have a very lively and very dynamic business with new customers.

Our increase in business with new customers based again on order entry was 3% more than last year, we now do about 26% in 2003 and a small drop in Q4, which again was 5 percentage points up compared to last year.

That's very simple, that is the quarter where the install base of more strategic customers place fairly or relatively large orders with us, so we have to do it in proportion.

Even more importantly, and you would expect that, is the increase in business that we do with new customers in the mid-market. 43% in 2003, that's 3 percentage points more on a year-over-year basis and 38% in Q4, that's 1 percentage point more than last year.

In fact, based on what we know about our competition, we believe that we generate more business with new customers alone than any of our peer group competitors generate with both new and existing customers combined.

So, new customers are important, on the other hand, we are very proud of course to have an install base that is the envy of the industry.

Last, but not least, mySAP CRM.

As you can see from the graph we actually became market leader in Q3.

We continue to push on our advantage and increased our leadership in Q4 as well.

We win head-to-head deals, we get win backs and we sometimes even get competitive replacements.

We are successful in the CRM markets not only in our large scale implementations, but also in the small to mid size business as well.

So, all in all I think we are extremely well positioned for the future and having said all of this I'd like to hand over to Henning for his comments.

Thank you very much.

Now at the beginning of 2003 as you know it was extremely difficult to predict what the year would be.

Many fields didn't find themselves able to give themselves able to give even a forecast.

We did a forecast.

The reason was that we had so much uncertainty in the market, especially in our EMEA and many people didn't invest into IT despite it being budgeted, at least at the beginning of the year.

We saw some signs of recovery in the middle, but that was too late.

So at the end of the second year in a row, the IT market declined, but the positive news is that we see a recovery at the end and we especially see a recovery for next year.

For SAP it was an extremely successful year.

Our share price grew up by more than 70%, so we out performed the stocks, the [indiscernible] technology index and there must be some reasons behind and I think there are some reasons why that happened.

One is that we significantly exceeded our guidance.

You have heard from Werner what we achieved and that with this 27% proforma profitability, we are back to a level we had last time in '97.

So there have been several years of hard work to come back to this level.

Let me also point out, we have not done pure cost cutting, I always hear cost cutting.

Cost cutting is important but only for a short time period.

So we improved efficiency but continue to invest into the future, that's key.

Our future is research development.

If you look to the different areas, you will see efficiency gains in nearly all sectors or lines of business of SAP and services, especially in sales and marketing etcetera, but we added 9 percentage points for research and development and the increase in people mentioned, more than 800, was just the people in research and development.

So, therefore, I think this is also an indication for you of how strong we feel our product strategy is and how it is key that we bring these products to market as quick as possible.

Another point was this momentum.

Leo pointed out why that happened.

If you look you will see here, in the first half our software license declined by roughly 4% even on a constant currency base, whereas in the second half it increased by 4% on a constant currency base.

It was exactly this point that we could compensate over the year with the sharp decline in average deal size by much more volume and we go with this momentum into the New Year and we don't expect such a fast decline in average deal size any longer, it might be a little bit.

But, on the other side, the sales force is strong enough now to generate volume.

Most important is market share.

We gained significant market share, more than ever in our history.

To give you a feeling what it means, we have converted our figures into US dollars because that's the currency in which the market is measured.

You will see that we have not only out performed our peer group, but also the market that we gained share in the regions and for our product.

So, product were a touch [indiscernible] but I think this is most impressive.

If you look to the performance against the market and SAP total revenue, if we would have been a US based company, and we are the only strong one which is not US based, so therefore you see the effect here, it would be plus 13% against 5% of the market.

License even stronger with 12% against minus 4%.

So clearly outperforming the market.

If you look now to our peer group again in Q4 we gained another percentage point, which is getting more and more difficult if you come close to 60%.

It was 8 percentage points over the year.

For your information we have the numbers in dollars and you will see these strong [indiscernible] our competitors have because of the weak dollar, the strong headwind we have because of the strong euro.

Look at our performance in US dollars in Q4, $1.176b, then when I see Siebel at €150m I ask myself why people are speaking so much about Siebel longer.

If you look to the growth rate year-to-year, then you'll see the same picture in the second half.

Let's say in this currency SAP had impressive growth figures.

So, most important for us, we have turned around in the US, we started as number 2 into the year and we ended up with 40% market share, a clear number 1.

We gained share from all of the competitors and we are really confident that we can continue this story.

Asia Pacific, the second strongest market, you can see the upturn here as well.

Last, but not least, Europe, where you can see that despite, you might say weaker, as expected results in Europe according to the really weak economy, we gained market share and that's what is important.

Now, we have several times indicated, especially I when I was asked by analysts, is the time over where the IT sector, especially the software sector can show double-digit growth?

We have always said no.

This is a period where we have to consolidate, where we have to adjust to new buying patterns, but this will come back and we use 2003 to prepare for this growth.

Customer satisfaction increased again, but more importantly we brought several innovations to the market, which extend the potential market for SAP.

We just recently got an innovation award for our RFID technology.

You will agree, I think, that this is one of the key technologies in the future, it is not so hot, but it will impact the savings, and the automation for companies significantly for business in the future.

So, therefore being the first to bring the product to the market is key and we are the first.

Gartner Group intensively and other analysts look to our strategy, which is a very visionary one.

We will convert our clients architecture into an Enterprise Service Architecture as you know.

Again, it is viewed as a most visionary strategy but also people believe that SAP can execute better than others.

This strategy is based on SAP NetWeaver, we launched it at the beginning of 2003 and have in the meantime very positive feedback.

What might be more important for you, is this is not completely new, so the risk is low.

All components of SAP NetWeaver are in the market, most components are already used in we believe, as we ship 2003 for our new products like CRM, SRM and SCM.

So, therefore this risk is done.

The point of what we are doing now is shipping NetWeaver as one product in a box.

Again, we are the first one doing this.

Also key for us is that with NetWeaver clients who use this just as an integration platform get significant returns and reduction in cost of ownership as we promised.

You'll see here some figures from IDC(ph) and I think our [indiscernible] figures for 5 years speak for themselves.

Now, what about the future?

We agree the economy is recovering from all the discussions we have had with CEO's and other senior executives.

We think there is more confidence and we have especially seen this in Germany in the last quarter.

Where people have not saved the budget that was left because they have been over cautious at the beginning, but people are starting to spend on IT again.

The results speak for themselves here.

Yes, the US will lead, Asia will follow, but Europe will do better as well.

We see this in a strong sales pipeline.

The pipeline is much stronger than a year ago.

What are our priorities?

Definitely license growth.

This is priority number 1.

We have said several times we don't want to compromise on growth if we have the opportunity.

Yes profitability is important as well, but in 2004 it is priority number 2.

So, if there are growth opportunities we will take them and we will invest.

We will take the risk and invest.

We will invest into sales, more sales people.

In marketing we need more leads, we have seen volume business, we want to do more in the mid-market and we will continue to invest into research and development.

Therefore, going into market we will leverage these four key differentiators, SAP NetWeaver, we have declared mySAP ERP as a success of [R3].

We will do it very much in public at the beginning of the year, so I think the standard maintenance of [R3] will end 2009.

I think we will get more out of CRM.

Leo explained the go-to-market approach - more value oriented approaching the customers, not features based.

We have now more than 20,000 clients, so we will be more specific how we deal with the clients.

Clients, who along with SAP new clients follow, lets say the more innovative clients, SAP can afford to be more specific here and we will do.

We will effortlessly focus on regeneration.

In research and development we did the largest reorganization in this sector ever in the Company.

We now have an organization which is much stronger aligned between our research and development capacities and the field.

That is key in bringing the knowledge quicker to the market.

We have created a new organization, which we call Application Platform & Architecture, Peter Zencke is the head of it.

This is key, because this will help us to bring the new architecture in a consistent way into all the products we have.

It will help us to prepare the [user parts] that is higher quality, and more efficiency.

It will help us to develop architectural guidelines so that companies look to SAP as one product and not a suite of five or six products.

That is important because the market wants a suite, they don't want best of breed any longer.

It might be most important for you, for the future, this will help SAP to follow a similar strategy that car industries, automotive industries successfully were establishing several years ago, a platform strategy.

It will enable SAP to bring new solutions faster to the market.

So then the old days are gone where you always ask, what is the successor of the product?

We can bring dedicated products to the market based on the use, based on this integration platform that target specific customer groups.

So, therefore this will be our strategy in the future, as we outlined at the Sapphire.

Some companies want to use IT as good as others.

Here SAP is the best because we have as customers, always the top.

So we give them the knowledge and the best practice.

Others want to be, so to say, competitive differentiation, they want innovation, yes.

We have our [indiscernible] there, we have partners who develop [Exceps].

SAP NetWeaver is key for the success of SAP in the future, because this is the platform where both can be combined into flexible solutions for lower TCO.

That is the message and we continue to deliver on this.

Werner has given the outlook.

We are very confident that this is a good and achievable target.

We have the assumption that the economy will indeed improve, but on the other side, as I said, we have now 1 year to prepare and to adjust, not only our sales and marketing force, but to prepare also from a product point of view.

Thank you very much.

Thank you Henning.

Before we go into the Q and A session, a quick reminder for everybody in the room in Frankfurt.

Please raise your hand and we can get you a microphone so that everybody on the Internet can hear the dialogue.

For those who are listening on the web, as I said earlier, please do send your questions by email to investor@SAP.com and we will make sure that we take some of these questions through the discussion here in Frankfurt.

The first question goes to Johanus Reece.

Like an old tradition.

Maybe two questions from my side.

The first question regarding the regional development in Q4, some words maybe to Japan, what has happened there?

Maybe even some words to the US, which was good, but maybe we had expected a little bit more, given that last year the Americans and the US had comparatively been weak.

Therefore, maybe we had expected slightly higher growth rate.

Have some things maybe slipped through to the first quarter, or to the first half in the US?

So, we can expect therefore maybe ongoing strong growth there?

A question to Werner Brandt regarding the tax rate, do you expect the same tax rate despite the German tax reform?

What is the reason for you sticking to the 37%?

So maybe I'll answer the first part of the question.

Let me start with the US.

I just want to remind you that last year Q4 the US had also a very strong quarter.

I can give you the numbers in a minute.

Despite this we still had a significant growth in the quarter as well.

We didn't push anything into Q1, we did our normal business and we had a very strong performance in the US, finishing the quarter, and we hope that trend will continue.

As for Japan, in Japan we have been moving a little bit slower than in other parts of the world, to the volume business.

The main reason for that was the perception that there was still enough large business to be done.

With the economic situation in Japan not improving rapidly or fast enough, we have decided to change that model in Japan as well.

So to anticipate on what we wanted to do to move to the volume business faster, and these things are on the way as we speak.

Regarding the tax rate, I think that the German tax reform for us will not result in significantly lower taxes.

There are a lot of elements, which really will help us and that is the limitation, for example, limitation of credit for the [phoning] taxes we pay in several countries because we have a license model.

So overall, I do not expect a decrease in the overall tax rate that we have.

You now have to nail it down really for applications in our business and our structure.

Okay.

Next question?

John Seckwidge(ph).

Just a question, which I will pose to the three of you because it has applicable parts.

But clearly there is a structural change that has been going on in the market as customers have moved to a more modular approach of thinking about software deployment.

You have changed your business model pretty considerably, internally from a structural point of view, but also from a development point of view.

So, Henning, how do you see that continuing as you now move into web services and NetWeaver?

Does it accelerate that move to a smaller modular approach?

Building on your analogy, if you see yourself as forming an auto-parts platform, does that mean that we are going to see the emergence of a whole industry, built around SAP, selling those modules to SAP - i.e. a more symbiotic relationship.

To Werner, if you think about the same challenge, you get deal sizes growing 15% - 20% now towards the back half of the year, do your prices for your average deal sizes go down pretty considerably?

To get to the 15% constant currency, obviously we are hearing that deal size decline should moderate, but how do we think about the mix between the unit and volume?

Then finally, to Leo, it poses a challenge on your front too.

If you have got an increase in units going forward, you have done a great job as you put it with efficiency gains.

How do we see that playing out next year?

Are there more efficiency gains or do we really now have to start rapidly increasing the headcount around sales and marketing to get the coverage that you need?

I will start with the more technical question.

Yes, if you go from client server to a service oriented architecture it has to do that you go for a more open and modular structure.

The question will be to find the right level of modularity.

That is the challenge and [Net] services are the underlying technology so that we call it enterprise services, has to do that.

Normally Net services are technical terms.

If you do business applications like SAP, then sometimes you have to compose that very generic low level, that service into services that business people understand.

Therefore we chose a slightly different term.

So people say 'yes, that I understand' booking an invoice or whatever.

But not too technical, that's all.

But at the end of the day it is based on Net services, so therefore we use Net services' tech as well.

Now your question is important.

It will be who in the near term will be the one who assembles the module and who will be the one who delivers modules.

We don't want to be the one who delivers modules, so therefore our strategy is clearly to make SAP NetWeaver a success and we focus in our integration approach on the end to end business positive, because in scenarios so across enterprise - not just on billing whatever, opportunity to cash it.

That is the strength of SAP.

That is where our customers want us to be.

That has to do with deep industry knowledge.

Yes, we compromise on leveraging other components, other modules or even legacy systems.

Therefore we have this open integration now.

But we cannot compromise on the platform which is NetWeaver, so therefore it is key that this will be the winning platform and definitely here, we have to fight also the Microsoft platform and IBM.

There is no doubt.

We will do this with some success.

So it doesn't mean that we are not great partners doing lots of things together but we will make no compromises on this platform.

Maybe I will try to answer the second part of your question, and thanks for the compliment.

We did grow our volume business, or to put it slightly differently, we grew the volumes that we were able to generate on a reasonably constant headcount in sales.

There are several aspects to that.

Aspect number 1, is that if you want to do this, you need to have a highly tuned and very efficient elite generation machine and it has to be able to filter some of these things out of the process before you actually put [indiscernible] in front of a potential customer.

Otherwise it can't be that efficient you can't [indiscernible].

If you assume that our transaction volume gains will continue to in the future, and I am pretty confident that they will, then going forward we make the assumption that the prices will stabilize a little bit and whilst I am not so sure that we have reached the complete bottom yet of average deal size, I don't think you will see the same decline in 2004 as in 2003.

On the other hand, if we are able to catch opportunities in the market, and I hope there will be some and in particular with the modular approach, we will be able to deploy our people in an even more segmented way.

Then, as already indicated in the guidance, we will probably add a little bit of headcount into our field organization, to capture these opportunities.

What is probably even more important than that is at the same time we also need to be very smart about our marketing expenses, because that's in the interplay where we gained the highest efficiency.

So that is basically what I can tell you on that and I think we have to be very pragmatic and extremely smart and fast to catch every opportunity that we see in the environment.

Thank you.

I think we will just take one quick question from the web, following up on the question on headcount growth.

We have got one question, which was that you added 800 employees for [flat] licenses in 2003.

What level of headcount is necessary for a 10% license growth in 2004?

If you base this on the final headcount number we have provided for December 31, then we will add in 2004 5% to our base.

This should be roughly 1500, I think.

Thank you.

The next question from [indiscernible].

I have also one question on the Q4 license split.

Germany was the strongest region with a growth of 17%.

Even your presence there is probably the strongest.

Did it come from the mid-bit market or from special large deals?

Or from segments?

One question on the outlook.

You mentioned that you were also satisfied with the growth in the US of 16% constant currency, but the US is still smaller than Germany.

Can you maybe expect the US to be bigger than Germany at the end of 2004?

[indiscernible].

In Q4 in Germany, the answer to your question is all of the above.

We increased our volume business significantly in Germany.

We had some larger transactions, by the way, the majority of which we have phased over the years.

So it is basically again excellent execution, like last year, the same question of all German organizations who managed to recuperate in almost one quarter, the tough first half of the year that Germany was into.

As to the [race] between the United States and Germany.

Actually in 2003 there is really a very small difference.

There is probably a little bit of currency and this and that.

The trend is probably going to indicate over time that the US will overtake Germany.

I am sure that my German friends and colleagues will fight this trend as long and as hard as they can.

But that is probably going to be the way it will play out.

But I will not commit as to which year this will happen.

As far as I am concerned, the longer that fight goes on, the better.

The next question comes from Simon Andrews.

Thanks, Stefan.

Just looking at the growth in Germany versus the rest of Europe over the year in the last few quarters, Germany has obviously has been a much stronger performer than the rest of Europe.

What kind of changes in the structure or the processes can you replicate for the rest of the EMEA region that will see that growth alliance to that of Germany?

How fast can you see those changes taking place?

That is a fair question.

We have replicated some of these changes already across EMEA, actually three years ago.

We do get the benefit of these changes in the performance of a number of European countries, the UK being very prominent among them.

But, in all fairness, also some other European countries, such as Italy, such as Spain and Portugal, have also despite very adverse conditions, performed up to expectations.

We will see areas in Europe where we didn't get the results, but we are implementing at a very rapid pace now all of the required changes, which is more focused on volume business.

It is more of a -- forgive me, the term for the lack of a better one, an industrial approach to sales instead of a more artistic approach to sales.

Where it was necessary, we did make also the required management changes.

Thank you.

The next question, [indiscernible].

Just two quick things.

One on license revenues again.

When you speak about the 15% organic and obviously you have the five product groups that you have categorized.

Which would you identify as growing above average?

Although you might not be driving your business that way, but you might have some assumptions.

The second is a housekeeping item.

The €156m of stock based compensation acquisition costs that you adjust for, is it possible to explain how much that was in terms of actual hedging costs?

How much occurred because you didn't hedge?

I will start with the product question.

We have a healthy mix in the meantime between ERP, supply chain management in CRM.

CRM is 21%, supply chain management is a little more.

ERP is higher.

I guess that will continue over 2004 and 2005.

There is one area where I believe it will grow faster than the average, which is around [indiscernible] imported because NetWeaver will boost this.

That is the area where I expect more.

The rest is well balanced.

The question regarding the hedging.

I think we have to differentiate.

We have two different areas here.

One is the hedging of the Star program.

What we spent in order to hedge the 2003 Star program was roughly €39m.

But it is done.

We are buying options and these options are capitalized and then over the two-year period of this Star program, then amortized and then it is going into the P&L.

Unfortunately the share price went up from this perspective and what happened?

Mark to market valuation resulted in an increase of these options, the value of these options to €78m the P&L impact is zero because of this difference of this increase runs into equity.

That is the first part.

If you look to the Star hedging expenses in our P&L and I think maybe Mark you can help me.

I think in total it is €16m for the year.

Only the Star hedging expenses within the final results.

That is of course not operating income, but is the number correct I had in mind?

Yes - €15m, sorry for the delay.

The second one is the currency hedging that we do.

There we hedge our receivable at SAP AG towards our subsidiaries because we have a license model.

So what we do there is only enter into forward contracts, so there is no cost.

But what we of course have, is again the mark to market valuation and the unrealized and realized currency gains which are in non-operating income and I think the total amount we had in 2003 was €36m gain.

That is the reason why if you compare non-operating income with non-operating income and you'll see an increase year over year.

The next question I see from Mrs. Cordoba.

A couple of questions.

First of all on the revenue mix.

We have been talking a lot about license revenues.

What about maintenance and services?

How do you see that?

Do you expect any impact from the additional 2% maintenance that you will charge in 2004 for older versions of R3?

Then on the US market, it is has been developing very strongly.

Do you expect that this momentum will continue, or it will probably slow down somewhat if you compare it on constant currency basis?

Finally, if you could name probably one significant change that you have seen already of this year in January in your business development, what will that be?

Let's start with maintenance.

Maintenance is easy to forecast, so if you look to our maintenance model you can forecast.

I wouldn't now expect to say that there is a huge impact from the plus 2%.

The plus 2% we have not done to let's say gain a short-term lot of money.

That has two reasons, one is to cover the additional cost.

The more important reason for the 2% is the following.

Now the customer cannot just continue once the product is out of maintenance.

In the past, what happens they continued to run the product and we continued to help them.

Now the customer has to contact SAP and ask for this contract.

So we start coming into negotiations with them and that is what we want to do.

Because now you touch customers, you haven't touched for what might be three or four years.

That's a good sales opportunity and that is at the end what we want to do.

So we can give you an example.

I can tell you where we did it.

If you look to Germany we have Deutsche Bahn as one of the large contracts for SAP AG, Deutsche Bahn is now two clients.

This debate how long will be R2, what is the next?

We said, 'look, it makes sense to help you expand in R2 by a year, but why not then jump into the newest, most modern release [indiscernible] and that is a developed argument and then you can condense in 50 minutes and that makes sense.'

So therefore we are much more flexible now in the maintenance to adjust our strategy, our up selling strategy, our cost-selling strategy, our upgrading strategy to the needs of the client and that, in the end is really the benefit of the plus 2%.

Just a point on Services.

We have not given a guidance on Services for the following reason.

Top line growth on Services is not our strategic goal.

We have our partners and we want high value, high quality services for premium prices.

You know that there is a price pressure in the market.

So if it would drive services from the top line, guess what would happen?

Our bottom line would go down.

People would start to charge a lot of top contracted services through the P&L just to reach the top line growth.

That is not in our strategic intent.

What we want to do is high value and high profitability.

So therefore the growth in Service is not that important.

It is more important that our customers are happy and that Services helps us to sell more software.

That is the strategy behind.

So it makes no sense to give a guidance here and to mislead the company.

That is the whole reason behind it.

I think in terms of US, Leo, will you just give us a small comment here?

We expect the dynamics of the US organization to continue to grow.

I think we have all of the fundamentals to achieve that.

We have a very strong team in the US.

We have an extremely well aligned and focused organization and we have full confidence in the capabilities of our own organization to take benefit of all the opportunities in the US market.

Maybe I too can give you an answer to the last question.

Yes, we start into the New Year with a very significant change in how we do our business and that has to do with the alignment between the field and the business solution goals we mentioned.

We have the best, I would say, aligned budget ever between the field and development.

We know exactly in the development, which project, and not only which product, which project we are driving and what the impact on the market is and what the capacity is.

Now the thing we are really able, if we come more to a growth mode what we all believe will happen, then we will see a different opportunities in the field.

That is normal.

This we haven't planned.

So now we are more on a handshake mode with the field that we can come with a business case and then say 'okay, this is an additional opportunity - so much money' and the development can immediately respond and say, 'okay, this is the obligation on the other side' - without sacrificing commitments we made in the past.

That sounds trivial and easy.

Believe me.

In an organization like ours which is very complex and where you have to adjust the strategy sometimes every month, second month, it isn't that easy to achieve.

I think that it is a big achievement that we made in the last year.

Thank you.

The next question is from [indiscernible].

Can you just talk a little about the use of offshore for R&D?

Again, I remember this time last time I think you had quite aggressive targets in terms of offshore and I am not sure that you have quite met them.

I am wondering the extent to which the new development platform was a pre-requisite to accelerating R&D and therefore really in terms of headcount additions this year, would you expect to see more to come offshore?

Yes, you are right.

We had first to prepare the facilities, so you know that we expanded our facilities especially in the other [key] because if you just ramp up people you have not good management there that is not good.

The second point was that we have to drive it [indiscernible].

What has happened in the past is that the Senior Vice-President believed that he had to add three or five people in India because that is what the trend is, but that is not very efficient.

So what we will do this year is that we will hire in hundreds in India and in distributors.

Another point is yes, we cannot hire everybody in India.

If it comes to the platform in 2003 we have added mainly people to the platforms because these developers are not in India.

It would slow us down to hire them in India.

So, therefore we now have in our plan what fits to India.

Especially we will start in some application areas to shift groups there and I think the new split that we did between maintenance - you have heard it - the maintenance team we split off development.

This is a perfect example in replacing overtime to India.

Thank you.

I think at this time we will take one question from the web.

There is a question on supply chain management, which seems to have been the strongest solution in 2003.

Could you please comment on win backs and competitive wins as drivers.

There was a second part - I think we addressed this to some extent already.

What are the expected trends for older entry average deal size and volume growth for 2004.

I will try to answer these questions.

That is not meant to be arrogant or whatever, but we are basically [indiscernible] the solution to the question.

We do about three times more license sales than the best of group companies in this area.

We haven't adopted as numerous companies and organizations around the world as the supply chain management solution and in all fairness there isn't that much left to be won back here.

So, I'm afraid I can't give you that answer, because we are the standard solution in supply chain management.

After the expected transfer order into your average deal size, I believe I have already answered this question.

Thank you.

Next question, Robert?

Hi.

Just looking at the mid-market.

That is obviously an area of growth.

Can you give us some indication of what an average all in one or business deal size is?

Can you give us some idea about the geographical trends you are seeing now?

Thank you.

I don't think that we ever give the average deal size for a given product.

The trend is that in business 1, by definition is reasonably small.

In all in one, it is actually not a bad number.

It is not that far away from our normal averages.

Thank you.

The question here is from Herr Kluffman(ph.)

Coming back to your guidance on the license revenue, I just tried to get a feel for where we stand right now.

I think that the two things, which contradict - one is to think that the pipeline is stronger than ever, which should actually have the effect that Q1 and Q2 should be pretty good.

On the other side in the guidance you are saying you expect a rebound in the overall economy in the second half of 2004 which would apparently lead to the idea that the first two or three quarters may not be quite as strong, but then the stronger improvement should come in at the back end of the year.

Could you just give us an idea?

What element is behind it?

Secondly, the guidance you are giving us - what kind of idea do you have for pricing?

You have said that price pressure has [evaded] a bit out of the market.

What is the number that you are expecting there?

Well let's start with seasonality.

Werner indicated already that we expect similar seasonality as in the past that may not be 2003, because everybody made a big thing out of Q3/Q4, which I think was wrong.

Because that was just an event that happened, a statistical event and not a trend.

So at the end of the day, I think look back to our normal seasonality.

If we go for growth it is obvious that you cannot have immediately in the first quarter this level of growth.

That cannot be the case, so we will collect this over the year.

No doubt you will see an improvement in the first quarter, I think normally the second quarter is stronger, you indicated that in the net fee.

I indicated the pipeline because this is always very important.

You have years where you sometimes start in the New Year in building the pipeline.

That is sometimes the case.

It is not that you emptied it, but people start working.

This time Leo's team did a very good job to look always to the whole in four quarters.

Therefore I would say, we do not have this dip again that people work to the end of the year and then say, er, now I have to take here for the pipeline of the next year.

That was the point.

This is very important because it gives us visibility into the beginning of the year.

Pricing, what is the pressure?

Maybe just one additional point to the pipeline.

The pipeline is a yearly pipeline.

We also have deals in the pipeline that I expect to close in Q4 for this [indiscernible].

As to the price situation, I think the price pressure is as strong as it has been in the previous quarters.

As long as the current market situation or [indiscernible] or other events are in the market price pressure will obviously continue, at least that's the working assumption that we have.

We have been able to push back on prices as much as possible, over the last three quarters [indiscernible] in Q4, and that again is a little bit dependent on the regions.

Some regions push back harder, some others couldn't push back as hard.

I think that trend will probably continue in 2004 as well and we will continue to try to defend our price band with as much vigor as we did in 2003.

Thank you.

I think we'll take two further questions from the web.

Do you see NetWeaver's success more as a revenue enabler or more as a revenue driver?

The second question was more on long-term margin targets.

Are there any targets above 28%?

Let's start with the last one.

Let's go for the 28%, then we'll give you an answer.

Because it is clear that [it is going to be lower] [indiscernible].

With NetWeaver, that's a good question.

It will be first an enabler no doubt.

Clearly an enabler which makes all of our products, the portfolio much more attractive.

It has been successful as an enabler, a revenue driver, that's the second phase, but first it's an enabler.

Because then people will see how important it is, how good it is.

Because NetWeaver is a platform which helps you to expand and also to integrate non-SAP systems, then if this is the best platform people will use this [autotext] file and then generate revenue in the second phase.

Thank you.

A question [indiscernible] right in the back.

Hi, a very quick question.

I was wondering if your strategy of being more an assembler of software than the one who delivers the software, means that over time we should expect maybe a slightly higher proportion of sales and marketing and maybe a lower proportion of R&D?

Or, whether it has no impact at all on your model?

I think that you misunderstood me.

When I say we want to be more the assembler than just deliver components, the question was not software it was components.

It is clear we want to deliver integrated solutions and you have to be an assembler, but we believe it is the wrong strategy to do this without having knowledge in developed software.

That is the reason why we don't follow the IBM strategy.

It is a clear differentiator.

We believe that we have to deliver, if we are an assembler, at least 80% of the components ourselves.

That's very important.

We want to be a reseller of components and just assemble a little bit, so that doesn't work in the software business.

Thank you.

Another question from Simon Scholes(ph).

I was wondering if you could give us the figure for mid-market business as a percentage of sales if that is available?

I think you said [indiscernible].

That's the indirect channel only.

In the indirect channel in 2003 it was around 5 point something percent.

Okay, thanks.

But that's indirect only.

Thank you.

I think a question in the front, Gary Rollo(ph).

Hi, I have a couple of questions.

The first one is to take off from where David left it.

The R&D is growing.

I was wondering if you could give us some examples of where the resources are being [indiscernible]?

What they are actually delivering and maybe some time lines as to what we might expect for new products etcetera?

Then, maybe one for Werner, Q1 '03 led us to see a sequential decline in maintenance.

I was wondering if you could perhaps clear that up.

Whether or not we can anticipate something similar in Q1 '04?

R&D we have a kind of roadmap.

So if you convert all the products we have into the new architecture, I think our roadmap is somewhere 2006.

So, this is something where we feel we need in order to convert all of our products.

That means complete NetWeaver, but also to design our products around NetWeaver in a way that our clients don't see it as a revolution [indiscernible] for a client, it should like the normal evolutionary approach.

I think this is a key time window because this will decide about, let's say our leadership, we have to do it fast in this time window.

Later we will see - I think later we can definitely come back to normal R&D etcetera, but I would guess that in the next two years etcetera you would see high R&D in SAP.

Regarding the maintenance I think you will recall that we had a sequential decrease in maintenance in Q1 of 2003 compared to Q4 of 2002.

If you look now into the first quarter, if you forecast the maintenance 70% on the license revenue, we realized in Q4 [indiscernible] then you will come to the number.

But we have to keep pushing the demand.

One of course is the currency, but the other one is also important and also hasn't been kept in the first quarter.

As you know, we bill this part of our maintenance on an annual basis at the beginning of the first quarter for the full-year, to our customers.

What we will have to do by the end of March, if we have not collected all the money, then we go through the receivable and really analyze in detail whether we need sales allowances or not.

Did we do the same in the first quarter?

I think this is not conservative, that's good accounting practice and we will do the same.

I do not want to say that we will not see also in 2004 on a sequential basis growth in maintenance revenue.

But we have to keep these two factors in mind for the first quarter only.

In the same way as we had it in the first quarter of 2003 only.

Thank you.

I think given the time we have time for two final questions actually.

I think Mr. Reece and Mr. Waller(ph).

Thanks.

Regarding financial services you were talking about focus of your strategic focus in '04 for financial services.

For me it would be interesting to see your assumptions about the success of AM and the Bank Analyzer.

When do you expect the revenues from this segment to pick up?

Is it more a H2 phenomenon or do you expect something already for H1?

In financial services, if it comes to these core products like Analyzer or Core Bank I think you should think not in quarters but in years, that's my first point.

Banks these days have a strategy to move more to standard software, but in pieces, that was the question of the modules.

No bank these days can afford to implement a complete solution.

So they need to [indiscernible] step by step.

Then the question is what are the modules you can replace first?

So this is something, which goes up in steps.

We have big groups in financial services, with the alignment with [Eccentra] I have to say we have this preferred partnership where we also use SAP NetWeaver as an integration platform to, at the beginning integrate some more custom developed components of Eccentra(ph) with SAP.

Which I think is key because we cannot develop everything in standard software from the beginning.

So Bank Analyzer, the next point will be, let's say to go live with [indiscernible] Bank and then I think over times, as we grow into the market, a good driver by the way is [indiscernible].

Because [indiscernible] in the National Accounting Standards are solved with the same, say at Lotus, say architecture with which we have solved the Bank Analyzer.

Therefore, whenever there is an International Accounting Standards requirement of [indiscernible] you can start to sell the Bank Analyzer that helps.

Some follow-on questions.

First to Europe, you have mentioned already the markets, which have developed well like the UK, Italy and Spain.

Can you give us some more information about the markets, which have been weaker?

I think France was one of the markets, can you mention the other market and if you're going to change that management structure and so on?

My second question is regarding the 1,500 people you want to hire.

Can you give us a strip down in the regions where you want to hire?

How much will be offshore?

How much will be in the US or in Germany?

My latest question regarding the financial result. €70m compared to the €2b cash we have on the balance sheet.

Maybe there are some special impacts regarding the hedging in this financial result or so, but could you give us a little bit of background about the financial result?

If it will increase based on the huge increase in cash in 2004?

Maybe I will start with the EMEA question.

I already mentioned France and the things and changes that are underway in France.

There are some smaller countries that had some issues, but in fact if you look at Europe there are three large countries there and a few bit sized ones.

The last ones make a significant difference.

So let's just keep France in there.

From a people side, I think it is too early to give you a precise split.

We want some flexibility here.

Offshore we might give you an indication.

In 2003 it was 60%/40%, 60% Germany and 40% non-Germany.

It has to be definitely the opposite, so maybe more than 60% offshore, 40% Germany, something like that.

It might be even more offshore.

The final - interest income is €44m, but what we also have included here in finance income is the write down of minority investments, number 1 and number 2, of course, also the impacts from the Star hedging.

Yes?

Thank you very much.

This concludes the analyst meeting of today.

Thanks for all your questions and we look forward to seeing you at the Sapphire in New Orleans in the second week of May.

Thanks very much.

Good-bye.