SAP SE (SAP) 2007 Q2 法說會逐字稿

Welcome everybody to the second quarter earnings results conference of SAP here in London.

My name is Stefan Gruber.

I'm Head of Investor Relations.

Let me quickly give you an overview on the agenda for today.

It's almost a standard procedure we follow with regards to our quarterly earnings announcements.

First, Werner Brandt, the CFO of SAP, will walk you through the numbers, our outlook, and Werner will also give an update on our share buyback plans for the full year of 2007.

Then we have Leo Apotheker, the Deputy CEO of SAP and President of Customer Solutions Operations.

Leo will comment on the regional performance, key customer wins, our industry strategy and successes in the mid markets.

And we'll close with a presentation by Henning Kagermann, CEO of SAP, and he will give an update on our strategy as well as our product and technology roadmap going forward.

I'd also like to introduce my two colleagues from the Walldorf IR team, Umer Mir and Ulrich Wolf, who are here and happy to take questions later on.

A technical comment.

This conference here in London is webcast on the SAP investor relations web site.

So for those of you who follow the event on the web, you can also download all the presentation material on our website, www.sap.com/investor.

And also, if you want to ask questions, again, for those who participate in this event over the web, please send us questions to investor@sap.com.

And finally -- I've never learned this really by heart, so -- the Safe Harbor language.

Please note that, except for certain information, matters discussed in 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.

And with that, I would like to hand things over to Werner.

Good morning and welcome also from my side.

First of all, [a snap] overview on the second quarter and half year results at a glance.

You see here that we had a very strong software and software-related service revenue growth of 16%; 19% on a constant currency basis.

I have to take my glasses because this is too small [on the] screen for me, although the numbers are good.

This is the fourteenth consecutive quarter of double-digit software and software-related revenue growth, also at constant currency.

The margin compared to the second quarter of 2006 is flat, although we invested in our mid-market initiative, our new business model around A1S which, as you know, is not only a product.

It's a product aligned with a completely new go-to-market strategy and business model.

And we invested in the second quarter, roughly EUR30m and, for the first half, it adds up to EUR50m now.

And you see strong growth on the earnings per share side.

Important deal metrics -- and I will be very brief here, because Leo will go into more detail.

The number of deals increased by 17% year over year.

New customers; very good, 25% compared to 24% in Q2 2006.

Then the deals with a size of more than EUR5m, it represents 22% of order entry.

It seems to be an increase compared to the second quarter of 2006, but around 20% I would consider as normal and we saw this over the last recent quarters.

If you look to our full P&L, I would like to start with mentioning that we again had headwinds with regard to the currency and you see it here in the growth rates.

On the software and software-related service side, 3 percentage points in the quarter are coming from currency fluctuation, meaning that the euro strengthened against especially the U.S.

dollar, which was 7%, but other currencies moved against it.

So, overall, we had growth of 16%.

Currency adjusted, it's 19%, and you see the half-year number here.

Total revenue increased by 14% on a constant currency basis.

And with quite reasonable operating expense management we achieved an increase of 10% on the operating margin side -- operating income side, which resulted in a margin which is comparable to the one we realized in the second quarter of 2006.

And if you look to the half year, we kept it stable at 22% despite, as I mentioned before, the EUR50m investment into our new business.

The income before income taxes increased also by 10%, with an effective tax rate of 20 point -- 25.8%, which is on the level we saw in the second quarter of 2006.

We achieved an increase in net income of 8% and, if you look to the half year, it's an increase of 9%, also represented here in an increase of our earnings per share.

If I go now further into the revenue analysis, you see first of all strong increase on the software side; 21% at constant currency.

Support revenue increased by 16% on a constant currency basis.

And even if you take the U.S.

GAAP number of EUR948m, that's a nice increase compared to the first quarter.

So, sequentially, we grow here the maintenance as we indicated already in the beginning of the year.

Subscription and Other Software-related Services increased by 36%, so the total Software and Software-related number -- revenue we generated increased by 19% at constant currency.

Considering the more or less flat Professional Service revenue, we generated total revenue of 14%.

I do not want to go too much into detail, but let me mention here briefly if you look to Software and Software-related Service revenue, first of all, all regions provided double-digit growth.

You see here the split between EMEA, Americas and Asia Pacific.

And I think we should mention here two things right in the beginning.

That's Japan with 39% increase in the second quarter and definitely also the BRIC countries, who increased on the Software side in the first quarter on a constant currency basis nearly by 100%, but more detail will follow by Leo.

If you look to our margin analysis, you see overall we delivered an increase in our gross margin by 1.2 percentage points.

But if you look to the different margins, the picture looks a bit different here.

And let me start with the Software-related gross margin.

You see that almost it was flat and, obviously, this demonstrates that we did not achieve any leverage.

And the two reasons I would like to mention are, number one, we see an increase in third-party purchase licenses, mainly due to software.

That's WD and I also would mention Duet here.

And what we have to take into consideration here in purchase license we have included, of course, also the amortization of the intellectual property we acquire via acquisitions.

So if we have the amortization of intangibles, it's running into this purchase licenses here.

In addition, we added 735 heads to our support organization.

And that's mainly for active global support to better support our customers, also with the new offerings around premium support and MaxAttention, but also to build up a CDP development location in Brazil and maybe we can talk about this also later.

If you then look to the Professional Services gross margin, you see a light decrease compared to the second quarter of 2006 of 1.5 percentage points, and that's a mix of the following two things.

First of all, if you look to the training margin, it increased.

And that's mainly due to an increase in e-learning from a content perspective, but from a regional perspective strong increase of the performance in EMEA and Asia Pacific.

And if you look to the consulting margin, you see that we have a decrease in the margin coming from a reduction in the billable utilization, mainly in the United States, and the reason being here that we heavily invested in hiring consultants in the U.S.

in the first and second quarter in order to fulfill the demand from the market.

And at the point in time these consultants join they are not productive, so this will come in the second half of the year, and we will see then also an increase in billable utilization in the U.S.

However, I must mention that EMEA and Asia Pacific did very well on the consulting side.

If you look to the cost analysis, if you look first to R&D, you see we have an increase here in percent of total revenue by 20 basis points to 14.6%.

And that's mainly driven by additional headcount we added into the R&D organization by roughly 1,100, whereof 26% are employed in low-cost locations.

So the innovation power is here and it's demonstrated by the comparison quarter over quarter.

If you look to sales and marketing, also, the investment in additional headcount in sales, roughly 1,000 people across all regions, although the majority is in the U.S.

to support our growth there.

And marketing expenses moderately increased here only by 5% on a quarter-over-quarter comparison.

If you look to G&A, that's something where we must admit we don't like to see an increase here of 20 basis points to [4% and 5%] as a percentage in -- to total revenue.

That's mainly driven also by an increase in headcount coming from investments in shared service centers in EMEA, where we finish this year throughout the year our efforts to build out a European shared service center.

But we also included Japan into our shared service center in Singapore running Asia Pacific, and this led to an increase in headcount for the time being.

And what also plays a role here is a good performance in Q2 versus Q2 2006, resulting in an increase of variable [personnel] expenses for the quarter.

Here's a picture of total operating cost analysis.

You see that we benefit here from the currency development and the increase on the volume side.

As always, I must say, it's driven by additional hirings.

Its usage of third party and travel are all in line with increased business activities.

If we look to the balance sheet, the balance sheet looks solid.

Our total liquidity decreased, if I compare to the end of 2006, from 2 -- from EUR3.3b to EUR2.8b and I will bridge this in a minute.

We have an increase in non-current assets coming from -- mainly coming from acquisitions in terms of goodwill which was realized, and intangible assets we recorded as a consequence of these acquisitions.

Under minority interests you see a decrease here to 1% and that's driven by the squeeze out of the minority shareholders in our subsidiary, SAP SI, which was -- the squeeze out which was approved by the court during the second quarter and we immediately got it registered and de-listed SAP SI.

And if we then think in terms of integrating now the consulting organizations in Germany, this will also provide further benefit to the Company.

If you look to the balance sheet and cash flow analysis, first of all, the DSO reduced.

The equity ratio is stable throughout the year.

By the end of the year we will come back to the level we achieved by the end of December 2006.

And if you look to the operating cash flow, it increased by 4% due to some negative impact coming from net working capital.

And you also see that we have increased our investment in capital expenditure, mainly related to buildings.

We completed some buildings around the world, including Germany and India.

And we invested in hardware and software, mainly to support our volume business, so it's related to our A1S product and the new deployment model.

If you look to the liquidity I mentioned before, it went down from EUR3.3b to EUR2.8b.

Of course, it's impacted by the capital expenditure you saw, but then we paid dividends to our shareholders at an amount of EUR556m.

We bought back shares at an amount of EUR506m.

That's roughly EUR1.1b for our shareholders.

And in addition, we invested EUR345m in acquisitions.

Having mentioned share buybacks, here are the details.

We bought back 4.55m shares.

Average share price is EUR36.62.

If you look to the end of June, you see that we held 62m shares at an average price of EUR35.43 in Treasury stocks, and that represents close to 5% of our total shares outstanding.

If you look down the road for 2007, we plan to invest the same -- at least the same amount as we did in 2006 in share buybacks.

So this means, if you do the mathematics, then we will see at least EUR700m share buyback activity in the second half of 2007.

And then, I think we mentioned it several times, we will accelerate our share buyback activities.

And this is also supported by a cancellation of shares we will see in the September timeframe.

So that's the first time that we cancelled some of the shares we bought back, which will enable us also to accelerate buyback activities going forward.

If you look to the headcount, you see we had 2,500 new hires in the first half of the year and you see the split here; it's sales and marketing related, service related and 353 coming from acquisitions in the first half.

So net, it's 2,200, so we are right on track to achieve -- if you do not take into consideration acquisitions, that we achieve 3,000 plus new hirings in 2007.

If you look to where we hire, you see that 28% of the new hires are in low-cost regions and that's also going into the right direction.

To summarize with the outlook, we reiterated the outlook we provided by the end of January, so the Company expects full-year 2007 Software and Software-related Service revenues to increase in the range of 12% to 14% at constant currencies, compared to a growth of 12% in 2006, also at constant currencies.

We talked about here in the guidance and talk about the guidance, about an additional investment of EUR300m to EUR400m over eight quarters to build up the new business.

I mentioned before approximately EUR50m were already invested over the first half of this year and, depending on the exact timing of this accelerated investment, this is equivalent to the Company reinvesting approximately 1 to 2 percentage points of margin in 2007 into additional future growth opportunities.

That's exactly what we did.

If you look to the half year margin and add back the EUR50m we invested, then you will see that we, in the established business, really increased our margin by 1 percentage point more.

Therefore, the Company expects full-year operating margin to be in the range of 26% to 27% compared to 2006, where we had an operating margin of 27.3%.

And despite the fact that we had, again, in the second quarter, quite a favorable effective tax rate, we continue to project an effective tax rate for the full year in the range of 32.5% to 33% for 2007.

And taking into consideration the tax reform in Germany which is enacted now, we will then, going forward, see a tax rate, effective tax rates of 30% for SAP.

That's all from my side and I may hand over to Leo Apotheker.

Good afternoon, ladies and gentlemen.

All of us will work very hard to produce even larger numbers so that Werner doesn't need to use his glasses again.

Q2 was a very good quarter and, as Werner has already indicated, our Software and Software-related Services revenues grew by 19% in constant currency; for the first half, 17%.

And in fact, Q2 is the fourteenth consecutive quarter of double-digit Software and Software-related Services revenue growth.

That in itself is quite a remarkable achievement.

Also important to notice that, in this quarter, we have two new GEA contracts.

We have already mentioned GEA contracts in the past.

We added two and you know that, classically, we recognize the revenues of these contracts over a period of five years.

We had very strong performance in all of our regions.

In fact, we had double-digit Software and Software-related Services revenue growth in all of our main territories.

And in fact, it was essentially driven by organic growth.

You know that our acquisition strategy is more to fill in the portfolio than to actually buy revenue and, therefore, we have been able to produce that organic growth again.

And we actually feel that the top line shows that our balanced portfolio can produce this kind of a revenue.

From a first half point of view, you will have noticed that we have extremely well-balanced regional performance.

I'll talk to you about the industries in a minute.

And we're very happy to see that we have good and continued momentum for our business process platform and adoption rates of our eSOA strategy.

Our customers recognize our roadmap and are really now voting also with their wallets and in the implementation rates of [their] technology.

Henning will give you some indication about that within his presentation.

When I look at where the growth came from, first of all, our strategic countries are driving significant growth.

And in particular, if I look at the BRIC countries, all of them are strategic focus countries.

The combination of them all has delivered a stellar performance of 80% in terms of growth and they're all performing extremely well.

And actually the fastest-growing country of them all right now is Russia, closely followed by -- and basically equal growth rates in China and in India.

In Q2, we had growth of 17% in the number of contracts, but we also grew 34% the number of contracts with new customers.

That's a very important metric, because we're adding a significant number of mid-market customers and, therefore, this metric shows how well our penetration is progressing with mid-market customers.

As you know, we had in the first half some key acquisitions and partnerships that we did in order to enhance the portfolio.

OutlookSoft, the most recent one in the very strategic domain of company performance management.

Pilot Software when it comes to BI, but also Wicom.

The partnership with SunGard very important to mention, because it does two things for us.

On the one hand, it strengthens our footprint in the banking industry but, probably even more importantly, this is the first very large ISV who has adopted the SAP platform as the underlying platform for its own products.

And as you know, we have deepened our relationship with Microsoft when it comes to Duet.

We announced that in Atlanta and there's now a roadmap available for Duet for a second and even a third version in the future.

Our customer satisfaction remains at an all-time high.

We're very happy about that.

You know we're putting a lot of focus on our installed base and we pride ourselves that we really want to provide to our customers the best possible service, and customer satisfaction is a key indicator.

And to be fair, our customers really show that also when I look at the renewal rates for maintenance, when I look at renewed buying from our installed base.

Clearly, there is a return on investment in actually driving high customer satisfaction.

The customer base in itself has grown to over 41,000 customers worldwide.

That's a year-over-year increase of a little bit more than 7,000.

And we had very strong contribution of the indirect channel in terms of order entry.

We actually managed to grow the contribution of that channel by 42%, which is a very, very good number and shows that our partner network is really contributing to the overall health of the business.

We had, again in Q2, very good and strong win rates against our competitors.

In fact, I believe that it's all coming from best-in-class solutions that we deliver to the market globally.

We have very broad, very deep industry capabilities that our customers appreciate very much and the integrated product portfolio, based on our service-oriented architecture, gains a lot of traction with our established, as well as with new customers.

And this is materialized by very strong ERP and NetWeaver adoption, and Henning will show some trends and numbers that underpin that statement.

When I look at the SME business, or at specifically at channel customer and partner business, our SAP All-in-One product has broken through the 10,000 customer mark, with now 10,223 customers.

That's a 19% year-over-year growth.

We have added 30% of partners.

Just to make a small comment here, that number could be slightly misleading because we're also adding to this channel a number of future A1S partners, so this is not just pure All-in-One.

And when I look at SAP Business One, we are coming close to 15,000 customers.

That's a 38% growth and the number of partners have stayed flat.

There's a simple reason for that.

We haven't brought Business One to any new countries.

We have focused on making our existing partners more productive and, as you can see, that strategy has worked very well in terms of new names per partner.

When I look at some of the selected wins in terms of customer names; in The Americas, another bank, Banco Columbia.

You know we're very active in the public sector in America; City of San Diego.

Enbridge, utilities.

You know that we are by far the world's market leader in utilities and Enbridge is yet another testimony to that fact.

Maxim Integrated Products and Sandisk are two semiconductor businesses in California.

And I'm very pleased about these two wins because, a, they were extremely competitive and, b, having won these two we basically have 15 of the 16 largest semiconductor companies running on SAP.

In EMEA, we continue our focus on retail as well, and DSG International and Edeka in Germany are very important wins in that domain.

Federalnaya, utilities again, this is in Russia.

Gas Natural, also utilities, in Catalunya in Spain.

Another bank, HSH Nordbank, so our drive in financial services continues.

QinetiQ here in the U.K., a very important deal.

And Surgutneftegaz in Russia; another oil and gas utilities company.

Asia Pacific, Australian Post.

China Petroleum, that is a good customer but it's not the chemical division for which we have been fighting since a long time.

Hitachi, and that's another GEA that has been added to the list.

It's Hitachi Global, it's [their] corporation.

Konica Minolta, you're familiar with that.

And Tokyo Electron, maybe just to mention this one, yet another utility company which gives us a strong confidence that we can continue to expand our footprint in the utilities segment.

In the mid markets, Q2 was an extremely good quarter on a rolling four quarter basis on order entry, measured on order entry.

32% of our order entry came from SMEs.

That's a very strong performance.

It's been going up steadily over the last quarters, which puts us in the leadership position in the SME business.

And in fact, when we look at the peer group in terms of market share, we have about 37% on a rolling four quarter basis, significantly ahead of number two and the others.

In industries, we get significant payback from the two decades that we have now accumulated industry knowledge, both in our people and in our products.

You know that we provide industry solutions for 26 different industries and we have built this organically and we actually support core business processes for these 26 industries.

We use acquisitions to fill in this, or the other, gap in the portfolio and it's usually a make-or-buy decision and it's a question of speed in terms of go to market.

In the first half of 2007, we had good growth across all of the industries.

Standing out from them is oil and gas, CPG, our banking effort, and utilities.

But I would be amiss if I wouldn't mention that we are still very happy about the performance we get out of retail and some other industries, so we have a well-balanced portfolio here as well.

And as you can see, we have a long list of customers here in both growth and focus industries.

I'll let you read them.

I won't read them for you.

Some of them we have already talked about but you can see it is globally balanced, industry balanced and new names as well as existing customers.

When I look at regional performance, Werner already indicated some numbers.

In Q2, and I'll go from top to bottom, EMEA had a very strong quarter, I'll give you some color on that in a minute, with a 17% growth in constant currency.

Germany came in at 7% and the rest of EMEA, therefore, at 23%, which is an extremely strong performance for EMEA if you consider our market share here in Europe.

The Americas also had a strong quarter; 18% in constant currency.

The U.S., 11% and this is now in dollars.

And the rest of Americas came in at 44%.

And it's driven, of course, by the strong performance of the emerging markets, such as Brazil.

And last, but certainly not least, APJ, Asia Pacific Japan, plus 29%.

I'm very happy about the performance in Japan; 39%.

We have been working very hard over the last years to get Japan back on growth and 39% certainly is growth.

But also the rest of APJ performed extremely well, with 23% in constant currency.

Let's take a more detailed look at each one of the regions.

The Americas came in with the eighteenth consecutive quarter of double-digit growth, which is quite a performance in itself.

By the way, just to give you an indication and to give you a sense of the metrics, the U.S.

has basically doubled over the last three years.

We continue to gain share against the competition in all of The Americas' markets, including the U.S.

We have the highest customer satisfaction in the Group.

In fact, in The Americas, it's an all-time high.

And we see very strong performance in Latin America, in Canada, good SME performance across the board including in the U.S.

And, therefore, this explains how we got to strong double-digit growth in The Americas.

If I look at EMEA, as you have seen already, very strong quarter, 17% in Software and Software-related Services.

It was a balanced performance across the entire Continent.

We had very strong performance in Russia, very strong performance here in the U.K., good performance in France, good performance in The Nordics and Germany came in single digit as predicted, and 7% is okay.

We see good overall economic environment.

That helps, of course, the business as well.

And in fact, what we do see is quite a lot of pent-up demand here in Europe.

Many European companies are now trying to catch up when it comes to IT spending to what North American companies have done a few years ago.

And in particular, that is noticeable in the small and mid-size business segment.

In Asia Pacific, extremely strong results in China and India, supporting also the strong growth in Japan.

Asia Pacific Japan is clearly the growth engine for the Group in terms of growth rates.

Actually, they do this in two ways; by their own organic growth, of course, but also by attracting investment from other regions into Asia Pacific Japan and, therefore, we can [pull for] more demand through what's happening there.

And when I look at the various industries in this region, clearly, Japan we see a lot of demand from the manufacturing sector.

In India, we have extremely good growth across all industries, with a point that I'd really like to make from -- in particular from SME, while China is also a very nicely balanced growth, retail industries, utilities, basic industries, so we are very happy with the business there.

Our priorities for 2007 haven't changed.

We want to extend our leadership in the core enterprise application market.

We will continue to focus on a certain number of industries.

We will continue to drive SME segment and we want, of course, to continue to help get benefits from our strong partner ecosystem.

We want to expand our leadership in the platform market, and Henning will show some numbers when it comes to NetWeaver.

We are addressing the buying centers with new solutions and GRC, CPM etc.

are excellent examples of that and starting to show up in our numbers as well.

And of course, we will continue to go after the business information user, in particular with Duet.

I think what characterizes us in a very significant way, compared to all of our competitors, is that we have a very balanced regional contribution and we have high growth markets that are really gaining significantly greater prominence in our overall portfolio, and that's a critical thing.

And now I would like to hand over to Henning.

Thank you.

Well, ladies and gentlemen, two years ago we started to outline what we would like to do to grow until 2010.

If you remember, it was a pretty straightforward proposition.

We said we want to grow from our core business, and want to focus on three new areas.

Leo mentioned them at the end; mid-market business, user and platform.

So if I summarize how I view the first half based on the strategy, I would say it's obvious that the good results, the good top line results helps us and show that we can still grow from the core, that the core business is very healthy.

Customer spending [is various], our price pressure continues, but it's not a surprise for you.

I will come in a minute to the adoption of Enterprise-SOA.

That is something we are talking about now since a while, and I predicted some time ago that with more and more adoption of the business process platform, we can generate additional revenues coming from the consumption of the Enterprise Services.

Therefore, it's so important that we monitor how many customers have these business process platform from now in use, so how many productive customers do we have.

Mid-market success, it was mentioned there.

It's now 32%, year over year, for one year from our business in the mid market, so it's growing.

It's the right direction to achieve the 40% to 45% we want to have in 2010.

And finally, you have seen we did some acquisitions to complete our portfolio for the business user, but we did also some internal development, and I'll come to this in a minute.

So overall, whatever we do, if you like to look from the Software side or from the Software and Software-related Services, and I prefer the Software and Software-related Service then because that's what we will guide in the future.

We will not guide on Software, for good reasons.

You have seen it from Leo, our business model is slightly changing and, therefore, this is a better figure.

We are the clear number one.

From the Software side we have added 3.4%, year over year in market shares, 3% on the Software and Software-related Services.

You also see that [Oracle] as our competitor has more bought maintenance streams, so therefore their share is higher on software and software-related services, but you see our momentum from the new business.

Now, let's come to the adoption.

It's pretty interesting.

We, as you know, announced NetWeaver 2003.

We started to bring it to the market 2004, so you see here the adoption to the left-hand side from NetWeaver customers.

And I have -- we mentioned here it's a productive one, because I think that's what matters.

And you see we have now 8,800, which is two thirds of the number of NetWeaver customers, and it's actually 13,000.

Two thirds are productive, which is a pretty good number.

I don't know -- who follows us for a long time know that when I presented our three, I was always happy to come with the 50% productive number for productive clients.

So that tells you that the customers are really using it.

If you look to the number of productive systems, it's 18,000.

It's another indication that these are mostly large clients, and these large clients have normally more NetWeaver applications in production.

I'll explain later why and what it means for us for monetizing them.

But also the revenues is going up in the first half; we made EUR364m.

Standalone now we have 31%, so you see, even standalone, there is momentum and I would say that over the year we will come closer to EUR1b.

It might be between EUR900m and EUR1b, so it's a pretty good number.

We have asked around our user conference, SAPPHIRE, who would like to use NetWeaver as a strategic platform, and we came up with 53% until 2010.

Some media -- some people from media asked me, okay, 53% sounds pretty low.

And then I said, okay, on the other side, those who said no were 4%, so we have still more than 40% we can convince.

I think that's a pretty high number.

Look to the ERP situation.

It depends on you.

If you want to know the number of ERP installations on NetWeaver, look to the big number.

If you want to know the number of ERP installations that really are services-enabled, and you know we are the only Company that has a services-enabled ERP, then look to the lower one.

It's now more than 2,800.

Those who were with us at SAPPHIRE know that the last figure was 2,200, so a pretty strong momentum.

Overall, we have also converted in the first half 300 R/3 contracts.

You know our target is 800 to 1,000.

I think we will come up with 800 this year and that means we are on track at 2009 to have a few hundred less.

There might be only a few in 2010.

And finally, if we ask our American customers how many of them want to upgrade to these services-enabled products, and they said 75% to the mid of next year.

By the way, numbers were pretty the same in Europe.

In Europe this was something about 50% this year.

Now, another important point for our strategy in bringing an open platform to the market is the attraction of a strong eco-system.

I just want to mention two or three highlights here.

More than 2,000 partner solutions now in the market, more in those business solutions, more strategic partnerships.

We have launched a co-innovation lab in Palo Alto, with a number of very prestigious founding partners.

As you can see, we extend to build industry value networks where we invite partners, key clients, and sometimes key players in the industry which are not inclined to talk and discuss with us what these industries will do in the next five to 10 years, leveraging Enterprise-SOA.

The communities are growing now, as you see, at more than 800,000 through the SDN, 150,000 in the BPX, and more and more people helping us defining Enterprise Services.

From SAPPHIRE, most of you have seen this.

I don't want to repeat the announcement, just reiterate the number of participants, 14,000 in the U.S., more than 8,000 in Vienna, so very good names.

And the key highlights in Atlanta have been that we extended the vision of where the product will go.

I'll come to these at the end.

We extended the co-operation with Microsoft on Duet.

In Vienna, we outlined what we want to do to address the CFO.

One key win was Swiss Re, and I think that the most important partnership was SunGard in the area of asset liability management.

I know that many people who are discussing this shift to a stable core in our product with enhancement packages.

Our competitors believed we will not innovate any longer.

This is not true.

We innovate in a smarter way, in a way our customers want because stable core means that there are no expensive upgrades.

They get, let's say, the innovation in pieces, in optional packages.

The first is in the market.

The second will come on time in July.

I just wanted to give you a heads up how it looks like.

You see there, let's say, parts in this packages where we improve functionality, parts where we bring more services out, parts where we improve the industry functionality.

Now, let me at the end summarize what we are doing from a strategic point of view.

This is not a new slide.

I think we defined our ambition that we want to double our addressable market until 2010.

If you look to the picture you will see that what we are doing, our investment is doing it into four dimensions.

Clearly, number one is we want broader coverage in our core business, Enterprise Applications, which for the large enterprises, obviously, is doing more for industries, our solution net coverage and doing more strategic relationships.

If you come to the mid markets, it's definitely our large investment into an entirely new business, with the codename A1S.

We should not forget that we are also moving slightly into services but, again, in a different way than just professional services.

It's more productized services, so high margin services, services which help us to sell more software.

[No-one] has these value engineering which we are now rolling out globally.

I'll come in a minute to custom development projects, very important, and finally, supportability.

We'll also move into the area of personal productivity.

Leo mentioned business information worker with a lot of new products coming.

And finally, with NetWeaver, we are not only supporting our applications, that's for sure, but we also generate standalone additional business.

So we move, to some extent, into infrastructure.

We want to show that NetWeaver can integrate SAP/non SAP better than anybody else, and we want to create new revenue opportunities with [a] hub concept.

Now, I will just go through all four of them.

Business coverage, you know the slide, [net] $30b market for large enterprises, $30b mid, $15b small.

A clear positioning of our products for large, it's a Business Suite.

For these mid ones here, All-in-One today with hybrid channel and, for small, Business One, so pretty clear, and Leo has talked about the numbers.

Now we have announced that we will invest significantly over eight quarters, EUR300m to EUR400m into a new business where we can reach out to customers, to prospects we couldn't reach today, the lower mid market, those who have not taken into consideration so far software of the type that SAP and competitors are offering.

We have so far invested EUR50m; Werner mentioned it.

We know it's more back-end loaded, but we are on track with our program.

It's a phased market introduction.

We are now in Phase II where we validate our product with customers, not only with analysts, with customers, and want to see that we can make customers live.

We continue to work on the different way, how we bring it to market, the different way how we will do services later on, here embedded services.

We will build service factories.

It's entirely on demand.

And we are prepared to enter now Phase III, where we will disclose the brands, the name of the new product in September, where we will highlight first live clients, so then we can start in the next step, accelerate customer acquisitions.

We will bring on partners on board.

We will, let's say, show that we are prepared from the infrastructure to really support volume.

And then I would say at the beginning of next year, we will validate, if it's really volume ready.

You know this is not only the products, it's also the operation.

We are doing the operation.

You are looking for returns so we will be careful that we are not spending too much money there, so we have to optimize the operations then.

That's where we are.

Now the second point, productized services, we should not forget these.

This is another opportunity, and I have picked two just to explain how the world has changed with the new business process platform.

It's very important that we win the mixed accounts, no doubt.

And if you want to win these accounts, then I think you have to come with a proposition, which is we are better in supporting the mixed environment.

Therefore, NetWeaver has an integration platform.

It's key, but it's also key that customers believe more in our supportability capabilities, and we are expanding here, and we are ready to offer end-to-end supportability over time.

So this is a good business in the area of productized services.

If you look, for example, to our MaxAttention business, it's high margin, it keep customers, it keeps customer loyalty.

Custom development, for many, many years something customers didn't want to have because they wanted everything as a standard.

It was bad for us because we had to bring too much into the standard and couldn't leverage this.

Now, we can turn it around.

So now, all of a sudden because they are done through services, we can avoid investing too much into the long-tail in the standard.

We can respond easily to customer demand, so we can expand from the classical area, doing something in the SAP core, to bringing more custom development in the areas where we have wide space in the industries, and also platform-driven customer solutions which are beyond.

This is another opportunity because not only from services.

These services have higher margins, but also from the enhanced consumption of the platform in our software.

What about the Business User?

We talked about it in the (inaudible) [Duet set-up] but it's a broader picture.

You'll see here, underneath, we have the Business Suite.

We have NetWeaver.

We have services, and we have now announced, and we shipped to the market, two horizontal new products, which integrate SAP and non-SAP.

It was mentioned.

One is this addressing the need of governance risk and compliance, the other for performance management.

You will see that most of the components are ready, are shipped.

And on top we have the industry flavors, and we have these different topics you have seen.

Duet, Mobile Applications, Enterprise Search will come, Adobe Forms sell nicely.

We will bring more analytics to the market, and we are also prepared to bring more Voice Applications into our portfolio.

So you will see this is another up-selling opportunity for SAP.

And the last one I want to mention is the, what can we do with the platform with NetWeaver?

And just to remind you, we promised to the market there's no disruption, so you have today the Business Suite running on NetWeaver.

You will see it here.

NetWeaver has a provisioning environment, so it's stable enhancement packages.

On the other side we have just, at SAPPHIRE, launched our composition environment, so that companies can do model-driven composites and consume these services.

This is very important because, until today, it was mostly coding in Java and then consuming the services.

The more we come into model-driven compositions the easier it is, and the more convergence can do it then the faster the consumption will be.

Now it's key for us that we can drive very hard the speed of innovation for this composition environment.

But if it's the same environment like that, let's say, being underneath the application, we disrupt the business?

So therefore, what you will see is that companies build up more, what we call, NetWeaver hubs in order to drive latest technology without disrupting the applications.

And you will see more of these hubs, for example, if companies drive master data harmonization through our MDM, if they want to drive integration process, integration into heterogeneous environments, so they will be up, coming out of XI, etc.

So you see how we can bring more technology to our clients without disrupting them.

So with that, I would like to conclude.

This is our roadmap for the years to come.

In 2008 we will bring, as I announced, the Suite to a stable core and we will have enhancement packages for the Suite.

We will have, then, new applications being available based on this new Enterprise Service architecture from '09 on, and clients like very much that we have said that our maintenance, our standard maintenance goes until 2013, so this picture is now obvious.

You will see us having these products in the market.

You will see that depending on the type of products, the leverage of the platform will be more or less, most in the newest product, A1S, lowest in Business One.

We will not bring Business One to NetWeaver but we will have similar Enterprise Services in Business One, like in the other portfolio, to even enable small companies to link in a business-to-business environment to the large ones.

Thank you.

Thank you, Henning.

We now have time for Q&A.

Again, as a reminder for those who followed the event through the Internet or by phone, please do send us questions to investor@sap.com.

And we hope we can have a healthy mix between questions we take here from the audience in London, and from other folks who probably went over the web.

And as a courtesy to those who made it to the Great Eastern today, I'd like to start with a question here from the room in London, if there are any.

There is one from James Clark.

If you could also introduce yourself and, actually, name already, perhaps, the institution.

Thank you.

Thank you, it's James Clark and I work for Credit Suisse.

You, as part of your guidance, I think your Head of Europe has stated the expected European SSR growth of 10% for this year and, given the first half performance, that guidance implies a fairly catastrophic collapse in the growth rate in your second half.

Is that still appropriate?

Let me maybe try to answer that question.

I don't know to what you refer.

We don't give guidance per region.

I know that my friend, Ernie -- Ernie [Hernst] who runs Europe, talked about a growth rate for Germany, and he said that he was expecting Germany to come in single digit, around the 5%.

This is actually documented by the performance of Germany in Q2.

And, as we don't give guidance per region, the only thing we can say is that we maintain the guidance.

It is a pretty ambitious guidance that we already have out there and we will need all of our regions to perform to achieve that guidance.

Thank you.

Can I try a completely different question, which is can you tell us how many employees that are now part of A1S or of that group?

It's difficult to say and it doesn't help you to, let's say, forecast the accelerated investment because there was a factor from an R&D point of view.

I would say that we have roughly, from the application side, 10% of our R&D employees in A1S, and I would add another 5% to 10% from NetWeaver, where NetWeaver is supporting this.

So, overall, between 15% and 20%.

Thank you.

I think now we have two numerical questions from the web.

One is by Marc Rode from MainFirst, and Ross MacMillan from Jefferies.

Can you quantify the contribution of acquisitions to your constant currency software code, probably referring to the second quarter?

And then secondly, to what extent is the revenue from acquisitions factored into your guidance?

And then another follow up from Marc Roder at MainFirst.

Why did you not change your tax rate guidance after the second quarter tax rate of 25.8%?

I think, Werner, you can probably address the latter point.

The revenue coming from acquisitions, and its impact on growth at constant currency, it is 1 percentage point of growth is driven by acquisitions.

The second question, I explained that we had a tax rate in the second quarter which is quite comparable with the tax rate we saw in the second quarter of 2006.

And both quarters were impacted by some one-time effects, and I think for the full year again we will come up with a tax rate of 32.5% to 33%, because there is no reason to assume that these extraordinary one-time items will recur.

Okay, thank you.

Let's continue here in the room.

I see one question from Raimo Lenschow.

Raimo Lenschow from Merrill Lynch.

Leo, sorry, but I can't avoid the question about the U.S.

business.

Can you maybe talk about there?

If I can dig down into the growth rate there, is there something more sinister going on in terms of the economy?

Is there -- you have, obviously, had tough comps in terms of Q2 '06.

What's going on there?

And if I might follow up with a question for Henning.

On A1S, Henning, as you do run the applications at the moment, is there not a question to try to beat something like [Amazon cloud computer] or something like that to bring the cost base down, and where is SAP in that sort of thinking?

Thanks.

Okay, let me try to answer the U.S.

question first.

There's nothing sinister happening there.

Actually, it's pretty bright.

If you look back, and as I have already indicated, we have basically doubled the U.S.

business in three years.

We have 19 consecutive quarters of double-digit growth, so the base is becoming pretty big.

So I wouldn't suggest that you focus too much on this one quarter in terms of growth rate, even though it's still double digit.

The absolute number is already pretty huge.

If you see what's happening in the U.S.

market, I think the U.S.

market is coming off a long period of significant growth, and there is some slowdown in the overall growth happening, not anything major, not anything sinister, so I'd continue to expect the U.S.

to contribute to the performance of the Company.

If you look back over the last four quarters, on a rolling basis, the U.S.

has actually been exactly on the average of the Company.

And I actually don't expect that to be that significantly different going forward, give or take a few percentage points.

We have a great team.

We outperformed the competition significantly.

We win the deals that are to be won.

We see a little bit of a softness in the larger deal space, but that could be only a question of a quarter, so I don't want to speculate on the future.

And the good news is we have a very balanced regional performance and capability out there, so it doesn't really matter that much, one way or another.

And coming to [cloud] computing, I think this is something which is not only Amazon doing.

It's -- I think we have a more capable platform provider.

Look, what we are doing is it's an option for coming to very low operational cost.

Therefore, obviously we are testing and trying if this is a platform we could run on.

And the answer is, I think, we could do this with not big investments.

So, therefore, it's an option for us to go for lower operational cost.

On the other side, the -- what we see so far from clients seems to be more a tendency -- it depends a little bit also from the regions, but in Europe at least.

In America we will see, but in Europe there is a tendency that clients still look to having their own data.

And then a mega-tendency model like we develop it, is superior, because it really separates data, gives higher security, allows to have the system on-site in an appliance mode, etc.

So what you will see is us testing all options and hopefully come up later on with the best possible mix between demand of the market and, I would say, cost structure underneath.

But it's a good point, and it's on our head, yes!

Thank you.

In the meantime we've got another two questions from the web, the first one by Kirk Materne who is from Banc of America, referring to the accelerated investments, EUR300m to EUR400m.

Will the remaining accelerated investments be linear, or do you still expect them to be back-end loaded?

Will there be a peak upon the start of volume business, beginning of 2008?

That's a first question.

Then another one by Charlie Di Bona from Sanford Bernstein.

Can you give us an indication how you will spend the accelerated investments in terms of cost line items?

I think we addressed some of that in the presentation already.

And a follow up on the U.S.

performance.

Did GEA have a significant impact on U.S.

performance this quarter?

Yes, I will start with the accelerated investments.

It will not flow in lineally.

It will be back-end loaded, as we explained at the beginning of the year.

We will see also in 2008, a back-end loading of these investments.

With regard to the spending, whether it's cost line item or how much is CapEx, the EUR300m to EUR400m is all cost line items.

It's not capital expenditure.

We turned it into the impact on our P&L.

Yes, to the last question concerning GEA, the impact on U.S.

performance, I wouldn't want to qualify it like this, because you will see us do anywhere between three to five GEAs on a yearly basis.

And we are now in the situation where we can eagerly compensate for that from a total business flow point of view.

So the U.S.

performance is what it is.

Again, I don't qualify it as to be anything to be significantly concerned about.

And the two GEAs that we signed, one of them was in the U.S., and the other one was in Japan.

Thank you.

Now, let's continue here in the room.

I think one question here in the back from Marc Geall?

Thank you, Marc Geall, Citigroup.

A couple of questions, if I may.

Firstly, can you just remind us, with A1, what you're actually selling at the moment, and where we are in terms of new product delivery, and what we should expect for the second half?

And then a follow up; volume growth was obviously very good, at +17%.

Software licenses were up +22%.

Yet there's an increased proportion of mid-market contribution, which should be a lower ASP.

That would tend to imply that the average deal size in your Enterprise customers is increasing.

What's driving that trend?

And is it a trend, or is it a one-off?

Marc, I will talk about A1, and then maybe Leo will comment on the deal size.

A1 is on track because you know what we did is we moved A1 in the new version to the new year P&L.

It was before our 3+ business warehouses and some best practices now.

A1 is, if you want, ERP 6.0, the newest one, Enterprise Service-enabled, with best practice.

Will it be extended?

Yes.

We will bundle a CRM, a lean CRM capability, in the third quarter.

That was, I think, what we wanted to do, and then we have not the entire suite, but you would say a leaner to consume suite, services-enabled, based on NetWeaver, with best practice for all industries, available in all countries, so, a mid-market product which could cope with all possible complexity that could come up in the mid market.

That's very important because it protects A1S.

We have not to go to every industry.

We have not to go to every long-tail.

We have not to go to every small country because we have an alternative, and we have not to invest too much in A1 because it's more or less a packaging of the three.

It's very important and this is how we will continue to drive A1.

Yes, Marc, and referring back to your last question you have to be careful when you try to extrapolate the exchange of conclusions from one quarter's data.

Werner already gave you a metric which I'd like to point back to, which is the following.

In Q2 of this year we signed deals larger than EUR5m.

There were 22% of these compared to Q2 of last year, where it was only 17%.

So it's enough that you have two, three of these larger ones going above EUR5m, and suddenly the metrics start to change again, so you have to be very careful.

What we are seeing is, and I guess that's what you're trying to refer to, the pricing pressure, is what it is.

It hasn't gotten any better over the last quarter.

It hasn't gotten any worse.

It is the same pricing pressure.

You see actually a trend of some larger transactions happening in Europe, but that's, in my opinion, a catch-up phenomena compared to the overspending in the past, so one should not extrapolate too much for that in the future as well.

While in the U.S.

we saw a little bit of a [criterion] phenomena, a little bit less larger deals, as compared to previous periods, but that will probably balance out as well.

So let's be careful in coming and jumping to conclusions about the average deal size.

One or two large transactions in a given quarter changes the picture, but purely mathematically.

Thank you.

Another two questions from the web before we take the question at the back of the room.

The first one here from Sarah Friar from Goldman Sachs, referring to Henning's comment about NetWeaver.

Does NetWeaver usually replaced best-of-breed vendors, or is this more of a Greenfield deployment on the new applications?

Do customers move to NetWeaver as they implement ERP 6.0 or from before that?

And then another question from Brendan Barnicle, Pacific Crest.

Is price pressure less intense in the mid market?

Can you move into the mid market, growing some relief as you move further down to smaller customers?

And the follow up, what are the next stages of the Oracle lawsuit?

NetWeaver is never a Greenfield deployment because -- at least not for our large enterprises because they have, to some extent, some integration capabilities already there.

There are different ways how customers adopt it.

One is definitely driven since many years now by the inbuilt capabilities, like [VI], or the portal or whatever, but people are not looking for an entire platform, but for a component.

That's one thing.

What I feel is that in particular now, where it's more and more used, also from our applications as a platform, that it's more viewed from clients really as an integration platform, and less as, okay, there is also a business warehouse in it, or there's also enterprise portal capability in it, etc.

So I personally have seen in some accounts that we replace other technologies, and sometimes these accounts have a zoo of technology and are happy that they get all of this free integrated into one platform.

The second point is, the stronger the platform gets and the better it supports our own applications, customers ask themselves why they need a second one in order to integrate one SAP, and that's taking off now.

Yes, and to give you some color on the pricing pressure in the mid market, and to stay in line with the zoological vocabulary, it's a bit of a jungle out there!

And the mid market is a competitive marketplace as well, except that the pricing pressure is articulated in different manners.

You are competing in the mid market with local vendors, with some global vendors, so the pricing constellation, the pricing structure in that market is completely different from the Enterprise segment.

But there is price pressure there as well.

Obviously when you compete, for example, in China for a mid-market deal against the mid-market -- Chinese mid-market vendor, the pricing expectations are different, so you need to put these things into proportion.

And I think there was just one open question, the Oracle lawsuit, the next stage?

Yes, the next stage is the -- in September 4 we have our first case management -- hearing where lawyers and such will meet, and that is the next official event which is scheduled.

Okay, thank you.

Another question at the last row, please.

[Stefan Novak] from Hermes.

I have questions, probably one on the Oracle case and then on balance sheet.

In terms of the Tomorrow Now downloads, do you have any indication on the impact of one-offs you might see in terms of a settlement, or legal costs you have?

Then do you see already any indication that it's affecting the way you take market share in the U.S., because customers might be not wanting to do business with SAP?

And what direct impact -- what plans do you have for Tomorrow Now for that legal entity; to carry on with the brand or to move business in some other direction?

And then on the balance, just be interested what actually drives the level of cash returns you are providing to shareholders, and what drives the mix between dividend and buyback?

Well, let me start with Tomorrow Now.

So the first point, it has no impact on SAP's business.

These are globally [now] in the U.S., in particular.

It has a slight impact on Tomorrow Now's business because also we are not marketing it today too aggressively.

But we continue to support our clients and we get new ones.

We have so far enforced these policies which have been in place.

It's not that they were the wrong policies in place.

It was that people didn't act upon them.

As I said to the press, there have been a few terminations of employees, a few warnings.

We suspended one manager.

Mark White is really focusing 100% on it.

So, therefore, I think we have [things] under control.

I would say what the next steps are depends on the overall next steps that happen in this case.

It's too early for me to speculate.

It's not under our full control what happens, but believe us that we will take always the right and appropriate actions to manage it.

Yes, I cover the question with regard to the cash return to shareholders.

If you look to dividend, we have a payout ratio of -- or net income of 30% for the dividend.

And I think that's the ratio we achieved for the first time in 2006 for the dividend.

And we want to continue to have a dividend with a payout ratio on this level.

With regard to the share buyback, if you look to this year we have what I indicated, a share buyback volume of roughly EUR1.2b.

If you add the EUR600m roughly for dividends then you come up with EUR1.8b.

So 30% is related to dividend.

And if you look -- just look to what we paid back to shareholders over the last three years -- three and a half years, it's above roughly EUR2.2b in share buyback and EUR1.6b for dividend payments.

Thank you, Werner.

I think part of the question, we also had the question on costs for the accruals we said about in the second quarter.

Yes.

If you can quickly comment on this.

You mentioned this, this morning in the press event as well.

Yes.

We cannot [off cut] the risk we see today, financially.

And we have set up accruals for all the -- and what we normally do for all the litigations we have.

And I do not want to give you a concrete number now, but only an indication.

We do not have set up an accrual for one specific item which exceeds EUR10m.

Okay.

Thank you.

Question right here, Adam Shepherd.

Hello.

It's Adam Shepherd from Dresdner.

It was just a point of clarification on the Subscription revenue line.

Is that entirely made up of global enterprise agreements, or is there anything else going in there?

Do you have small agreements, for example, with some companies for just enterprise agreements, or is this purely GEAs that are in there?

It's mainly GEAs but also (inaudible) into this one and mandatory hosting if you have such kind of deals.

But assume it's mainly related to global enterprise agreements.

And then just one follow up as well on All-in-One S.

In terms of the go-to-market strategy, when we spoke to you last about it you were talking about a combination of direct and indirect sales.

I wondered if there is going to be any further refinement, any further thoughts on how you go to market with All-In-One S?

In particular in the re-seller channel, will you seek to use your existing channel, build out a new one?

And then just on that as well, in terms of verticalization, when we spoke last it was clear you were going to do some broad verticalization by vertical, but clearly stepping away from the micro-verticalization you have done with All-in-One S, or continue to do with All-in-One S.

I wondered if there's been any further thoughts on that as well?

Yes.

Well, let me try to answer the questions regarding A1S first.

What we indicated last time and we've maintained that strategy is we want to go with A1S to the market using multiple routes to market; direct, indirect, obviously, come to mind directly.

But also we want to leverage Internet significantly, telesales capabilities and we're going to measure the performance of these various channels, so, using the appropriate matrix.

So when we talk about the indirect channel, it's more a question of feet on the street much more than just numbers of partners.

So, sometimes you're better off with partners of volume than a volume of partners.

We are structuring these channels as we speak.

In the beginning we actually expect to see more coming out of our direct efforts to promote A1S switches, to be expected.

If the burden of the investment should be ours in the beginning to promote a product, and we will do so.

When it comes to verticalization, as we have indicated earlier on as well, we hope that A1S will be a broad suite, very comprehensive that people can adhere to very rapidly.

It, therefore, won't have deep vertical capabilities.

Henning already talked about that in an earlier question.

If we would do that route, A1S would become extremely sophisticated and could then not be adopted as quickly.

So we'd like to keep it rather horizontal with some capabilities, but certainly not as deep as A1L -- as A1.

Our All-in-One product will take care of the deep verticalization.

Thank you.

In the meantime, if we can take another question from the web?

Tom Rodderick, Thomas Weisel.

A follow up on the Colgate GEA.

He asked for quantification of the Colgate deal and some detail of timing of the revenue recognition.

I'm not sure whether we discuss this in particular for Colgate, but maybe a general comment on the GEA revenue recognition and the timing?

We can't provide any specifics on the Colgate family of GEA, like we didn't provide any specifics on the other GEAs either.

Assume, classically, that a GEA deal is usually -- the subscription period is a five-year period, so it's a monthly revenue recognition.

Okay.

Thank you.

[Any] here in the room.

I see one question from Michael Briest and then we have Elizabeth Buckley.

Normally, you should say ladies first.

I apologize, Elizabeth.

Sorry.

Michael Briest at UBS.

Two questions if I may.

At this stage of the year, you've got Software and Subscription revenue growth of 17% so there's a chance that you'll beat your expectations for the year of 12% to 14%.

If you did do that, would you be tempted to take some of the upside on the revenue and accelerate the investments in A1S?

Or would that come through in a better margin do you think?

And then secondly, on Duet, can you give us an update on the number of users you have there?

And I think there's some more functionality being added in Q3, whether you think that's going to be a big catalyst for demand?

Thanks.

The first is an interesting question.

I think you always have the opportunities or chances to do more than you guide.

I think that's the name of the game.

You have also the [sweat] that you do less.

So, therefore, I think that's the environment we are in.

But from an investment point of view, this is decoupled from our A1S investment.

Let me be very -- I want to be very clear here.

We do -- we will bring A1S as fast to the market as we can do it.

The limit is not the money, the limit is our own brains and our own capabilities.

So therefore this is an opportunity and I will not, as I have said several times, compromise on this trust to save a few millions.

That's not good.

Then we lose a lot of opportunities later.

So the limiting factor on A1S is, at the end of the day, our own internal capabilities.

Regarding Duet, we have approximately 800,000 users currently licensed for Duet.

You're right; we are going to have some new Duet functionalities coming out.

There's actually a whole roadmap that takes us to 2010.

And we hope that we will continue to see good traction with Duet.

We also hope that we will be able to push that together with our friends at Microsoft.

Thank you.

Elizabeth?

Yes.

Good afternoon.

Every quarter, you provide some historical matrix on mid-market traction, the traction of that strategy.

I'm wondering if you could perhaps share with us maybe some forward-looking metrics or spot metrics on how that business is trending, for example, on mid-market orders in Q2, as a percentage of total order entry?

Or even how you see the pipeline going forward, some kind of indication of the split there?

Thanks.

Maybe, let me start off and my colleagues will certainly join me in the answer.

We have tried to give you a good metric with just a percentage of revenues we do with our mid-market capabilities.

Today, that's 32% of order entry.

It is rolling four quarters.

I don't think it makes a huge amount of sense to really look at one specific quarter, because the seasonality in that business is rather substantiated -- rather large.

And, therefore, to give you just a number for Q2, which actually is a higher number, I believe, would give you the wrong impression.

All in four quarters is a much better indicator of trend.

You know how many customers we now have in the mid-market; approximately 28,000.

You have the metric on our partners.

I gave you that earlier on, on the A1 and B1.

And it's a growing part of our business.

Having indicated in this presentation that we are on track to achieve, by 2010, 40% to 45% of our revenues of our order entry from the mid market and I can just subscribe to that.

Maybe I can add, if you look to four quarter [rolling] forward and see an increase here of 2 percentage points from 30% to 32%, that's then driven out of the second quarter.

Okay.

We take one question from the web and then we continue here in the room.

Relatively easy one.

Joachim Klosman, BHS Bank.

Does the guidance of 3,500 addition FTEs to be added in 2007 include acquisitions?

The answer is, no.

And I mentioned during the presentation that the number of 3,500 could be also plus.

Okay.

Thank you.

Will we continue here, Stefan?

Hello, it's Stefan Florinski from Societe Generale.

Two quick questions.

First, on Duet, is it possible to maybe break out in the quarter what percent revenue contribution come from Duet, or is it meaningful for that matter?

And secondly, based on what you're seeing so far this year and some of the comments you've made about the demand being more robust in Europe and maybe less robust in the U.S.

Do you see anything looking out to 2008, A1S aside, that would lead you to believe that growth would be any less than it is this year, for example?

Let me start answering the second one and Duet may come later.

Look, it's really a little bit early to predict this because the year is not over.

But on the other side, there are no indications that something fundamentally in the business is changing.

So even A1S, even on-demand which is popping up, is not fundamentally changing our business.

So from that point of view, today, we cannot see that we will come up next year with something fundamentally different than what you see this year.

Any comment on --?

Yes, Duet, I think we should be careful.

We don't want to report on any product.

But it's not that large that we want to start reporting on Duet.

So NetWeaver is a different category, therefore, we report this.

So there is more upside potential for Duet [going forward]?

Beyond and it has to be a certain size and I think we are not there where we start reporting.

Okay.

Now, (inaudible) we have been discussing for more than 90 minutes.

I think there is time for one final question.

Look here -- right here on the left-hand side.

Jonathan?

Thanks.

It's Jonathan Crozier from WestLB.

On the GEAs for last year, three to five this year, why not eight or 16 or 20?

I'll be happy to try to clarify that actually.

And maybe I owe you a better explanation what a GEA is really meant to do in and for whom it is meant to provide a service.

You know we serve today about 41,000 customers.

Certainly, a number of them -- fair number of them are a very large enterprises.

A sub-category of these very large enterprises actually have a strategic relationship with SAP.

What does that mean?

If a company is [for one] a SAP-centric, if not an SAP-only IT environment, they have based their business on SAP software, Colgate-Palmolive is an excellent example, and it should derive significant business benefit from that.

For more details I would refer you again to the Colgate-Palmolive's Annual Report and statement of the CEO of Palmolive.

Therefore, it makes a lot of sense for companies like Colgate and others to enter into a long-term relationship with SAP, usually five years, that includes the following key elements.

They get all of our technology, present and future, from that agreement.

They get custom-designed services, be it the custom-designed maintenance, custom-designed support, custom-designed consultancy and, in certain case, custom-design CDP as well.

And, therefore, we are able to create a special tailor-made relation for each one of those that is really geared towards their very specific and unique relationship with SAP.

Therefore, by definition almost, you will not see a large number of them because there aren't that many cases where you really need to come up with a uniquely designed, purpose-designed relationship for these customers.

When we launched the GEA program, we said that we expect something in the ballpark area of 30 GEAs over time.

I don't think there will be more than that, at least not in that -- not in a significant different order of magnitude.

And, therefore, if we do three, four, five a year, that is a reasonable number that we can actually support.

Because there's no point signing these agreements if you can't really deliver all of the services that come with them.

It's a huge responsibility and that we undertake to actually service these customers in such a special way.

Thank you.

And before we close, there is one final question we got from Johannes Ries, Cominvest in Frankfurt.

Is it fair to expect an operating margin improvement in 2008?

And is the longer-term goal of 30% still valid?

Absolutely.

Very brief answer but with a clear direction.

Thank you very much for your attention.

And our next event is the Q3 Earnings Announcement on Thursday, October 18.

Thank you.