SAP SE (SAP) 2009 Q4 法說會逐字稿

Hello, everyone, and welcome to SAP's fourth quarter results conference here in Frankfurt. My name is Stefan Gruber. I'm in charge of investor relations at SAP.

I'd like to give you a brief overview on the agenda for today. Our first speaker, Werner Brandt, CFO of SAP, will give you an overview of our fourth quarter results and our outlook for 2010. Then, Leo Apotheker, CEO of SAP, will provide you with an update on our strategy, our competitive position, and our key growth drivers going forward. I'd also like to introduce Bill McDermott, President, Global Field Operations and member of the Executive Board. Bill will be available later on for questions following Werner's and Leo's presentations.

As usual, from the technical side, this conference is being webcast. So, those of you who follow this event over the Web or by phone, please do send us questions to investor@sap.com, and we'll make sure later on when we take some questions we get by e-mail.

And finally, I'll try to make this as short as possible, we have the Safe Harbor statement, which is also on this slide, I do hope. Otherwise, I have it written here. 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.

These are all my intro comments. And with that, I hand it over to Werner Brandt, our CFO. Thank you.

Good afternoon and welcome to everybody on the Web. We have prepared, as usual, some additional information regarding our income statement, balance sheet, our US GAAP-IFRS reconciliation, our outlook, and then additional information regarding that outlook.

If you look to 2009, we think it was a very, very difficult year for SAP. We saw a turnaround in Q4 on the software side despite the fact that we do not see growth on the software side. And I think it was the turnaround in this overall situation gives us confidence for 2010. And I will cover this when I talk about our guidance.

If you look to the year in -- we exceeded EUR10.7 billion in total revenue. We achieved EUR2.9 billion in operating income. Our operating margin achieved 27.3%. If you exclude currency, then this is 27.6%, and this includes a negative effect of 180 basis points from the restructuring charges we took in 2009. And you can then add together 27.6% and this 1.8%, and then come to a margin which then would represent a run rate going forward.

We had EPS with EUR1.71. We had free cash flow generated of EUR2.8 billion based on an operating cash flow of more than EUR3 billion, and we reduced our overall headcount by roughly 4,000 fulltime equivalents down to 47,000 roughly 600.

If you look to the P&L, you see for the full year that software and software related service revenue decreased at constant currency by 5%. Service revenue, professional service revenue, decreased by 20%. This is in line with our own expectations. So, consequently, our total revenue decreased by 9%. We have operating expense. I will come back to this in a minute.

Then, if you look to the financial income net, there you see a slight decrease in our financial income of EUR10 million. That's a mix of two things. Number one, we had less interest income in the year 2009 and less interest expenses. So, this nets to this EUR10 million difference you see here year-over-year.

And another remark regarding our effective tax rate of 26.3%. Here we have one extraordinary item which accounts for roughly 3 percentage points which cannot be expected to return.

If you then look into our SSRS revenue breakdown for the quarter, and again it's on a non-GAAP basis, you, number one, see that our software revenue decreased by 27% to EUR2.6 billion. Software revenue was impacted by the most -- mostly from the challenging environment in all regions. However, in the fourth quarter, we saw a rebound. We saw it for more than EUR1.1 billion software. This is still negative at 14%, but I think from our perspective it's a clear rebound which is the basis for our confidence with regard to our guidance.

If you look to the support revenue, it increased in line with our own expectations, 11% year-over-year. And if you look to the subscription revenue, it achieved now EUR306 million. This is a strong increase over 2008, and I will come back to this in connection with our guidance what this would mean, then, for 2009 and I must say -- 2010. I must say that the new contractual agreements we introduced to the market in our on-premise model really helped to boost up this subscription revenue. But, as I said, more will come.

If you look to the regional performance now in the quarter, you see the Americas with a plus of 4%. APJ increased by 6%. If you exclude Japan, there's even an increase of 19%. EMEA is still here showing minus 7% on the SSRS side. However, Germany is improving. We see a positive 5% here for the fourth quarter. And the BRIC countries even increased by 46% in the fourth quarter year-over-year.

What I should mention is besides the result in the US, which is very strong with 8% in the fourth quarter, we see a lot of traction with regard to SAP BusinessObjects. And from a product perspective, that's everything we sell to the business user, so including our GSE solutions. So, the entire business user product portfolio, which is named SAP BusinessObjects.

If you look to the professional service side, then you see, of course, on the consulting side the decrease of 17%, again in line with our own expectations. And what did we do? We, of course, adjusted our workforce in the consulting area to the demands we saw for 2009. We reduced headcount in the entire arena by 12%, and also continued to reduce third party expenses. And that's also true for the training side of the house where you see a decrease of 37%. That's something which we expected, as I mentioned before. If you look to the total number, professional service and other service related revenue combine at 20%.

If you look to -- and I come now to the cost base to our total operating expenses. If you look to the total revenue decrease of 9%, and our operating expenses decreased by 8%. And keep in mind that this includes EUR196 million restructuring charges we had to book in 2009 for the program reduction in position we initiated in the beginning of 2009.

If you look to the operating margin, what I said before, we have a decrease here to 27.6%. However, these restructuring charges make, from a margin perspective, 180 basis points. So, in a difficult environment, at the end of the day we were able to reduce our operating expenses by EUR662 million despite this EUR196 million in restructuring charges. And the non-GAAP operating margin clearly exceeded our guidance. You'll remember that for 2009 we only guided operating margin. And here, we have a clear overachievement of our previously announced targets for 2009.

If you look to the gross margin and the overall gross margin for software and software related services and professional services increased by 80 basis points. But, that's driven by the mix we see in -- saw in 2009. If you dig more into detail, you see that our SSRS gross margin decreased by 1 percentage point to 82.1%. And clearly, we have lower than anticipated costs for third party products. However, this could not neutralize the 5% decrease of our SSRS revenue.

And if you look to the professional service, I think it's the same. We reduced our workforce by roughly 1,700 employees. We achieved a higher utilization, but both did not neutralize the shortfall on the professional service revenue side of 20%.

If you look to the cost ratios, first of all, R&D. Here you see a slight increase of -- it is not a slight increase, an increase of 120 basis points to 15%. And I would like to dig here a bit into details to explain to you what the reason is for this increase.

First of all, the development organization reduced its headcount by more than 700 FTEs through 2009. That's a positive effect if you look to the operating expenses for R&D within SAP. In the fourth quarter itself, we had an extraordinary high profit sharing in -- for Germany and here limited to SAP AG. All of our developers who work in Germany, and that's a lot, participate from this profit sharing regime in Germany. And remember, this target for 2000 -- the guidance for 2009 was based, at that point in time, the operating margin of 24.5% to 25.5%, and this was the basis for the profit sharing.

So, due to the fact that we really performed very well, and this became obvious in the fourth quarter, we have an extraordinary impact from this profit sharing in Germany for SAP AG. I will come back to this in a minute.

If you look to the balance sheet, there is nothing which is -- or needs an in-depth analysis and explanation. You'll see that our cash increased. You see that our short term liabilities decreased to zero as we paid back the BusinessObjects related debt. You see that financial liability from a short run increased due to the fact that we issued a short transaction as kind of a promissory note, and you see that our receivables decreased significantly. But, I must admit this is not as the result of an improved DSO. That's more related to our overall business activities.

You will see on the next slide that our DSO increased by eight days to 79 days. That's a negative thing we have to adjust going forward and into 2010 so that it comes back to the old level of DSO within SAP. The main reason for this increase in DSO are the financial difficulties many of our customers in all geographies in all industries have, and in all segments. It doesn't matter whether it's a large enterprise or whether it's the midsized customer. Here we saw a decrease or deterioration of our DSO, and we have to do a lot in 2010 to change this again.

Our equity ratio increased and our cash flow was very strong with more than EUR3 billion from our operating cash flow perspective. We decreased capital expenditure year-over-year, so our free cash flow increased by 52%. And our cash conversion rate exceeded 160%.

If I may bridge the liquidity for the entire group, you see our operating cash flow. You see our capital expenditures outflow acquisitions this year limited to EUR74 million. You know the acquisitions we did throughout the year. Dividends paid, the repayment of debt, and the proceeds from our private placement, this adds up to total liquidity of EUR2.3 billion. If you deduct the short term financial liabilities related to the promissory note, then we have a net debt of roughly EUR1.6 billion.

I would like to continue with the US GAAP and IFRS reconciliation. You know that the fourth quarter of 2009 is the last quarter where we publish our results according to US GAAP. We will switch over to IFRS with our full-year 2009 financial statement. And going forward, quarter-over-quarter we will provide IFRS financial statements. We have prepared the capital markets now over several quarters by explaining the differences between US GAAP and IFRS.

And you see here related to -- sorry, related to 2009 that that difference is really immaterial. We made the commitment that on the revenue side that we would apply the respective US GAAP rules for revenue recognition due to the fact that in IFRS we do not have so specific guidance regarding the accounting from a revenue perspective. If you look to the operating income, we have differences which relate to the discontinued operations of beta sets, the activities we do not continue, because under US -- under IFRS, you also have discontinued operations. But, there's a slight difference between the definitions.

If you look to US GAAP versus IFRS, we have some differences regarding acquisition related charges and some difference regarding the recognition and valuation of provisions. More, I think, I do not need to say. We are confident that we will have a very profound financial reporting under IFRS as we did in the past under US GAAP.

If you look to the business outlook, it was included in today's press release. Three points I would like to highlight. First, we expect full year 2010 non-IFRS software and software related service revenues to increase in the range of 4% to 8% at constant currencies. And regarding our non-IFRS operating margins at constant currencies, that we want to bring this in the range of 30% to 31%. That's our guidance. The tax rate is also mentioned here, an effective tax rate of 27.5% to 28.5% based on IFRS net income for 2010.

Additional information regarding share buybacks, we will pick up buying back share in 2010. And the amount we envision so far is at least EUR250 million to invest in share buybacks throughout 2010.

Some additional information. The first one relates to our -- the extension of our customer engagement model. In our on-premise environment, this is very important. Here, we have introduced additional subscription licensing options for a well-defined group of large -- of our largest customers. We have talked a lot about our global enterprise agreements we introduced in 2006. And as you know, in 2010, the second half, we introduced flexible license agreements. And this is a standardized contract that aims to -- its customers are committed to a strategic SAP development roadmap. And we will offer this in 2010 only for targeted accounts, predefined targeted accounts, and will not spread it widely in our customer base.

Now, on top of the extension for the on-premise model, we will extend our business model in the on-demand arena. You know that we have already some on-demand solutions available for -- as extensions for large enterprises. We will introduce Business ByDesign. And Leo will refer to this in a minute. For small and midsized companies in 2010, more will come.

My final comment relates to the support offering of SAP. You know that based on the customer feedback we received over 2009, we introduced and announced at the beginning of January a comprehensive tiered support model. And the key element here is that we provide customers a choice between enterprise support and standard support.

In the pricing for the two offerings, the customers can choose off this for standard support and it will be priced at 18% and it will have inflation adjustment on an annual basis. And enterprise support will be priced at 22% for licenses purchased after July 2008 and follow a step-up schedule to 22% of prior purchases. This means this relates to the installed base of our customers which is based on software purchases prior to July 2008. And you see the step curve here.

The only change we did to this step-up curve is that it did not increase as originally intended the 18.36% to 18.9% in 2010. We postponed this for one year in order to help our customers who might struggle from the overall economic situation during 2010. We will do this in 2011 resulting in the fact that we achieve the 22% one year later, which means in 2016.

Having said that, I would like to hand over to Leo.

Thank you very much, Werner. Good afternoon, good morning wherever you are. Welcome to this press conference, analyst conference here in Frankfurt. I'd like to give you a quick perception, at least give you my perception, on what happened in 2009 and then walk you through the strategy for 2010.

In 2009, no surprise to any one of you, a new reality hit the world, a financial crisis. It's, in all likelihood, also a significant wakeup call for change. And the financial crisis, beyond its being the worst recession in decades, has also significantly impacted the way people look at software.

Customers buying behavior has changed. We have a more guarded, a more delayed investment decision cycle in 2009, and the software consumption and implementation patterns have changed as well. People want faster value and they want to be able to quickly implement the solutions and extract the value out of them as fast as they can.

We responded very quickly. We put into the market an expanded product portfolio that is products that, as of characteristic, they deliver a quick, immediate ROI. We expanded our customer engagement model, Werner already referred to that, to provide customers with more choice, with more possibilities to buy or to use SAP software. We made a big effort to increase our volumes, the number of deals that we make. And as you can see from the slide, we have been rather successful in doing that. And last but certainly not least, was -- lots of things have been written about it, we embarked on a lean transformation of the Company, which is still undergoing and still underway, and implemented very efficient cost cutting measures in order to support the margin.

The strong fourth quarter is a proof that we actually responded well to all of this. We had very strong regional execution, in particular in the Americas and in Asia-Pacific. Probably the overall climate improved a little bit. Customers were less reluctant to buy software. People understand that in this kind of an environment, sooner or later you have to do the right thing. And that's really invest into some software because that is the best lever that you have in order to start growing again.

And we captured these opportunities with a vengeance, I would almost say, thanks to a very efficient sales force out there that Bill is managing that actually were able to manage and capture all of the opportunities that we got presented with.

As I said, and Werner indicated this as well, we had products revenue growth, SSRS growth, in two out of our three regions, the Americas and APJ. But, equally important, and we can't stress this enough, we saw some nice growth coming back again in terms of our key markets, in particular the United States of America where we saw good, positive growth, in the UK, where we actually achieved in Q4 double-digit growth, and all of the BRIC, if you take BRIC as a region together, actually achieved significant growth in Q4, more than 40%. That is a significant performance in these markets.

But, also here in Germany, very important, we achieved 5% growth. And this growth in Germany actually, in my opinion, demonstrates how good a customer relationship we still have in this country, how important that is.

I also want to give you a little bit of a perception on positive industry dynamics. I remember, having had the pleasure to talking to you now in this room for quite some time, that we usually got a question every year about our relatively weak performance in the financial industries and banks and insurances. This time, I can anticipate the question by saying that we performed very, very well. We had very strong performance in the financial sector. It shows that when you invest and you stay at it, you actually do get the return.

We grew financial services by 37%, in fact banking by 46% and insurances by 24%. And we are very proud to be able to announce that Deutsche Bank is going to run SAP for its core banking platform. We are very pleased to be able to announce that Achmea/Rabobank is a significant SAP customer as well. So is Talanx up in Hanover, Credit Agricole, National Australia Bank, and a few others around the world. So, we can see there's a real shift in the attitude of financial institutions towards the type of software that SAP is capable of providing.

It's not the only industry that grew, public sector as well about 14%. Telcos grew 21%, among -- underpinned by the acquisition we made in Q3, Highdeal, which helps us to provide very creative, very state-of-the-art paying solutions for this industry.

So, I also believe that our lean transformation program and our successful cost cutting delivered part of the strong margin performance so that we were able to combine better than expected Q4 top line performance with the normal strong performance on managing our business over the year, which helped us to actually produce a margin which I happen to believe was slightly above your expectations.

We removed about EUR662 million in operating expense, including a restructuring charge. And our non-GAAP operating margin, as Werner has already indicated, at constant currencies exceeded the 2009 guidance. We achieved 27.6%. And as you know, the effect of the one-time restructuring charge is about 1.8. And I'm sure that you can therefore compute the normal running operating margin.

Let me maybe say a few words about the overall market leadership of SAP, because you read interesting things about us this will be if you have a comment of usually a competitor. So, I'd like to put the record straight, if I may. We demonstrated in 2009 again that we are the clear market leader in this business. In fact, from the performance point of view, from the sales point of view, we have achieved twice the size of number two. And just to give you one indication, in our last quarter alone, Q4, that last quarter alone was equal to the last three quarters combined with some of the last three quarters of number two, including their strong Q4. Just to put the record straight on that note.

And to add insult to injury, because that's part of the fun, I guess, there were some significant competitive replacements in that game as well. People like Pfizer made a significant strategic decision to embrace SAP, as 3M in the US did the same thing. And at British Gas/Centrica, we replaced all those largest COM call center system in Europe. It's not there anymore.

We also had about 500 competitive replacements of business intelligence solutions in 2009 alone. So, you can see from a competitive standpoint, I think we are doing a pretty good job.

Some additional important customer wins in every region. People like Hilti, Aeroflot, Yves Rocher in France. Grainger in the US has renewed its trust in SAP once again. Dairy Farmers of America, Sybase. And in APJ, a very important strategic win was the Australian Department of Defense, Daiwa, and Singapore Power Limited.

Talking now about 2010, if I can have the next slide, please? Thank you. 2010 will be a year, I hope, of strong growth. We expect a gradual recovery in capital spending. We expect that the consumer outlook will solidify in 2010. But, the fact remains our customers remain cautious. They will continue to seek fast value and shorter ROI.

So, where do we think the growth will come from, from a geographical perspective first of all? Of course, from the fast-growth markets, the BRIC countries, the Middle East, Africa. And by the way, we have created a dedicated organization called Fast Growth Markets. It is focused on extracting maximum growth and opportunities in these markets. But, we will also drive growth in the established markets. We believe that there are still quite a number of opportunities including in our home market here in Germany.

We will continue to drive volume, and we will of course expand our customer engagement model to a very targeted approach of GEAs and a very targeted approach to FLAs and phased deals.

Margin growth together with growth remains a strong focus. We will continue our lean transformation. And of course it goes without saying we will continue to be very careful in the way we spend our money.

In this new reality that I -- that we talked about in the beginning, we are convinced that IT, and in particular software, our type of software, plays a key role in creating a sustainable future for the world. We believe, therefore, that there are many opportunities for sustainable growth by providing companies an increased competitive edge, by providing companies more efficiency and transparency, and we actually want to go into new markets. There are new opportunities out there such as security, efficient energy, sustainability, health management, and we are ready to seize these opportunities, actually are ready to shape some of them so that we can create the innovation that is required to drive these industries forward.

We will build on our strong foundation, and I'll come back to that in a second. And we will, at the same time, leverage our powerful innovation capabilities. Of course, that is the basis for any business you have to have close customer relationships, and we will continue to deepen those. And we will drive growth by strengthening our core business and expand beyond the core business that we have by drawing also on the strong ecosystem.

How are we going to strengthen our core business, you might ask. Well, first of all, one of the pillars there, the business suite, Business Suite 7, which, according to all the experts and according to our customers, is by far the most advanced business suite [firm] in the market. We will continue to drive that very hard. We will continue to deliver it in a packaged easy to consume, almost out of the box way. It is the only SOA business based platform in the industry. It is delivered with complete end-to-end functionality. It's fully integrated to run entire businesses, and it contains 25 industry specific solutions.

Our enhancement approach, the way we do ship enhancement packages, has been welcomed by our customers. Its modularity is being embraced. And we ship it now with step by step implementation with industry value scenarios. And we can provide our customers with innovation without disruption and therefore they can easily extend the SAP landscape.

In the business user segment, Werner already alluded to that. We are the industry leader and actually expanding our leadership. We have to grow this platform here. We -- the integration with BusinessObjects was a huge success. We will continue to accelerate market share in all segments of this particular category. We will continue to increase the penetration inside our customers. We will continue with competitive wins and replacements. And we will continue to innovate here as well with, for example, BI on-demand that you can access over the Web.

In SME, we are and remain the market leader. We have about 73,000 customers. We will continue our innovation in SME as well as conventional SME space. SAP All-In-One is now available as a subscription-based, hosted delivery solution, also here per industry.

And in Business One, we haven't spoken about Business One recently. I think we should. It's a great product. We have -- we are now delivering it with Web 2.0 integration with real-time embedded analytics, and it has seamless mobile integration including the iPhone.

We also spend quite some time in 2009 to lay the foundation for growth for this Company. And if you look at what drives the growth for a Company like us, it is innovation. You can't be an IP company, you can't be a high tech company, if you do not innovate. There is no other choice for us than to do this, and we want to do this as well as we can. And we should be clear about that, that we can always improve. And we ask that be understood as well.

So, we continue to try to do this every time -- or every year in a better way. And we have implemented a new organizational structure according to lean principles that improves how we incorporate customer requirements into our innovation, and at the same time accelerates the way in how we develop so that we can bring best in class innovations faster to the market.

But, ladies and gentlemen, innovation is much more than just having a cool, great idea. Real innovation really means that you bring new ideas to the market on time, in profit, and that it actually brings value to the customer. And moving forward, our fundamental product vision for all the products that we will develop will be based on three pillars. It has to have fast implementation, it needs to have the characteristics of instant consumption and value generation, and every piece of software that we will create will have to be easily accessible from anywhere, anytime, and from the broadest range of devices possible.

So, speaking about volume, and Werner already indicated this, it's time to talk about Business ByDesign and speaking about innovation as well. And yes, I'm happy to be able to announce that Business ByDesign is volume ready in 2010. It will be the most complete on-demand suite in the industry on the market. It probably has an advance of a few years compared to any competitor. It's already in use by customers in six markets -- Germany, the US, the UK, France, China, and India.

We're bringing out new versions which is significantly improved with additional functionality, fully multi-tenancy enabled. It has a rich new user interface. It will be available with real-time analytics, of course with mobile support, and it will enable partners or customers of those to extend it in an easy fashion, so that they can have additional scale and reach. We are convinced that this, ByDesign, will change the market and will actually create for SAP overall new markets. And by mid-2010, we will announce the business as a volume business for Business ByDesign.

We will also expand beyond our core business. A key technology here is in-memory, face-to-face in-memory technology. Real time analytics are therefore possible for improved and actually way better decision making. We can deliver analytical performance with in-memory technology with a factor of hundreds faster than a traditional database. And I hope that we can do more than just analytics. We are working on that and there will be probably an announcement around that at SAPPHIRE. But, if we can, and we have good reasons to believe that we will be able to do so, we can actually take a whole layer out of the stack. You won't need relational databases anymore.

We have a few of this product already on the market. That is SAP BusinessObjects Explorer. By the way, you can access this also with an iPhone. And we have some important customer wins with this such as International Rectifier Group, Pfizer, and AOK in Germany.

Another important area of innovation is of course the Cloud. And we don't think that Cloud is just a mythological phenomena. It's actually a real thing. But, our answer towards -- regarding the Cloud is a little bit less hype and we'd like it to be a little bit more hybrid. Because at the end of the day, our customers want to do hybrid. So, we believe in choice. We believe that customers should be able to choose between on-demand and on-premise. And we believe that we need to combine the best of these tools and not segregate them.

So, we are going to give our customer choice and flexibility. They can choose between on-premise, on-demand, and a mix of both. And thereby we will enrich the Business Suite and SAP BusinessObjects with competitive on-demand extensions. Werner already mentioned that. There's a whole series of these products coming out. And what is really important in that environment is that you can actually integrate it to work together.

Then, there is mobile. I think mobile is going to be one of the main consumptions of software we see. And by the way, it's not just necessarily smartphones versus the iPhone. SMS is also a way, you might find this surprising, to actually use mobile computing with enterprise software. That's what you do at the bottom of the pyramid in Africa or in India. And we would actually like to expand the bridge between the bottom of the pyramid and top of the pyramid. So, we will make solutions available on a broad range of devices, including in the cloud. This has obviously huge growth potential because of the number of users that this can generate.

And we want to support users who can access therefore data and applications where -- whenever and wherever they are. And we are hereby announcing also SAP Mobile CRM for Windows Mobile for the iPhone and for the RIM BlackBerry powered by Sybase, our partner.

In this new reality, we also need to embrace sustainability. And you know that SAP is a two-pronged approach system to sustainability. On the one hand, we want to provide our customers with innovative solutions, and on the other hand, we want to be an exemplar of best practices in sustainability. As a provider, we have a great position. We were probably a first mover in this business.

Our customers or, in general, the market, looks for a reliable vendor for this. We have a very clear roadmap for solutions in the sustainability arena, and we are offering innovative solutions for our customers. The first one is SAP BusinessObjects Sustainability Performance Management, a pretty long name probably very sustainable in itself. It's been co-innovated with Lexmark.

Then, we have SAP Carbon Impact. That's an on-demand solution. It helps people to manage their carbon footprint, and people like Autodesk, Hitachi, Freeport, and Jabil Circuits are using that. And then, there are a whole battery of new sustainability analytics such as in the area of environment, health, and safety, to reduce cost and risk.

But, we also want to add, as an exemplar, our goal is to reduce our CO2 emissions by half in 2020 compared to 2007. We have reduced our carbon emissions in 2009 by 15% well ahead of our target. That generated a bottom line savings of about EUR90 million. So, it's obvious sustainability counts, it computes, it generates margin. And we have, of course, used our own technology to achieve this. SAP runs SAP.

And this focus has played out on sustainability for the circumstances this year. We are the number one in the sustainability in the software sector according to Dow Jones Sustainability Index.

So, to conclude, ladies and gentlemen, I am convinced that we are extremely well positioned for the future. 2009 was used to prepare for sustainable growth, to strengthen our innovation capabilities, and to increase our profitability, and 2010 will be a very successful year for SAP, the market maker.

Our new support offerings will give customers a choice, and that's an important thing, exactly as we are doing for our hybrid solutions which are also based on choice. We believe in choice. We want our customers to embrace choice, so we're giving them these two support options as a choice, standard support which provides the standard support features that are okay for those who are running a basic environment, and enterprise support which is by far the most comprehensive support solution in the industry.

Most of our customers are already on enterprise support. We have very strong and positive feedback from our customers on enterprise support, and we are therefore convinced that enterprise support is the best optimal support offering for our customers and that the majority of our customers will embrace enterprise support.

We will expand our already strong market leadership thanks to the growth that's followed the industry portfolio for businesses of all sizes in the world. We will continue to drive innovation. We will continue to drive and leverage the latest breakthrough innovations such as in-memory databases, and we are going to focus on delivering faster value for our customers.

We have a very broad geographical coverage well balanced across regions. And as I said early on, we're going to focus on fast growth markets.

In this new reality that we are going to live in, SAP has endless opportunities to exploit this with innovative products, with expanded customer prospects, and we have given ourselves the ambition that we want to grow and reach one billion people by 2014 with SAP solutions.

So, I am personally very proud of what SAP and its employees have achieved up to now. And I think you should watch SAP over the next few years as we'll continue to demonstrate how powerful and successful a Company we can be.

Thank you very much.

Thank you, Leo. We'll now start the Q&A session. For those of you in Frankfurt, I would like to remind you please raise your hands and we'll get you one of these roaming microphones so we make sure the dialog is completely covered on the Internet. And for those of you who follow this event through the Web, there is a special e-mail address. It's always the same, investor@sap.com. Please do send us questions to investor@sap.com. But, I think we'll take the first question here in the room in Frankfurt, and I think a question from (Johann Reiss), microphone number two, please.

Yes, maybe to the guidance for 2010 cementation, a question. Thanks for already giving us some background what is the basis of this scorecard. But, maybe three additional points. First, I think I had saw from the press conference this morning or from the interview on Reuters that you expect in 2011 to return to a double-digit growth and therefore try to achieve maybe improvement of the growth rate over the year. Otherwise, you have a very -- I have a very low comparable basis in the first half because 2009, the first half, was especially weak. Therefore, can you give us any indication how you expect maybe the growth to develop over the year?

Second, the engagement model, how -- what growth you're expecting there. So far in 2009, it was not overwhelming. Do you feel stronger growth from this side in the year 2010, and how much the new offerings you mentioned? Business ByDesign, already learned already from the press, will be maybe not a huge revenue contributor in 2010, but maybe the other new offerings, the hybrid model, in-memory, how much this could already drive as a business -- new business cycle or maybe the growth in 2010? And on the cost base, how much of the costs we can expect versus savings of 2,062 can be sustainable over the year 2010?

Maybe one comment. I didn't say that we will be in double-digit in 2011. I just want to go on the record and say this again. I think that SAP wants to be in the position to grow again and that's what we are going to do in 2010. What the future is, is a different issue. First of all, let's achieve what we want to achieve in 2010.

And then, maybe Bill and Werner can address the engagement model with new offerings and the cost base.

Let me start with the seasonality for 2010. You know that we give a yearly guidance, and we do not want to provide any indication for the first quarter, definitely not as we never did in the past. And therefore, we also would like to refrain from any comment regarding seasonality.

If I take the last question with regard to the cost base and the sustainability, if you look to the operating expenses which exclude all the extraordinary items in 2010, then you have a base which will grow in 2010 but at a lower pace than we anticipate the growth of our software and software analytic service revenue. So, you will see a leverage there.

And maybe one remark related to our R&D expenses. If we see a small growth overall on our operating expenses year-over-year, then we would see an under proportional growth year-over-year for R&D expenses.

And in terms of the engagement model, I think you all know we go to market by geographic region in the Company. So, we have APJ, we have EMEA, we have North America and Latin America. In each one of these regions, we have a multi-channel strategy in how we go to market. We do this with a combination of marketing, inside sales, our channel partners, our direct sales force, and we market solutions and services because the customers not only wants the software, but they want the relevant services to deliver the value and make the project successful.

And finally, we do this by industry. As Leo said, we have 25 industries where we go to market. And we market by industry to small, medium, and large customers alike. And I think what makes us very unique, in fact, I think we're the only ones that do what we do the way we do it, is the model Leo talked about, which is not only on-premise but also on-demand and orchestrating the business process levers between those two worlds for our customers.

If I come back to the question of this with regard to subscription revenue, then I think the target for 2010 is in a range of EUR360 million to EUR380 million.

Okay. Thank you. We have a lot of questions from the Web already. I hope we can cover a lot of them. The first question from the Web comes from Michael Briest from UBS, and he covers three areas. The first one is not a surprise. We got this this morning in the press conference as well.

What is the reason for the big sequential R&D increase in the fourth quarter 2009? And is this a onetime event? And secondly, why did headcount continue to fall in Q4 2009? What was the number leading as a result of the restructuring? And thirdly, Werner alluded to the new offering of choice in the area of support. So, what is the level of maintenance revenues you see at risk if all customers move back to standard support?

Let me take these questions. The first one related to sequential R&D increase in Q4. I mentioned this during my short summary of 2009. That R&D expenses in the fourth quarter are impacted by an extraordinary high portion of the profit sharing assigned to the R&D -- or to the employees in Germany which are working in the R&D space.

We, as I explained before, have based the profit sharing on the original margin guidance of 24.5% to 25.5%, and here we have actually a tremendous overachievement with the margin we presented today, which is then 27.6% if you exclude the currency. And that's the reason for an extraordinary high profit sharing for SAP AG employees. And these are mainly the employees which are associated with research and development.

I can give you -- also provide the numbers. The profit sharing for SAP AG for the full year amounted to EUR130 million, and roughly two-thirds of this has to be allocated to R&D. And that's the special effect in the fourth quarter of 2009.

The second question relates to headcount continued to fall in Q4, what was the number reading as a result of the restructuring? If you remember, we had the program set up in a way that many employees, especially those in Germany and other European countries left towards the end of the year, and that's the effect we see in Q4. And the majority of those who left in Q4 were under the program. Remember we had 4,000 employees less at the end of 2009 compared to 2008, and 3,000 coming out of the reduction in positions program and 1,000 left the Company on a voluntary basis.

Finally, the level of maintenance revenue we see at risk if all customers move back to standard support, that's something everybody, every analyst, can calculate on his own. Our position is that the majority of our customers who are to date on enterprise support will stay on enterprise support and will not move to standard support.

If you make your own calculations with the respective assumption, you can figure out what the amount is. And be sure that our own judgment here is covered by our guidance we've provided to the capital market today.

Okay. Thank you, Werner. I think our next question here in the room. I see one from Mark Rode.

Thank you. It's Mark Rode from MainFirst. Two things, one on enterprise, well, just briefly. I don't know if you can help us on this, I mean, just what share of your client base is currently under enterprise support. So, how many clients, what percentage, maybe, or value have signed up for that at the current point in time? And on the variable compensation costs, you explained the profit sharing in Germany. I would like to address the issue from a slightly different angle on a group-wide basis. If you meet your targets for 2010, let's just assume, on the relevant line, would the total variable come to be significantly higher or lower than what you said -- what you experienced in 2009? So, I guess it's clear what I'm asking. The intuitive assumption before all your explanations was that 2009 was a relatively lower year for variable comp, but apparently that was not the case. I'm wondering what the flex is in 2010 in that respect? Thank you.

I'll start with your second question. 2009 was an extraordinary year from that perspective. And what's going to happen in 2010, you will not see the same trait. Because -- if you look to the setup of our guidance and the way how we presented it today, it's the basis for more in line with previous years' payout of any profit sharing system in SAP.

It's more implicit, the answer, than I was hoping for. Can you not say whether the absolute variable charge that you'll likely expect if you make your targets was going to be higher or lower than 2009 in the current year, just give us an idea?

It would be lower, definitely lower.

All right.

Regarding enterprise support or support in general, I think we have already indicated that currently more than half of our customers are on enterprise support.

If I may, is that related to numbers or would it be even more than half on value, because presumably larger accounts would be more tempted to go to enterprise support?

Well, we have a range -- we have a formula in our maintenance called PSAV for very large customers. So, it's -- they have to be careful with that. But, I would assume that also on the value side, it's more than 50%.

Okay. Thank you. The next question comes from the Web again from Laura Lederman, William Blair. Actually, three questions. What are you close rate assumptions for 2010 versus 2009 and the fourth quarter? Probably a bit early to comment right now. Secondly, how much of demand in Q4 2009 was pent up demand versus a long tailed demand? And thirdly, what are your acquisition thoughts going forward? Will it likely be smaller, tuck-in acquisitions?

And maybe I'll handle the first couple of ones. The close rate assumptions that is contained in our guidance for 2010 are similar close rate assumptions to what we had in 2009. And yes, we did have a strong quarter in 2009, especially in the operating environment we were in. But, it's a little early to call 2010 Q4 at this stage.

But, I can say that we manage our pipeline on a rolling four quarter average. And our pipeline in our business is steadily improving. And it's doing that in core markets such as the UK, in Germany, United States, and Australia. And it's especially doing that in Brazil, Russia, India, China, Middle East, and Africa. So, you do see a steady improvement, and our fast growth market focus is clearly paying off.

I would also like to underscore BusinessObjects, because, as Werner mentioned earlier, business intelligence and analytics is a major growth driver. Leo talked about 500 competitive replacements, but we're also seeing GRC and EPM as top CFO and CEO kinds of issues, and being the market leader helps.

In terms of Q4 and pent up demand, I think we did a lot of good work throughout the three quarters and received some of the reward in Q4. I would say some demand was clearly pent up in the United States, and I say that because the deal sizes in the United States demonstrated pent up demand in transactions above $2 million.

I do also want to finally mention in Latin America and APJ, despite the overall software and software related services full year down a little bit, it's important that you know the transaction volume was up, which means the volume culture in SAP is truly taking hold and we expect that trend line to continue.

And maybe the last question, what are your acquisitions thoughts going forward. It would likely be smaller tuck-ins. We have done, in 2009, a number of smaller acquisitions, tuck-ins. It's actually very successful. If I just take Highdeal as an example, it has helped underpin our offering in the Telco and actually in other businesses that require innovative bidding, convergence billing. And Highdeal is very good at that, and I would expect that trend to continue.

I tried to indicate earlier on that innovation has to be our core capability. So, we will innovate ourselves. It goes without saying that it would be arrogant to believe that we can innovate on every aspect of our business just by ourselves. So, there will in all likelihood be other acquisitions. And as to the size, well, that depends.

We are not necessarily doing the acquisition on a size perspective. We're trying to do acquisitions, when we do them, first of all on a very simple metric. Do they make sense? And from an M&A perspective, for them to make sense it has to be an adjacency, it has to be complementary, it has to be synergistic more on the revenue side than on the cost side, because in our business, it should be viewed from that perspective. You can't just go in and reduce costs. And the company cultures need to fit. So, these are the criteria that we use to look at acquisitions.

Thank you. A question here from Jonathan Crozier, and I think that we have Raimo Lenschow

Thanks. Jonathan Crozier from WestLB. Just one probably from me. It seems to have been a breakthrough year for operating cash flow despite obviously being a difficult year. Could you explain why that was? Was that something to do with the mix in the software and software related services business? And most importantly, can we take this as a base level going forward?

It is true that it was, from an operational cash flow perspective, a successful year. But, going into 2010, we should not forget one thing -- our DSO went up. We put a little -- a lot of effort into managing our cash flow throughout 2009. But, with regard to the DSO, we were not so successful as we should have been. So, going forward, we will have to put a lot of emphasis on the DSO side of the house in order to keep a reasonable level of operational cash flow.

If you look to the cash flow statement, you will see that a big chunk is coming from the reduction in accounts receivable. But, this is more driven by the fact that the business activity overall is lower. So, we have strong aspirations with regard to operating cash flow, but it will not be easy due to the fact that we have still a long way to go on the DSO side. And this, as I explained before, is partly linked to the overall economic situation.

Thank you. I think we'll take the next one from Raimo Lenschow.

Thank you. Raimo Lenschow from Bank of America Merrill Lynch. Bill, a question on the pipeline. You talked about this four quarter rolling pipeline, but I'm just trying to understand what visibility you have. Obviously a lot, I would think, for Q1, but then going into the second half of the year, how much of your pipeline that you need for making the number do you have already there, and how much could you expect to build up as we go through Q1, Q2? In other words, what's the assumption on the sales cycle there as well?

And then, maybe a more generic question but the same theme for Leo maybe. You had a tough year now in 2009 on licenses. They declined 28 -- 27%, 28%. In terms of the absolute number you achieved, it's kind of back to 2004 levels. As SAP is maturing now, what do you think about the cyclicality of the business? Because you are more mature now, you have more cyclical swings and the swings on the licenses are kind of more than you saw in the past? Or, is that just a one-off year because the year was so tough? Thanks.

Yes, please.

So, first I'll comment on the pipeline. We run our own solutions at SAP. Very important. The entire field facing organization worldwide runs SAP CRL, period. The sales and marketing portal of SAP is the single version of the truth. The pipeline is measured and managed in real time using BusinessObjects technology and real time analytics to study the movements in the pipeline. We do this in mature as well as emerging markets, and we have a very good handle on the rolling four quarter average and the deals within the pipeline in each quarter.

I can tell you decisively that in the large, mature markets such as Germany, the US, UK, and others, the pipeline has steadily improved in terms of the coverage to the operating plan. I can also say that the BRIC and Middle East/Africa regions of the world are improving at a greater rate than the mature markets as a percent of the operating plan, which you would expect on a smaller base.

Overall, we're very encouraged by the movement in our business and the pipeline. And we do have very clear visibility into that pipeline.

However, you ask a very good question which is not easy to answer. So, let me try to give you some elements for discussion in a certain sense. First of all, I do believe that 2009 was a bit of an exceptional year. I don't -- I hope we won't see another crisis like this for many years to come. I don't even think we can survive another one. Not just SAP, the world as such. But, that's a different story.

This being said, we serve 25 industries. And when you serve 25 industries, you can always expect a few to do better than others. We serve the worlds. We are actively globally, so you can expect some parts of the world to do better than others. We serve many segments. Here again, you will probably see that some will do better than others. And the -- here in a certain sense, the unknown factor here is innovation. How much can you impact the cycle or how much can you accelerate the cycle with this or the other innovative product such as in-memory.

So, I don't think that the size per se correlates with the fact that we are cyclical or not cyclical. I think that obviously once you have reached a certain size, the law of large numbers play and a percentage doesn't mean the same thing when you are small, a small company, by that straightforward arithmetic.

I hope that we can -- put it this way. I hope we can outperform the market. If you look at the guidance in 2010, the 4% to 8% constant currency SSRS, if you look at what Gardner and the other industry experts are predicting for the IT industry, we will outperform our industry. And that's a very good way to start talking again about the decades of hopefully renewed growth.

Thank you. Before we take another question from the room, there is one question from Goldman Sachs, Sarah Friar and Mohammed Moawalla, actually three areas. The first one is on Business ByDesign. What are the biggest changes to the new version of Business ByDesign that you think will cause better customer uptake? Please also provide a picture on how will the go to market strategy roll out, and is this cost already included in your margin guidance? Secondly, on hiring, what are the key factors in deciding to increase hiring again? And thirdly, can you discuss the state of pipeline between developed and emerging markets? I think, Bill, you addressed this partially already. And a follow up on that, can you comment on the status of large deals in the pipeline?

Okay, why don't I pick up the first question, and then we can share the second one. And I'm sure Bill will want to talk about the third.

So, Business ByDesign, maybe the first comment I would like to make on this question is the first reason why there will be better customer uptake is because we'll actually sell it. Right now, it's not really on the market. It is only in the market as a chartered customer program. We are not pushing the program. We are actually guarding it to make sure that we are volume ready. So, the difference is, one, that it's going to be sold and right now it's not really sold.

But, going forward, we are making significant changes to ByDesign. First of all, it's not utility enabled, which would allow us to steer significantly faster. Secondly, extensibility serves a revolutionary new user interface. Fourth, its mobile capability. Fifth, its real time analytics using our in-memory capability. Sixth, a whole bunch of new industry functionality so it is a complete new product that is going to enter the market. And therefore, we are very optimistic in the uptake that it will have with customers.

As to the cost, yes, they are already included in our margin guidance.

Maybe to start the conversation on the key factors in increased hiring, we will continue to do hiring in a very prudent and cautious way. And we will actually look at the evolution of our business before we will decide to hire again. We assume that we will do some hires. Werner already indicated that the hires will be done in such a way that we will have leverage. But, as we also want to innovate and conquer a few new markets, obviously we would need to do some of these hires.

And I think we've already commented on the pipeline between developed and emerging. What I would mention is the status of large deals in the pipeline. We did see an improvement in large deals in the pipeline in Q4. It's clearly too early to declare that large deals will come back, and certainly we're not counting on that happening.

As you know, we have various ways, which Leo discussed, of doing large deals, even though you may not recognize the revenue for them in the current quarter, and they include GEA, BFLA, and of course phased deals. There was a bit of an uptick in large deals in the United States in Q4, above 2 million, which is very encouraging. And we hope that that continues because we now have a volume culture in the Company. BusinessObjects is a major driver of that volume culture. And if you can combine that with some larger transactions, it would be helpful.

It is clear to us, however, in the contended scenario that we continued to dominate the market as it relates to large enterprise transactions as evidenced by accounts like 3M where we took our 86% win rate against the competition and replaced Oracle and its related assets across the world at 3M. So, we expect that to continue whether or not we recognize the revenue in the quarter. It could be done over time. But, if there is a large deal out there, it'll probably be SAP.

Two questions from here in Frankfurt, I think Mr. Becker and then Mr. Klusmann.

Yes, thank you. Thomas Becker, Commerzbank. Actually, three things. First of all, could you give us an update about the 35% margin tax? When that will be in reach? The second point is you shared with us already flexible license agreements 380 -- or subscription, to be more precise. Sorry. Could you give us the underlying number of client conversions there? Are we talking about 5% to 10% of your targeted client group? And then, probably about NetWeaver. We have not talked about NetWeaver for a long time. Probably you can give us an update there on your middleware strategy.

Why don't I start with the end, with the NetWeaver strategy. NetWeaver is doing well. All of our products, the entire SAP portfolio, is based on the NetWeaver stack, on the NetWeaver middleware. That includes Business ByDesign, the new version.

And when we are talking about the hybrid approach, Bill was mentioning that we are going to -- we have this unique capability of running a business process in an integrated fashion between on-demand and on-premise. That is also, of course, all enabled by our NetWeaver technology. So, it's doing well and it will continue to do well.

Regarding the 35% margin ambition, and that's first the word ambition, we maintain that ambition. We want to achieve that. We want to achieve this ambition in the midterm. And the midterm is slightly longer than the short term and less long than the long term.

The second question was underlying client conversion to the number, Werner, you provided for the 360% at EUR80 million. Do we want to give an indication here, or we just leave it with the subscription guidance for 2010?

I would like to stick with what I said. It's the targeted number of customers. And this can vary year by year, and we do not want to give a specific guidance on this targeted number of customers.

Thank you. And Mr. Klusmann

Jochen Klusmann, BHF. Also three questions. One, coming back to the business platform side, you mentioned all the changes you did to the product. How much did that change your assumptions for the business model concerning the product, i.e., how many users do you expect over, let's say, 12 months from here? How many customers, how many users, ASP, or maybe you can just share a little bit of color how much that has changed since you put so much more functionality into the product.

Secondly, on the guidance for SSRS. I know you're guiding on SSRS, but you were kind enough to give us an idea for the subscriptions, maybe you can also give us an idea between license and maintenance, especially with all the uncertainty around -- surrounding maintenance. I think in your presentation you are saying you are coming back to growth in SSRS. You don't mention rose in license. Maybe at least say whether you expect higher growth in maintenance or license, or vice versa.

And lastly, more from a strategic point of view, you are saying that your win rate against Oracle is currently high. On the other side, if you look at the numbers, I mean, Oracle did way better over the last four or five quarters than you, meaning most likely a lot of deals that Oracle is closing we're finding that you're actually not even competing. Now, in 2010, the landscape is changing quite dramatically with few of them getting into the market. Do you guys have any strategy for how to get more into the Oracle customer base, keeping in mind, I mean, all the stuff. There's safe passage and the laws you would go along. Is that really realistic, you getting a higher share of the Oracle customer base?

Why don't we try to give you an answer on all of these points? First of all, I don't think it would be opportune to discuss the Business ByDesign business model now. We want to bring it to market first. We want to make it successful in the market. And as we are going to do this, we can discuss moving ahead how the dynamics of this -- how the dynamics are impacting Business ByDesign.

We haven't really changed all of the fundamental assumptions around ByDesign. But, I think we have learned the lesson. We want to go to market first and then talk about this and the other product, but not the other way around, if you'll forgive us for doing that.

And regarding the competitive situation with Oracle, I'm sure Bill will want to say something on this topic. I just want to make a more general comment. It is important that we win Oracle customers and we win substantially more Oracle customers than Oracle wins SAP customers with or without fusion because that shows the real competitive value of our offering. To truth, there is here the vast majority of business that each one of us does happens usually within the mains where we either share a customer, and many customers are shared, or where we actually deal in a very specific situation.

So, I don't think that our guidance and our ambition is based on getting many Oracle customers. I think our strategy is based on gaining many customers. And the -- and as Oracle was never really that successful in the enterprise market, there aren't that many Oracle customers to be gained.

I would add to Leo's remarks by just pointing out a couple of things that I hear from customers. One, if you've seen fusion, please let me know. I keep trying to find it. And that's what they tell me. And number two is first generation technologies from Oracle, particularly in applications, haven't exactly set the world on fire. So, that could be the best thing for SAP, because that will force all those installed base customers to make a decision. When they have to make a decision to re-platform, we will be in that discussion. That is good for SAP.

I also want to mention that we are two times Oracle. You've got the figures. So do we. And if you add up three quarters in a row for Oracle, they don't equal our Q4. It is true that there may be times where we're not competing with them, and that could be in a certain industry or a certain line of business. That's fair, and when you buy 50-plus billion in companies, that can happen.

But, what we'll do to deal with that is pretty much what we did with the Hyperion replacements. We replaced several hundred of them. And what we're doing now is going into those line of business executives with Edge solutions where we can have a point solution discussion. Oracle, as you know, cannot have an end-to-end enterprise discussion. They can only have a line of business point solution discussion. We intend to have those, too. So, that's a new strategy.

Thank you. And I assume we will not give any additional modeling help for license and maintenance. This was the remaining element of the question.

Yes, that's true. I think we provided the SSRS growth range. We provided an indication for subscription. More is not to come, and that's what you have to find out in your modeling. Sorry for this, but we came up with the guidance we provided and do not want to sink into more detail from a guidance perspective.

With regard to customers, let me make one thing very clear. We fight for every customer, and we do not fight against any competitor. We fight for every customer.

Thank you. And one last question here in Frankfurt, Mr. von Stackelberg.

Thank you for taking my question. Nicolas von Stackelberg, Sal. Oppenheim. I'd like to dig a little deeper on the cash flow side of things. You said that you were targeting to drive lower the DSO rate. Could you be more specific? And then, secondly, do you think you can maintain cash conversion above 100% for a third year in a row? And lastly, are you being shy on the share buybacks number? I mean, you're -- you've told us today that you're looking to spend more than EUR250 million. How high could you go? Looking at the cash flow results for last year, even though maybe there's a little deferred element in that, it does seem that there should be more leeway to the upside depending, of course, what you undertake on the M&A side of things. Thank you.

I said at least EUR250 million, and this gives room for more. But, this depends on the overall development throughout 2010.

If you look to the cash flow conversion, I think as a target definitely it's to provide more than 100%, no doubt. If you look to the DSO, I cannot provide you a global target for the DSO at this point in time. And the only conclusion I made is it has to go down again.

Thank you very much for all your questions and discussion. I think this concludes our Q4 financial analyst conference. All the slides are available for download on our website. And our next event is the Q1 earnings announcement end of April. Thank you.