SAP SE (SAP) 2014 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. This is your Chorus Call operator. Welcome to SAP's 2014 second quarter earnings results conference call. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. (Operator Instructions).

I now hand over to Stefan Gruber. Please go ahead, sir.

Thank you. Good morning or good afternoon. This is Stefan Gruber, SAP Investor Relations. Thank you all for joining us to discuss SAP's results for the second quarter 2014. I am joined here in Walldorf by CEO, Bill McDermott, and Luka Mucic our CFO, who will both make opening remarks on the call today. Also, Executive Board Members Robert Enslin, who leads Global Customer Operations, and Bernd Leukert who leads development and delivery of all products across SAP's product portfolio, are on the call today and will join us for the Q&A.

Before they get started, I want to say a few words about forward-looking statements.

Any statements made during this call that are not historical facts are forward-looking statements as defined in the US Private Securities Litigation Reform Act of 1995. Words such as anticipate, believe, estimate, expect, forecast, intend, may, plan, project, predict, should, outlook and will, and similar expressions as they relate to SAP, are intended to identify such forward-looking statements.

SAP undertakes no obligation to publicly update or revise any forward-looking statements. While forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. The factors that could affect SAP's future financial results are discussed more fully in SAP's filings with the US Securities and Exchange Commission, the SEC, including SAP's annual report on Form 20-F for 2013, part of the SEC on March 21, 2014.

Participants of this call are cautioned not to place undue reliance on these forward-looking statements which speak only as of their dates. Please keep in mind that unless otherwise noted, all numbers referred to on this conference call are non-IFRS, and growth rates are non-IFRS on a constant currency basis.

With that, I would like to turn the call over to Bill McDermott.

Thank you, Stefan, and thanks to everyone on the call for your time today. I really appreciate it.

Before I begin, I'd like to congratulate SAP investor, Oliver Bierhoff, and the German national football team on their thrilling March to the 2014 World Cup. I'm proud this is not only a winning team but they co-innovated with SAP and they served as a showcase for match insights powered by SAP HANA.

But instead of giving you my take, I thought it would be better to give you Oliver's own words, and before the tournament, Oliver was quoted a few times. Once was in the media in Brazil where he said: Imagine this. In just 10 minutes, 10 players with three balls can produce over 7 million data points. With SAP HANA, our team can analyze this huge amount of data to customize training and prepare for the next match.

Bierhoff went on to tell ESPN this week the same techniques were used to study opponents. Jerome Boateng asked to look at the way Cristiano Ronaldo moves in the box, to use another example. And before the game against France, we saw that the French were very concentrated in the middle, but left spaces on the flanks because their fullbacks didn't push up properly, so we targeted those areas.

When you think about what they accomplish with their smart use of big data, it amounts to making a complex game look simple. And now we know that simple helps win the World Cup. I'd like to offer congratulations again to the Deutsche Football Bund.

Earlier in this year, we launched a new strategy to become the cloud company powered by SAP HANA, and the focus of this strategy is to make our customers run simple. This means providing our customers with simple and easy to consume solutions so that they can run every aspect of their business -- well, simple. Our cloud solutions in all of our applications combined with the unifying real time power of HANA enable simple. That's why we launched Simple Finance and SAPPHIRE, which makes complex finance processes easy.

In the spirit of keeping the complex simple, I'll keep today's remarks as brief as possible so we can get to your questions.

After Q1, we reported that SAP was successfully transitioning into the cloud company powered by SAP HANA. Today, I'm pleased that our Q2 performance furthers that success. We're winning in the market because we're more focused than ever on helping our customers succeed and grow.

With the unique combination of the SAP cloud powered by HANA, the largest business network, and our omni-channel e-commerce platform, our customers across 25 distinctively different industries and over 180 countries can defeat complexity and do highly sophisticated things -- well, simple.

In Q2, we saw the run simple strategy resonating with customers. We delivered very strong growth of 39% in cloud subscription and support revenue, with calculated billings increasing 37%. At the same time, we saw a solid performance in the core, with second quarter software and software related services increasing 8%, at the upper end of our annual guidance range. And we continue to successfully navigate our broad shift to the cloud while improving our operating profit. I'd like to touch briefly on each of the key drivers of this growth story.

First, let's take a closer look at the cloud.

We have the most enterprise cloud users in the world now, more than 38 million, and our cloud run rate is approaching EUR1.2 billion, or in US dollar terms $1.6 billion.

We're growing our cloud 1.5 times faster than our closest competitor, and faster than most all of the SAP's peer group. And we are the fastest growing enterprise cloud company at scale.

We have the breadth and depth of functionality that allows companies to run their entire business in the cloud, and no other competitor can do this. For example, with the addition of Fieldglass, we're the only company that offers total workforce management in the cloud, enabling our customers to manage their permanent employees and flexible workforce employees in one place.

Because of our depth and global reach, companies are selecting SAP cloud over pure play cloud vendors. Telefonica, a leading international telecommunications company with more than 120,000 employees, selected the SAP SuccessFactors enterprise suite, including Employee Central, over Workday.

Bombardier Recreational Products, a global leader in the power sports vehicle and propulsion systems, selected SAP SuccessFactors, including Employee Central, over Workday, to optimize their HR solutions and delivery.

And Weir Minerals, a mining machinery manufacturer and division of Weir Group, chose SAP Cloud for Sales over salesforce.com.

At SAPPHIRE, we announced that we are bringing our over 40 years of unrivalled expertise across 25 industries to the cloud. We are running industry-specific, mission-critical processes in the cloud, which other cloud vendors simply can't do.

Companies like eBay and BSH, Bosch and Siemens are choosing our industry solutions. BSH, the largest manufacturer of home appliances in Europe, purchased and went live with industry solutions powered by SAP HANA on the HANA Enterprise Cloud. The migration to SAP HANA provides the foundation for extremely fast calculations, real time reporting and breakthrough innovations.

We also recognize the increasing opportunity for small and medium businesses to run simple in the cloud. I'm very pleased to report to you today that we have named Dean Mansfield, a strong leader and former president at NetSuite, to lead SAP's SMB solutions group. This division will focus solely on the needs of small and medium sized businesses, an area in which we foresee considerable long-term growth for SAP.

So whether it's our existing global infrastructure or next generation industry cloud solutions, it's clear that customers of all sizes are accelerating their moves to run simple in the SAP cloud powered by SAP HANA.

Another piece of the run simple growth strategy is redefining enterprise value chain collaboration. The next big opportunity in enterprise applications is the enormous potential of the network economy. Driven by the connectivity of people, machines and business processes, the network will drive unparalleled collaboration, both inside a company and between companies. Companies will transact real time, frictionless commerce, and nurture new trading relationships to drive sustainable growth.

SAP is at the core of this network economy. We have the world's largest business network connecting approximately 1.5 million businesses, and driving an annualized transaction volume of $540 billion. This is 2 times the size of Amazon and eBay combined. If it we're a country unto itself, the Ariba network would be in the top 25 by measure of GDP.

General Electric, an existing SAP SuccessFactors and Fieldglass customer, selected the Ariba network to replace manual time-consuming error prone processes. With Ariba, GE's water and process division expects to streamline its business interactions with suppliers and simplify the buying processes for its customers.

The addition of Fieldglass further expands our network capabilities and increases our addressable market to cover materials, services and flexible workforce. The network is a highly attractive business model for SAP due to the network effects. Every additional customer has the potential to bring in hundreds of trading partners and the related commerce to the network. This means that we can scale revenues at a lower cost compared to a traditional cloud application model.

And speaking of customers, the essence of run simple is delivering true customer engagement that goes beyond the sales force ordination nature of traditional commodity CRM. The future of customer engagement shapes the customer journey in real time from customer insight to targeted marketing, to sales promotion, to commerce and service, all with focus on simplifying the customer experience. With our hybrids omni-channel e-commerce platform and SAP Cloud for Sales, we are redefining customer engagement and creating a new category of software which is seeing explosive triple-digit growth. For example, Samsung Electronics is rolling out hybrids, so when you make a purchase on Samsung's e.store in the future, you are using SAP.

Each and every one of these growth drivers revolves a single platform. HANA is at the core of run simple and integrates all SAP solutions on one business platform in the cloud. Customers are broadly adopting the HANA platform to give them real time insight and simplification they need to gain an edge.

We now have over 1,200 customers on SAP business suite powered by SAP HANA, exceeding our internal expectations for a product launched just over one year ago.

Shell, a long standing SAP customer, is accelerating its transition to SAP HANA in the cloud. Shell recognizes the value and co-innovation with suppliers to help them maintain competitive advantage, and specific to SAP, to leverage technologies like HANA and cloud.

HANA also embraces an open and vibrant ecosystem. 1,500 startups are now building on HANA, and in Q2, we added new strategic partnerships around HANA with HP and VMware.

Let me share a few details with you about our regional performance in Q2, starting with a strong performance in EMEA.

Despite continued uncertainty due to the Ukraine crisis, we achieved 51% growth in cloud subscription and support revenue in the EMEA region, a s well as strong double-digit software license growth in countries like the UK and France, to name a few.

Customers like Carlsberg and E-Plus have chosen SAP this past quarter. Giorgio Armani, the Italian fashion house, went live with SAP IS Retail powered by SAP HANA replacing Oracle, and now plans to roll out SAP Fashion Management solutions globally.

Co-innovating with SAP, Armani aims at increasing speed and flexibility in the ultra-competitive retail space, with a unique solution for its vertically integrated fashion processes from product to store front.

America has continued the fast transition to the cloud, with strong double-digit growth in cloud subscription and support revenue. Canadian software license revenue is particularly strong. We continue to expand and deepen our large customer base in North America with [Cirque du Soleil], US army, New York Life, to name a few. And we continue to see strong demand with tremendous growth opportunities in Latin America, with customers like Central Bank of Costa Rica and [tap Augusta] Minerals and others.

APJ also saw a solid performance with 48% growth in cloud subscription and support revenue. Australia and Malaysia were highlights, with triple-digit software license growth. China continued to perform strongly with double-digit software and software-related services growth. Customers like Singapore Health, Cathay Pacific and [Tatong] chose SAP innovations this quarter.

So to summarize it all, we are delivering on our run simple strategy, with strong growth in cloud, HANA and the network. As we head into the second half of the year, we are really confident in our overall 2014 outlook for software and software-related services revenue and profitability. And as Luka will detail in a moment, we are raising the outlook for cloud revenue for the year.

As the cloud company powered by SAP, we strongly believe our momentum will continue, and we are on the path to achieve our 2017 midterm ambitions.

As always, I'd like to thank our 67,600 women and men of SAP for the hard work they put in to achieving this success. None of this would have been possible without their diligence, hard work, creativity and commitment to this Company. I'd like to thank you all.

And now, I'll turn it over to our CFO, Luka Mucic, also my good friend. Luka, over to you.

Thank you very much, Bill. As you just heard, Bill spoke about our strong second quarter results, with excellent growth in the cloud and a very solid performance in our core business. Before I get into further details on those, let me address a couple of technical topics upfront.

First on currency. We saw again a strong currency effect on the top line in the second quarter. Our cloud subscriptions and support revenue was negatively impact by 7 percentage points, and our SSRS revenue was negatively impacted by 4 percentage points.

Then we recognized the provision of EUR289 million for the Versata litigation in Q2. To ensure that our non-IFRS numbers are comparable over time, we changed the definition of our non-IFRS numbers to exclude the effects from the Versata litigation.

Before I go into the quarter's results, on a semi-personal note I wanted to say a few words about SAP's implementation of Simple Finance that Bill mentioned before. SAP deployed this revolutionary solution, powered by SAP HANA, in just 10 weeks from February to end of April, without any disruption to our business.

We cut more than 420 hours from our financial close processes, and we reduced the data footprint from 7 terabytes before HANA to under 2 terabytes. SAP now has one common platform for both regulatory and managerial accounting, with further real-time processing, and most importantly, unlimited reporting capabilities across all dimensions, and a significant potential to optimize our processes.

What I'm particularly proud of is that Simple Finance was developed in close cooperation between our stellar development organization and our internal finance organization.

So in a nutshell, it's Simple Finance, from finance for finance. It reflects our run simple approach. Our close process was optimized. We are among the fastest Dutch companies to publish our quarterly results.

Now to those results for the second quarter.

We continue to have a stable and growing core, with solid single-digit growth in software and support revenue. 9% growth in support revenue was certainly again a highlight, as it has been for a number of quarters now. Our support contracts renewal rate is consistently in the high 90% range. Growth in enterprise support and premium support again was especially strong. Once again, our enterprise support offering had an adoption in the mid-90 percentage range, and continues to be the de facto standard.

As a consequence, the combination of support revenue and cloud subscriptions of revenue as a share of total revenue, increased again by 3 percentage points year over year in Q2 to 61%, improving our overall predictability of our business performance for the future.

In the second quarter, we saw fast growth in the cloud, with cloud subscriptions and support revenue up 39% year over year, as Bill mentioned. Calculated cloud billings increased 37% year over year. Deferred cloud subscriptions and support revenue was EUR448 million as of June 30, a year-over-year increase of 29%.

As you know, transitioning to the cloud profitably is a top priority for SAP. Bill has alluded to that. And indeed in the second quarter, operating margin increased 60 basis points to 29.5% on the back of an operating income growth of 7%.

Looking to IFRS now. The IFRS operating margin was down 7.5 percentage points to 16.8%. This was due to a one-time effect that resulted in a significant provision recognized for the Versata litigation.

Our SSRS margin was down by 100 basis points to 82.4%. This decrease was primarily driven by the strong investment into cloud delivery, and our efforts to meet increasing customer demand for our premium support offerings. Our cloud subscriptions and support margin was down 8.8 percentage points to 63.9%.

As expected, and as we shared during our Q1 call, our cost of cloud subscription and support increased significantly year over year in the second quarter as we continue to ramp up our Cloud infrastructure delivery and expand our HANA Enterprise Cloud data center footprint.

Ladies and gentlemen, please hold the line. We will continue.

Okay. Excuse me. We were cut out for a moment. So I think I left it at talking about the cloud subscription and support margin.

As expected, our cost of cloud subscription and support increased significantly year over year in the second quarter as we continue to ramp up our Cloud infrastructure delivery and expand our HANA Enterprise Cloud data center footprint from 14 to 20 locations by year end. We expect this margin to improve in the second half of the year compared to the first half.

The professional services margin decreased by 4.3 percentage points year over year to 17%. As mentioned in the previous quarter, there is an ongoing structural change in the demand for consulting services. We have been and will continue to adapt to this changing market environment. We still expect this transformation to take some time, and as such, still expect the services profitability to be negatively impacted throughout the rest of the year.

As a result, our overall gross margin was 71.8%, a decrease of 30 basis points year over year. The IFRS tax rate in the second quarter was 22.6%, down 2.2 percentage points year on year. The non-IFRS tax rate in the second quarter was 25.4%, down 1.4 percentage points year over year. We are maintaining our effective tax rate outlook for the full year.

In the second quarter, our non-IFRS EPS was EUR0.79, up from EUR0.71 per share compared to the prior year, resulting in 10% growth.

Now let's cover cash flow and liquidity. Operating cash flow for the first six months of the year was EUR2.58 billion. This is an increase of 4% year over year.

Net liquidity at the end of the quarter was a net debt of EUR1.06 billion, an improvement of more than EUR400 million compared to the end of 2013. This is a strong result given the dividend payout that we had in Q2, and cash payouts for acquisitions of around EUR730 million.

As Bill has said, we are updating our full-year guidance for cloud subscription and support revenue where we now expect to be in a range of between EUR1 billion to EUR1.05 billion at constant currencies. Previously, this range was indicated between EUR950 million to EUR1 billion at constant currencies.

We continue to expect non-IFRS software and software-related service revenue to increase by 6% to 8% at constant currencies, as well as non-IFRS operating profit to be in a range of between EUR5.8 billion to EUR6 billion at constant currencies.

Before I finish, let me make a few ending comments about currency which should help you to more than accurately model SAP for the remainder of the year.

If exchange rates remained at the June 2014 level for the rest of the year, we would expect non-IFRS software and software-related service revenue and non-IFRS operating profit growth rates at actual currency to experience a negative currency impact of approximately 2 percentage points, and 2 percentage points respectively for the third quarter of 2014, and of approximately 2 percentage points and 2 percentage points likewise for the full year 2014.

Thank you, and Bill and I, as well as my colleagues on the Board, will now be happy to take your questions.

Thank you, Luka. I want to hand it back to the operator. We can now start the Q&A session.

(Operator Instructions). Walter Pritchard, Citi.

You talked about simplified financials on the call here in your prepared remarks, and I'm wondering if you could give us an update on early cuts for traction there and what you're seeing in terms of sale cycles on that product. It does sound like SAP itself got some significant benefits. Is that something customers are seeing pretty quickly, or is that something that you envision the sale cycles will be fairly long given it's at the core of customers' operations?

Walter, this is Rob Enslin. No, I think what we'll see with Simple Finance is that the sales cycles will be shorter, and generally for net new customers, clearly a quick win. And for existing customers, you will see them take advantage, as Luka said. So you'll see smaller and shorter sales cycles.

Thank you very much. Let's move to the next question, please.

Adam Wood, Morgan Stanley.

Just two, if I could, just first of all on the SMB [high]. That sounds like a pretty good move and obviously, a big opportunity for you. Could you maybe just help us on the product side of things? There's obviously -- there was a cloud initiative with Business ByDesign there that's been de-emphasized. What will be the main product focus on that SMB opportunity in terms of go to market?

And then secondly, on the investments around HANA Enterprise Cloud, I think there's a lot of debate in the market on multi-tenant SaaS versus quasi-hosted SaaS. And obviously, some of the deals there will be more hosted than multi-tenant. Could you maybe just -- on two things? Do clients, do you think, care about the difference on that? And secondly, from your cost point of view, does it make a big difference to you, and can you be profitable delivering that service as you're going to?

Thank you.

This is Bill McDermott, Adam. How are you? With regard to Dean Mansfield, we wanted a proven operator to go into that space, a guy that knows it well. ByDesign is still part of our product portfolio, and we now have ByDesign on SAP HANA, which is absolutely a game-changer because everything is faster and better on HANA, as you know.

We also believe strongly that B1 has been going through an indirect channel now and has proven itself to be a very a successful, high-growth, double-digit business with good margins, so we'll continue that. But we also put B1 up on HANA in the cloud when we go global, and we think that can be a very serious category killer once it gets into the marketplace and people see what it can do on HANA. And we'll continue to innovate in that space now with a defined agenda underneath Dean Mansfield. So it's a combination of things we're going to go after the market with.

Related to the HANA Enterprise Cloud and the multi-tenant debate, the bottom line is the HANA Enterprise Cloud and each customer wants their solutions. They want them beautiful, they want them to work. And, yes, we can make money on it because HANA is the great simplifier. When you radically simplify the IT stack -- SAP used to run on 8 terabytes of data, now it's closer to 1.5 terabytes -- you dramatically lower your cost of operation and improve the speed of everything in the operation.

So it's perfect for run simple. It doesn't matter whether it's single or multi-tenant. What matters is the customer gets what they want at the price point and the performance and the user experience they're looking for, and that's precisely what we intend to give them.

Incidentally, the one thing I would tell you on the SMB market, when we looked at it, we sized this for the SME customer that's in the EUR300,000 size. So we're going after a smaller customer and lots of names because we think we can really scale out that part of the pyramid that we haven't spent a lot of time in, and even not spending time there, we're doing pretty well. Can you imagine we put our mind to it?

That's great. Thanks very much, Bill.

Thank you very much, Adam.

Okay, thank you very much. Let's go to the next question, please.

Michael Briest, UBS.

We've obviously heard a lot of detail there, and I appreciate the extra disclosure you gave around the cloud business. But could you maybe give us some more numbers around the active user base you have on products like Employee Central, Cloud for Customer? One of your competitors is now giving us more granularity on that, so it would be helpful.

And then secondly, in terms of the simplification strategy, I think it has a lot of resonancy. Can you maybe talk about pricing for the on-premise suite and to what extent you'd be willing to offer subscription for an on-premise product just to break down some of the complexities of the price list?

Thank you.

Yes. So first things first, Michael. How are you? We can tell you that we have 38 million users in the cloud. We can tell you that we're operating all the things around integrated human capital management for Employee Central in the cloud in 28 distinctly different countries with payroll included, etc., where Workday is in [two].

We can tell you that we've grown Employee Central from 30 to 390 customers, and it's on a roll. And we can also tell you that we're beating the pants off the competition with Cloud for Customer, because as Gartner said, it's a visionary product with a much more beautiful user experience. And when you combine it with omni-channel e-commerce, it really does get you beyond the commodity nature of salesforce.com and gets you into a totally different conversation. So we can tell you all those things.

And as it relates to pricing on the software on-premise, we'd be most happy to rent it. Actually, we already do. In fact, the interesting thing that we've learned is our customers want to buy it even though we've gone out of our way to keep reminding them that we're only too glad to rent it, because we understand the NPV of that model as good as the other guy, and we think it's a great model.

But they view SAP as a strategic asset and they, for now at least, have behaved in a way that indicates purchase is their preferred option. But the rental's on the table and we look forward to more and more customers renting our software.

Yes, and maybe just one more comment. Nevertheless, we took significant steps this year to simplify our pricing even in the known structures. We are now bundling more solutions to value-added packages that really address the different buying centers in a cohesive need. And by that, we have significantly reduced the number of SKUs in our price list.

And what's interesting, to Luka's point in terms of run simple, we have actually reduced our price list by 70%. So the whole Company, SAP, is not only marketing run simple because we know with the great simplifier, HANA and the cloud, we can, but we're also behaving very differently within the Company, and the clock speed has radically picked up, especially in the last 60 days.

Thank you very much.

Thank you, Michael.

Thank you. Let's move to the next question, please.

John King, Bank of America.

I just had two, if that's okay. First of all, on the deal sizes, I thought one of the notable things in the quarter was that you saw a big pickup in deals of over EUR5 million, which seemed to be up about 50%. It's the first time in some time. Is that a function, do you think, of just an easing comparison year on year, or would it be fair to link some of that to the maturity of the suite on HANA? And that's reaching a better level of maturity and allowing you to sign bigger deals.

And the second one was just for Luka. On the tax guidance, you've not changed the guidance, obviously, but you've beaten I think again the expectations a couple of times. Could you just comment as to what you expect for the second half and whether there's any one-offs which would mean you'd be in the middle of the range, or whether towards the bottom end of the taxes guidance would be more likely?

Thanks.

Hey, John, I'll start off on the deal size. This is Bill. Just to give you a flavor for it. It is true that the EUR5 million and above deals increased by about 7 percentage points on a year-over-year basis, which is really encouraging. And, yes, the suite on HANA now is hitting scale. As you know, we have about 1,200 customers now purchasing the suite on HANA to complement the 3,600 customers that have made an investment in HANA and the 1,500 startups that run their whole future on HANA. So HANA is becoming a standard. and I am telling you since SAPPHIRE, there is a real tailwind going on here.

The run simple concept, the vision of it, has hit home. I think approaching the cloud from the business network and the lines of business, as well as the suite on HANA in the cloud, has given the customer great confidence that we have the platform, we have the cloud solutions, and we even have the network. And that complements the on-premise very nicely.

So you tend to when the strategy is in the right place for the customer increase the billing materials because the customer wants more of a single-vendor approach to their enterprise. And we're seeing more of that.

And I'll also tell you that the larger deals are going up because we're going into areas we didn't used to be. The omni-channel e-commerce business is up 158% year over year; Cloud for Customers up even higher than that. These are businesses that weren't ringing the cash register and now they are in a major, major way.

So I feel fantastic about coming out of SAPPHIRE, and what's happened to the overall pipeline, including large deals.

John, maybe to cover your question on the tax rates. You're absolutely correct. In the first half year, we clearly stayed below our stated guidance. That's due mainly to two effects.

On the one hand, we had some special effects from prior-year taxes that were rolling into this first half year favorably. The second point is that the distribution of our revenues developed more favorably than our base plan, so to say, as far as the tax rate effects are concerned.

So are these all effects that we can bank on for the second half year? Not necessarily. But it's true we are on a good way.

You also know that in the second half at SAP, tax rates tend to trade a little bit higher. And of course, we have a huge second half still ahead where the revenue distribution can make a difference.

But so far, we are on a good track, and let's see where we stand after Q3. And then I will be in a better position to give you a more definitive view on where we will land within or below the guidance.

Perfect. Thanks very much.

Stacy Pollard, JPMorgan.

Just a quick question on HANA. Now you said it was ahead of schedule on the number of customers. You've talked about that. Would you say the same about revenue generation; and I know it's hard to separate, but if there's any sort of gut feel?

And then also just when you think about the maintenance revenues, can you talk about what portion is price increases, and then what portion is maintenance contracts, separated out? New maintenance contracts, sorry.

Stacy, thanks for the question. I'll start it off, and I know Luka will comment on the maintenance piece of it. We also have Rob Enslin, our Head of Global Customer Operations and Bernd Leukert, the Head of Innovation, who's doing a fantastic job. Both of these guys are unbelievable.

But in terms of HANA, the fascinating thing is HANA is growing very swiftly. We are in a company that has everything attached to HANA. If it's a cloud solution and it's 38 million users, that means we'll soon have 38 million users running HANA. Can you imagine the opportunity for that hockey stick?

So everything is HANA. There was no point in breaking it out other than the account, the number of accounts, the suite on HANA, and what we're doing with startups, etc.

Having said that, you should feel very confident that HANA is embedding itself as a standard in the marketplace. Yesterday, I was with one of the largest chemical companies in the world. On the fly, we're inventing new business models for transportation logistics and things that actually get stored in the containers so they can be viewed in the control center in real time. They couldn't believe that all you have to do is feed data into HANA and, bam, you have new business models.

A large manufacturer met with me yesterday in Germany. We're doing machine to machine and preventative maintenance, and they're reinventing their services business model.

So what you see here is the ultimate simplification of IT with HANA, but also brand new business models being simulated on the fly where companies can see a whole new way to run their business.

So HANA has now taken hold. We don't have to prove that it works. Everyone knows it works. We're now in the stage of how do I do it. And it's really taking off very nicely. And, yes, it's ahead of our internal goals.

Now a few words on the maintenance. The strong performance in maintenance is a function of two primary drivers, the one being that we have virtually no churn in maintenance. We have renewal rates that are between the 97%/98% ranges. With every new license that we sell we add typically 22% and [uprise] support on top of that. So it just is a self-enforcing mechanism there.

The second one is that our offerings are performing extremely strongly in terms of adoption. Premium support has very, very nice double-digit growth rates, so [makes attention] active embedded offerings, they're extremely strong. And secondly, among the established standard support models, enterprise support is more and more dominating as the de facto standard.

Price increases have really only a very minor role to play because we said that for enterprise support, we keep the prices at 22% until 2016 for any new licenses sold. And for existing licenses increases for standard support and uprise support are kept at CPI indexes. And in many countries, these actually don't result in an increase, only a minor tiny increase, because typically, the consumer price indexes remained relatively stable.

So it's really a function of virtually non-existent churn as well as growth in premium support and high adoption rates for enterprise support.

Okay, thank you very much. Let's move to the next question, please.

Rick Sherlund, Nomura.

I wonder if I could get some clarification on simple. Seems ironic I'm confused by simple, but we've got run simple, which I presume is right now mostly running the business suite on HANA. But then you've got simple financials to be followed by simple HCM, simple ERP.

So I'm excited about the opportunity for the simple suite of products because it's simpler, it's got a nicer interface, it's hosted by you guys on HANA, but I'm not hearing much about that. I'm hearing more about run simple, which I think is more a business suite on HANA.

Is there a reluctance to talk too much about it until it's fully out because it could disrupt the current business suite on HANA? Maybe some clarification how I should be thinking about this.

Yes, Rick, first of all it's Bill. That's an excellent question. Let me clarify it.

First of all, run simple is an absolute movement within our Company to simplify our Company. It also happens to be the new identity for the SAP brand. And therefore, when I speak of run simple, I'm speaking as the architect of run simple for a corporation to abide by in every single way, whether it's our brand and how it impacts our customers, or how we run our Company and streamline everything so we can do anything for our customers.

So that is the movement, it's an identity, and there will be lots of things that you will be seeing on that in the days and weeks ahead.

In terms of simple financials and other products that might take on the simple moniker, they're doing so on the basis of brand, and that is a building block, and there will be more of them. So that's pretty much it in a nutshell.

Bernd, did you want to add anything?

Yes, maybe just from the product side. While, as Bill outlined, it's a strategy for the Company, it has significant impact on how we develop, what is the architecture of product, and then that resonates how we can deliver innovations to the market.

Of course, the fact that we delivered the innovations to the cloud first is significantly accelerating the adoption of the value by our customers, and that is great to see that resonates as well in the financial numbers.

Number 2, it addresses as well a need from our customers to consolidate a very fragmented heterogeneous landscape into a homogeneous landscape where the platform is the key enabler. And that is coming back to a previous question before that behind the success is a strong platform, with capabilities not just as traditional relational databases, with capabilities that outperform any competitive offering in any dimension.

Very good. Thanks a lot. Let's move to the next question, please.

Knut Woller, Baader Bank.

It's basically two; first one on the margin expansion. We have seen 10 basis point margin expansion in the first quarter at constant currency, and on acceleration-wise to 60 basis points in the second quarter. So when we look at your full-year targets, should we think about an ongoing margin expansion at the same extent as we have seen in the second quarter, or will that moderate somehow?

And then simply on Fieldglass, we have seen historical growth rates. As far as I remember, you mentioned 30% to 40%. Now it's in the Group, you've got a much broader scale of sales force. How should we think about the growth of Fieldglass going forward after you've integrated it? Will growth rates likely accelerate compared to historical rates, or what's your expectation here?

Thank you.

Yes. So first of all on the margin, as I said after the Q1 results, of course, it is always our ambition to increase our margin, but you should not extrapolate from an acceleration from 10 basis points to 60 basis points that after Q3 we will be at 110 basis points, and after Q4 at 160 basis points.

I think we have a guidance out there to land between a EUR5.8 billion to EUR6 billion operating income corridor, and that's what we are still committed to and what will then drive whatever we'll achieve on the margin side.

And in terms of the Fieldglass acceleration, and please, colleagues, chime in there, we have a guidance out there and we have just increased it. And any acceleration of Fieldglass as part of the SAP Group for 2014 is in that guidance, and any further acceleration will be in next year's guidance.

Perfect. The one thing I will tell you about Fieldglass is the focus that we have on the business network and the ability of SAP to scale things on an international and global level is not trivial. So we didn't buy it to maintain its existing growth rate. Whenever we buy an asset, it's the best in the business, and we do something special with it to accelerate growth, and we expect that to happen with Fieldglass.

That's very clear. Thank you.

Thank you. We have time for one final question, please.

Philip Winslow.

Congrats on a good quarter. Bill, I've got a question for you. Just digging through the numbers here and just looking across the geographies, it looks like you guys had a solid pickup in EMEA, and also APJ. I wonder if you could give us some color of just what you're seeing across regions, what trends you're seeing? And as you look into the second half, just what are your thoughts based on the first half and then the pipeline for the second half?

Thanks.

Sure. Well, thank you very much for the question, Phil. We're really proud of what's going on in EMEA. I think the team is doing a fantastic job under the leadership of Rob Enslin. The same is also true for APJ. Whether you look at mature markets like Australia just doing unbelievable things, or you look at markets like China which we've declared as a second home taking off, we're just solid.

And in the Americas, the transition to the cloud, particularly in the United States accelerates, and that's the number 1 focus for the United States is really to bear down with everything we've got on the cloud.

In Latin America, we think there's a lot of opportunity for all lines of business, especially in places like Brazil, Mexico, Colombia and others.

So we see a new tailwind here, Phil. I think that it would be safe to say that we're starting to see SAP cylinders raring to fire on multiple dimensions now. As opposed to a six-cylinder car hitting on three, we're now revving it up, and we can see all of the cylinders starting to move in the right direction. And that bodes well for our second half and full-year confidence, not to mention our midterm 2017 and beyond strategy.

Got it. Thanks, guys.

Thank you. This was the last question. Thank you.

So this concludes our financial analysts' call for today. Thank you all for joining, and goodbye.