Stefan Gruber - Vice President of Investor Relations Werner Brandt - Chief Financial Officer, Human Resources & Labor Relations Director, Member of Executive Board and Member of Global Managing Board Jim Hagemann Snabe - Co-Chief Executive Officer, Head of Development for the SAP Business Suite, General Manager of Industry Solutions, Corporate Officer, Member of Executive Board and Member of Global Managing Board William R. McDermott - Co-Chief Executive Officer, Member of the Executive Board, Member of Global Managing Board, Chief Executive Officer of Global Field Operations and President of Global Field Operations Luka Mucic - Head of Global Finance and Member of Global Managing Board Vishal Sikka - Chief Technology Officer, Member of Executive Board and Member of Global Managing Board

Kash G. Rangan - BofA Merrill Lynch, Research Division Gerardus Vos - Barclays Capital, Research Division Kai Korschelt - Deutsche Bank AG, Research Division Richard G. Sherlund - Nomura Securities Co. Ltd., Research Division

Well, good afternoon or good morning, this is Stefan Gruber, Head of Investor Relations at SAP. Thank you for joining us to discuss our Q4 and full year 2013 financial results. Here in Walldorf I'm joined on stage by our Co-CEOs, Bill McDermott and Jim Hagemann Snabe; our CFO, Werner Brandt; as well as our future CFO, Luka Mucic. And Vishal Sikka, member of the Executive Board, is joining us from Palo Alto. So Werner will begin the call with a few remarks on the financial figures 2013, Jim will talk about the key achievements in the last year and Bill will provide an update on our growth strategy. And finally, Luka will discuss our outlook for 2014 and then we have enough time for Q&A. After the prepared remarks, we'll take your questions, both by phone and by email. [Operator Instructions] And before we start, I want to say a few words about forward-looking statements. Please note that except for certain information, matters discussed in today's conference may contain forward-looking statements, which are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. The factors that could affect the company's future financial results are discussed more fully in the company's most recent filings with the Securities and Exchange Commission. And I would like to hand it over to Werner.

Yes, thank you very much, Stefan. Welcome to everybody. 2013 demonstrates that SAP is the technology company who successfully managed the transformation into the cloud by outperforming the market and expanding the operating margin at the same time. You see the results here, where we show our guidance for 2013 and the actual performance during the year, where we achieved our guidance on the cloud subscription and support revenue site with EUR 787 million. We exceeded our software and software-related service revenue growth on a non-IFRS basis at constant currency with 11% growth, and we delivered on our operating margin, also non-IFRS at constant currency, in the mid of our guidance range with EUR 5.9 billion. Additional information related to the performance of 2013. First of all, our HANA software revenue, we achieved EUR 633 million, that's slightly below the guidance range we provided, beginning of the year is EUR 650 million to EUR 700 million. This number is impacted by currency exchange rates impact. And if you exclude those, the actual achievement is EUR 664 million. So within the guidance range. If you look to the effective tax rate, both IFRS and non-IFRS, where we are also in the range or better than the guidance range. Finally, one comment to the currency headwind I mentioned before. This was extreme throughout 2013. On the SSRS side, again non-IFRS, the impact was EUR 625 million, accounting for 5 percentage points. On the operating profit, the impact was EUR 389 million, 7 percentage points impact. And on the margin side, it was approximately 90 basis points. We talked a lot about the successful shift into the cloud, while at the same time growing the core. And you see here, if I only may guide you through this one briefly, that we achieved…

Thank you very much, Werner. And before I go into the strategic review of our performance in '13 and the last 4 years, let me just take a moment to thank Werner for his outstanding contribution to SAP over 13 years. Werner has reported 52 successful quarters for SAP, a pretty remarkable and very successful effort. And has been instrumental in ensuring, not only transparency, but also a profitable growth and transformation of SAP. Thank you, Werner. Thank you. Bill and I and the Executive Board began this chapter of the SAP journey in 2010, as you will recall, where we decided to reinvent SAP again and become a growth company. We decided to strengthen our market-leading position in the applications space and the analytical space. And in parallel, make bold moves and invest in 3 new categories: mobile for business, in-memory computing with HANA and, of course, cloud computing. Today, almost exactly 4 years later, we are celebrating the fourth consecutive year of double-digit growth and a successful reinvention of SAP. Over the last 4 years, we have extended our market leadership in our core business, outgrowing competition by at least a factor 1.5. In parallel, we had become #1, all the fastest-growing companies in every one of the 3 new innovation categories. And most importantly, we have proven that it is possible to add a significant cloud business while at the same time growing our core and expanding our margin, I believe a unique combination in the industry so far. This tremendous success was driven by increasing the speed of innovation at SAP, combined with very successful acquisitions, all growing faster as part of the SAP family. 2013 marks the fourth consecutive year of double-digit growth, as I mentioned, since 2010. And with that, we continue to gain…

Thank you very much. I'd to, first of all, welcome everybody and thank you for your continued interest, support and passion for this company called SAP. And I know Jim has already recognized Werner, but I would be remiss if I were not to do the same. I started my career going on 13 years ago, and one of the first board members I had the pleasure of meeting was Werner and I've had the privilege of working with him, and I consider him to be as good as it ever gets. What a great CFO, what a great friend, and it's been an honor to work with you, Werner, so thank you for everything. An honor. And for those of you that don't know him, you really need to get to know Luka Mucic, because one of the great distinctions of a leader is they always choose a great successor. And this guy has been a winner at everything he's ever done in his life, from his school, to how he's entered into SAP and risen to the top. He is as good as it gets. So please, I just like to introduce Luka Mucic as a really great successor to an unbelievable CFO. So Luka, an honor to work with you as well.

Thank you. Same here, Bill.

And Jim was very kind and certainly appropriate in recognizing Werner, and he's got a guy that takes credit easily. Because when it comes to humility, nobody's quite like him. But I just wanted to say thank you to him, not only for the more than 20 years of service to SAP in his capacity and operating roles, now he moves on to the Supervisory Board, which is a great privilege for me, personally, because to have a man of this distinction in the board room helping us navigate our business model and our business plan forward is really a privilege. But I would like to thank him as a friend. For those of you that don't know, both in front of the camera and behind the scenes, we have been amazing friends and that friendship is only built with time. And I'm so proud that we're able to put together the strategy in 2010 and then, today, take it up a notch by accelerating a bold move to the cloud. But as it relates to leaders hall of fame status, I would just like to say, to my friend and colleague and Co-CEO partner, Jim Hagemann Snabe, thank you my man for everything. Nobody like you. Nobody like you.

Thank you.

Thank you. Well, ladies and gentlemen, I'm going to just get into a little bit here by also recognizing Vishal that he's out in Palo Alto today at a very early moment in the morning. I guess it's around 5:30 by you now, Vishal. He's going to join us for Q&A, and thank you so much not only for what you've done for HANA and how you've reinvented the core of the company on HANA, but also for getting up so early to be on the call. So we look forward to your commentary in Q&A, Vishal, welcome. As Jim said, this is the fourth year in a row of double-digit growth on a year-over-year basis for SAP and that's across all regions in the world. So we're proud of our track record. But more importantly, I think we're significantly excited by the courage it takes to change when you're strong and to really go for something that you believe in. And that's where we're at now. We are going to lead the industry transition to the cloud. And Werner brought up a very important statistic, I hope you noticed it, that our billings in Q4 were up 50% on a year-over-year basis. And I think that's a leading indicator of things to come in the cloud. We think it's time to take our strategy to the next level. I know many of you talk to C-level executives all the time. And clearly, for CEOs, the most intractable business problem they have is complexity. And it's limiting the consumption of innovation everywhere. And we know that cloud can drive consumption and it can enable HANA to really scale as the platform of this generation. So for us, it's all about customer, it's all about adoption, it's all about scale and…

Yes, thank you very much, Bill. As you may know this is, today, my first earnings event. And as Jim has said, for Werner, it's his 52nd earnings event with SAP. But you can be sure that we both share the same excitement about the great transformation that SAP sees itself in, as Bill has alluded to. And as we have heard during today's call already, SAP is clearly setting the benchmark of profitable growth in the IT industry because we have both: We have a very strong growing cloud business and we have a very highly profitable, stable and equally growing core business. That is a unique combination. And our guidance for 2014 is reflective of these core strengths. So coming first to the cloud business. We expect, in 2014, to see a continued strong growth in the cloud subscription revenues that we are driving. On a non-IFRS constant currency basis, we expect to reach between EUR 950 million and EUR 1 billion in revenue in 2014, that's up from EUR 758 million as reported in 2013. And to give you 2 points of reference with regard to this guidance, the upper end of this range represents a growth rate of exactly 32%, which is basically the same as the respective 2013 growth rate after normalizing for the acquisitions that we did. And with this projected cloud subscription revenue growth, we also expect to reach, at the end of 2014, a total cloud revenue run rate of between EUR 1.3 billion and EUR 1.4 billion, that's compared to EUR 1.06 billion that we had at the end of 2013. So you can clearly see that we are well on the trajectory that will lift us to the revenue growth that Bill has outlined in the midterm guidance. So now…

Well, thank you, Luka. Now we have time to take some questions, both by phone but also by email. I want to remind you, you can send us questions by email to investor@sap.com. I would like to hand quickly back to the operator for some instructions on how you can ask question by phone. Operator, please?

[Operator Instructions]

So I would say, we'll take the first question by phone, and I see we already have one question by email. So operator, please go ahead.

The first question is from Kash Rangan from Merrill Lynch.

My question is, first, can you give us some idea of what percentage of the core business is moving to the cloud? And my second question is, when I look at your growth targets in 2014, although you had a lot of headwinds in 2013 with respect to emerging markets, it feels like you're modeling about the same kind of growth rates for software and cloud-related subscription revenue. I just wanted to understand the level of conservatism, because I would assume that you have a lot of tailwinds going into 2014.

Bill, you want to start?

Well, let me first start by thanking you, Kash. I had an opportunity to read your report today. And I think the association with SAP as the fastest-growing mega-cap company in the industry and the fast-growing mega-cap company in the cloud was certainly noteworthy of recognition because we agree. And one of the things that I would say about this forecast that we put in front of you on a larger base of business going into 2014, we've maintained our growth rates. And at the same time, we've accelerated our prospects in the cloud. As I look at the various markets around the world, the U.S. is the early adopter of the cloud and the market seems to be improving there steadily. I was in Barcelona yesterday with our team, you should know that Europe was the #1 region in the company for SAP. They had 13% year-on-year growth, they did a fantastic job, and they feel especially strong about their business. Also, Southern Europe, Middle East and Africa, for sure. Brazil remains a stronghold of SAPs. And I'm really excited about Mexico and that continues to perform beautifully. A lot of people haven't recognized that Mexico will be the biggest exporter to the United States by 2020, it's pretty impressive. And we love what's going on in China and Asia. And thanks to Jim Hagemann Snabe for bringing us back to double-digit growth in Asia in Q4. We made a leadership change there and he's gotten things straightened out and we'll ultimately choose a new leader to run our region. So the good news is all the theaters are in really good shape. We're focused on the right industries where we think we can get more, and we're on the right side of the customer with the move to the cloud. And I want to finalize by saying, HANA is now a serious brand that we're not having to push as hard as we used to. We're getting a lot of pull and including in the ecosystem. So you have a SAP cloud powered by HANA but you also have the partner clouds, like HP and others that are building on HANA and provisioning our applications to the market. So the guidance is what it is, but I've never felt better about the business and I've never felt better about our strategy.

Well, thank you very much. I'd like to take one question we received by email before we move -- continue with the phone questions. It's a question from Munich-based analyst, Knut Woller from Baader Bank. How do you see the HANA Enterprise Cloud transforming the crowded cloud vendor landscape? I believe we have Vishal on the call as well. Vishal, I think that's a question for you.

Yes, absolutely, Stefan. The HANA Enterprise Cloud is based, obviously, on HANA and the product opportunity that we see, Bill referred to this earlier, is a dramatic simplification of the ideal landscape. The power of [indiscernible] database is that the ability to do just-in-time calculations means that tons of complexity that are built in to the IT stack over the years and decades can be wiped out. The latency between product systems and analytical systems, as well as the inherent complexity of financial systems itself. As we have re-factored the business Suite on HANA just in financials, we have seen a tremendous simplification, a financial -- the financial system at our -- in our own landscape, and Luka and his team have run SAP cloud internally, every system on HANA has been operating at roughly 7 to 10x smaller size than it used to be before. And as we look at the future, we see that the data transfer between the ERP System and CRM through data warehouses and data banks[ph] has a tremendous amount of redundancy that can be completely wiped out and replaced by just-in-time real time calculations and computing. And that has 2 simultaneous value-introducing effects. One is the dramatic simplification and lowering of the cost of the landscape is going to be brought into the more value-adding innovative areas. But the other is, it makes the system real time and dynamic. This combination of a dramatic simplification and a real timing and dynamism of the landscape can only be achieved by HANA running on modern analytics hardware, and that is the essential promise of the HANA Enterprise Cloud. Together with the enterprise-grade security, data privacy, data sovereignty and the other enterprise qualities that SAP is famous for, we believe that the HANA Enterprise Cloud can be a tremendous leading effort going forward as we look to enterprise computing for the future. And as Bill said, the HANA Enterprise Cloud is not only delivered by SAP but by our entire ecosystem of partners who embrace the HANA, HANA cloud cell and the HANA Enterprise Cloud notions[ph] to deliver these or value these benefits from their infrastructure.

Okay. Very good. Thank you very much, Vishal. The next question I'd like to take again from the phone. Operator, please?

The next question is from Gerardus Vos of Barclays.

Just a couple, if I may. First of all, on the kind of platform, I know it's early days, but could you just perhaps give us some kind of feeling about the success on the HANA Enterprise Cloud and the HANA Cloud platform? Then secondly, just a definition of points. On the guidance for 2017, the EUR 3 billion to EUR 3.5 billion, is that cloud plus subscription, or is it cloud plus subscription plus service kind of revenue, which clearly have some ramifications of the organic growth? And then related to this, do you need to make any substantial acquisitions to hit that EUR 3 billion until EUR 3.5 billion target?

Well, I think -- I would say, Vishal, if you start with the platform question. Later on, we'll...

I'll take the first one, Stefan. Perhaps I can address the first one in the HANA Enterprise Cloud and the HANA Cloud Platform. I already mentioned the HANA Enterprise Cloud. We have already customers, major customers, dozens of customers running productively big systems, CRM systems, data warehouses on the HANA Enterprise Cloud in mission-critical environments. The HANA Cloud Platform goes beyond the underlying infrastructure and manage the [indiscernible] of the HANA Enterprise Cloud. And also, delivers the platform-as-a-service for us and for our partners to deliver extensions of the package applications. Whether it's extensions to our business suite, ERP, CRM, propriety and management kind of applications, or it is extensions to our SuccessFactors, Ariba, hybris cloud solutions, companies like Accenture and Renown[ph] and SaaS and others have already built applications using the HANA Cloud Platform and deployed those, delivered those in their cloud. So the combination of these 2 is something that enables us to simultaneously evolve and renew our existing application landscape and give ourselves and our partners opportunities to bring amazing new applications and completely new business areas.

About the question on the cloud-related midterm guidance for 2017. So these EUR 3 billion to EUR 3.5 billion are total cloud revenue. So that's, on the one hand side, the cloud subscription and support revenue, and the associated professional services revenue that we generate in conjunction with the cloud-related solutions.

Okay, very good. We've got another question from the web. It's actually from Brad Zelnick, Macquarie. And he -- actually the question is for Bill. Bill, in your comments, you touched on some changes to the go-to-market in 2014 where the account management function is now more centralized with product industry overlays versus being distributed in the past. Can you talk about how the new model drives growth in market share? And what the expected impact is on productivity and margins?

Yes. Number one, we did not and we will not decrease feet-on-the-street -- or actually increasing feet-on-the-street consistent with a growth company. And yet at the same time, we're at the position now where we are the cloud company powered by HANA. And therefore, we have integrated the cloud businesses of SuccessFactors, Ariba and our own customer-on-demand product into the mainline go-to-market strategy, because we want every customer to get the benefits of the public multi-tenant cloud at the line-of-business level, as well as the SAP cloud powered by HANA for the Enterprise. And we want the sales force leading with the cloud. I bet that'll come as a real surprise to the California companies, they can't wait until they get a hold of that one. As it relates to sales productivity, I think the beauty of the cloud for a company like SAP, who is not expected to come in with the cloud story, is we have found in almost every instance, it helps us grow the core. So I expect that you're going to see sales productivity go up both in the cloud and the core because it's really a virtuous cycle when you do what's in the best interest of the customer. I think we got away from the power of SAP, which is the integrated enterprise a little bit. When we had to go out with the line of business cloud as a separate motion. Now by bringing that back in, we have a very unique value proposition, as my dear colleagues have said here today, where we're the only company that can do what we do the way we do it. You can run the entire company, you can run pieces of the company, you can have a consistent infrastructure and platform, and by the way, it's also extensible to a robust and ever-growing ecosystem that has to improve sales productivity. We haven't been outlandish with our assumptions, but we certainly expect it to be up. And then finally, on the market share, I mean, bottom line, when you say you're going to be the cloud company powered by HANA that means you're going to be the cloud company powered by HANA. So we're going to gain share in the cloud business, for sure. HANA will consistently be a runaway growth story. And our core, as Luka said beautifully, is ever consistent, ever strong, in fact, it is Fort Knox. That's pretty much our business model.

Thank you very much, Bill. Just one follow-up clarification to the audio question we had on the call about the 2017 cloud target, what is the organic and inorganic proportion. I know, Bill, you commented already this morning in the press conference.

Yes, I would like to touch on that. When we set the EUR 2 billion target for 2015, we didn't say precisely how we would get there. We knew that it would be a combination of robust, primarily, organic growth, but certainly tuck-ins would be a part of our road map, as they remain a part of our road map now. So you should think about it primarily being organic, but we have been opportunistic where we see we can move the company forward with a solution that would be better bought than built, and I don't think our philosophy has changed on that.

Okay. Thank you very much. Back to the operator for the next question.

And the next question is from Kai Korschelt of Deutsche Bank.

I had a couple, please. Firstly, congrats and welcome, Luka. I just had a question on the SSRS growth guidance. So if I take your midpoint for this year, 7%, and I think to get to EUR 20 billion in 2015 revenues, it does imply a sort of mid-teens acceleration in SSRS growth. So I'm just wondering, how should we think about what drives this? Is there implicitly some M&A contribution in there? Or if you could maybe share your thoughts on how you intend to achieve the EUR 20 billion. And the second question was really on this EUR 2 billion cloud revenue targets, again, for next year. I think that target had been around for a while. Some I'm just wondering, we see acceleration to the cloud, is there a reason why you haven't actually raised this guidance?

Yes, let me first talk about the SSRS guidance. So first of all, of course, if we give a guidance, we have our best ambitions to not only reach it, but get as good at it as we can. The guidance range that we have given is actually pretty much reflective of a combination of continued strong growth on the cloud side, as well as a strong growth -- or solid growth in our traditional business. And it fits well with our trajectory to reach the ambitions that we have set for ourselves. So -- otherwise, we would not have confirmed this part of the 2015 guidance. So I am very confident, as is the rest of the team, that these targets can be achieved. And again, the growth rates that are underlying the range, especially at the top, would clearly support the ambition. On the cloud side, I think it is important to understand that if we look at 2013 growth rates, they're, of course, subject to acquisition effects. We had 130% growth on the cloud subscription side in 2013. If you take the like-for-like, as we have said, it's a 32% growth rate and our range is extending to there. Again, do we have the opportunity to possibly do more? SAP is always aiming at not only reaching its guidance but if we can exceed it. I think it's a prudent guidance from where we stand at the moment. And the business transformation that we are in over the next years, I think, will hold a lot of opportunities to further increase it as we move along into 2017. Bill, anything to add from your side?

No, I think you handled it very well. Thank you, Luka.

Thank you.

Thank you, Luka. The call was scheduled for roughly 1 hour, so I think we have time for one final question. Of course, we take much more question on February 4, when we have our Investor Symposium in New York City. If you haven't received an invitation, please reach out to my colleagues in the IR team. So back to the operator, please the final question.

This question comes from Rick Sherlund of Nomura.

On the 750 Business Suite on HANA, I wanted to get -- just clarify for us, how much of this is cloud versus on-premise? And if you can give us an idea of how revenue is to be recognized on that, is it upfront or is that over time?

Rick, Jim here. The 750 is largely on-premise because the cloud version of that came very late in the year last year. And only now we're offering the customer choice as well on the subscription-based model for that. So think of it -- most of it on-premise, half of it installed base customers moving to HANA, because of the simplification and speed that it offers, and a half of them new customers who, of course, default Suite on HANA because it performs better and is cheaper from an infrastructure point of view.

Well, thank you very much. This concludes our financial analyst call for today. Thank you, all, for joining. Thanks for all your questions, and I look forward to seeing you in New York City on the 4th of February. Thank you very much. Bye-bye.

Thank you. Thank you.