Ladies and gentlemen, thank you for standing by. My name is Jasmine, your Chorus Call operator. Welcome and thank you for joining SAP Third Quarter Results 2016 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 would now like to turn the conference over to Mr. Stefan Gruber. Please go ahead.

Yes, thank you. Good morning or good afternoon. This is Stefan Gruber, Head of Investor Relations. Thank you for joining us to discuss our results for the third quarter 2016. I'm joined by our CEO, Bill McDermott; and Luka Mucic, our CFO, who will both make opening remarks on the call today. Also joining us for Q&A are board members Rob Enslin, who runs Global Customer Operations; Bernd Leukert, who leads Product & Innovation; and Steve Singh, Head of SAP Business Networks and Applications. Before we get started, as usual, I would like 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 U.S. 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. All 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 our filings with the U.S. Securities and Exchange Commission, the SEC, including SAP's Annual Report on Form 20-F for 2015 filed with the SEC on March 29, 2016. Participants of this call are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. I’d like to note that we would like to welcome you back to our Annual Capital Markets Day again in New York City on February 9, 2017. Invitations for this event will be sent out shortly. And finally, please keep in mind that unless otherwise noted, all financial numbers referred to on this conference call are non-IFRS, and growth rates are non-IFRS at constant currencies, unless otherwise noted. With that, I would like to turn the call over to our CEO, Bill McDermott.

Thank you very much, Stefan, and hello everyone. Today, SAP is reporting very strong Q3 results and we are raising our outlook for the full-year. We delivered solid top line growth in the quarter. In the cloud, we were up 29% in Q3, and up 32% year-to-date. In software license revenue, a solid 2% increase. In cloud and software, we were up 9% in Q3, and 8% year-to-date. All metrics are tracking to the upper end of the outlook we said at the beginning of the year. We also delivered a solid bottom line performance. Non-IFRS operating profit was up 1%, and this is impressive when you consider the comparison against our 15% growth in Q3 of 2015. On a year-to-date basis, operating profit is up 5%, also tracking to the upper end of our initial full-year outlook. Also consider the following. We hired 2,500 people in Q3, which was our biggest hiring quarter this year. We made investments in co-innovation with strategic replicable customers to drive sustainable growth. And on the IFRS operating profit side, our rising share price caused a nearly €300 million effect for employees stock-based compensation. I'd like to think of this as the happy cost of doing business. And on a year-to-date business, IFRS profit is up 25%. The bottom line is this. We're growing in every region of the world. Our growth drivers are performing on all cylinders. Our pipeline is strong for the fourth quarter, and all of these factors let us to confidently raise our full-year outlook for both the top and bottom line. Allow me please to give you some additional color on the momentum of SAP. Our digital core S/4HANA is amazing. We see continued strong momentum with more than 4,100 S/4HANA customers. This is up 400 in the quarter,…

Thanks very much, Bill. Hello everybody from my side as well. Bill just talked about how our employees and our technology help the world run better and improve people's lives. And as SAP proud sponsor for sustainability, I absolutely share enthusiasm that the Dow Jones Sustainability Index has awarded us the top spot for decade running now and clearly recognizes us for our longstanding commitments to acting and thinking in an integrated fashion. In my role as a CFO, I'm convinced that running a company with an integrated approach enables us to make better decisions, as we simply have deeper insights in how to drive business outcomes. As a knowledge company, it is critical for us to steer the company with non-financial KPIs like employee engagement and others. The management team at SAP is committed to integrated thinking, which makes SAP at the end stronger and more resilient. Our holistic approach is fundamental to achieving our goals and realizing our vision. Now before going into a more detailed discussion of our financial results, it's worth for me repeating that year-to-date we are tracking to the upper end of all outlook metrics set at the beginning of the year, as Bill alluded to already. One of those key revenue metrics is cloud. Cloud has become a major part of our business and already accounts for almost 15% of our total revenue today. Our revenue growth rates in cloud had been around 30% or more for almost four years now, growing 32% year-to-date. With this, we are currently growing faster than the CAGR needed to reach our 2020 ambition. Looking at new cloud bookings which fuel our future committed cloud revenue growth, they are also in line with our underlying assumptions for our mid-term growth ambitions and increased this quarter by 24%.…

Yes, thank you. Operator, you can now start the Q&A session.

Ladies and gentlemen, at this time we will begin the question-and-answer session. [Operator Instructions]. One moment for the first question please. The first question comes from the line of Michael Briest with UBS. Please go ahead.

Great. Thank you and congratulations on the quarter. In terms of the cloud, there was announcement a couple of days ago about SuccessFactors moving onto Azure or being available on Azure. Can you talk about your underlying cloud strategy there? What they are doing, what you're doing? And CapEx is quite a lot this year, partly related to those cloud investments. Is that something that may be reduces the level of where CapEx we should expect in Q4 next year? And then secondly, just on the number of S/4 customers that are live. Could you give an update there and maybe how many are moving to HANA Enterprise Cloud and how significant HANA Enterprise Cloud is now within the revenues? Thank you.

Michael, I'll start us off and allow you also to get some feedback from Rob Enslin and Steve Singh. First of all on the Microsoft partnership. I’ve always said that we do stand on the shoulders of giants. And about 3.5 decades ago, Bill Gates and Hasso Plattner began an amazing partnership between Microsoft and SAP, and I’m very proud to say that Sathya Nadella and myself are continuing in that tradition as evidenced by Sathya being in SAPPHIRE with me and also in recognizing the power of SuccessFactors to sort of run Microsoft's people strategy but also to take Azure and adopt HANA, the S/4 applications and also our cloud applications for the line of business and of course the business network. So I think you should look at a multifaceted strategy here. The first piece is now unfolded but we are going to continue with Microsoft in a highly strategic fashion. I’ll let Rob give you an update on the S/4, and then Steve give you some more color on our cloud strategy and what we are doing, especially with Microsoft. Rob?

Yes, so with S/4, right now we have just over 350 customers live. When you look at the live customers in S/4, what’s particularly pleasing is that of the customers that are doing projects right now, more than 50% of them are full scope, in other words with the 1511 released of manufacturing and the full ERP scope, most of these customers are now actually implementing full ERP scope for S/4. And as it relates to what you'll also see as more than 80% of these projects are now done by partners. So this is very, very pleasing use in the S/4 environment.

So I'll add a couple of things to this. Obviously as we continue to see our cloud businesses grow, the opportunity to leverage public cloud infrastructure to drive more scale in our gross margin is very substantive. And so leveraging relationships like Microsoft with Azure is a fantastic opportunity for our company. SuccessFactors is one of many opportunities to work collaboratively with Microsoft and Azure. We also obviously work with AWS, our recent announcement on BW for HANA is an example of that. I think as you think about our global reach and our capacity to serve customers in any corner of the world, the opportunity to leverage public cloud infrastructure in other parts of the world is a massive advantage for the company.

Yes. And maybe a last point on the size of the HANA Enterprise Cloud opportunity in total. I think this is becoming quickly a grown-up business I would say. It was a small toddler two years ago and we invested a lot and there were lots of doubts. However when you take a look at today's performance, this is actually already on a year-to-date basis now a triple-digit million business and it continues to grow fast, and more importantly for me from a CFO perspective, it increases the efficiency very quickly. In Q3, as expected and as we predicted, the business has been breaking even on a gross margin basis and it is continuous to be on a strong role in terms of the increasing the efficiency further, so it is of growing strategic importance to SAP.

And Luka, will the CapEx come down because of the relation to public cloud companies?

I would say as we grow the opportunity and as we grow the partnership, there is certainly an opportunity for that. It will not have a massive impact for the remainder of this year, but as we move forward, as you know, we have the expectation that we will see substantial improvements in the gross margins across our different business models and utilizing these mega IOS [ph] providers is one aspect to that equation. So absolutely this is part of our consideration. But you should not see it as a short-term opportunity now for the next few months.

Thanks.

Thank you. Let's take the next question please.

The next question comes from the line of Stacy Pollard with JPMorgan. Please go ahead.

Hi, thank you. A couple. License revenue growth, 11% in Q4 last year, so tough year on your comps but you did say robust pipeline and confidence to deliver yet another strong fourth quarter. Do you think that means positive license growth in Q4 of this year? And then just quickly on S/4. You mentioned catalyzing a broad adoption on of SAP products. Could you give some examples of that and what kind of leverage that might be, so is it 1.2x ERP in terms of revenues, 1.3x, 1.5x, 2x something like that? And then the last one quickly on the M&A. Just can you talk about recent acquisitions and your future thinking, would they be of similar size and what types of technology are you looking for?

Yes. This is Bill, Stacy. Thank you very much for the question. What I'll do is I'll give you a little color on the robust nature of the pipeline and our determined forecast for Q4 as well is the M&A. Rob can give you some further color on the forecast, as Steve can as well. But here is the big picture. What we do is we run the company on HANA. So we have a real-time in memory Column Store data platform giving us feedback as to what's going on in every industry, in every geography, in every territory in the company in real-time. And when you look at the facts, you can only come up with one conclusion that the pipeline is the biggest it's ever been, and the level of sales cycle is deciding that it would give you a growth forecast on a year-over-year basis including in the core business. That's where it's at. And the cloud is continuing its natural progress, growing fast and also giving us a balanced business model, which gives you much more predictable revenues just as we stated in the mid-term forecast of the company. So we are right on track. So yes, we are expecting a very good growth in the quarter. As it relates to the M&A activity, I announced a couple of tuck-ins that we did on the IoT in my opening remarks. Right now you shouldn't expect SAP to surprise you with anything large. The reality is there isn't anything large that we see we’re buying. Most of them don't make a lot of money. We beat them hand over fist in the marketplace, games, set, match, so why would you buy them. And what we are doing is we are very proud of what Bernd is doing in the development and innovation machine here in the company and we are bringing out massive innovation in S/4 including in the fourth quarter, where lots of upgrades and lots of decisions will take place. For example, we invested €50 million in Q3 on a co-innovation level with a few customers because we go into new areas like retail, we prove it with the lighthouse and then we replicated it many times over. So you're dealing with a management team here that's not just thinking 90 days, we’re thinking next move. We are already thinking 2017 whilst at the same time delivering the promise in 2016. So we might do some tuck-ins. We don't see any big ones on the horizon right now and we’ll give you a further update on that in January when we give you the guidance for 2017. But the organic execution is the story at SAP right now.

Yes, and in terms of the pipeline and uplift as we see it, I mean S/4 has clearly taken our customers by storm in sense of how they see it and the value they are getting at. With the reference customers we have and connecting our big data play with HANA together with S/4, the work we are doing in machine learning and then you connect the cloud solutions, our customers understand the value of all of that, the integration between the core and the edge and the edge and the core, and we are seeing that across all religions and all geographies. So it's not - it’s a very, very positive story for SAP in the complete sense and all aspects of our portfolios are working really well right now.

Yes, and let me maybe just add very quickly - sorry, I didn’t wanted to interrupt you. Go ahead, please.

No problem. The only thing I will add on the pipeline overall for cloud is that we continue to see a robust environment for our cloud offerings. Obviously we are managing through a change in Concur’s fiscal year-end from September to December. But if I look at it more granular, we really see a strong environment for Concur. Ariba’s demand environment continues to grow on a year-over-year basis and we are seeing really strong demand for our SMB offerings as well including our SMB ERP offerings. So very pleased with the demand environment and see that continuing to be that way for years to come.

I just wanted to add that, you have various levels of how S/4HANA is actually reintegrating growth across our entire portfolio. I think Rob has described this core to edge, edge to core concept very well. You will see this reflected in the fact that our average deal size in the higher ticket amounts is actually going up and that we see a higher relative share of revenues in this higher ticket volumes. However it's also important to note that with the upcoming S/4HANA release which now delivers all of the functionality that we have re-architected for native HANA in memory data processing in 2015 across all of the industries just is also amplifying the opportunities that exists in S/4 itself because we can now, really across all industries, not only move into the generic areas like finance but we can really move into the core business processes of our biggest oil and gas companies, of our biggest retail companies and so on and so forth, and this of course also raises the potential for S/4 itself in terms of average deal sizes.

Maybe for each of the smaller tuck-in acquisitions, a word my side - this is Bernd. I think internet-of-things and digitalization of the business in general is on top of the agenda of any customer I have spoken in the last recent quarters. So while we do not want to play a me-too game, we want to uniquely differentiate with our capabilities. We have selected these assets with dedicated purpose. Let me start with LTSCALE [ph]. The clear proof point that the move to the cloud is happening and it’s happening in a direction where we have to live in future with decentral storage of data. Not all the center data that the world produces can be stored in a single datacenter and we offer with Hadoop as a service de-centrally and connecting it to our core winning platform, HANA, a big data solution, no other IT vendor can offer this space. Then if it comes to the capabilities of HANA itself with PLAT.ONE, we have now a unique differentiator to connect to any physical assets in the world. And with FEDEM, we are able to model any physical product as a digital twin and this is the way the internet-of-things in the digital world will win going forward. So these tuck-in acquisitions create a tremendous differentiating capability in the whole space of internet-of-things. And I think you heard it from Bill, we have committed to a total investment of €2 billion and we expect massive return on that investment going forward.

Thank you, Bernd. Let's take the next question please.

The next question comes from the line of Ross MacMillan with RBC. Please go ahead.

Thanks very much and congrats from me as well. Two questions. One on the public cloud version of S/4HANA. Bill, when do you think that will become publicly available, generally available? And then second on the conversion of the line of business cloud apps to HANA. Luka, I am curios again, when do you think that will be complete? And if you could isolate the gross margin impact for those businesses, how material could that be? Thanks.

Well, thank you very much, Ross. First of all, I'll just start off with the S/4 public cloud addition. We have a whole division in the company dedicated to that, and we're going with everything SAP has and more to make sure that that's a master piece of our growth story. And Rob and Bernd teamed up on that. There is a very serious executive that is running that for us. The solutions totally ready and with a dedication of a division of the company, you won't have any mixed up people between whether they are going to put something in the cloud or in our customers datacenters. So, Rob, maybe you'll make some comments on that.

Yes. With Darren Roos heading up that cloud division, the S/4 cloud division, we've actually gone live with some customers already. We've actually really excited with the results that these customers have shown. We have another - quite some customers that we signed up that will actually be live before the end of the year. And then the plan is to go large in January at our Field Kick-Off, we will actually launch that S/4 cloud division to all of SAP, and then obviously in New York City when we meet all of you again, we will launch the S/4 cloud and it will be a big part of SAP in 2017.

Yes, this is Bernd. Maybe comment on conversion of our public cloud offerings to HANA. We have started where customers get most value out of it and this is clearly where we process huge amount of data in the analytics space, so consider this as done. I would say looking at our more than 10,000 customers, SAP is already having the biggest datacenters on the world, running cloud applications on HANA as we speak today. Now your question is when are we complete? This is a two-step approach. Number one, getting the capabilities and unleash the massive value of HANA into these applications and not just doing porting, we have done it completely for SuccessFactors and we are in process of migrating all of these customers to the HANA database, expect and forecast is that we are done in four quarters, so 12 months from now. We are in process of migrating as well Ariba, Concur, Fieldglass. It might take a couple of weeks or months longer. We will decide this based on growth rates as we have a customer-first approach. You asked for CapEx investments and we want to serve them, and I think the impact on the financials, I would pass over to Luka.

Yes, absolutely. So first of all, initially of course the migration of our customers to HANA is an investment case for this year as well as for the next year as we have to maintain for some time as we migrate to different customers as Bernd has explained double infrastructure. That's why we are not planning for substantial increases in our cloud gross margin in 2016 as well as in 2017. There are some additional investments that we are making into converge cloud infrastructure as well as datacenter consolidation and also play a role in this regard. However then as of 2018, we of course expect that we will derive massive benefits from these migrations going forward. As you know, we aim to achieve around about 7% increase in the cloud gross margins until 2020 with an exponential uptick take in the years 2018 and going forward, and that's exactly because of those efficiencies that we are gaining by running our own platform underneath all of our cloud application. But quite frankly, it's not only about our efficiencies and our gross margin improvement where this is baked into the 7% improvement. Much more important is that our customers are gaining transformational capabilities through the migration much faster analytics for example, much more responsive transactional processing across those different solutions, and that's what I am really excited about so that we can unleash the full power of this best of breed applications that we're having with the most modern and most robust performance database platform that you can find in the market today.

Thank you. Let's take the next question please.

The next question comes from the line of Charles Brennan from Credit Suisse. Please go ahead.

Great. Thanks very much for taking my questions. I’ve got two, if I can. The first is just on the balance sheet and the cash flow. Bill, there were some comments creating news I think on the wires, suggesting that going into 2017 the scope for higher dividend payments or maybe share buybacks. Can you just outline your medium-term philosophy of where you think the right balance sheet structure should be and how you’re thinking about balancing cash flows between shareholders and M&A? And just on the cash flows, it looks like DSOs continued to tick up by a day a quarter at the moment. Luka, where would you like to see those metrics stabilize and where do they go from here? Thanks.

Well, thank you very much, Charles. Maybe I'll start off on the balance sheet and cash flow. I'm going to actually allow Luka to give you the good news on the cash flow because I think he would be quite impressed with what's going on in the company's cash flow. But on the balance sheet, let's first of all get clear on what I said. I said that SAP will remain an excellent dividend payer, as we have consistently done now for years and years and years. So put that in the win column for the shareholders. I said that we would be very thoughtful on M&A and not surprise you with anything that didn't make sense. We talked about the priority areas, Bernd elaborated on that. So we'll do things on the M&A side that make a lot of sense. One of the things you should look at is the record that we have with M&A. All the companies that we acquired outpaced the business case we’ve put in front of the board when we bought them. And if you remember, there were times when we run into serious fire if we paid too much, was it the right M&A. And now just about everything is paid off and SAP shareholders will benefit from those moves in perpetuity. That’s a pretty good thing. And finally as it relates to share buybacks, it is possible that in the second half of next year because we are spending off tremendous cash flow, it could be an opportunity for that and we'll weigh that in the balance between investing in organic, investing in strategic M&A, or in fact buying back shares in combination with being a good dividend payer. The main thing is we are going to be extremely shareholder friendly. We believe that a growth company needs to also take care of its shareholders. One of the important statistics that I'm actually extremely proud of this quarter is the fact that the employee-based compensation related to the SAP shares was actually €296 million strong. That reflects that our external shareholders are benefiting and now 70%-plus of our internal employees aboard in to the internal share program of SAP. That is an organization that’s exhibiting enormous pride in this company. So we don't just have employees anymore, we have owners. And Luka, I know you want to talk about the cash flow, which is stunning and some other things, so over to you.

Yes, thank you. Already stole most of my thunder but it’s absolutely true that we are seeing now the fruits of our growth in the year-to-date, also the operating cash flow. We had briefly discussed it on the last quarterly call, where I told you that due to the absence of restructuring cash outflows, we expect a much stronger cash flow in Q3 and going forward this is exactly what is happening now with 52% operating cash flow increase, and this will continue also in Q4, because also in Q4 we had quite significant restructuring related cash outflows in 2015, which we won't have in 2016. So it is absolutely clear that we are about to generate excess cash. We have a strong priority on deleveraging. We have another €1 billion of private placement that is becoming due for repayment in the first half of 2017. In the first half of 2017, we will also pay a very nice dividend. As you know, we have a dividend policy of playing out more than 35% of net profit. Net profit is up significantly when you take a look at our IFRS numbers, so chances are that the dividend will also be up significantly. So those are priorities. Organic innovation is a priority. Tuck-ins - if we don't see more than tuck-ins of the nature that we have done, obviously we will return to the question of possible buybacks then in the second half year. We expect to have more clarity for you on that already by the time when we meet together at the Capital Markets Day. On the DSO, you are right. Actually that DSO increase is slowly coming to an end. This quarter, we have seen as 0.4 days increase, so it just meant to be rounding edge so to say so that you see it as a day in increase but it's actually 0.4 days. I expect this movement to now completely come to a halt in Q4, latest in Q1, I would expect us to see returning to lower DSO. There are multiple measures that we are driving, especially in some of our emerging markets as you know, we were facing difficult macroeconomic conditions where overdues have accrued and we are working these now down aggressively with executive sponsors for all significantly overdue items with an aggressively bookings policy and we believe that we will have made substantial progress as we enter the new year.

Thank you. Let's take the next question please.

The next question comes from the line of Kirk Materne of Evercore ISI. Please go ahead.

Thanks very much, and I’ll add my congrats on the quarter. Bill, obviously a really strong hiring quarter for you all. I assume a fair number of those new hires are in customer-facing roles. I was just kind of curious where you might be adding strength in terms of specific verticals or on specific products, just trying to get a sense of where you guys feel like you might be not pushing as hard as you could perhaps on the sales front just in terms of numbers? Thanks.

Yes, Kirk, maybe I'll just start it off philosophically. If you're not coding software and you're not selling software, we’re probably not chasing you down right now. So that’s the bottom line. We want people that are engineers, that are data scientists, that really understand the systems and have a great future in technology in the company and we want great customer-facing professionals, including young professionals from the right curriculums in schools that can actually help us take care of the customer and move our software in the open marketplace. We have one of the most sophisticated young training programs I think of any company in the world right now. We are extremely proud of it. And I'll definitely let the colleagues give you some color on where we are really focusing the talent. It's pretty exciting and the company is getting younger all the time, which I think is very exciting. When you walk in the halls of SAP, you feel like you're dealing with a very young vibrant company, not a company that's been around 4.5 decades, pretty exciting. Rob?

Yes, so we’re actually definitely selling software. So in order to continue that we've actually added resources to our line of business solution, a global expansion, a channel of commercial sales, our inside sales organization, pretty much the expansion is global and broadly based. The sales university continues to attract a number of young people that we are bringing to the company every year and we are seeing a major return on that, especially in the emerging markets where we’re training talented folks. We are getting significant production and we’ve set that up in all of our emerging markets. So pretty much in all the line of business applications from SuccessFactors, hybris, Ariba, Concur and a global expansion in the regions and that's where we add channels as well.

And Bernd, you may want to mention what you are seeing on the engineering stuff?

Yes, sure. So innovation is basically the fuel for future growth. So I elaborated already on internet-of-things but we are, as well, heavily investing in new technical capabilities like machine learning, artificial intelligence. This will be the fuel for a whole new set of new applications. You will hear more from us in next couple of weeks, and there is, as well, capabilities in the area of parts [ph]. So we see the human-machine interaction as the future user experience. It's not just having nice fancy UI. It’s enabling our customers that there is a natural human being machine interactions which will be our future. So in these areas, we are more or less strengthening across the entire portfolio.

Thank you very much.

Thank you. We have time for two more questions please.

Then next question comes from the line of Gerardus Vos with Barclays. Please go ahead.

Good afternoon, and thank you for taking the questions. It’s actually James Goodman on Gerardus’ line. If I look at the movement in deferred, the cloud billing is great. It was very strong this quarter ahead again I suppose the bookings and the revenue growth on cloud. So aside from the Concur impacts that you’ve mentioned, is there anything else we should consider here in terms of the way those metrics relate to one another and is it feasible that the new cloud bookings measure could actually move ahead of both revenue and billings growth over the coming quarters? And then the other question I had was just coming back to the temporary investments that you mentioned a couple of times during the quarter. Could you provide perhaps a little bit more context there on the nature of those investments? Are they related to S/4HANA extensions, or is this new product initiatives? I wasn’t quite sure. And when you say these will be done by the first quarter ‘17, is the magnitude of investment similar over the coming two quarters? Thank you.

Yes, maybe I can ask answer the first question. So first of all, on the calculated billings performance versus new cloud bookings performance. Yes, there can always be variations between the two and it's possible definitely that new cloud bookings could exceed the calculated billings because it's simply a different methodology. One is an order entry methodology and one is a methodology that is calculated, as you know of course, based on revenue changes and changes in the deferred movements. So the reason for the difference between the two is definitely for the most part in this quarter the Concur effect. We absolutely expect Concur to have a blowout Q4 because that was last year not their Q4 which they had in Q3, and hence the bookings performance in Q3 was a little bit lower. But as we are - we know our deferred revenue composition looks like - our backlog looks like, that of course makes us very, very confident around the cloud revenue figure. And again on the bookings side, I expect a very strong Q4 because of a broad-based performance that I see ticking up especially also in Concur. On the temporary investments, maybe I’ll answer this quickly as well. That's actually industry-specific innovation that we’re driving. So we're working with customers, for example, in the retail space to completely redefine the way how they can get - keep track of their customers and can get customer preferences, customer buying behavior, customer data integrated into one holistic record. The customer get more intimate with customer interactions and track them across all of the channels of interaction with their customers. Similarly in the insurance space, we are completely redefining with some very, very forward-looking customers the way how front-office operations in the core insurance space can look like based on the HANA platform that we have. This type of development is not really directly related to S/4 but industry-specific core innovation would lead us in this space.

And that entrepreneurial spirit is alive and well in SAP, and in terms of how you should expect that playing out in the future quarters because that was part of your question. I would say the ones that we've made for 2016, we’ve made for 2016. So that's why we are raising the forecast. And incidentally what we are always trying to do now is look into the windshield not just the rearview mirror in terms of the next move. And I think what you will see is some of those small investments instead of complex M&A leading to great replication and faster time to value across industries. Luka talked about retail and insurance, those were the ones that impacted this quarter but we are certainly not limited to that. We are really focused on the customer and making sure they’re live, they’re happy and we can replicate it many times over.

Thank you. Now we have time for the final question.

The next question comes from the line of John King of Bank of America Merrill Lynch. Please go ahead.

Great. Thank you very much for taking the questions. I’ve got two. I think focus more around the kind of 2017 outlook. Firstly going back to your comments on the services margin, Luka. Good improvement there to 20%. I guess, we can't be thinking about more than mid-teens rate looking backwards. So what’s the right run rate as we think about 2017 for the services’ gross margin? And I notice obviously you left your guidance for operating profit for next year unchanged. So just wondering if there is any - if that’s sustainable or not or if there is another offset to think about? The second question was again more of a bigger picture about the cloud transition. I guess a couple of years ago, you reset the expectations somewhat about license growth with the likelihood that overtime you’d see some of that get cannibalized in the core and shift towards on the cloud subscription. Where do you think we are really on that? If you really visit those assumptions now and you’re on track, it feels like at the moment most clients are still taking their ERP, wanting to own the software and buying licenses. So in that context, do you think it’s possible we see some further resilience in license into next year? Thanks.

Yes, so first of all on the services, and you're absolutely correct. We have improved the underlying business performance in services quite nicely in the last six months. It was actually already becoming visible in Q2 and we have further progress now. So I think I have a strong confidence that the overall services’ margin for next year should not, on average, fall below the level that we have achieved right now. So especially once the investment projects that I’ve been talking about are fully delivered and this will be the case in Q1, as I said, 2017, then we should definitely see that these margins are becoming sustainable again at the level that we have achieved right now. Well, first of all, on the outlook for 2017. We have just raised the outlook for 2016 and we will attend to 2017 when we outlook our numbers for Q4. So I think there you need to hang in little bit with us. But you can see from our confidence in raising the 2016 outlook that there is obviously nothing fundamentally wrong with the company and hence we also believe strongly that our mid-term outlook continues to be sound. In terms of the trajectory that we are on for licenses. You're right, when we started our mid-term guidance framework in early 2015, we were not entirely sure. We had a strong belief that S/4 could become a game-changer for us across the entire spectrum of our portfolio, both cloud as well as on-premise, but we were not sure about the uptake. Now we know that it's a tremendous innovation and that clearly has reinvigorated growth in our on-premise business to a greater extent that we would have expected for the first two years, which is great news. As we move into the future, as Rob has also said, we plan in the future to also deliver S/4 to the market in the public cloud version. We see a great prospect for this solution in the market. There will be of course still a case and a strong case for S/4 in a large-scale deployment, also on-premise. But keep that in mind and hence we are very confident around S/4 to spur growth in both the cloud as well as in on-premise core licenses. At the moment, I feel very comfortable with the mid-term outlook that we have and we will have further update for you when we meet in January at the Capital Markets Day in February.

Okay, thank you.

And John, just to build on Luka was saying, one of the things you may want to think about is the order entry in the company for the software and the cloud, so substantial year-over-year increases in 2016. You will see substantial increases in 2017. What I think is kind of interesting about SAP and - history is a relative guide for the future when you look at the competition down in double digits in their core and propping up concrete and servers as a cloud model versus software, we kind of like the idea that our core is solid, our cloud is solid, SMB, Business Network and an ever-expanding ecosystem that also wants our applications in their clouds. And when you are a great brand and you're willing to meet our high standards for security and reference architecture, we have no quarrel with expanding our footprints and our channel capacity to sell more software. So all the lines are in the water for continued sustained software and cloud growth, and if history is any predictor of SAP because of our substantial lead with S/4HANA and the 21st century ERP, we'll do a lot better than the other ones.

Thank you very much, Bill. This concludes our Q3 earnings call for today and we look forward to meeting you again in January by the latest at our Capital Markets Day in New York City on February 9. Thank you all for joining, and goodbye.