I'm Emma, your Chorus Call operator. Welcome, and thank you for joining the SAP 2015 Third 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. I would now like to turn the conference over to Mr.
Stefan Grober. Please go ahead, sir.
Thank you very much. Good morning or good afternoon. This is Stefan Grober, Head of Investor Relations. Thank you for joining us to discuss our results for the Q3 2015. I'm joined by our CEO, Bill McDermott and Luka Muchic, our CFO, We'll both make opening remarks on the call today.
Also joining us for the call for Q and A are Board members, Rob Enslin, To Grant's Global Customer Operations and Steve Singh, Head of SAP Business Network. Today, we are hosting over 6,200 attendees at our TechEd event in Las Vegas. Dan Leuchardt, who leads Product and Innovation, is giving a keynote there and will therefore not join this call today. Before we get started, I would like to say, as usual, a few words about forward looking statements. Any statements made during this call that are not historical facts Our 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 and 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 SAP's filings with the U. S. Securities and Exchange Commission, the SEC, including SAP's Annual Report on Form 20 F for 2014 filed with the SEC on March 20, 2015. Participants are cautioned not to place undue reliance on these forward looking statements, which speak only as of their date. 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 as reported.
With that, I would like to turn the call over to Bill McDonough.
Thank you, Stefan, and thank you, ladies and gentlemen, for joining us on the call today. I'll begin by offering some perspective on our very strong Q3 results. Businesses are making the shift to digital And complexity is their most intractable challenge. They need a trusted partner for digital innovation across every element of their landscape, including applications, cloud, business networks and platform. This is why SAP's strategy is more relevant than ever before And you've seen this validated in our Q3 results.
Cloud revenue up 116%, new cloud bookings up 102%, Cloud and software revenue up 19%, operating profit up 19% and earnings per share of 16%. So how are we doing this? Let's start with applications. Customers want to digitize their core business processes with S4HANA to harness real time, a live system data strategy, which enables decision making. Our next generation suite, S4HANA is becoming the mission critical control center for digital business.
Think about this, No aggregates, 4 times fewer process steps in the workflow, 10 times smaller footprint and 1800 times faster than any other technology on the market. Customer adoption therefore continues to surge. We now have over 1300 customers to date after just 8 months on the market. Not only does S4HANA show exceptional traction, It also serves as a catalyst for growth across our entire solutions portfolio. We're seeing strong S4HANA adoption across all of our regions and industries with companies like China Railway and Metro in Germany as examples.
And customers are also going live including Bahrain Steel and Asian Paints to name a few. I'd especially like to call out the recently closed S4HANA contract with the Bosch Group in Germany. With S4HANA, Bosch will simplify their landscape, Enabling new business models to deliver better insights and connected services to their customers. When you think about the cloud, we now have the S4HANA core, our best in class flagship suite, also in the cloud. And these applications are helping our customers to run simple.
Think about SuccessFactors and Fieldglass. SAP is the only company that delivers total workforce management solutions across permanent and contingent labor. Our flagship cloud HR product, Employee Central has incredible traction. The numbers speak for themselves. We now have A rise of 79% in customers running Employee Central just over the last 12 months.
We have now localized this solution for 73 countries and we have payroll localized for 30 countries. In Q3, top multinational organizations such as Bayer and Bertelsmann selected SuccessFactors HCM Solutions And we're winning against key competitors with Alstom Transport choosing SAP over Workday. This is one of many examples by the way. In Europe alone, we have approximately 1,000 customers using our HCM solutions in the cloud compared to Workday's 100 with customers. We're also starting to see a new evolution, which is replacing Workday installations.
Customer Engagement and Commerce Solutions are helping our customers engineer a different kind of relationship with their digital consumers, engaging them with personalized information across every channel. This is a significant shift Beyond traditional CRM, we're now moving to real time customer engagement where the lines between marketing, Sales, service and commerce are fading. In addition, no other vendor can connect the front office and the back office in real time the way SAP can, connecting people, inventory, supply chain, pricing and customers together to seamlessly fulfill e commerce in one end to end value chain. We had numerous wins over salesforcedot call as a result in Q3, including Coca Cola FEMSA as an example. And then there's Business Networks.
The digital transformation doesn't stop at
the 4 walls of a business.
While others consolidated the past, SAP invested in the future. We are now the undisputed leader in business networks. Today, The SAP Business Network Group includes Ariba, Fieldglass and Concur. Each of these businesses are leaders in their respective markets. And to be a global leader in any business network requires scale.
Scale in terms of the number of customers you serve and the open platform that you offer. This has to be embraced by a large ecosystem. This large ecosystem has to offer content and innovation and this further drives the scale. This is evident across SAP's business networks as they call. Example, total revenue in our Business Network segment grew more than 125% at constant currency to €412,000,000 Concur, the largest of our networks, helps over 30,000,000 end users, effortly process travel and expenses.
We saw continued acceleration of Concur's new customer bookings as it also leverages the SAP global scale. Even as Concur signed large multinational customers, including Brita Filters and Bombardier, they also saw the SMB business continue to accelerate. Ariba continues to scale now as the world's largest $730,000,000,000 worth of goods and services annually across the Ariba network. Fieldglass, the best in class flexible labor solutions have placed more than 1,700,000 contingent workers in over 100 countries in the past 12 months alone. We couldn't be more bullish on the future of SAP's business networks.
Now on to the platform, where SAP is leading in big data and IoT. With HANA Cloud Platform, customers are building new applications. We help companies like Under Armour go beyond their traditional business And connect millions of people on a digital health platform. Or there's Siemens. With the help of SAP, They are now a software company connecting their industrial assets in the cloud to enable brand new business models for growth.
Our innovations are also on the front lines of improving people's lives. ASCO is fighting cancer With Big Data using the SAP HANA platform to build its cancer link solution. This is a groundbreaking Health Information Technology platform that will harness big data to deliver high quality care to patients. The SAP HANA Enterprise Cloud has rapidly emerged as a best in class option for customers that is seeking to migrate their mission critical processes to the cloud. We also leverage our partner network to deliver our HANA Enterprise Cloud solutions, thereby increasing our global reach and scale.
Our HANA Enterprise Cloud offering continues to grow in triple digits, validating the strong trust our customers have placed in our private cloud offering. The University Hospital Frankfurt example has decided to switch from Oracle database to SAP HANA to run their SAP applications in the HANA Enterprise Cloud. In summary, ladies and gentlemen, our success is not just driven by our innovative technology solutions, but also by the simplicity of our user experience. I'm pleased that SAP Fiori UX has won a Red Dot Award. SAP earned the award in the fiercely competitive design category.
SAP's vision is to help the world run better and improve people's lives. And that's why we are joining forces with Imagine Dragons! To launch the Onefour project that encourages people to download the band's newly released song I Was Me from iTunes Worldwide. Thanks to Rob Enslin and his team for leading this for SAP. Proceeds from this effort will be donated to the UN Refugee Agency.
And further, SAP will also donate $0.10 for every download Up to the first 5,000,000 downloads from iTunes. Well, what's it all about? SAP is a growth company. We are focused and purpose driven as ever. And as always, I'd like to thank our more than 75,000 employees whose commitment to our customers amazes me every day.
I'd like to now turn the call over to Luca for a detailed look at our results. Luca, over to you. Yes. Thank you
very much, Bill, indeed, we delivered a very strong performance in Q3 and successfully validated our focus on helping our customers to run simple in the digital economy. So let me now comment on the detailed financials. In Q3, Bill has said that we continued our fast growth in the cloud. Our subscription and support revenue was up 116% year over year. The organic contribution to this growth that is the contribution of everything other than Concur accelerated sequentially and for the 1st 9 months is better than our long term growth aspirations.
Our new cloud bookings were up 102% year over year. This is likewise a very strong performance. You need to consider that this only includes committed revenue from our cloud business. Paper use models such as the ones in place of Fieldglass and a large portion of Ariba are not included in this number. Our core license business was equally strong in the quarter, up 7%.
This result along with our excellent performance in the cloud led to a 19% increase in cloud and software revenue exceeding €4,000,000,000 for the first time ever in the 3rd quarter. Our strong double digit growth in cloud and software revenue was mainly driven by excellent results in mature markets. But having said that, we also did relatively well in quite a few emerging markets, where we nevertheless expect continuing volatility and economic challenges. Let me provide some more color on the regional performance. We had a strong performance in the EMEA region with a 13% increase in cloud and software revenue.
Our cloud revenue grew by 67% with high double digit growth in new cloud bookings. I would in particular like to call out Germany and France, which both had strong software license revenues in the quarter. Germany, in particular, continues to show strong results quarter after quarter. In the Americas region, We saw strong double digit growth in cloud and software revenue with an increase of 32%. We were also pleased with Great quarter in our cloud revenue, which grew by 139% with new cloud bookings growing by triple digits.
An improved performance in Latin America, which stabilized the mid macroeconomic challenges assisted with this growth. In APJ, cloud and software revenue grew by 8% with both cloud revenue and new cloud bookings growing in the double digits. Some highlights were India and South Korea with both strong cloud and software revenue results. A large part of our success is the ever steady nature of our support business, which grew at 12%, Right on track with our internal expectations and the implied performance from our full year 2015 outlook. We again continue to see very high renewal and enterprise support adoption rates.
Consequently, our share of more predictable revenue, which comprises our cloud revenue and support revenue as a share of total revenue increased by 3 percentage points year over year to 62% in the 3rd quarter. Now moving to the bottom line, my personal favorite. The surge in operating profit in the Q3 reflects our business transformation's continued success and the improving profitability of our cloud offerings. In the Q3, we had a positive impact from our company wide transformation program in the mid double digit €1,000,000 range. On the other hand, to show our commitment to growth, we had a net increase of 1200 employees year to date as we continue to invest in innovation and into growth markets.
You can clearly see our progress in our key gross margins. For the Q2 in a row, we expanded all margins sequentially. The overall gross margin was 72%, Up 140 basis points sequentially. Our cloud and software gross margin was 84.2%, up 80 basis points sequentially. Our services gross margin was up by 40 basis points as we saw growth continue in the 3rd quarter.
The real highlight of the quarter though was the gross margin result in the cloud. It increased sequentially by 300 basis points, But the really great progress we are making there can be seen by the almost 9 percentage point increase year over year. That's an impressive performance. Our operating profit was €1,620,100,000 for the quarter, an increase of 19%. In fact, our operating profit grew at the same pace as our cloud and software revenue for the quarter on a reported basis, But grew even faster on a constant currency basis.
The IFRS tax rate in the Q3 was 27.1%, Up from 26.5 percent in the prior year period. The non IFRS tax rate in the 3rd quarter was 28%, up from 27.7% in the prior year period. We maintain our tax outlook for 2015. Our earnings per share was €0.98 for the quarter, up 16% year over year as Bill alluded to earlier. Operating cash flow for the 1st 9 months was €3,200,000,000 up by 5% year over year, while free cash flow for the 1st 9 months was up 8% year over year.
As a consequence of these strong results, we are firmly reiterating our outlook for the full year. We also continue to expect the currency benefit for the rest of the year and have updated our expectations for the impact on reported growth rates in 2015. For details on the reiterated outlook and the currency benefits, please refer to our earnings release published earlier today. So to summarize, in Q3, we clearly see the results of the strategy we have implemented over the last 5 years. We have a fast growing cloud business and at the same time a solid performance in the call.
Overall cloud and software growth is strong and clearly ahead of our largest competitor. We substantially increased our operating profit. We are supporting customers in their journey to run simple, go digital and stay ahead of their competition. And we are absolutely confident we will continue to deliver on our commitment to growth. Thank you.
And we will now be happy to take your questions.
Thank you very much, Luca. I would like to hand back to the operator, and you can start the Q and A session, please.
Thank you. Ladies and gentlemen, at this time, we will begin the question and answer One moment for the first question please. Your first question comes from the line of Walter Pritchard of Citi. Please go ahead.
Thank you.
Luca, I'm wondering just one thing we noticed in the numbers was you did have maintenance revenue down slightly on a sequential basis. Was there some impact of it that we should be aware of that that drove that?
No Walter, actually we are Absolutely satisfied with our support revenue performance. I noticed that some of you actually have modeled a Slightly higher support revenue. But in our internal projections, we are right at where we were supposed to be, quite frankly. I think if you take a look at the support performance overall, you need to recognize a couple of things. A, In terms of our renewal rates as well as the enterprise support adoption, there was really no change at all.
We New in the high 90s, our enterprise support adoption rate was 99% in Q3 again. What we see as well is that the pattern in our conversion programs, as you know, we have the cloud extension program in place, Which allows customers to trade in, if you will, legacy maintenance that they don't require anymore from solutions that they want to convert into the cloud, into cloud subscription streams and entering into cloud contracts. This conversion program has an impact in the double €2,000,000 range on a per annum basis, but it's pretty stable in that. So there is no big change in patterns there. And finally, we also see, of course, and this is good news, that we occasionally have customers that Our buying new software licenses from us that entitle them then to opt into for our Product support for large enterprise offering for our largest customers.
They need to have a €30,000,000 or the respective local currency Equivalent the maintenance space in order to do that, but then their maintenance would subsequently be adjusted from a 22% range to 17%. Now that happens. It happens in some quarters with a few more deals and some other quarter with a few less, but this is standard operational business. And you should note that as part of that, typically, those Customers engage into premium support contracts with SAP, so mainly makes attention. But those since the beginning of the year are not shown in support revenue anymore, but in services revenue.
And factoring all of these matters in, we are Exactly where we wanted to be. So there should be no cause for major concern around our support revenue streams. Got it. And then
Bill on
Please go ahead, Walter.
Sorry, Bill, on just you had a promo in the quarter on S4 and I know here you had very strong Incremental customer count, the 1300 customers on S4HANA. Can you talk about what impact that promotion had on that count versus just What impact you had from an organic basis with customers feeling more comfortable with deploying Sfour?
Yes. Thank you very much, Walter. I appreciate it. I would just underscore this has been a value market and when companies decide On their digital strategy, they're not buying promos, they're buying business outcomes. And therefore, to have A live system strategy on S4HANA when you now can run your business in memory completely changes the game.
So that is the driving force between us and the 1300 companies that have adopted it because they want to simplify their process steps as I mentioned. They want to radically change the footprint of their enterprise and of course they want their business to run faster. The business cases for this As you invent new business models, I gave the case of Under Armour or Siemens is irrefutable and that's what's driving it. Incidentally, To be completely fair and transparent with our customers because it has been so highly sought after we have extended the promotion through the end of the year And we continue to see extremely robust pipelines. I also have Rob Enslin, our Head of Sales here.
Rob, if you'd like to offer any commentary.
Yes. I think we launched the S4 promo in February when we launched S4. We decided to extend the promo for until December 31st because we'll bring out the S4 logistics release, which our customers have been clamoring for. And I think the digital core is really driven by S4 and where we're taking these companies with S4.
Okay. Great. Thank you very much. Let's move to the next question, please.
Your next question comes from the line of Philip Winslow of Credit Suisse. Please go ahead, sir.
Hi. Thanks, Kevin. Congrats on a great quarter. And also to Bill, specifically, I think I speak for everyone on the call where we wish you the best of luck in your recovery, and it's great to hear your positivity on this call. A Question on sort of the revenue and the margin mix here.
This is a strong quarter both in terms of the license revenue, The cloud new bookings and billings, but also you guys certainly showed upside at least where consensus expectations were on margin. So So I guess it's a question both Bill and Luca. When you think about sort of where you guys stand in your investment cycle, call it where you are in sort of maturity of the cloud, kind of where you all are Structurally, I guess, with on premise business, do you think we're actually at that point where we actually start to see that leverage creep back in the model kind of going forward?
Yes. Maybe let me get to that and then Bill, please chime in and provide additional commentary as you see fit. So in terms of the Cloud, I think you see that we have now for a number of quarters seen a clear trend that our gross Margins have been improving sequentially. And this is due, of course, to the scale that we have achieved in the cloud, But also the fact that even our still nascent solutions are now quickly maturing. If you take a look at the HANA Enterprise Cloud, for example, our private cloud business, It is at the moment still running at a negative margin.
However, we have improved dramatically and Clearly have now a line of sight where this business will breakeven in 2016 and will then be also a positive contributor. So that has obviously helped. In terms of our Scale assets, both in the public Software as a Service Cloud, the solutions around SuccessFactors as well as in the Business Network Group, We are already operating at a very high efficiency. You have seen probably the results in the Business Network Group as part of the segment reporting with a 78% gross margin. This is an extremely, extremely and tight ship that we're running here.
Of course, we still need to continue to invest, but The big peaks that we have seen in the build out of our data center capacity in the last year are not matched this year. You see this also in the free cash flow That the increase there is bigger than on the operating cash flow that's due to a slightly reduced CapEx investments. We believe that we still can do a lot, of course, over time as we continue to scale our cloud business to further increase the efficiency there. However, you should not expect that each and every quarter, we would come up with another year over year 9% raise that might be a little bit too ambitious to do. But of course, we continue to remain focused on that.
The other point that contributed positively is That we really have found a way this year with our transformation program to put the investments to where innovation is and where innovation call. And at the same time, de invest consciously in legacy areas where we have To increase net headcount by 1200 heads, while taking out from our run rate from those legacy areas more than a 500,000,000,000 €500,000,000 annualized run rate savings effect. And I think that is extremely important and definitely should sustainable also going forward. While, of course, we need to continue to invest in the growth areas and you need to continue to expect that SAP will also add capacity and headcount in those areas as you have seen in the 1st three quarters. Phil?
Thank you, Luca. And Phil, I want to thank you very much for your kind remarks. And ladies and gentlemen that have been so kind to me during this recovery I appreciate it. I'm 100% back in action up to and including in the air again, which makes me feel very comfortable because I feel very comfortable with the ARRIS stand at 35,000 feet. So what I do, I thought a couple of things to support what Luca said may be of interest to you.
One is, I think we really now have turned the business model corner as it relates to becoming that cloud company powered by HANA. Now you're seeing not only the revenue growth in the cloud and also the sustainability of the core with S4HANA, But as Luca said, you've seen the expansion of the operating profit and the operating margins of the company, which we've been saying all along. If you adjusted the cost base For a cloud based world and you are committed to be in the cloud company powered by HANA, you could actually pull this off. And with the robust pipeline that we see Of our flagship Sfour HANA, we have every reason to believe the business model is really, really strong. A couple of stats that I really like is we had a couple of 1,000 net new customers in the quarter.
And when I think about best in class companies And even our M and A strategy, we bought the best companies in the world and we also bought great leaders with those companies. One example is Concur and now that we've formed the business network group around Steve Singh's leadership, I think he's got a couple of stats including That even with the scale of SAP, 20% of his revenue in the quarter came from SAP accounts, 80% came from non SAP. So we haven't lost the focus on channel management and in fact that's the idea we want to carry forward with all of our assets. And Steve, perhaps you'd like to make a comment on that.
Sure. Maybe I'll just add a couple of things. First of all, one of the great attributes I think SAP has is that we literally have best in class applications in the public cloud services, which the real value of that is not only can we leverage the strength of The SAP sales organization, which is obviously led by Rob, but we have the capacity with these best in class applications to serve non SAP customers. Fundamentally customers choose what's right for them to solve their particular problems. So when you have whether it's Concur or REVO or Satisfaction whatever it might be, when you're solving the right problem for the customer, you win.
Now the other piece I think that is really underappreciated still about the SAP Acquisition strategy is that we're also able to keep a large portion of the acquired sales organizations. I think that is particularly critical because that helps us to win in every one of these specific markets. And being able to blend those sales organizations in partnership with Rausch Organization Drives the kind of results that you're seeing in this quarter.
Thank you, Steve. It's interesting since 2010 we've added a couple of 100,000 customers And what's very, very nice and very pleasing is this idea of net new channel expansion and teamwork across the company. So we want to keep that going. Thanks, Phil.
Great. Thanks, Justin.
Thank you
very much. Let's take the next question, please.
The next question comes from the line of Brad Zelnick of Jefferies. Please go ahead.
Great. And thank you so much for taking my question and really nice quarter. Just pretty simply, if we look at Asia Pac, It seems to have underperformed EMEA and the Americas and particularly in Japan. Can you just give us an update what's happening there? Thanks.
Yes. Okay. Maybe I can start and then Rob and Bill, feel free to comment. So you're right. I mean, in Asia, we had both good and maybe not so good results, although I would also caution Buddy, on Japan, actually Japan had a very good performance in the first half year.
And in Q3, you had a very tough comparison as they closed some Really big transformational strategic deals in Q3 of last year. Asia, I think, is characterized by a good performance conference. In some markets, but in other ones, as we all know, there are macroeconomic challenges and headwinds. China, for example, comes to mind. We had Let's say, relatively okay ish performance there, but we did not post a meaningful Growth and of course, this market would have the potential under different conditions to do much more for SAP.
So overall, I would say a mixed performance in APJ, but the team, especially at the beginning of the year, has been doing a terrific job. And I'm pretty sure they will bounce back and come back in the Q4.
Rob, Bill? Yes. I mean, From my point of view, I think our mature markets have done exceptionally well in both on premise world and S4 in particular, With the revitalization of S4, bringing our customers to the floor in these mature markets, both on premise and in the cloud, We see that growth now starting to move into Asia Pacific and into Latin America. Our Latin American business, which we've had a little bit Challenges we feel now with our new leader down there, Claudio Musarval, and we've got some level of stability and consistency in that market. And I feel very confident That we're going to see a much better performance in Latin America.
And as Luca said on Japan, I've actually spent significant amount of time in Japan in the last Couple of quarters. Very, very happy with the Japanese numbers. They've had a great first half of the year. The comparisons are pretty tough. We have a really good cloud business starting to Emerge in Japan and I see a consistent performance with customers now starting to look for opportunities.
S4 and the HANA Cloud Platform will be a big player in the Japanese market. And in all in all, Asia Pacific has done really well considering the amount of economic challenges they've had to deal with. And I feel speaking to Adeel last night that they're going to be having a pretty good outlook for the rest of the couple of quarters moving ahead.
I appreciate the color. And if I could just ask one follow-up. The license business was absolutely much better than we had modeled, and And I think everybody is pleasantly surprised by how well you performed. And I know you called out Germany and France as being strong and some other areas, Clearly S-four and the promotional activity is helping, but can you unpack that further for us and maybe call out other specific products or give us a sense of the mix And what's really driving this? Thanks.
Yes. So we did see mature markets and it's not only brands in Germany, but in general, we saw mature markets widely and broadly accept that S4 is the foundation for them to create a digital transformation in their business. If any business wants to be digital ready and ability to compete at scale going forward in the They will need an S4L platform to move forward. And there is no other piece of software in the world that actually looks, feels All can move a company forward the way our S4 platform has provided these customers. We've seen that, we mentioned Bosch, But we see that transformation now taking place across the board with all of our customers.
I think 1300 Customers that have plus 300 customers that have signed up for S4 is not a promotion move, but it's much more a business transformation move that is taking place.
And one of the biggest things we have to do as a company, frankly, is make sure we not only educate our own workforce Across all functions, but also our customers. So we put together a framework for design thinking and innovation, So we can help the customers apply the knowledge around applications, cloud, platform and business networks To really rethink and reimagine how they're running their companies. They all have the same problem. They have bold ambitions And they don't have enough money to actually execute on. So by radically changing the process steps, Lowering the technology footprint, especially crushing hardware and doing things on a live system strategy basis, They're able to build a business case for moving forward with SAP.
Every CEO I meet, everyone I talk to, The comment is always the same. I didn't know you guys do all that. And I said, well, that's why we're traveling and meeting you. So you know, What we can do is quite amazing and it's a matter of getting the word out there and as the team has done a great job in executing On our digital strategy with our customers, you're seeing that in the growth rates. And also I would underscore in the pipelines.
The pipelines have never been stronger.
I would also just add a little color. I mean, Steve Lucas and Bernd Weickerd are in SAP TechEd in Vegas where they launched Vora and the new Orca product, the cloud analytics products. And these products are digital products that are actually changing the game in analytics as well. So together with ACE4, our new analytics package that we're bringing into the market, you've seen that level of change taking place now.
Thanks again.
Thanks a lot. Move to the next question, please.
Your next question comes from the line of Muhammed Moala of Goldman Sachs. Please go ahead.
Yes. Thank you very much. I was wondering if you could elaborate a little bit more on the road map around S4HANA. I mean, we've got, obviously, the finance module. Logistics is launching pretty soon.
If you can give us a road map over the kind of the next 12 to 18 months, what modules are coming in And your kind of anticipation of the take up rate on that, is it going to be more about still existing installed base selling? Or do you think that This can drive kind of incremental new customer wins, particularly in the mid market.
Yes. So first, the full logistics piece will be available obviously in November, which will allow us from an S4 point of view To have all 25 industries available in an S4 world, I believe that will have a significant impact not only on our existing customer base, but new customers that choose To move into this space, we'll certainly choose S4 as the platform. As I said earlier, Lee is not a platform that looks remotely like it. So in the mid market, we see this going to be a significant player as well. I think S4 We'll have significant trends for a number of years.
And as we develop these new applications like SAP Cloud for analytics With the digital boardroom redefined, this is where you see the level of transformation that these customers have not seen before. So I think it's across the board The growth that you will see with Aespa.
Great. Thank you.
Thank you very much. Let's take the next question, please.
Your next question comes from the line of Ross MacMillan of RBC Capital Markets. Please go ahead, sir.
Thanks so much and congratulations from me and Bill, all the very best in your recovery. Two financial questions actually. So Luca, first question is, I think year to date, The core license business is down 1%. I think in your long term model, you had assumed sort of down Low single digits, but I was just curious as to whether the strength you're seeing with S4HANA is causing you to Sort of think about that long term model and whether there's any potential that we could see less declines on the license line on a sort of consistent go forward basis. And then the second question, again for Luca, I'm afraid.
But just on the cost savings, you said a little over $500,000,000 run rate. Can you just remind us what you realized this quarter? I think you said double digit, but I wasn't quite clear what that was. Thanks.
Yes, absolutely. So maybe let's start with the second one because that's very easy. I said a mid double digit €1,000,000 impact For Q3. And for Q4, we would expect that this figure would be approaching a €100,000,000 contribution. So it builds up over time, of course.
And for next year, we would then see the full effect once all of the employees that are affected I've actually left the company. But again, being careful to not model this just as a net cost savings. We are also using this to shift our overall capacity into the new innovation areas. And therefore, we will also in Q4 and definitely also next year Look at having a net headcount increase inside the group. Now on to your first question with the core license modeling, You're absolutely correct.
Of course, S4HANA has a huge potential. It has a huge potential to not only positively impact our license business. But equally importantly, over time, it will also become a major contributor to our cloud revenues, and it will be We definitely are means to transform our customers' desire to innovate across all of the deployment models for their core industry specific business So we are extremely bullish about S4HANA. I would also just mention and remind everybody That we have not only placed our implied license modeling as part of our midterm guidance On assumptions around products, we have also taken into account an unchanged macroeconomic environment. So this is obviously a major Wing factor in the overall equation at the moment.
We see that the emerging markets performance in quite a few markets is dampened because of Micro Environmental Factors. Now if we would see the macro environment in emerging markets in particular To improve that certainly would give us an upside to our current modeling. At the moment, as I said, we don't see a lot of change in 2015 as opposed to what we have been seeing in 2014. But I would say, we say those So, me, sees quite well. In terms of the overarching implications for core licenses, of course, While S4HANA has great success, we still see that in the areas of our line of business solutions, the world is So migrating quickly to the cloud that goes for procurement, that goes for CRM, that goes for the HR business as well.
And of course, you need to take that into account as countering effects. So we feel very, very confident not only Our full year guidance as we have reiterated right now, but I have to say also in terms of the midterm outlook that we have given. So I think there are enough pluses that we can count to the equation, especially in given hopefully in the future improved macroeconomic environment. So we are very confident from the place that we sit in at the moment.
Good. Thank you very much. Let's move to the next question, please.
Your next question comes from the line of Gerardo Slos of Barclays. Please go ahead.
Good afternoon. Thanks for taking my question. Just a couple of follow ups. Just one on the kind of bad debt provision, And I just want to get a bit of a feeling. You took quite a significant increase in the kind of Q3.
Was it simply related due to the kind of weaker macro? And I was wondering if you could just explain how that works through the numbers and how that hits the revenues in the Q3. And then just a follow-up on S4, How many clients do you have actually live at the moment on the platform? Thank
you. Yes. I'll take the first one And clarify that hopefully because I think your question comes from the cash flow statement where we are actually listing the impact From two factors, both sales allowances as well as bad debt provisions. And sales allowances, obviously, are booked on the revenue, Whereas that debt provisions are going against expenses, so that's important to note that we are bundling this in the cash flow statement, but the impact is different in terms of both kinds. What we saw in the 3rd quarter It was actually a single sales allowance that we had to book for 1 single customer, which Actually decreased software revenue.
And obviously, I cannot cite the exact customer there, but this was a singular impact That was a onetime effect on software revenues. So that may be helpful to explain it and also to explain what it is not. It has no has had no effect on maintenance revenues and therefore it's also not a factor that Is influenced by the general macroeconomic environment.
Let me just follow-up
on that Quickly, you indicated a onetime effect from one client, and that was taken against the license revenues,
You have your sales allowance?
So would I take that it's actually your given that it was a fairly sizable deal that you're on the lining licenses were actually a little better?
Well, it's part of course, it's a revenue reduction and then the consequence is obvious. Okay.
Thank you.
Yes. And in S4 world, out of the 1300 customers that have licensed S4, Roughly 25% have got ongoing projects to go live.
Okay. Thank you. We have time for one final question, please.
Final question comes from the line of Patrick Rell Raven of JMP Securities. Please go ahead, sir.
Great. Thank you. Bill, it's good to have you back. I'm going to give you a big picture question, which is, I'm sure you saw the comments from the CIO of GE 2 weeks ago that he plans to move 60% of his workloads to AWS over the next 3 years. I just love to hear your thoughts on how will this shift impact SAP and how do you think it will impact some of your competitors?
Well, thank you very much for the question, Pat. I appreciate it and your nice remarks means a lot to me. Regarding AWS, one of the things we've done as a company is take a very open ecosystem approach to our innovation. So of course, as you know, we have the global public cloud offerings that also include our business networks And we now have S4HANA in the public cloud, but we also have a very nice private cloud business with the HANA Enterprise Cloud growing in triple digits. At the same time, SAP has always been a company that believes in customer choice and we also believe in vibrant healthy ecosystems And we don't compete with a lot of the large hardware centric companies and therefore having partnerships with them Utilizing their cloud assets, their global investment and reach also helps us sell more software.
AWS is a unique company and a unique partner. And you haven't seen any trash talk in between Amazon or AWS and SAP because we think That if the customer wants to run on that highly efficient infrastructure and they want to take our high profile innovation And combine those two things, they should be able to do that. So we've been very vigilant around working closely with Microsoft, with IBM, with HP, with Amazon to make sure that they are certified on the highest possible standards of performance and Security of our technology so the customer gets the ultimate best benefit possible which is best software in the world at the best possible value and they should be able to run it where they want to run it. And that also I think helps us within our own company call. Challenge ourselves to really leverage our cloud with HANA because we don't think clouds are created equal.
We think that HANA With its amazing performance on the process, the significantly lower hardware footprint and the speed advantage should give our cloud offerings and the customer every benefit that they should ever want. So therefore, let's let the customer choose, give them choice and make sure that our software is going into everyone's cloud.
Great. Thank you very much.
Thank you very much. Sorry, bad. Thank you very much. This concludes the financial analyst call for today. I would like to say thank you all for joining And looking forward to seeing you again in the near future, latest at our Q4 earnings announcement in January 2016.
Thank you very much for joining and goodbye. Thank you.
Thank you. Bye bye. Bye bye.
Ladies and gentlemen, this concludes the SAP 3rd quarter earnings call for today. Thank you for joining and goodbye.