(Recode.net) Prepare for SAP’s Five-Year Plan to Fight Back in the Cloud (Q&A)

SAP CEO Bill McDermott took over the German company this summer, inheriting a lumbering giant that once dominated the business of selling the software that companies use to run their operations, but that is now the whipping boy of its rivals.

Salesforce.com and NetSuite have aggressively poached its customers and have routinely ridiculed it for being slow and difficult to get up and running. In one recent example, NetSuite slammed SAP in full-page newspaper ads.

Even so, SAP still controls about a quarter of the $24 billion market for Enterprise Resource Planning software — essentially the software that companies to manage planning, manufacturing, delivery, marketing and payments for whatever they sell — well ahead of Oracle, Sage, Microsoft and NetSuite.

Prepare for the empire to strike back. Early next year, McDermott will outline a five-year plan for SAP’s survival and business expansion, especially in the cloud, he told Re/code last week in an interview.

The first broad brushstrokes of the plan will be laid out in January, when SAP next reports quarterly results, he said. Then, in February, at a shareholders meeting in New York, he’ll present his plan in minute, year-by-year detail.

Critics have scoffed that SAP has bought its way into a cloud software business it initially failed to anticipate, or at least to fully appreciate. Over four years, SAP has spent nearly $16 billion acquiring cloud software companies: SuccessFactors (2011, $3.4 billion), Ariba (2012, $4.3 billion) and Concur (closing next month at a price of $7.3 billion). By McDermott’s reckoning, the combination will give SAP the largest base of individual users of cloud business software — about 50 million — and the second-largest stream of cloud software revenue after Salesforce.com.

Now it falls to McDermott to make the disparate parts work together in a coherent strategy with SAP’s core group of applications, which have themselves been adapted to run in cloud-computing environments. The technical bits of that transition are done. SAP’s existing apps were tweaked to run its new database, HANA, as of last year. The pain comes in the financial details of how they’re sold. Old-school “on-premise” software used to be sold for a one-time purchase price, all accounted for at once. When sold “as a service,” as software in the cloud is described, customers pay a monthly subscription fee that gets treated as revenue only after it has been delivered.

Shifting from selling one to the other hurts in the short term, but pays off over the long term. It’s a tough financial corner to turn, and last month SAP cut its profit outlook because of it.

Progress has come in fits and starts. A recent team-up with IBM will enable SAP software to run on Big Blue’s SoftLayer cloud, which will widen SAP’s reach and availability to cloud-friendly customers. But it took years to get SAP’s numerous applications running on the new HANA database technology.

My first question was about SAP’s most recent deal, for the travel and expense software company Concur:

So what’s so great about Concur that it’s worth almost $8 billion?

Every company has a corporate travel department, but no one wants to work with it. You can use your phone and go out on the Internet and as long as you stay within your budget you can travel any way you want, stay where you want, eat where you want, and Concur lets you do that. Why should the corporate travel department tell you where you’re going to sit on the plane or where you’re going to stay if you can maybe get a better rate? The other point is that 84 percent of Concur’s revenue is in the U.S., but only 30 percent of the world’s business travel spending occurs in the U.S. We operate in 190 countries and we have a global sales force. And when we close the deal, which I expect will be in the first week of December, every SAP customer will have access to Concur on a global basis. So the 30 percent compound annual growth rate that they averaged over the 23 years they’ve been in business is going to go up. And we wouldn’t have bought it if we didn’t think so.

So what does the Concur deal say about your larger vision on cloud software? You’ve been steadily buying cloud software companies — SuccessFactors and Ariba came before — for several years now.

Concur is the second-largest independent software-as-a-service company on the market today. It strengthens our position in the cloud. We already have the most individual users of any cloud software company of any enterprise software company in the world — nearly 50 million. We’re already No. 2 in the cloud by revenue behind Salesforce.com. Remember, we had no cloud revenue and no cloud users in 2010. Our vision is to be number one both in users and in cloud revenue by 2020.

And yet when we see the financial results, you’re still in that transition from selling on-premise software to cloud software. You’re still turning that corner, and by your own admission it’s a tough one. Even Oracle and IBM are seeing it.

A lot of this is telling the vision story clearly over the next five years. When I first came on as co-CEO in 2010, we laid out a plan to double the company. And we laid out specifically how we were going to do things like mobile and cloud. Now that we’ve got all the assets, we feel like we’ve completed the vision that we laid out back then. Our core business is rock solid. We have 276,000 companies around the world who have chosen to run their most important data on the SAP backbone. So we need to make clear that our core business has never been stronger. The retention rates have never been higher. But now you have more choice in how you can run it: In the cloud, on premise or in a mix. You can run it in a private cloud environment, through our partnership with IBM, you can run SAP on their SoftLayer cloud. If our customers would rather rent the software than buy it, they should have that choice. Our sales teams are trained and compensated in such a way that they can be indifferent to that choice. Whatever the customer wants, the customer gets. But in addition to the core applications they already know, they’ll have access to new things, including Concur. That strengthens our core business and adds a new revenue stream in the cloud.

So that in mind, what can we expect from you in the coming year? You’ve made several moves, but are you going to sketch out a bigger vision for where you intend to take this company?

In January, when we report our earnings, we’ll give guidance that takes us out to 2020. And then in February, we’ll have a shareholder day where I’ll go into very distinct detail concerning how we’ll scale the business model all the way out to 2020, so that everyone will know what we’re doing.

Are you done doing deals?

We’re done doing big ones. We have a very good cash-flow model at our company, so we can pay off the loans we took out very quickly, and we’ll do that because we’re a very conservative company. But I think we’ve done the big deals we want to do.

Le Point : Le vaudeville permanent

Le vaudeville permanent
Le Point - Publié le 24/11/2014 à 06:31 - Modifié le 24/11/2014 à 06:37
Najat Vallaud-Belkacem, Arnaud Montebourg et bien sûr François Hollande font exploser les dernières frontières entre politique et vie privée.

Mauvais week-end pour les défenseurs de la stricte séparation entre intimité et vie publique. Najat Vallaud-Belkacem a fait sur France 3 l'éloge de son mari Boris Vallaud, qui vient d'être nommé secrétaire général adjoint de l'Élysée : "Un homme doté d'immenses qualités, c'est pour ça que je l'ai choisi, c'est pour ça que d'autres le choisissent pour exercer des responsabilités professionnelles." Pour ce genre de remarques, la ministre de l'Éducation mérite une pastille rouge, qui montre, selon les critères de notation qu'elle affectionne, qu'elle a tout faux !

Pendant ce temps, Arnaud Montebourg, qui n'avait pas écrit sur Twitter depuis des jours, sort du silence ce dimanche 23 novembre avec ces mots : "Retour à Florange : le texte si juste d'Aurélie Filippetti." Il fait la promotion d'une tribune écrite par sa bien-aimée sur le site de Mediapart. Qui s'exprime ainsi ? L'ancien ministre du Redressement productif ? Le futur candidat à la primaire socialiste ? Ou l'amoureux transi que le mélange des genres n'effraie pas le moins du monde ? L'année prochaine, le socialiste le plus célèbre de Saône-et-Loire devrait penser à rebaptiser la Fête de la rose qu'il anime chaque fin d'été en Fête à l'eau de rose.

La tournée mondiale de Valérie Trierweiler

Le président en personne montre, il est vrai, le mauvais exemple. Tandis qu'il fait la une de Voici attablé avec sa nouvelle conquête dans les jardins de l'Élysée, son ex entame une tournée mondiale. Elle vitupère sur les ondes de la BBC contre sa personne et sa politique. François Hollande est-il victime d'un voyeurisme grandissant ? Non, il est avant tout coupable. Coupable d'avoir étalé son bonheur conjugal passé dans les colonnes de magazines people. Coupable d'avoir déclaré publiquement, comme un collégien attardé, que Valérie Trierweiler était la femme de sa vie, alors que ses sentiments ne regardent pas les Français. Coupable de l'avoir installée en vraie-fausse première dame, position qu'elle a perdue mais dont elle recueille, à retardement, d'embarrassants dividendes.

C'est, curieusement, au moment où la situation du pays réclame du courage et du sérieux comme jamais que se multiplient ces intrusions grotesques de la vie privée dans l'expression des responsables politiques.

FT : Bayer to use IPO funds to cut debt and buy consumer drugs

Bayer will use the billions it expects to raise from the initial public offering of its plastic business to pay down debt and to make acquisitions, with chief executive Marijn Dekkers pointing to over-the-counter healthcare as an “obvious consolidation play”.
The German drugmaker is making a decisive shift away from its roots as a drugs and chemicals conglomerate with a planned float of its material science division, which has an estimated equity value of at least €8bn.
The float, which will take place by 2016, will release funds that could allow Bayer to strengthen its position in a highly fragmented consumer healthcare market.

Bayer closed the $14.2bn acquisition of Merck’s over-the-counter business on October 1, in a move that strengthened its core divisions.
Mr Dekkers told the Financial Times that once the business had reduced debt, which stands at around €20bn, he would seek acquisitions.
He said: “I think in OTC we’re going to see more consolidation there. We believe that critical mass is important. You need to be a large player there. If you don’t participate in consolidation you fall behind, and that is competitively dangerous.”
There are still various different suppliers to the shelves of high street pharmacies such as Boots in the UK, Mr Dekkers pointed out.
“That means that nobody has really optimised their relationship with Boots yet. So that’s an obvious consolidation play going forward.”
Consumer healthcare looks primed for long-term growth in demand from ageing populations in developed markets and the newly-affluent middle classes of the developing world.
Bayer is not alone is seeking to bolster its position in the fragmented sector. The UK’s GlaxoSmithKline is in the process of forming a joint-venture with Novartis of Switzerland spanning from toothpaste to painkillers. Ireland-based Perrigo this month agreed a €3.6bn acquisition of Omega Pharma of Belgium that will catapult it into the top five global over-the-counter drugmakers.
Bayer’s origins in consumer healthcare date back to 1899 when it registered a patent for acetylsalicylic acid under the brand name Aspirin. However, in its early days, the company, founded in 1863, was best known for making brilliant synthetic dyes to colour silk dresses – a heritage Bayer is now moving away from.
“Once we move on with material science, every product we make ends up in the cell of a living species and regulates their processes,” Mr Dekkers said.
He added that big is beautiful, allowing Bayer to achieve research synergies. He gave the example of Stivarga, a drug developed to treat intestinal cancer that may now become the basis for an eye-drop to treat macular degeneration. The teams working on these conditions “use the same bathroom”, he said.
“They get so much exposure to each other that at some point somebody says, why don’t we try this? It seems logical. If this had been two different companies we might never have had that interchange.”
Analysts have welcomed the decision to make the flotation of the material science business Bayer’s preferred option. The alternative is a spin-off in which Bayer investors receive shares in the new business. This would not bring in cash.
The decision reflects the higher margins and growth of Bayer’s core drugs and life sciences divisions, which span human, animal and plant health.
In healthcare, the unit that covers pharmaceuticals and consumer health, earnings before interest, tax, depreciation and amortisation margin rose from 27.5 per cent on sales of €18.6bn in 2012 to 28.2 per cent on sales of nearly €19bn in 2013.
In material science, which makes high-tech polymers used for cars, home insulation and electronic equipment, ebitda margins declined from 11 per cent on sales of €11.5bn in 2012 to 9.5 per cent on sales of €11.2bn in 2013.
Analysts at Citi forecast that profit margins within Bayer’s pharmaceutical business, currently around 31 per cent, can increase to around 39 per cent by 2018.
Citi analyst Andrew Baum noted that this reflected the increasing contribution from five new products: the thrombosis drug Xarelto, which is Bayer’s bestselling pharmaceutical product; the cancer treatments Xofigo and Stivarga; the eye disease treatment Eylea, and cardiovascular drug Adempas.
However, in July, Xarelto was the most heavily advertised drug by US lawyers seeking mass tort clients, according to the Silverstein Group, a consulting firm that tracks advertising spending by law firms.
Mr Dekkers, whose tennis partner uses the drug, said he is confident of Xarelto’s risk/benefit profile.
“The benefits in the case of Xarelto clearly outweigh the risks. Doctors are made 100 per cent aware of that profile. They make the decision on the basis of what they know about the profile of drug and what they know about the patient.”
Mr Dekkers said the company planned to invest more in immuno-oncology, therapies that use the immune system to treat cancer, but accepts that the German drugmaker is lagging behind rivals here.
“There are other companies that have a stronger specialisation,” he said. “We are doing our own work on it, but not as the new religion.”

>>> Tetraphase (TTPH) +15% pre-market - Gabelli Comments

Tetraphase Pharmaceuticals: Gabelli continues to recommend Cempra as a likely takeout in the consolidating antibiotic sector

Gabelli notes TTPH is indicating up over 15% premarket following speculation that the company is exploring a sale with Actelion and Roche as potential bidders. TTPH has been their favorite name in the antibiotics space. Following Actavis' purchase of Durata in October, and the speculated sale of Tetraphase, they also continue to recommend Cempra as a likely takeout in the consolidating antibiotic sector; $24 PMV,

(BN) *STRYKER MAY ALSO DECIDE AGAINST MAKING A BID

BN 11/24 13:43 *STRYKER SAID TO CONSIDER STRUCTURING DEAL AS TAX INVERSION
BN 11/24 13:42 *STRYKER SAID TO DISCUSS FINANCING, ANTITRUST WITH ADVISERS
BFW 11/24 13:42 *STRYKER SAID TO WEIGH BID FOR SMITH & NEPHEW AS STANDSTILL ENDS
*STRYKER MAY ALSO DECIDE AGAINST MAKING A BID
2014-11-24 13:43:07.590 GMT

--ELIZABETH FOURNIER

-0- Nov/24/2014 13:43 GMT

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance: TSL -4.3%, ENTA -2.9%

Select fertilizer related names showing weakness: POT -1.4%, IPI -1.3%, MON -1.1%

Select metals/mining stocks trading lower: AG -1.7%, PAAS -1.7%, AUY -1.7%, NEM -1.6%, RIO -1.1%, BHP -1%, SLW -0.5%

Other news: LGF -2.9% (Hunger Games movie opening weekend), ASML -2.5% (outlines long-term growth opportunity at Investor Day), CTIC -2.3% (files for 9 mln share common stock offering by selling shareholders), JD -2% (files for $500 mln offering of ADSs by selling shareholders), OIBR -1.7% (Telecom Italia disclosed it reviewed strategic prospects of the Group in Brazil and examined in depth the options for a possible integration of TimPart (TSU) and Oi (OIBR)), STX -1.4% (intends to offer up to $300 mln senior notes in a private placement; also announced that HDD Cayman intends to redeem 6.800% Senior Notes due 2016), TSEM -1.4% (still checking), ICL -1.2% (announced that it has successfully completed the chemical process start-up of a new manufacturing facility in Israel for the production of FR-122P)

Analyst comments: CBI -2% (downgraded to Sell from Neutral at Goldman), SPF -1.2% (downgraded to Neutral from Buy at BofA/Merrill), WBMD -0.9% (downgraded to Neutral from Buy at Sun Trust Rbsn Humphrey), VZ -0.6% (downgraded to Neutral from Buy at Citigroup ), XOM -0.5% (downgraded to Mkt Perform from Mkt Outperform at JMP Securities), COST -0.5% (removed from Conviction Buy list at Goldman)

(BN) *ACE LIMITED BOARD AUTHORIZES $1.5B SHARE BUYBACK IN '15

BFW 11/24 13:24 *ACE LIMITED BOARD AUTHORIZES $1.5B SHARE BUYBACK IN ’15
BN 11/24 13:24 *ACE LIMITED BOARD AUTHORIZES $1.5B SHARE BUYBACK IN '15
BN 11/24 13:24 *ACE LIMITED BOARD DECLARES QTRLY DIV AUTHORIZES $1.5B SHARE
BN 11/24 13:24 *ACE LIMITED BOARD DECLARES QTRLY DIV AUTHORIZES $1.5B SHR
ACE Limited Board Declares Quarterly Dividend, Authorizes $1.5 Billion Share Repurchase in 2015
2014-11-24 13:24:00.111 GMT

ACE Limited Board Declares Quarterly Dividend, Authorizes $1.5 Billion Share
Repurchase in 2015

Business Wire

ZURICH -- November 24, 2014

The Board of Directors of ACE Limited (NYSE: ACE) today declared a quarterly
dividend equal to $0.65 payable on January 5, 2015, to shareholders of record
at the close of business on December 17, 2014, subject to a required filing
with the Swiss Commercial Register. Dividend payments will be made in United
States dollars (USD) by the company’s transfer agent.

The company’s par value, currently 25.40 Swiss francs (CHF) per share, will be
reduced in connection with the dividend on the record date by the CHF
equivalent of $0.65 based on the USD/CHF rate published on December 10, 2014.
This will be the third of four par value reduction installments as approved by
the company’s shareholders on May 15, 2014.

The board also announced authorization of a share repurchase of $1.5
billion for calendar year 2015 to replace the current authorization when it
expires December 31, 2014.

ACE Group is one of the world's largest multiline property and casualty
insurers. With operations in 54 countries, ACE provides commercial and
personal property and casualty insurance, personal accident and supplemental
health insurance, reinsurance and life insurance to a diverse group of
clients. ACE Limited, the parent company of ACE Group, is listed on the New
York Stock Exchange (NYSE: ACE) and is a component of the S&P 500 index.
Additional information can be found at: www.acegroup.com.

Cautionary Statement Regarding Forward-Looking Statements:

Forward-looking statements made in this press release, such as statements
regarding dividends and record date, and share repurchases, reflect the
company’s current views with respect to future events and are made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Such statements involve risks and uncertainties, which may cause actual
results to differ materially from those set forth in these statements. For
example, statements about the dividend payment could be affected by any delay
in filing or acceptance of the Swiss Commercial Register filing; and market
and company conditions might lead to a lower volume of share repurchases than
targeted, and expiration of share repurchase authorization without the entire
authorized amount being repurchased. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the dates
on which they are made. The company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.

Contact:

ACE Limited
Investor Contact:
Helen M. Wilson, 441-299-9283
helen.wilson@acegroup.com
or
Media Contact:
Jeffrey Zack, 212-827-4444
jeffrey.zack@acegroup.com

-0- Nov/24/2014 13:24 GMT