Bechtle AG (BC8.DE) Earnings Call Transcript & Summary

Many thanks, and welcome, everyone, to the analyst conference covering Bechtle AG's second quarter and first half of 2024. We appreciate your interest very much. The key figures on how business developed were already released in our ad hoc announcement dated the eighteenth of July, and probably only a handful of you will recall that the previous time we cut our forecast was in fact 15 years ago. Back in 2009, the financial crisis compelled us to give up on our ambitious targets, and in 2024 as well, nothing other than the difficult macroeconomic climate has pushed us into taking this step. With that in mind, today, even though visibility remains just as poor, we will not only review Q2 but also shine some light on what we expect to shape the second half of 2024 along with Bechtle's medium-term prospects. As always, what follows in the presentation is structured into four main parts. We'll begin with the most important economic figures from the second quarter and first half of the present financial year, 2024, and after that come share price development and a few significant strategic events lying beyond the figures, so to speak, on which we will shed some light. Once my presentation wraps up, we'll then examine the key assumptions, expectations, and targets for economic development in the current financial year.

But first, let me turn to business development. To give you some context, I'd like to start with a few observations. Let me say again that we are not happy with how 2024 has gone so far, and the half-year results fall short of what we ourselves expected. That said, this is just the second occasion during my 17 years at Bechtle that we have lowered our forecast, which itself illustrates how unusual the present situation is. What stands out most is that demand stimulus from the SMB sector has been almost entirely absent, particularly as the quarter drew to a close. The situation was made worse by the fact that public sector clients in Germany have not yet returned to their usual seasonal level of demand under existing framework agreements, a consequence of the debates in Germany. On top of that, we were still up against very high year-on-year comparables in Q2. That point is more technical in nature. These genuinely exceptional, multiple challenges have clearly affected our second-quarter results, and above all our top line. Business volume growth kept losing momentum in Q2. At 0.9%, we only just reached positive territory. On an organic basis, that amounts to a slight decline of 1.6%.

Although things still looked positive as Q2 got underway, the close of the quarter—which matters most—turned out to be a real letdown. When France announced elections at the start of June, that also caused something of a standstill in IT spending in a foreign market that is very significant for us. In Germany as well, economic mood clearly weakened during June. Both the Business Climate Index and GDP growth came in at very weak levels. So our second quarter mirrored the prevailing sentiment and the macroeconomic picture across Europe. Given all this, there is little comfort in the fact that some parts of our business continue to do comparatively well—our software business, for instance. As expected, our revenue sits below business volume, and you are certainly well aware of the reason. Under IFRS 15, we may only report software revenue equal to the margin. Still, our software business keeps outperforming our hardware business, which comes as no surprise considering the hesitancy to invest in the traditional client environment. That is why viewing revenue on its own continues to skew the picture. During the first half of the year, the divergence between revenue and business volume trends reached as much as 450 basis points, or 320 basis points in Q2.

Also, in organic terms, revenue was down 4.8% during the second quarter. So, ladies and gentlemen, it stays an accounting curiosity that the portion of the business tied closely to promising IT development is precisely the one that, for the most part, has to be excluded from the equation when it comes to revenue growth. Let's now examine how our business developed at the segment and regional level. Under normal circumstances, what makes our business model strong is its considerable diversification across service portfolio, customer groups, and regional coverage of the key European markets. That is why we are generally in a position to offset weakness in certain areas through strength in others. As a result, we depend less on individual sectors, regions, or customer groups. The fact that performance is comparatively weak across every business segment can therefore be seen as a further sign that what we are dealing with are very fundamental challenges attributable in large part to the macroeconomic environment overall. By the way, the somewhat better trend at our international companies is driven mostly by acquisitions. In organic terms, the regions are, in fact, quite similar. That leads us to our earnings performance and a closer look at EBIT.

Yet at this point, an increasing number of businesses are feeling the impact — issuing profit warnings or falling short of what investors anticipated. That has generated considerable anxiety as well as significant swings on the equity markets. We witnessed the same pattern this week: a sharp decline in prices early on, followed by a rebound over the subsequent days, although the earlier peaks have still not been regained. Our own Bechtle stock could not sidestep that movement either. Early in the year, the share price first climbed, and starting in February a lateral phase set in. Beginning in April, the price declined once more and then steadily slid to where it stands now, roughly 40 EUR. 10%. While that places us still inside the MDAX range, such a performance is of course unsatisfactory. Even so, we continue to follow our well-established, transparent, and dependable approach to communicating with the capital market, particularly during unsettled periods. Consequently, given how business unfolded in the first half and the expectations for the second half, there was no alternative to the ad hoc announcement made on July the eighteenth.