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

Thanks a lot. Good day, everyone, and welcome to our analyst conference covering Q3 of 2024 — which means the first nine months of Bechtle AG's current financial year as well. It's a real pleasure to see that you take an interest in our company. The key figures on how business developed in Q3 were already laid out in our ad hoc release dated October 22. At no point in Bechtle's history have we had to revise our guidance two times within a single year. You can picture how difficult that was for us, and equally how unusual the conditions were that left us no choice. That said, the numbers themselves tell the story, and naturally we see it as our duty to communicate in an open and candid way. Today, let's dig deep into how our business performed during Q3. As always, what follows in the presentation is organized into three parts. We'll begin by examining our business development, with particular attention to Q3 of the current financial year, then move on to some updates, once more with a strong emphasis on our M&A activities beyond the figures. And to close out the presentation, we will look at the few remaining weeks of this year.

However, let's begin with business development. We still aren't seeing demand momentum from our most important customers — customer groups. That's especially the case for our SME business in Germany and France. Our public sector business, too, has come in below expectations. Looking at the bottom line, we're also experiencing cost pressure. Beyond personnel costs, which rose because of acquisitions, we're seeing a steeper increase in other operating expenses. Vehicle costs, in particular, have climbed more sharply. The reasons are higher electricity costs and the removal of the environmental bonus for electric vehicles in Germany. Given how large our vehicle fleet is, and the level of electrification under our sustainability strategy, this is a significant cost driver. Normally we probably wouldn't be discussing these items, but our growth at present isn't sufficient to offset these cost increases. Turning to growth, let's start by examining how business volume developed. After a very high level in the prior year quarter, business volume growth lost further momentum in the third quarter. We now see a decline of 1.1%, or minus 1.9% in organic terms.

During the same quarter a year earlier, we had a really big software project, with a volume of roughly €150 million. Sadly, we couldn't secure a deal of that size this year, so the comparison base for the third quarter was extremely high. Although it may not be obvious from the consolidated numbers, things played out quite differently across the regions — internationally we managed growth of 10.7%, with organic growth still a very solid 8.8%. In Germany, though, our business volume dropped by 8%. That's partly because of the prior-year effect I mentioned, which we posted in the Domestic System House segment. And partly it reflects the deeply gloomy mood and economic conditions in Germany. Our revenue, after applying IFRS 15, moved somewhat differently. Revenue in the third quarter was up 2.2%. What looks positive at first glance is essentially just a mirror effect of the large scale software business in the prior-year quarter. Because of IFRS 15, we had to make a significant reconciliation from business volume to revenue in 2023. Those, however, were smaller in the third quarter of the current year.

Even so, nine months in, we're close to matching last year's figures for both business volume and revenue. I'm bringing this up even though, naturally, I'm aware we pulled our forecast in the ad hoc release dated 22 October. That said, during the third quarter we observed an additional improvement in activity with public sector customers. The large-scale software contract from last year, though, was likewise signed with a public sector customer, which is why we fell short of the prior year's strong comparatives in Germany. Once you adjust for that factor, we are seeing a steady rebound in public sector business in Germany as well. Let's turn now to how our business has evolved by segment and by region. As I noted earlier, the individual regions are following different paths. That is especially evident in business volume, and in revenue too. We continue to face difficult conditions in Germany and France, whereas our operations elsewhere have moved in a positive direction. In Austria and Switzerland, for instance, the IT System House and Managed Services segment has shown encouraging momentum. In our IT E-Commerce segment, Belgium and the U.K.

In particular, it posted robust expansion. Whether those represent lasting structural distinctions across the respective markets is still an open question. That said, from where I sit, this is another clear illustration of how valuable Bechtle's wide international presence is. That's where our strength and our future are, including when compared with certain rivals. That brings us to earnings development, so let's examine our EBIT more closely now. EBIT stayed under substantial pressure during Q3 as well. A number of factors drove that. First, obviously, our costs. I already brought up personnel costs, plus a steeper rise in other operating expenditure. Depreciation also climbed further, thanks to, among other things, continued investments in our own IT. Second, manufacturer bonuses — because top line growth has been lacking, we have so far not yet hit many of our partners' targets. That was different in 2023, when we had already cleared some hurdles over the course of the year. We anticipate improvement in Q4, yet we certainly will not match the prior year's level in the 2024 financial year. And third, other operating income — as we already communicated, we are seeing a decline there.

In 2023, the greater growth in other operating income continued to be of assistance to us. To better offset pressure on costs. Now let's examine something highly encouraging, ladies and gentlemen, which is our cash flow. Cash flow from operating activities between January and September came to nearly €290 million. So the positive trend seen in the two prior quarters carried on into Q3. The swing relative to the same period a year earlier is roughly €100 million. That is a clear signal that the steps we have implemented to optimize cash flow are delivering lasting success. We remain able to bring down our inventories, even though the room for optimization is no longer as large as it was 12 months ago. That is no reason for us to ease off in our efforts. And when it comes to trade receivables, we keep seeing success from our improved receivables management. To some extent, the weak growth is also helping to relieve the pressure on capital employed. Without our internal measures, though, these achievements would not have been possible. Let's now move on to how our employees have developed. As of 30 September 2024, Bechtle had 15,608 employees. That equals a year-on-year increase of 768 people, or 5.2%.