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

Welcome, ladies and gentlemen, here in Frankfurt. Welcome to everyone who's dialed in the webcast or the telephone conference. I'm Martin Link. I'm here together with our CEO, Dr. Thomas Olemotz. And as you all know we are presenting the figures for last year's fiscal year 2024 and outlook on the current business year. One little comment, we are at the Deutsche Börse for good reasons. Normally, we're elsewhere in 2 weeks' time. We celebrate an anniversary that is 25 years at the stock exchange listing that is. So briefly word in sequence after the presentation of the Dr Olemotz, we will first answer the questions raised here on site, then we'll go virtually to the non-speaking non-German speakers and also any questions from participants online in German will be answered.

Thank you very much, Mr. Link. That means it's my turn. Welcome, ladies and gentlemen, from me as well to our Press and Analyst Conference for the financial year 2024 of Bechtle AG. And as Mr. Links has hinted at, I also assume that a question on everybody's mind will be the outlook on the coming year and not what happened last year. So I'm going to deliver some structural background that is relevant for the future. I am delighted that you have appeared in such large numbers. And I also truly appreciate everyone connected online. As usual, today, we are going to focus on figures and Bechtle's business. Gerhard Schik, one of specialist founding members was a man whose life was shaped by these two elements. Bechtle on the one hand and numbers on the other hand. As some of you may already know we had to bid him farewell last week. I've already answered a few questions from people from the audience today. However, many of the values Mr. Schik embodied remain deeply ingrained in Bechtle's DNA, above all, reliability, pragmatism and perseverance. These principles are more relevant than ever today and are experiencing a true resurgence, particularly in the capital markets, which are shaped by great turbulence. We will come back to this topic in our outlook later. As always, today's presentation is structured into four main sections. As you can see here, we are going to kick things off by having a look at our business performance. We will have a look at our key financial figures for 2024 and for the last quarter, then we'll have a look at our dividend, and we will talk about the proposed distribution to our shareholders. You were able to read more about that in our press release. And we're going to talk about current developments that is significant strategic events beyond the numbers. And last but not least, we're going to talk about the main part in my view, and that is the outlook 2025, the context and objectives for economic development in the current year for Bechtle and the IT market. But first, let's begin with our business performance. We cannot be satisfied with Bechtle Group's overall performance in the fiscal year 2024. And we've said that both internally and externally. Of course, general conditions were more challenging than ever, that needs to be said, but this does not change our fundamental objective that is profitable growth. In 2024, we fell short of this goal. In my view, two key factors played a decisive role. First, throughout the year, our SME customers were highly reluctant to invest, particularly in our two largest markets, Germany and France. One major factor was a delayed replacement of outdated PC infrastructure, which continues to be postponed. That is in our terminology, the classic client business, and secondly, our public sector customers unsettled by the political climate invested significantly less than usual and below expected levels. And that, although we know that here and there, it would have been really important to invest. With the limited top line growth, we were unable to offset costs even though they did not rise that dramatically, but we'll come to that in a moment. First, let's take a closer look at the top line developments. I've just mentioned, that is the development of our business volume and revenue. In terms of business volume, that is a gross revenue before IFRS 15, we achieved a solid 2.0% growth. while organic growth remained at the previous year's level. This result is still respectable. The decline in reported revenue reflects the strong performance of our Software business, which due to accounting regulations is not included in this figure. In this context, the revenue decline is not a negative indicator, quite the opposite, software remains a key driver of technological advancements, particularly in the areas of digitalization and network investments. What we lacked however, was momentum across the board, both in our so-called running business, often referred to as our bread and butter business and in lighthouse projects, which were still prominent in 2023. Unfortunately, our broad diversification, both in terms of customer base and regional presence offered little relief last year. As previously mentioned, our two most significant customer segments and largest national markets were particularly impacted by economic challenges. That said, a look at our quarterly performance offers a glimmer of hope. In the first 3 quarters, we experienced a downward growth trend. You can see it in the slides behind me. The French elections in June and the ongoing political uncertainties in Germany, particularly regarding government stability and budget approval had a noticeable impact on our figures. In the fourth quarter, however, we achieved our highest growth rates of the financial year at 4.4%, while this year-end development was encouraging, I would hesitate to call it a sustainable trend reversal. The fourth quarter followed the usual seasonal patterns, albeit at a subdued level. These patterns were also visible at a low level in 2024. Overall, investment reluctance, however, remains unchanged. Let's now take a closer look at developments across segments and regions. With a view to our segment performance, one thing becomes very clear. We are on the right track with Bechtle's internationalization and our M&A strategy, which increasingly focuses on Europe. Not all countries face the same challenges. Our businesses in Belgium, United Kingdom and Spain performed exceptionally well. While this may not be immediately visible in the consolidated figures, we are successfully mitigating weaknesses in certain national markets, at least to a certain degree. The restatement of prior year figures reflects the reallocation of specific units to different segments. As previously announced, we will introduce a new segment structure starting with the 2025 annual report, reflecting the changes in management responsibilities already implemented within the Executive Board. And I'm going to comment upon that at a later point. This brings us to earnings performance. As I mentioned at the outset, our results clearly reflect the challenge we faced. Without sufficient top line growth, we were unable to offset our costs. Consequently, our earnings came under significant pressures declining by about 8% year-on-year. Despite this, our gross margin developed positively. The increasing share of software and services kept material costs in check, allowing us to close the year with a record high gross margin of 18.1%. However, this was offset by a disproportionate rise in personnel costs, other operating expenses and depreciation. We continue to invest in Bechtle's future. And these costs could only be avoided if we were to question the company's long-term viability, and that is an option that from a business perspective, is purely rhetorical. Moreover, as mentioned earlier, the 7.6% increase in personnel costs is not excessive in itself. However, in the context of declining revenue, it is simply too high to sustain our earnings at previous levels. Let's now take a closer look at the development of EBIT over the course of the year. Once again, we observed a slight improvement towards the end of the year, driven by two key factors: stronger top line growth in Q4 allowed us to better offset costs compared to previous quarters. As a result, our contribution margin, an important internal metric for operational management also showed positive development in Q4. And secondly, other operating income was EUR 3 million higher than the previous year primarily due to increased marketing subsidies from our manufacturing partners. As we had communicated earlier in the year, bonus payments in 2024 were more back-end loaded, if you want to put it like that, meaning they were received predominantly in the later months. This was largely a consequence of the subdued growth momentum throughout the year. We maintained strict cost discipline throughout 2024 and this focus will remain unchanged in 2025. However, as I mentioned earlier, there is always a trade-off between cost savings and ensuring Bechtle's long-term viability. And with that, ladies and gentlemen, we conclude our review of the key financial figures. Finally, I would add and turn to the operating cash flow. And the operating cash flow is a true bright spot for the year. Cash flow from operating activities reached a new all-time high of EUR 558 million in the reported year. That is nearly EUR 100 million more than the already exceptional previous year. And the free cash flow also hit a record level at EUR 377 million. While this strong performance is, to some extent, a mathematical consequence of subdued business activity, it also reflects the success of our ongoing efforts to optimize cash flow and working capital while actively managing key financial drivers. Throughout our day-to-day operations, we have consistently kept cash management in focus. And as the results show with great success. A look at our cash flow at the equity ratio and debt position makes one thing very clear, ladies and gentlemen. Bechtle is a financially robust company. Despite the current challenges, we are well positioned to emerge as I'm convinced from this period even stronger. With that, let's turn to the development of our workforce. As of 31, December 2024, Bechtle employed 15,801 persons. That's an increase of 642 employees or 4.2% compared to the previous year. Acquisitions accounted for 381 of the new colleagues representing nearly 60% of the total increase. This means that purely organic growth in our workforce was a modest 1.7%. As I mentioned earlier, we are keeping a close eye on costs. Our cautious approach to hiring is a deliberate business decision to ensure we do not overextend on personnel expenses during a period of significant economic uncertainties, while still safeguarding Bechtle's long-term viability. That is why we continue to invest in training. At year-end, 883 young professionals were undergoing trainings at Bechtle, keeping our training rate in Germany almost stable at 7%. Let us now turn to shareholders' profit sharing. Ladies and gentlemen, you all know very well that we have a clear guiding principle in our dividend policy. It should be reliable and sustainable. That is why we have been paying a dividend every year without interruption since the IPO, which, as you've just heard, we'll celebrate its 25th anniversary this year. The dividend has never been lower than in the previous year, either it was stable or we increased it. These considerations also guided us in our dividend proposals for the 2024 financial year. As you may have already gathered for this morning's press release, the management's proposal to the Annual General Meeting is to make a payment of EUR 0.70 per share. This means that we are maintaining the previous year's levels. However, the conditions for these decisions are anything but ideal. Our after-tax earnings which are the mathematical basis for the dividend distribution fell by 7.5%. So for the first time in a long while, fiscal year 2024 was not yet another record year for Bechtle, but we want to send a clear signal to our shareholders and the capital market with a stable dividend. First, Bechtle can be relied on. In 24 years, there was never -- there's never been a decline in the dividend payout, and this will not be the case for 2024 either. Our financial strength and high liquidity give us the necessary backing to do so. And secondly, we believe in Bechtle and in our successful business model. That is why the dividend distribution is also a clear sign of confidence in our future development. At almost 36% of the payout ratio is well above the previous year's level and also above our target of distributing about 1/3 of our earnings after tax to our shareholders. And now, as I've mentioned before, for some additional news that go beyond the figures that are of greater strategic relevance for our company. These latest news concern three very important fields for us. First of all, our multichannel strategy and with that, the associated or reorganization of the Executive Board. Second, the successes in business with public sector clients; and third, our social commitment with the Bechtle Foundation which we established last year. Let's start with the re-org of the management responsibility within the Executive Board. As of January 2025, we are bundling responsibility for all distribution channels in the national markets at the Executive Board level with a single point of contact for each market. This allows us to focus clearly on expanding our multichannel offering in all markets and on further internationalization. The aim is to implement a holistic market strategy and to provide customers with optimal demand-oriented services across all channels. That is why we call it internally opti-channel. Michael Guschlbauer, as COO, is responsible for the business in Germany and Austria as well as for all of the Bechtle Group's Specialists. My colleague Konstantin Ebert, our COO, is responsible for all other national markets in which Bechtle is active with its own companies. This consistent market channel approach should not only further strengthen customer loyalty and improve market penetration, but also have a positive economic impact by increasing process efficiency at the back end. This is a step that we are initially taking internally, as I've said before. However, from next year onwards, we will also reporting externally using this modified country-specific segment logic. Let's take a look at our business with public sector clients. Even though we have pointed out that public clients are currently rather reluctant to invest in IT. This does not mean that there is a standstill in this field. There are many very interesting tenders on the market. And for future business, it is extremely important for us that we continue to be present and successful here, particularly in the area of Cloud Services, there's a certain backlog in the public sector in many areas. This makes it all the more important for us to position ourselves clearly here. We are the perfect partner that navigates customers towards a functioning multi-cloud infrastructure. And as you can see from the two news shown here, we do this both nationally and more and more internationally. And even if the call-offs from existing and newly acquired framework agreements are not yet at the expected level, the potential for the future is promising indeed. And our last announcement is also future oriented. It concerns an initiative of our newly founded Bechtle Foundation. With female upgrade, our Bechtle Foundation, which we founded in June, 2024, is launching the first scholarship program for the long-term support and advancement of girls and women in the IT environment. The program is aimed at school girls, apprentices and female students as well as young professionals, managers and experts. This especially supports current and future female IT employees in different phases of life in career, a truly unique approach in our sector. We focus here on measures ranging from vocational orientation, all the way to career management. And this includes network events, cross-generational mentoring, practical training, all the way to financial support where required. The aim is to attract more girls and women to a career in IT, to support them for up to 15 years on their way to specialists and management positions and to support them in their future development once they are there. And incidentally, we work very closely with the foundation of our anchor shareholder, the Gerhard and Ilse Schick Foundation. Ladies and gentlemen, this brings us to the outlook for the 2025 financial year. Well, quite frankly, and I've mentioned this in plenty of discussion, it has never been harder for me to talk about our prospects than it is right now. Not because I don't believe in Bechtle, far from it. I'm still firmly convinced that our company will be successful as well as our business model. But likewise, I'm a big fan of reliability. And let's be honest, you can reliably make a forecast about how the next 9 months will pan out. The range of possible scenarios is immense, and was never wider. We all have extremely limited visibility. However, one thing is clear in my view. We are currently seeing mostly an economic problem. Structurally, the IT market continues to be a high growth and, therefore, attractive market for the future. And Bechtle, is very well positioned in this market as a forward-looking IT partner for its customers. Nevertheless, we are somewhat cautious in our estimates for the current year. We should not expect any revival if at all before the back-end of the year. The first half will still be heavily under constrained by the overall conditions. But despite the current economic uncertainties, we have to invest into the future orientation of Bechtle, be it in the form of consistent IT investment in our own platforms or else by courageous M&A activities and follow-up adaptations of our management organization. The macroeconomic uncertainties shape our outlook for 2025 decisively. And these uncertainties have been increased in recent weeks as we all know too well, in the year of geopolitical developments. In this respect, we should actually have to broaden the range of our expectations even further. There are opportunities in 2025, but also very, very high risks. And currently, we see no reason for euphoria. That holds particularly true for the first half of the year. None of the political announcements is specific, not even the most recent ones, much remains vague and uncertain. So that is why we cannot issue any other guidance than we've already communicated in the Annual Report and in the press release. So summing up, that means we want to increase the business volume slightly. We expect revenue to develop below the business volume due to the continued positive Software business. The EBT could decline by up to 5%, but there are also opportunities for a correspondingly positive development. However, only at the back end of the year. We see the EBT margin in the best case at around the previous year's level. So much, ladies and gentlemen, for development in 2024 and the outlook for the rest of 2025. So thank you very much for your attention, and I'm happy to take your questions now.

Thank you Dr. Olemotz. As announced, we're going to take the questions from the audience in this room first, then the questions from the non-German speaking participants in the virtual room and last but not least, the questions of the German-speaking persons on the Internet. [Operator Instructions] First question. Good afternoon, Dr. Thomas. So my first question is this, I probably think you already know what I'm driving at. The current situation is full of challenges. And I think that you've described these challenges very well in your presentation. Do you think they're going to change? And the second is also maybe a look into the crystal ball. Do you think that your guidance will actually change over the year? Do you think there will be additional economic stimulus from policy changes in Germany, which will lighten the mood?

Thank you very much for this question, which would probably afford us hours of discussion. I'll try to be as brief as possible. I think that we see some developments which are going in different directions and sometimes also overlap. I think that your first question can be answered quite easily. We had a slow start to the year. We had a very good business development in December, which was better than expected at the end of Q3. We had the usual seasonal up and downs, but the pattern changed last year, especially as far as the development of revenue in the various quarters was concerned. In December, we stepped on the gas to put it bluntly. And in other words, that meant that we had actually depleted all our resources at the end of the year and started from a low position in the new year. It sounds like a contradiction, but we've never had a larger contract from -- for the public sector at the beginning of the year than this year. So you see that there is a lot of ambiguity we need to deal with, and we need to adjust to that over the course of this year. Unfortunately, I might add because that is what makes it so difficult to come up with a robust outlook for the year. So what does it mean for this year? As I said, we believe that the first 6 months will be rather weak, to put a positive spin on it, we think that there is upward potential during the second half of the year. We believe that it's not as relevant what you read on the screens a few moments ago, because the news about the political goals of the new government are goals for the future, and it will take at least a year for everything to be implemented. Short-term mood changes in Germany should be seen as just a picture of the current moment for us, the long term is important. We've got contracts for the various public sector clients. These contracts are legally enforceable and the public sector will start actually calling for the services and products, they have bought once the budget has been adopted, but it takes some time for the budget to be adopted by Parliament. We hope that this will happen before the parliamentary break in summer. And then the existing framework conditions needs to be filled with everything that is necessary. The preconditions seem very good. But if that is enough to compensate for the weak first half of the year, that's the one million dollar question. At this moment in time, it is very difficult to assess this in a reliable way. And I think that indirectly, I've also answered your second question. I believe that our guidance remains unchanged. It depends on everything I've just said. I know it sounds boring because I keep repeating that everything depends on the public sector business, which accounts for 40% of our business, and it is also down to our classic SMB and small business environment. So those are the product groups where we see major challenges at the moment. They were also the reason for the records we achieved before, during and after the COVID crisis. Today, it's a big challenge because the replacement cycle is overdue and has been overdue for 1, 2 years. Nevertheless, many customers in our client environment are reluctant to invest, although the technological preconditions have never been better because all major vendors have updated the product portfolios with a view to AI and are offering very powerful devices. In normal times, these would be perfect preconditions in order to breathe new life into the client business and make headway. And that also tells you that everything I've just described will shape our business, our revenue. So that is true for the big clients, the public sector and also the SME and small client business, which accounts for 80%, 90% of our business. So we have to see how these customer segments develop over the year. And quite specifically, concerning the upper and lower end, bottom line and top line. Last year in Q1, we had EUR 5 million which were received from France as delayed payments, and there were also provisions of EUR 7 million that were then dissolved. That will not happen. We will see how the first 6 months will develop, and that is why our range is so large from minus 5% to plus 5%. But if '25 will macro-economically speaking, like '24 then there will be no big change. If there is a positive development, then we will also receive a boost in our business. That is why we decided to have that wide range.

Dr. Olemotz, my question is, well, the elephant in the room, Microsoft. To what extent is that already reflected in your guidance. Can you quantify that? What kind of headwind you expect for 2025 and more on Microsoft? We hear now from other vendors that they think about changing their fee structure, Cisco in brackets. This decision by Microsoft was that breaking of the jam, so to speak, do we expect that all vendors are going to follow. But first, that.

Well, in the past year, we confirmed that we had this fundamental change in the incentives, which is documented in contract by Microsoft. But we are fully understanding that this -- that we won't be able to put a price tag on it because, first of all, we had to analyze the customer bases, how many contracts and how many customers are affected and what kind of compensation mechanisms exist? And I was surprised that some of the peers quite soon commented on the implications. So we did our calculations now. We assume -- and I'm talking about net effects. The gross effects are way higher. And I'm going to explain the differences between net and gross in a second. The net effect alone in this year, which we assume is a high single-digit million number. And the burden will continue for 3 years with a decreasing dynamism because that's the usual period we're talking about. So that means that we have to deal with this over the next 3 years. Why do we distinguish between net and gross. Well, the challenges that result from that is manifested in Microsoft contracts, maybe some of you is deep involved in the topic there. There are so-called CSV contracts. These are Cloud Solution provider contracts. Hence, there are EA contracts. These are classical license agreements. And Microsoft decided that in the future, for the signing of EA contracts, they were not paying anything, not less, but nothing, not. That's the situation. So for us, this means that we have to turn as many EA contract into CSV contracts soon as possible. But to do that, you need a performant cloud platform because these contracts are activated via cloud platforms, and they're only running on cloud platforms. So you use Microsoft products on a cloud platform. Whether it's a Microsoft platform or one of the resellers such as Bechtle is irrelevant in technological terms. And that is the decisive aspect here. We have to achieve this. We have to make sure that as many customers can be motivated to put their consumption of Microsoft service on a CSP contract and not on the classical on-prem EA contract, and that affects the entire industry, by the way. So in more general terms, and that brings me then to the second aspect of your question. So if you want to make money with Microsoft in the future, which is still possible, then you'll make it differently from the past. You have to deploy products. You will measure it against the consumption, which can be measured on a cloud-based solution, which was not the case before because you had licenses and the customer whether he was under license or over license, that was irrelevant. Now you can measure it by the consumption. And then you are paid for by selling additional products to the customers that you take over responsible for the operation that you migrate from an EA infrastructure to a Cloud infrastructure. So you still get a lot of money for that. But to be able to do that on the one hand and here we're talking millions, you have to invest in the Cloud platform, and we're doing that. And at the same time, you have to train your staff, which costs more millions indeed. So the pre-invest you have to do to be able at the end of the day to handle this change business costs millions and both the decreasing Microsoft earnings as well as these investments, which can be seen in higher write-offs are also reflected in our P&L because they directly go to CapEx. To some extent, we are able to activate it. This trend, and you're absolutely right. It's not happening at Microsoft alone, but also at Citrix. And we have the same discussions with Cisco, but at a very early phase, much earlier than with Microsoft. We're not there yet. But it confirms our decision to invest in the platform because you're absolutely right. The way how software providers will deploy their products and offer them is going to change fundamentally. And obviously, we have to make sure that we hold the customer interface and there's increasing risk that Microsoft wants to access our customer interface. However we have to be quite self confident and say that we don't believe that this strategy will be successful in the SME business, because Microsoft and we have had these discussions is faced with big challenges with a sheer number of customers we're talking about. We're not talking about 1,500 global large accounts, which Microsoft has always handled directly. We're talking about thousands and thousands of mid-sized companies, they have to support. And Microsoft is able to do that, generally, I doubt it. So there will be a sufficient work for us for someone like Bechtle.

Thank you for this comprehensive answer. Well, I haven't -- I mean we have been waiting for this answer quite some time. That is why I was more detailed. I know Christmas is over, but if you want to adapt your reporting structure, can we get more detail on hardware and services or consulting revenues or is both be hidden?

Well, I can understand your question, but the logic goes against our business. We don't do the business in that way and less and less so. And I can come back to what I just said in terms of Microsoft. We are firmly convinced when we talk about market channel. We will guide and manage by regions, and that will be reflected in the reporting. How exactly well that is something we have to see. There are higher formal requirements as regards to cash generating units and things like that. And I don't want to report on that. Everything has been prepared. It's far from trouble, but we're doing this because we are convinced that this regional view in the market against the strategic development of Bechtle, Europeanization or internationalization is the right one. In future, we have to focus on market penetration independent of the channel. That is why -- I mean that's a change of paradigm for us after more than 40 years unchanged segment logic to focus on regions or country markets in the future and a combination of several countries if the countries are smaller because we are reflecting this in the structure of the management Board.

I don't know whether I can call for the persons that are next to speak in chronological order but Mr. Wolf, I think you're first or Florian Treisch from Kepler Cheuvreux.

You talked about flat revenue and thus a flat EBIT. We had EUR 5 million in France, and we heard the impact of Microsoft organic growth, positive personnel growth. I mean, where are the sporting factors? Does it mean that you will have to cut costs more aggressively during the next few months? How can we reach the midpoint?

In this current phase as a service provider, we need to deal with our payroll costs. It's also one of the most difficult questions. To put it bluntly, we don't have anything else. And the people that you lay off will not come back when customers start buying again. So we've heard that question internally from various departments too, but we need a very good approach. And if push comes to shove, you must be able to withstand the criticism that you haven't reduced numbers as strongly as was maybe necessary. We are using short-time work in a few locations, as we did during the pandemic. It's not news to anyone. We try to actually make sure that the company remains viable and that costs are kept down as much as possible, but you're right. You hit the nail on the head. You have to ask the questions. What the midpoints we aim for is. I'll tell you what I see as midpoint. If we were able to achieve the EBT of the previous year -- the EBT of the previous year, then that would be a real success. But with a business volume growth of 2%, that would be impossible. If you put it the other way around, it means that if we grow just by 1% or 2%, we will not be able to maintain the results of the previous year. And that brings us back to our guidance, which was subdivided in two aspects. We had the first 6 and the second 6 months. During the first 6 months, we have lots of contracts, which we no longer need to acquire. And if we use these contracts to increase our volume and the volume of these contracts is in the billions, then the framework conditions will change fundamentally. And that is what everything depends on at the end of the day.

May I ask the next question from one French to the next. I've got two questions. One, the first, refers to the manufacturer bonuses in hardware. So what kind or in the vendor area, what kind of growth is needed to achieve those bonuses? Has that been communicated by the vendors for each category? And the other question concerns M&A. I saw that your guidance included M&As. Does it mean that in Q1 and maybe also in Q2, there are some mergers or acquisitions in the pipeline already?

Okay. The development of our segment margin is actually something that we come up with by looking at the previous year. I've mentioned this before. As far as operative back-ends are concerned, we haven't lost ground last year despite not growing. Why? Because many vendors in the markets where we especially are active were quite weak, a lot weaker than us. So in weak and tightening markets, we over-performed vendors. So we had very good arguments. That's part of back-end money that came back during the last year, which was also part of the special effects mentioned by Mr. Link was then allocated to marketing activities and training that is, we received funds from vendors so that we could train our staff in new technologies, and we received millions and we reported about that during the year. In other words, it doesn't have to mean that -- it doesn't mean that when we don't grow, we don't have stable funding from the vendors. We're still able to generate stable funding when vendors are weaker in the markets where Bechtle is present weaker than Bechtle. And that was, for instance, the case in France last year. From the viewpoint of many vendors last year, France was a disastrous market. And we also had lots of challenges to deal with, but fewer challenges. All in all, than the vendors, and that helps you when you start putting forward your arguments. And I think as far as M&As are concerned, I think that might have been misunderstanding. We mentioned M&A in the presentations in order to tell you that we continue our strategy, but the figures are not included. But I can say that I'm confident that during the first 6 months, there will be one transaction in the field of system houses, which won't be that small. In Germany, this industry is going through lots of changes after a stagnation of the previous years. There is a consolidation driven by the difficult macroeconomic situation, which is picking up speed. That is why we are focused on Germany, but the main focus of our M&A strategy is Europe. And I assume that our next transaction will probably be in the South or maybe also in the East of Europe. So that's our focus, Spain, Portugal, Italy and Poland to be more specific, which does mean that acquisitions in other countries are not possible. But in the midterm, it's still our objective to be represented in all 14 countries where we are represented with our trade business.

Mr. Wolf your turn now.

Andreas Wolf, Warburg Research. A couple of questions. First, the personnel expenses. I don't know whether this is due to the cutoff phase because your employees grew stronger than the FTEs. Can you explain the effects behind that? And the second question refers to the public sector. How well could you catch up any hesitant development in the back end of the year? With services, it's difficult to do catching up in 6 months because it requires the service of people with hardware might be easier. So these framework contracts, do they refer to hardware or services? And then the press release also mentions that there is a need to invest in AI infrastructure. Software investment linked to that are obvious. Maybe you could explain what infrastructure components need to be modified networks and what have you to get more of a feeling for that? It'd be interesting to hear what you have to say on that. And as an additional question to what you've already said, if you have a flat top line development, to what extent -- or why would EBT drop by 5%? Would that be linked to lower [ Boni ]?

Well, I'm going to start with the first question, because I have the figures here. First of all, I can confirm what you say. Personnel expenses went up by 7.6%. We've just heard it was 4.7%. I mean, I'm an employee of Bechtle, you assume constant personnel costs. Well, from Mr. Olemotz point of view, that had been nice. But in view of the inflation we had last year, it's not realistic that we had constant personnel costs. So that increases organically with the existing FTEs. But they were at acceptable level. Yes, we're not at 0, but we don't have an increase of 10% here. But on an FTE basis, we have an increase between 2% and 3% organic FTE basis that is.

And I wanted to add something. You always have to bear in mind that almost half of the growth at FTE is done by acquisition. So that means that we have wage structures we haven't negotiated in the past. And to give you a specific example, last year, as a Bechtle employee, if you were linked to the group FTE -- EBT, sorry, we still have this entrepreneurial spirit. So, and we have a variable component that is linked to the group EBT, which is not the case with other companies. My assistant, for instance, she has a variable part of remuneration that's referenced to the group EBT. You might wonder what kind of options you have to influence EBT, but that's a discussion we're not having in this field. But it's a fact that, due to the fact that we failed our guidance, they had 0 claim, but still we paid 75% because these are the central performer, and this is documented also here. And again, we're not talking about 20 or 30 people. There are several hundreds who get bonus despite the fact that formally, they were not entitled to that so much on that. As regards to your question related to the public sector business. Well, obviously, this structure is essential to answer how fast we can ramp up this business. And obviously, if these tenders include services, which as a rule is the case because there is no 100% infrastructure anymore. Sometimes it's rather simple services, you have to patch softwares or take the devices somewhere and integrate them into the network. But at some time, it's also complex services. If you have to deal with the Federal Army, for instance. And there are high requirements in terms of what has to happen before, before any notebook is even open there. And things that mustn't happen before it's opened. But basically, when we talk about the volume in these tenders, in most cases, we talk about hardware business, and that is why it's so important to know that the tender volume in the past year, and I've mentioned this before, we won it. These are not contracts that are still under negotiation or could be revoked that I mean, if the vendors can supply, of course, we have to start -- I mean, I can't give you the exact occasions. But right now, we have a lot of people on the payroll who are not fully utilized, which we need in the various second once the products are called off. You can't -- the customer -- tell the customer, oh, great, that you're back. I'm now going to hire people for the next 3 months to fulfill the tender based on the SLA we've agreed. No. You have to have the people required. There are lots -- the Indigo tender alone with Apple at the Federal Army has an overall volume of EUR 700 million to repeat the figure we communicated last year. We're not talking about a handful of technicians. No, we talk about many, many more, and they're not fully utilized right now. So what do you do as an entrepreneur in the situation from a cost point of view, you have to say, sorry, can't do them. I have to throw them out. And then tomorrow, the customer will call us and, yes, we're going to start tomorrow. These are the daily decisions we have to take. And, we have to balance costs and prospects. That's our daily business, as I've just said. So in a nutshell, yes, it is possible because the tenders are very much focused on infrastructure. And it's not a hypothetical option. But it hinges greatly on the behavior of the large customers. And would actually start as strongly as possible in the back end of the year. Well, in theory, we could compensate a weak half year. If it's not coming, it will be another weak year, whatever weak means in the current situation. Investment in AI, they are documented in different areas. On the one hand, we have investment in our own platform, the cloud platform that is, and I've given the reasons before, why that is required to be able in the future to actually offer the services required. We also have investment in our own IT. We have a large SAP S/4HANA project, which is going on right now. That was never relevant in our external communication, despite the fact you might imagine how expensive it is, what we're doing right there because so far, it was never essential to underpin it. But the very moment, where earnings are impacted, you will see that. Well, if earnings drop, you might use naked eye. Pardon my French. These costs, of course, impact profitability. And -- by the way, this is one of the most future-oriented investment we've done. We have our own AI base bot with standard modules. It's not self programmed. We are not starting generative AI as Bechtle, no we use what is available in the market. But this bot which is undergoing a pilot phase is communicating with selected customers even today. So you can place order as a customer there, you can ask questions. The bot enters the orders directly into our ERP system and the first test or touring tests, which we run, by the way, are very promising indeed. And if we succeed to place this tool and use it at the customer interface and also internally, not in the short run, but in the mid- to long term, we had tremendous productivity increase gain. So we're investing not only in our own infrastructure, but also in AI customer interfaces to be prepared for anything that might happen in the future.

I don't know whether that was part of the question, but quite specifically, you believe that these investments are in the normal head count costs and administrative costs and also in the write-offs?

Yes, some is subsumed under CapEx and other aspects are subsumed under OpEx. And you also asked about the scenario for the lower range, so that we would have an EBT of minus 5% and a flat top line. Well, the scenario is as follows: no economic upswing especially not in Germany and France, which continue to be our most important countries or markets. I don't want to make things appear brighter than they are, but that's our worst-case scenario. And it's not a dramatic situation if everything remains flat, and we lose 5% of our EBT. Other companies would be happy to have similarly good results. But without further macroeconomic changes, especially when it comes to SME customers and our public clients in Germany, then that would be our scenario.

And what would increase? Would have an impact on the EBT beyond that headcount -- headcount costs that is payroll costs?

Well, to pick up on what Mr. Jungfleisch said because of our market position, which we've built over the last 10 years, we are relatively well positioned. But nevertheless, we would have costs pushing us from the bottom. And we don't want things to sound terrible and paint a very grace picture, but there are some signs that things could pick up again, for a few days, we've observed a very good development in incoming orders, but it's much early at the moment to say that this is a trend or to distinguish whether this is a trend or whether it's just a normal fluctuation. So in other words, it could be an uptick in incoming orders because the economic situation is changing, but it's not a double-digit figure. It's just a 1-digit figure in percent, but it's not like in the -- in the last few months where the developments were different. We are stable at a low level right now, and we see that order income could increase again. But before we can say that is the case, we need another 4 to 6 weeks to be absolutely sure. And then we will be able to say, okay, if this continues, what will be the impact on rest of the year? What will happen if that uptick in incoming orders will happen more quickly? Is it our classic business with a lead time of 24 hours? Or is it business that will change things in the long term. I've just mentioned that in order to be able to end on a positive note and not with painting a bleak picture as far as this year goes, but the situation is difficult to predict. [Statements in English on this transcript were spoken by an interpreter present on the live call.]