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

Thanks for joining our analyst conference covering Bechtle AG's third quarter of 2025, and we appreciate your interest. Ladies and gentlemen, as all of you are aware, we've been through some quite turbulent quarters — quarters where Bechtle's growth in business volume was unusually weak, quarters where our earnings came in below the prior-year figure for the same period. The reasons were understandable, yet the situation was still unfamiliar and unsatisfactory for all of us. Today, though, we can reflect on a quarter in which things are at last moving in the right direction. Business volume, revenue, and earnings are higher, having improved year on year. So is this the long-awaited sustained turnaround? I don't want to pour cold water on the enthusiasm right at the outset, but unfortunately we cannot give a definitive answer to that question today. What we will do, however, is take a closer look at where the third-quarter improvements originated and why we feel optimistic about Q4. As always, today's presentation falls into three main sections. As always, we begin with a more detailed examination of our key economic indicators for the third quarter and for the first nine months of the 2025 financial year, at both group level and segment level.

Coming up after these numbers are some key strategic developments that matter for the company's future, and then we'll finish with the outlook for 2025 and the closing weeks of the year — really the next few weeks. Let's turn to business development. Ladies and gentlemen, the third quarter brought encouraging news. You've certainly already seen the figures in this morning's press release. That said, it doesn't mean we can declare an all-clear everywhere. There are still regions and areas where the challenges we face are considerable. Unfortunately, overall economic conditions haven't yet picked up meaningfully, and that applies across all regions. With growth in every relevant KPI, we've made an important and significant step in the right direction. Our top line is up, and we've stressed repeatedly that stronger growth is also a key prerequisite for improving our earnings. Beyond that, we've managed to hold cost growth in check, which produced EBIT growth in Q3 for the first time in five quarters. Now let's look at the top-line development I just mentioned, namely business volume. At 8.4%, business volume growth is again in the high single-digit range and therefore inside our long-term target range.

When you look at it on a purely organic basis, growth came in at 6.2%. As this chart makes clear, the year has seen a favorable trajectory. Quarter after quarter, we've posted gains. A quick aside from me: in the third quarter, business volume passed the €2 billion threshold for the very first time. That upward momentum, more than anything, gives us confidence heading into the fourth quarter. For the regional segments, here's what that translates to. From where I sit, our international results stand out as especially strong. We recorded growth of no less than 17% there, and even on an organic basis it still comes to almost 12%. What these numbers make plain is that pursuing M&A internationally was the correct course. It has widened our footprint and cut our exposure to economic swings in any single country by a significant margin. The markets in Belgium and the Netherlands, the United Kingdom, and Spain in particular have performed very well — and it's no accident that those are exactly the countries where acquisitions over recent years have bolstered our position. So in those countries we haven't just reinforced existing operations; we've also employed a multichannel approach to reach new customer groups and to serve current customers through a wider service portfolio.

Now let's turn to revenue. On the surface, what we see isn't unexpected. Because of how IFRS 15 is applied — and you know the background here — revenue comes in below business volume. That said, we can also observe that the gap between business volume and revenue isn't quite as wide as it used to be. That isn't a sign that our software business has grown weaker; instead, it reflects customers having raised their spending on replacing client infrastructure during Q3. Ultimately, we can't always say for certain why a customer decides to put money into their infrastructure. Still, one likely factor last quarter could well have been the move from Windows 10 to Windows 11. We are continuing our internal analysis of how this is developing. The recovery in our trading business also matters a great deal when we look at the earnings side, meaning EBIT. In the third quarter, our EBIT was up 2.4% year on year. That is surely not something to get too enthusiastic about at this point, but, ladies and gentlemen, following five quarters in which results declined, it really is encouraging news that our earnings are growing once again.

What stands out even more, though, is the momentum across the quarter. Earnings are up by more than 20% versus Q2. That swing comes to nearly 23 percentage points. Should similar momentum carry into the fourth quarter, we will hit our guidance for the full year 2025. Two key factors explain this favorable trend: first, thanks to higher hardware sales, we succeeded more than we had in the first half of the year in securing vendor bonuses and kickbacks; second, the rise in costs was quite moderate. Other operating expenses grew more slowly than revenue, and personnel costs for the third quarter came in under the Q1 level. To wrap up our look at the key figures, the customary check on operating cash flow. Cash flow likewise moved very favorably in the third quarter. It sits at just under €125 million, mirroring the seasonal pattern typical at Bechtle. We not only see a clear improvement as the year has progressed, we are also close to matching the already very strong quarter a year ago. It is remarkable that we reached this level even with the pickup in our operating business, particularly in September.

Typically, those kinds of developments show up in cash flow too, though receivables and inventories are higher on the reporting date, and that drags on this key ratio. It shows the measures we've put in place over recent years through our working capital management have paid off, letting us cushion the growth in operational cash flow better, so to speak. Now let's move on to our workforce. On the 30th of September 2025, Bechtle employed 16,300 people. That's 692 employees, or 4.4%, above the same quarter a year earlier. Acquisitions account for that entire increase. The purchase of Grupo Solitium in Spain by itself added 646 new colleagues to the Bechtle Group. On a purely organic basis, the number of employees declined by 1.6%. It's still a deliberate management choice not to grow the workforce any further in these challenging times. Right now we're relying on natural attrition and aren't immediately backfilling vacant positions. Still, we keep investing consistently in training young people. So we're very pleased to have welcomed 251 young colleagues as the 2025 training year began. As of the 30th of September, 853 young people in total were in training at Bechtle.

So, as we usually do at this stage, let's move on to what we regard as the significant non-financial events from Q3 of 2025. All of these recent announcements are forward-looking, and they highlight Bechtle's viability going forward. On this occasion, we're looking ahead to a key personnel change, 2 acquisitions, and a possibly somewhat surprising announcement regarding digital sovereignty, plus a milestone in our sustainability strategy. Let's begin with the personnel change. Early this week, we issued a statement that turns the question mark behind my succession into an exclamation mark, if I may phrase it that way. Konstantin Ebert, a fellow member of the board, will assume my role as CEO of Bechtle starting January 2027. Along with the nomination of Chris Jaehnel as CFO effective the 1st of January 2026, my succession is therefore settled for the long term and at an early stage. The Supervisory Board and I felt it was important that this transition could happen calmly and in line with plan. We have now established the conditions for that. In doing so, we are once more emphasizing Bechtle's reliability — internally as an employer, toward our customers, and also toward the capital market.

To get ahead of any questions, my contract goes through 31 December 2026, and up to that point I'll keep bringing the same drive and discipline, full conviction, and enthusiasm to Bechtle. Now let's turn to the international acquisitions we made. Through Nuovamacut Automazione, Bechtle has picked up the biggest SOLIDWORKS partner in the Mediterranean region. That business started in 1995, has its headquarters in Bologna, and operates seven further sites across Italy's economically strongest areas. It has 149 employees and posted a business volume above €63 million in the last financial year. This CAD and PLM specialist leads the market in Italy and numbers roughly 5,000 mostly mid-sized manufacturing companies among its customers. That represents a significant step for our European positioning in the PLM solution business. We also bought the Dutch IT service provider ITAM Solutions, which is based in Eindhoven. Started in 2007, this company focuses on IT asset management solutions and provides its clients with wide-ranging consulting services for cloud cost management. ITAM Solutions has 38 employees and reached a business volume of €4.4 million in the last financial year. This specialist is already fully integrated into our subsidiary PQR.

Now we come to digital sovereignty, a matter being debated fervently across Europe at the moment, and especially in Germany. In this area — one that matters to all of our futures — we have departed from our earlier approach of staying out of a market until it is established, by creating a software-based measurement method for evaluating digital sovereignty, a method of measurement that does not exist in this form anywhere yet. The Bechtle Index of Sovereignty is intended to assist companies and public-sector organizations in establishing, in a structured way, how mature their digital sovereignty is, and in deriving concrete actions from those findings. Rollout of the Bechtle Index of Sovereignty is scheduled for the first quarter of 2026, and it is genuinely unique in the IT market at present. The Bechtle Index of Sovereignty concentrates on three dimensions: data ownership, technological independence, and strategic autonomy. Among the advantages for customers: they obtain transparency regarding possible dependencies, they are able to spot risks that undermine independent decision-making and action, and they can take meaningful steps to reinforce their digital sovereignty over the long term. Lastly, let us turn to what we are doing in the field of sustainability.

We've now gotten official confirmation from the Science Based Targets initiative, or SBTi for short, that our net-zero targets satisfy the SBTi's criteria. After our near- and mid-term climate goals were validated earlier this year, the long-term net-zero targets for 2050 that we submitted recently have now likewise been assessed and approved, consistent with scientifically recognized standards. Through these net-zero targets, Bechtle commits to cutting absolute greenhouse gas emissions across Scope 1 and 2 by 90% by 2050. In the relevant Scope 3 areas, the company intends to reduce emissions by 97% per €1,000 of value creation, and any emissions that remain are to be neutralized. Energy, mobility, and procurement are the key levers for decarbonization. Validating the 2050 targets underscores Bechtle's long-term commitment to climate protection and sustainability along the entire value chain. That brings us to the outlook, ladies and gentlemen. The overall economic situation is still tense. In our largest national markets, especially Germany and France, we continue to observe a certain reluctance on the part of our SMB customers to invest in IT. At the same time, however, we're seeing an upturn in business with our public sector customers, along with higher demand in our traditional e-commerce business.

In Q3, that improvement was especially pronounced in September. Based on the initial operating data we have for October, the favorable momentum is carrying forward. The same holds true for November. To put it plainly, that translates into our outlook as follows: where business volume and revenue are concerned, after nine months we remain on course to meet our full-year guidance. On EBIT, though, we still have some ground to make up, and naturally we're aware that achieving the EBIT growth of at least 25% required in Q4 is genuinely ambitious. Given the momentum we witnessed in Q3, that goal can be reached. The roughly 23 percentage point swing recorded in Q3 represents precisely the kind of growth that would also support hitting our guidance in Q4. We have demonstrated on multiple occasions in the past that a strong finish is within our capability. So we feel confident about delivering our EBIT target inside the stated range. Accordingly, we are reaffirming the guidance we issued in March 2025. Ladies and gentlemen, that covers everything we have to say regarding our Q3 2025 performance and the outlook for Q4 2025.

I appreciate everyone listening, and I'm eager to take your questions now.

Ladies and gentlemen, we're going to begin the Q&A portion now. To pose a question, please hit star and 1 on your phone. Should you wish to pull your question, hit star and 2. We'll begin with questions from the German room. Please hold on for a moment. The first question comes from Florian Treisch of Kepler Cheuvreux, pardon me. Good morning, Dr. Olemotz. I have two questions. Returning to the public sector. You mentioned that you're seeing positive signals there. Could you elaborate a bit on that? Which segments are we discussing? Who are the players involved? Does that cover municipalities or the federal level? Certain changes were already announced back in March, so perhaps you could talk a little about how tenders are currently developing, and has anything significant shifted in September where tenders are concerned? We observed a favorable trend in order intake along with a rise of 17%, can you elaborate on what underpins your confidence? Many thanks for your question. Now, regarding public sector trends. This is merely a preliminary note. The public sector consists of various subsegments in our case.

Typically, we don’t get into a great deal of detail on these calls, and that’s why I want to emphasize this point here: we usually discuss only the large customers, such as the Ministry of the Interior, which has a sizable procurement department, or the Federal Armed Forces. In our case, healthcare is also a significant part, and there we have municipal and regional lender-based clients as well, and we had one important healthcare project where we saw disproportionate growth year on year. We’re seeing double-digit growth, for instance, in our business with EU institutions, and also in the International Chamber of Commerce and Trade area. Moreover—and this leads me to the second part of your question—the larger framework agreements also drive our business, and above all the project with the Federal Armed Forces, which is heavily involved in the increase in order intake, since we’re not talking only about the hardware business here but also about services that we can deliver in this context. This particular combination—not just infrastructure business, but infrastructure business together with service and network business—means the project takes longer to ramp up, the run-up time is longer, and these projects stay on our books for a longer period, and that explains the current situation in which order intake, in our case, grows faster than revenue, because of the specificities of the business and the longer run-up times.

On the tender side, we aren't seeing any outsized expansion at the moment, though there's no contraction either. That statement still holds, and it ties into what your question is likely driving at — infrastructure activity and budgets — where the impact has yet to materialize, in my view. Naturally, everyone is anticipating that major surge that will arrive across not only our sector but others too. That surge hasn't come yet. It hasn't left any mark on our figures, and the numbers you're looking at reflect tenders we secured previously. Thank you. Our next question comes from Martin Jungfleisch of BNP Paribas. Good morning, and congratulations on your results. I have a question about the outlook. Could you clarify what you mean when you mention some difficult areas, and what would need to occur for profitability to pick up? Is it public sector business, or macro conditions that must improve? Thank you, Mr. Jungfleisch. You've essentially answered your own question. In our situation, to phrase it this way, the tougher areas are evident, in both a positive and negative sense. I already highlighted several positive ones during my remarks.