Nemetschek SE (NEM) Earnings Call Transcript & Summary

Dear ladies and gentlemen, welcome to the earnings call of Nemetschek Group. At our customer's request, this conference will be recorded. [Operator Instructions] May I now hand you over to Stefanie Zimmermann, Vice President, Investor Relations, who will lead you through this conference. Please go ahead, madam.

Thank you, operator. And good morning, everybody, and welcome to our conference call in these very extraordinary and difficult times. Thank you for joining us to discuss our results for Q4 and the fiscal year 2019. Additionally, we will give you an outlook for 2020. Today's conference call is being recorded. A replay of the call will be available at our website after the call. We have prepared a presentation with the most important figures and highlights of the fourth quarter and the fiscal year 2019. You will find the presentation, the annual report and the press release on our investor relations website as well, but now let's start with the presentation. I would like to hand over to our Spokesman, Axel Kaufmann, who will lead you through the presentation. So go ahead, Axel.

Thanks, Stefanie. And good morning also from my side. Thanks to all of you for joining this call. This is my first earnings call as Spokesman and CFOO of the Nemetschek Group, I'd like to take the opportunity and thank all of you for the good cooperation with the team, so far, and express my looking forward to continuing this in the same professional manner. As the operator and Stefanie did announce already, we have prepared a little slide deck to walk you through some of the most important points we feel you need to know at this point of time. It is obvious and very clear to me that most of your focus is currently with the unprecedented situation of the COVID-19 issue, but we hope to be able to first spend at least a few minutes on the outstanding performance of the group in the last year, a performance that we're proud of and which also were the basis for this call. So let's start. I'll move on to Page #3. Here we have listed the top key figures for the fourth quarter of the last fiscal year. In short, we delivered what was indicated in the preliminary numbers when we went out earlier this year, meaning that the set of numbers fully confirms our expectations on year-end, leaving no doubt that this was a very successful home run. The last quarter's financials showed more than EUR 150 million in revenues and a profitability margin of more than 30%. Notable also that recurring revenues were mainly driven by subscription gains and in total grew overproportionately also in this quarter, amounting up to more than EUR 82 million. Again, a very successful year-end finish, which allowed us to summarize the total year figures on the following slide. Summarizing 2019, we see another successful year with the Nemetschek Group indeed. On Page #4, we have listed the strong financial performance on the left side from revenues over the mix of sales, profitability margin and earnings per share as well as the high cash conversion of our business model. We all shall remember that the accounting standards positively influenced the EBITDA as we finally had to move on to the new lease accounting. Also, the sale of our share in DocuWare, which with the benefit of hindsight happened at a good timing and at a decent price, boosted the earnings per share, but I think you would agree to consider this a clear onetime effect. That's also the reason why we would report the numbers also without that effect to see the operational strength of the business better. On the right side of the chart, we have listed the remaining very important M&A transactions. In concrete, this was the strengthening and final formation of our manage and operate division by another acquisition; as well as the strengthening and formation of our new Media & Entertainment division by 2 acquisitions, whereas the last one, Red Giant, would only show in our 2020 numbers, as most of you probably know. Moving on to the next page, #5, just to illustrate once again the key parameters of the financial performance in 2019. Top line grew by more than 20% at a profitability margin without IFRS 16 effects of 27%. With these numbers, we could successfully conclude and sign off on the year-end audited financials together with our auditors last Friday. Subsequentially, we would also come up with a dividend proposal and return to the ongoing business operations in the new fiscal year. Moving on with a few more details, as they show the structure of our business quite well. If we look at the regional distribution of our business on Page 6, we proudly note that we grew in all major markets. Driven by a great business development in the U.S., the Americas grew in total by 25%, followed by Europe at a growth rate of 17% and not -- last, not least, Asia Pacific at more than 16%. The share of revenues in Asia has slightly advanced, and together with the great success of our American business, this was at the price of a slightly lower revenue share in Europe. However, we still operate with the dominance of our employees being located in the European locations, including the R&D facilities. For those of you who follow us already for a longer period of time, you know that the topic of growing our recurring revenues is always an important discussion point, so let's look at the revenue distribution on Page #7. Also here we would see a good development and an enhancement of more than 10% growth in this category, totaling to 54% of revenues coming from that source of business meanwhile. A little new element in our revenue mix is a slightly greater share of consulting and hardware, which comes and roots from the manage and operate business. Perpetual licenses, our traditional element in the business model, grew by still more than 5% at the same time. Moving on, on Page 8. The team has assembled the most important KPIs of the income statement, at a glance. Let me draw your attention to some of the numbers that we haven't been mentioning during this call, so far: for example, the strong operating cash flow of EUR 160 million or the equity ratio of close to 41%, with a low net debt position of a bit more than only EUR 20 million on the balance sheet. Again, these numbers are in line with projections and represent altogether a strong set of financials, proving the business model to be on the right track. Now concluding my view on last year's numbers, let's look at our 4 segments or divisions, as we call them, given the new organizational structure since the second half of last year. From left to right, you could almost say that on Page 9 you kind of see also the evolution of our business strategy. Coming from a strong origin and footprint in the Design segment, amounting to still more than half of the company's revenues and operating on an attractive margin level of [ more ] than 30%, we look at the Build segment, which grew an astonishing more than 20% at constant currency considerations. Then on the right side of this chart, we would see our 2 younger segments Manage and media. Manage is all about to facilitate and support property owners to run their buildings more effectively and efficiently. And this was a clear area of investment, which now bears its fruits. Last, not least, our media segment that with the recent acquisitions more and more evolves into a separate business, still carrying its connections to the architecture, engineering and construction, short AEC, space but more and more developing its own footprint in the entertainment industry, again another major area of investments recently and already on an attractive margin level [ goal ]. With this, let me quickly share some strategic views as we consider them being important for the outlook before we then come to a financial guidance for the fiscal year 2020. First, on Page 11, we would like to reiterate our strong conviction that the long-term trends for our business remain fully intact. The opportunities for the software business in our core industry still offer huge potential, as penetration is relatively low in almost all markets. In order to illustrate this better, we typically like to walk investors through the map on the right side of the slide where, besides a few countries like North America, Scandinavia, the U.K. and [ Australias ] Japan, at least, and is partially all of them, the majority of geographies and its saturation with BIM-related software solutions is still fairly low and not very mature. End users are going in that direction because of their need for greater efficiency, which our software can help them to address successfully. Increasing official regulations should, on top of that, foster this potential in addition. And as an early adopter and supplier, the Nemetschek Group is very well positioned to capture a good portion of the projected expenditures. Now let me address the topic that I sometimes feel we don't have sufficient time to spend on and that we could and will communicate even stronger in the future. It is about sustainability. From the angle of our investors but also from the angle of our customers, this is gaining a greater importance than ever before. It's because the footprint of the building and construction industry in general, here listed on the left side of this, Page #12, is not really great, to say it politely. Without going into the details, you can rest assured that our customers appreciate the improvements of efficiency and productivity that they get by using our software along the entire value chain. We have many projects to prove that -- and again this is an area of interest which occupies us a lot in these days and for good reasons. Just think of the concept of smart buildings, which those parties have the greatest benefits. They right from the planning and design and via the build process already consider aspects, which then allow them to operate the properties more efficiently. We have issued a sustainability report for the first time, so stay tuned. This is an area that offers to improve the so-called handprint of our customers really a lot. Allow me then to summarize on Page #13 why we think Nemetschek is well positioned in these areas of activity and then today's market. We've spoken about the attractive end market potential; our unique and widely spanning solutions portfolio, hence unique market positioning for customers; a strong business model creating great returns for our shareholders; a strong financial position given the success of the last years; plus our ability to grow in parallel both organically as well as via mergers and acquisitions. All of these aspects, we run in an operating mode through 4 strong divisions under one joint roof. And also, on behalf of my colleagues, I'm proud to say that the relatively new-formed management team is of full commitment and ambition and motivated and eager to execute on all of these points. So with this, let's come to maybe now the burning question most of you have in mind. How could our business model, how would our business model react potentially in light of a crisis scenario? For a better illustration, we've listed on Page #14, the situation we encountered more than 10 years ago. You can see that by all 3 dimensions, be it the diversification of business segments, the global reach as well as the mix of revenues, Nemetschek has made substantial progress that built the starting point for this year. We have further diversified our business and believe that we are well prepared for a potential macro downturn. Of course, it would be naive to say that we are immune, but we have to -- we have started already cautious measures and ran various simulations. Also we have listed some financial dimensions here on the right side of this chart which we use in all our models, i.e., our cost structures as well as the cash position. Finally and on Page #15. While there has been no material disruption to our business quarter-to-date, we're seeing signs of softness in small pockets of our business, most notably in the Design and Manage space. Even if we didn't book any additional new business this quarter, Q1 will be approaching our internal plans, but of course the question is on the 3 remaining quarters, so we've factored in all what we know at this point of time into what we would call a conservative guidance at this point of time due to the COVID-19 situation. Having said this, we project at least a stable to slightly growing revenues at a margin level of at least 26%. We are aware that even this guidance is containing a high degree of uncertainty regarding the macro outlook and the changing environment, but it's the best visibility we currently have, and we're optimistic that we will overcome the difficult situation. Our team's upgrades and operations are up and running. The leadership team is fully supportive, and more than ever before do we stand by our customers in these days. Last, not least, Nemetschek is prepared to also take market opportunities out of the current situation, as we were convinced that our products have the right fit, and then we have the agility and financial strength to act. Rest assured we will be monitoring the situation very closely. Again, we believe that we're well positioned. And now we'll be happy to take your questions, but before I forget, I'd like to thank Stefanie Zimmermann and the investor relations team, to whom you, please, also turn in case we will have to drop your question for time reasons or if there is any follow-up activity you'd like to engage. Thanks again for your attention. And now operator, please, back to you.

[Operator Instructions] And the first question we received is from Martin Jungfleisch of Kepler Cheuvreux.

I have one on the coronavirus impact, quite obviously. Can you shed some light on what you currently observe in the market? Is there a less demand for software as clients hold off purchases due to an expected weaker macro? Or is the uncertainty rather driven by you not being able to access clients or implement solutions? And also, can you tell us, how much of your work and also sales work can be done remotely? And maybe lastly, you can also shed some light in what segment or also regions you see the most risk on growth. That's it for now.

Yes, thank you very much, Martin. Basically I think you have 3 or 4 questions. Let me try to structure them a little bit. So first of all, of course, working with our customers is not the same as it was before. The interaction, as we all have, for example, 3,000 people in Nemetschek Group sent into home offices, similar things would happen with our customers as well. However, I think we've been showing also to be able to adapt, so what we would -- have done is to create more online training, for example, or explanation or tutorials for our customers web-based. So that is not completely disrupted, but it's -- of course, it's impacted. Let's put it this way. Second, the area that you mentioned in your first point is not so much a hesitation by the customers. I mean in the AEC space the books were quite filled by the business over the last years, and there are still many projects that need to be completed. What we, however, see again is a slight hesitation, especially starting in the Design segment, where people would be hesitant to start bigger new projects in these times of uncertainty, which to me is not unusual and kind of expected. So in the areas or geography, I think, as this epidemic center has been moving from Asia and now hits Europe very hard -- I think we will yet to see some of the U.S. impacts really. We're probably in the middle of the storm in Europe already, especially when it comes to countries like Italy, Spain, France partially, but again it started really in Asia. And we've been seeing, as I was trying to say, in small pockets of -- slowdown in examples of smaller businesses such as our precast business, for example, in Asia, i.e., Japan, the first indications during this quarter. And then clearly we're now in the end of March and we see also a little bit of a hesitation from countries like Italy currently. Again, this is more of Design. And when we look at our 4 segments and into more Europe, I would expect that the U.S. is still to come.

And the next question we received is from Andreas Wolf of Warburg Research.

Yes. It's Andreas Wolf, Warburg Research. A couple of questions also from my side. The first one would be on a potential impact from, let's say, customer demand on design, on the Design segment, versus the construction-related products. So would it be right to assume that design processes will still continue from the architect side, whereas construction sites might be stopped as liquidity might be an issue for some customers, and therefore softer demand might be less? Is it a right view to assume that design should be in general more stable than the construction industry? And the second question is, do you in general already see the stop of construction sites? And in what particular regions if this is the case? Spain, Italy, I would assume. And does it mean that customers continue paying for subscriptions and maintenance? So that's my second question. And then the third question is related to the sales process as such. Do you face any restrictions right now to visit customer offices? And is it a requirement to see the customer? Or can you sell quite a lot also via online distribution by the client just "downloading" the software himself with some support from your side?

Yes. Thank you very much, Mr. Wolf, for your questions. So first of all, I think it would be too simple. And we couldn't underline this really with the observation so far, at least, that if we would say that construction would be more endangered or affected than design. I think for bigger design projects, again, you wouldn't start a planning if you wouldn't be assured that the realization of this project also would find all of the parameters that it would require, i.e., the financing and so on, the time line. So -- and I think we could see both a slowdown in Design, clearly, and we've been seeing this already a little bit, as opposed to the construction, where again projects that are up and running, where there's the construction site opened already, we don't see really a big of a slowdowns and to partially also my personal surprise. But if we talk to the people, construction site and workers, there is -- in most of the regular territories that we've been talking so far in this call, there is no clear restriction that this would be not allowed, as long as the people take responsibility. You still see workers out there on the field, if construction-wise we'd be talking. So that, I think we cannot really say at this point of time whether we could, well, kind of the way I understood your question correctly, more relaxed on the design, as opposed to the construction. Also keep in mind that, when we say construction business, our footprint mainly is in the U.S. The majority of what we would call the build business, hence the construction business, is more in the U.S. And we've been seeing only little and not sufficiently, I think, how the market there would react. Again, this epidemic center moving, following the sun almost from Asia, now coming to the Americas, we have to monitor it very, very closely. However, with Bluebeam being our biggest brand in construction, you could be right in the sense that this is an inexpensive piece of software that is very helpful by many means. And so let's see, I would say. What I definitely can answer is the second question. You were referring to a payment behavior. We've been monitoring very closely, also going back to the last crisis that we have in our books and on the record, how the DSO really develop. We would not see any negative implications, so far. Again we need to differentiate between maybe licenses and then, as you said rightfully, maintenance, SaaS and subscription. And we'll keep a close eye on this one as well. So far, knock on wood, no major development in a negative direction there. And last, not least, a very good question regarding the sales process. Also like your -- the preceding question was raising this: Of course, we do have limitations. If we just think about big trade shows and trade fares being canceled, that would have been a perfect occasion to meet with customers. Again, we're changing our way how to address the communication. We've been equipping all our employees, at least on our end, to be enabled to work remotely and with modern technology. That is not the blocking point. On the customer's end, we see that some of those also would appreciate us going on webinars and tutorials online to explain them the software and to help them addressing some issues. What we do have indeed in some of the brands, some of the pockets of our business, we do have work shops. Not in all, but in those where we do have, the interaction is happening, as rightfully you would indicate in your question, online. So that wouldn't make a difference where we would have the online shops. One good example would be the Maxon media business, where we have a well-established online store that we can monitor on a minute basis. And so that would not be hindered or limited by the physical interaction that we would need in other parts of our business.

And the next question received is from Knut Woller of Baader Bank.

Since we haven't talked to each other before, Axel; Welcome, in difficult times, and all the best to navigate through them. To the questions: You've written that January and February went quite normal. And then given your guidance, I think, can you talk a little bit about the dynamics you have seen in March? And I would assume, as you indicated a bit in your comments that you made earlier, the license part is likely to be, at this point in time, at the highest risk. Can you comment on that a bit how much progressed and what you're seeing currently out in the field? And then secondly, you also mentioned your solid balance sheet ratios. I mean crises also could imply, if we look through the crises, opportunities. In the past, you have always been highlighting very high M&A prices. And probably against the backdrop of the current crisis, multiples will come down a bit. Do you see that as an opportunity for you to round out your product portfolio or strengthen your regional footprint on the back of your strong balance sheet?

Yes, thanks for the question, and thanks for the best wishes. Indeed we would have envisioned and hoped for a different environment to start here in this new role, but thanks. And I think we're on top of things really. So happy to meet you, Knut, and in the near future also in person. Now on the March dynamics, yes, January, February are relatively stable, again with the exceptions of Japan. Smaller pockets of the business did experience a bit of a slowdown there as well, but no major impacts. March, especially also in the last days, were different. And we have to note that we would see in some of the European destinations, especially in the license area, a weaker business. And again I don't think it surprises us when we see, when we follow the news track and when we see the pictures and the lockdowns and so on. And as Asia would have come back a little bit at least, granted that our presence and footprint in Asia is not superly great -- we are clearly seeing it now in Europe. And that's why also I would be very careful on the Q2 expectations. I think, Q2, for us, for many industries, I'd be surprised if -- unless the uncertainty would be eased and removed by some kind of reliefs or good news, Q2 will be following what we basically would have seen in the last days already. Again, also a correlation to the situation we would have compared with 2008 when we go back there, the company was a different company back then. I think our position was a bit a weaker one than today. However, licenses came back sharply and that for several quarters. And that is getting me to the second part of your question, which I'd like to answer really a lot because it is about also opportunities. And it is about to be prepared. And those that are suited with a sound not only balance sheet, but with a sound setup of be it the management team, be it the reputation in the market and with customers and then, of course, also the financial firepower, I think those companies indeed do need to be prepared not only for the situation getting worse potentially, but also opportunities, like you mentioned. And let me start. Before we [ immediately ] think of multiples and M&A, let me start with a concrete example that I've been experiencing myself the other day here in Nemetschek that here is a customer that would be somewhat cautiously acting in this kind of environment, totally prudent. And the customer would have the option. As you know, Nemetschek would offer in many of the brands the option between a perpetual license or a subscription. And along with that, you will have the maintenance contract and the SaaS contract. And here is a customer that would say, "Well, I was hesitant to buy at all, but now that I see the subscription," that is also an opportunity for us to maybe increase that a little bit because it is a win-win at the end of the day for the customer. And this is just the pricing. And ideally we could bundle this with new futures -- features, I'm sorry, but here it was the pricing argument that those that -- those companies that have turned already a lot their business in the last years and shifted to subscription, they no longer really have that potential unless they would grow with new penetrated customers and untapped market potential. So for us, this may be, again, something that following the philosophy -- and my colleagues and me, we're not trying to push customers to subscription just for the sake of subscription. We've said this multiple times, and we try to stick and adhere to this policy and ethics and philosophy as long as we can. But again that would describe an opportunity. And then of course, you're right. Last, not least, M&A, clearly we always would consider M&A as part of our strategy inorganic. There is not so much, I will say, functional gaps or white spots in our portfolio. It's more maybe the vertical integration, the go to market. It's maybe the geographies where we would accelerate our growth by an inorganic M&A transaction. We would have the firepower. Multiples are to be seen coming down, clearly. I mean no business model is no longer the same as it was before. No seller of an asset can claim that being the case. You can no longer go back and say, "Well, 2017 and '18 and '19, the world looked great, and that is my referral," but again we're having several items on the watch list. We're a very professional party to talk to. So yes, a clear yes. Be prepared for not only again the situation worsening maybe, but also be prepared for some of these opportunities. Thanks for the question.

And the next question we received is from Sven Merkt of Barclays.

In your prepared remark you mentioned that you stand by your customers. I was just wondering if you're doing anything to support them in this environment, waiving any fees or so. And then secondly, following on what you just said on subscription, it's clear that in [ times ] [Indiscernible] the benefit from subscription and higher recurring revenues is very apparent. So do you see this potentially as a catalyst to accelerate the move to subscription for some of your brands? And then the final question is just on Bluebeam, I mean. And especially in Europe, a lot of construction from the traditionally hesitant to adopt software, but Bluebeam as a collaboration tool enabling remote design collaboration is maybe something that could see a bit more demand in this kind of environment, so could you see this current situation be actually a catalyst for that product and offsetting some of the weaker demand that you would see otherwise?

Yes. Thank you very much for your good questions. Now I'd like to start with the latter, Bluebeam. I tend to agree with you, although we would have gone into this new fiscal year before COVID-19. And I think we need to be realistic and stick with this, that Bluebeam did grow, and thanks to my colleague Jon Elliott and the great team there in Pasadena, California, so much over the course of the last years by really rolling out many, many of their licenses, granted there was a price increase factor in there as well. But this was a super success. And I think we're really having a super strong footprint there with American construction firms, general contractors and so on and so forth. We do not expect, neither did we at the beginning of the year nor do we now in the COVID-19 situation, that the -- growth pace and the rates, look at the CAGR of Bluebeam in the last 3 years, that are sustainable. Those can no longer continue. And we would have gone in many meetings and trying to prepare the market that we've reached a saturation and penetration, at least with today's set of functionalities or the -- what is the software capable to do, that we would expect kind of a 10% to 15% growth rate next of Bluebeam in a normal environment, under normal circumstances. Now this will come in most likely at a lesser growth rate and not as great as these numbers because of now a different situation. I share the optimistic view that, given the strong reputation and the footprint and what you said, that could also be one other opportunity, but unless we come out with new functionalities, which over the course of the next couple of years we will do -- that's where we have spent the R&D dollars in the last years. And there's clearly something in the pipe, but that growth would have to come from outside the U.S. And I think it's just fair to say that we're at the beginning. And as you say, construction firms outside the U.S., for many reasons that you and I could or could not understand, but it's just simply a fact, especially in Europe, are hesitant and are maybe also spoiled because of the super situation, the full order books, but the pressure is increasing. And more and more of these construction firms are turning to us and say, "Can you help us? And let's show them the software really and what it's capable to do, but we're at the beginning of a journey to repeat kind of the Bluebeam story with either the same functionalities or slightly adjusted and localized functionalities to the European market in our territory here. So that will take a few years. We're about to continue to invest and ramp up the team there, but I think it would be too bullish to say that, now that we have the situation as it is, that offers great opportunities. I think the general sentiment on the Bluebeam growth aspirations or at least realistic expectations was a bit lower, already seen by us even before COVID-19, than in the average of the last years. Now you asked me about what did I mean when I would say stand by our customers. I think this is about the culture, and this is about not just pure numbers. And I cannot share some of these examples, but the discussions in the company and with our leadership teams were very encouraging, saying that this is the time now to reach out to customers and do whatever we can do for them. This might be abnormal, unusual measures that we would take, create something for them, set up something for them, get them the support, although people are restricted in their physical approach and so on. There's many examples. I don't think we will announce that payment terms or deferrals also are now the likes that we would like to go after or offered, but if there is an exceptional rare occasion of a long-standing customer, if I think there is a company where it would fit the culture of a customer intimacy and a real strong relationship between a software supplier and a customer in the AEC space, then I think it would be Nemetschek to sit down with the customer and say, "Okay, let's discuss your individual situation, and let's find a solution one way or the other,". And again, we're not naive. We're trying to monitor this very, very closely, but I think the salespeople, the service people have the clear instruction and the clear willingness and have shown these activities already to be with the customers wherever it's needed now. And then every case might be looking slightly differently. And the third part of your question, of course, that's what I meant with the subscription. Again, I would consider this as an opportunity. However, we need the prerequisites. You were talking yourself rightfully about a hesitation for subscription in some geographies of this world just by tradition, by heritage. And COVID-19 will not erase all of that and -- but it may open the one door and entry to a customer to say now this is maybe about the timing and this would be the time to sit down. The prerequisites, however, is not such that we can -- like with the web stores as well, we do not have all brands, all businesses, all software in our company, in our group available as subscription or available on the online shop, not yet. But again, this is reminding us of how positively this could work and what needs to be done, and we're trying to address this from a management attention clearly in these days.

And the next question we received is from Andrew DeGasperi from Berenberg.

This is Lou Ann speaking on behalf of Andrew. Our first question is on the company's wider business strategy. At our conference earlier this month, you mentioned that you'd like to reduce complexity at Nemetschek and improve integration of the different brands. Could you please elaborate on how you plan to proceed with this? And then additionally, a second question would be regarding your media business. Can you provide any additional details on how your media business fits with your Design and Build segments? Are there any technologies or products that overlap? Or specifically, what is the connection there?

Super, good to talk to you Lou Ann, again, and thanks for your questions. So regarding the business strategy, yes indeed. I think management has come to the conclusion that a further level of complexity will reach the limits that we really can manage and wants to master. That having said, I'm trying to tell investors that, please, do not expect the acquisition of another 5 brands over the course of the next few years. I know this number of brands and the number of separate entities is a good setup at the moment. I think we're now realizing that more and more customers see that we can really do, from Design down to Manage, everything that they require. And the bigger the customer tends to be, the more they're interested in seeing the full picture. And the solutions, that is basically complete. Again, functional-wise, there's many ideas that we still have in the pipe, but those would not require inorganic acquisitions or additions. I think we can spend them from our own internal resources and great brands that we have in the software development areas, in the R&D teams and so on. So the complexity has reached some kind a limitation where I would say that's now enough. And we rather need to foster some of the leverages and some of the -- I don't want to call them synergies because analysts immediately would ask it. And so what is the dollar number that we have to put next to the synergies? And it's more, in order to continue the growth really of the past years, we will have to make it easier to do business with the Nemetschek Group in the future. And that could be, like we've been doing in the last few months already, that we would, for example, appear on trade shows in a more aligned way to make it easier for the customer to digest the great strength of our solutions portfolio and not having to kind of dig themselves through a kind of level of complexity, which so far went well. Don't get me wrong, but again this is something where we -- I think, some of the brands, they are working on similar topics. And to team up and to share forces there, I think, is the right thing to do not only in this COVID-19 situation really. I think, when we met for the first time earlier this year, it was just a general statement that already was started with some of the examples. So that's the business strategy clearly, to keep/find the sweet spot. And that might vary from brand to brand, from business to business in our organization: the sweet spot between the entrepreneurial freedom and autonomy that we would like to give to the great businesses and teams and still harvest on some of the commonalities and parallels, that when we want to do things together, when we do -- want to do best practice sharing, where we want to go in one direction or appear in front of a bigger customer with the full strength of our portfolio, then I think it's more doing things together than separately. And again, each case is different here, but that's even more important in these days, to really stand together. And we get a great support here from the business owners in our group around the world. As a matter of fact, your second question, the media is a good example because the media business, so far, the way I see it really, was something that was okay. It was kind of tolerated. Can I phrase it that way, tolerated, a good asset or part within the business portfolio? But now with the 3 acquisitions, the full acquisition of the remaining outstanding shares of Maxon that -- and the acquisitions of Redshift and Red Giant, this would evolve really in almost a stand-alone business that, the lesser degree I see, it's correlating with the AEC business with the design, the build and the manage. There is a connection and that is about the rendering. So especially with the Design segment is architect engineering firms would like to show their customers the building in a more visual and animated way. You would use the media/Maxon technology to enable that. And other companies, some of our competitors, they either have that as well under their roof or they would have to advise customers to go and source this kind of technology elsewhere or outside. And I think it was a great asset and still is that we would not drop any of these interactions between the media and the other segments, for example Design, but we have most likely in the next few years a Media & Entertainment business that stands on their -- on its own legs. And only 10%, 15%, 20%, 25% of the business will be somewhat related to AEC, and the remaining will be really addressing separate customers. I think this is a business where we also want to prove to ourselves that, be it in 3 years from now, we will probably have to decide whether this was a successful journey, which I'm very optimistic about so far, and we'd like to continue; or whatever we want to do with this one. But it is clearly also our job in the investors communication, and I think I mentioned this to some of you already, to explain that media business with its new setup in a slightly different way because all the statistics, all the growth rates, all the markets intel that we typically would draw and tap on for the AEC discussions are only partially, if at all, relevant. Here we're suddenly talking about the gaming, the video, the commercials, the cinema movies, all of these entertaining parts of a -- what I would call an even more creative industry than the design industry is already or the fashion industry. And it's more having to deal with a different set of customers really, different dynamics of different industries. And so that is really some part of the portfolio that is still small, so far. It's primarily within the journey of a -- to become a full subscription business. There is a good share of subscription already. It's very comprehensive. We get a lot of customer delight feedbacks and winning awarded prizes here for things like the motion graphics and other things, very innovative, very dynamic visual effects. It's a complete different aspect of our portfolio. So I'm sorry that this is almost becoming a second Nemetschek story, if you allow me to say that, that way. It's way too early. Let us do the integration work this year. And then [ late of ] '21, we'll be able to show you probably more of the content and the success of this work and this journey and the result of them being able to harvest the first fruits from the big investments that we clearly did by intent and by strategy in the last years.

And the next question we received is from Florian Treisch of Commerzbank AG.

Yes. Sorry. I would love to come back to the 2020 guidance again, as I simply want to better understand your thinking behind it. So as you said, January, February was in line as planned or with your internal planning, so the question is a bit what's your planning or your assumption for the first quarter, as I believe the base was comparatively high looking at 2019 numbers? The second part is then, if I look at your Q4 revenue number when it comes to recurring revenues and I multiply that by fourth (sic) [ 4 ] saying that Q4 recurring revenues is the base level or a floor level for the coming 4 quarters, I would say, well, this clearly implies above 10% organic growth for that part. So is it then fair to say the remainder, i.e., the license business, must decline by, let's say, 10% to 15% for the full year to only reach flat sale on group level? And then basically all that brings us to -- I would say the most critical question is then, if you look at H2 and looking at your assumption, how much the coronavirus will impact your business in Q2 and then going into H2. What is your assumption for H2? Is it really a recovery or more like, yes, a step-by-step improvement but very muted?

[Indiscernible] Let me try to address all of these good aspects. Thank you very much to you for the questions. So on the original plan question -- we're getting this in these days, and as much as I'd love to share with you that probably this was, let's say, a 10% growth that we had originally planned in a normal environment, it is almost irrelevant in a certain way as well, right? That -- again, that plan was an ambitious. You're right. The baseline 2019 was lifted and was very high. And that's why that number just would indicate to you that we were fairly optimistic going into the new year, given also that we have an acquisition that wouldn't show in '19, which is the Red Giant in the media division that would only for the first time be consolidated and showing up in our numbers in the new year 2020. And that alone would get us a little growth there. So I'm not so sure I could follow your Q4 simulations. When we take the Q4 and your question about how do we now expect the seasonality or the gradual development of the outstanding 3 quarters, my best take at the moment would be that we would see a very weak Q2 and then a slow step-by-step recovery. The -- in the scenario that we have put out there as a conservative stable to stable/slightly increasing, we would expect that -- in this model at least, we would expect that the Design would probably stagnate. Build and Manage segment would kind of grow in the mid-single digits. And media would grow by approximately 40% given also the first-time consolidating effect of the Giant acquisition. So that seasonality, Q2 typically is 1 of our strongest quarters, the way we would have looked at 2020. And there would have been some occasions with also some product introduction, new customer entries that we had planned for. Now we're fairly pessimistic, unfortunately, at this point of time that those will happen. So Q2 and then a step-by-step gradual improvement, resulting into the model that would have been forming the basis for our guidance that we published this morning.

Okay. By the way, the idea was to say, if I take the Q4 recurring revenues as a starting point for quarterly recurring revenues, multiply that by 4, that would imply, let's say, 10% growth year-over-year, but it's -- the answer was great. You're certainly right. It's not any longer that relevant.

Yes, yes. No, that was also our thinking. Thank you very much.

[Operator Instructions] And the next question is from Chandra Sriraman of MainFirst Bank.

Just a couple. In terms of investments, I can understand your conservatism or pessimism in terms of top line. I just wanted to get a sense of how you're looking at investments in 2020. Obviously, your hiring is pulled back quite aggressively, so I'm just trying to understand how conservative your margin guidance is given the history of Nemetschek as well where you've always been conservative on profitability. My second question is in terms of the strategic projects. You've gone through 3 years of investments. Obviously, you're talking a bit more about integration effort this year. How should we look at these investments in 2020? And when do we see the benefits? Obviously pushed back, but I want to get a color of how things are progressing internally at least.

Thanks, Chandra. The -- no, the question is excellent, I think, spot on. You can be sure that the margin guidance is something that we would not like to miss, clearly. And there's areas -- that's why I've shown you parts of our simulations and models when we look at the discretionary costs, the fixed costs. And hiring of a few hundred people will most likely not happen. All of that, you can assume a very prudent and conservative management style for all our leaders around the world. They've been showing this in the past and even more in these days. I think they're really on top of things. Whatever we can influence, we will influence. Some of that will be a forced saving, unfortunately. If -- we would love to go out there to trade shows and travel to customers, and that is something that just from a pure financial perspective we could cheer and have a compensating effect for any top line that would we -- fall short. But it's not a good compensation, if you know what I mean, right? So that is clearly our strategy. That is our crisis management that we've set up just to be prepared really, absolutely. And the reason why I would not overpromise any higher levels of a margin above the 25%, 26% at this point of time is twofold. Number one, we really do not know enough and sufficiently. And I apologize, but I wish we would know a bit more about the situation and some of the reactions. All we can do is really closely monitor. Now the second is more a strategic answer that, yes, we were talking about also opportunities. We -- going from standby, long-standing customer relationships and try to help them maybe if they're getting into a difficult situation; down to the integration that we would say we would make sure that the complexity to manage the business, to run the company is not getting even greater beyond what it is today already. We've been talking about modernizing some of the infrastructure and ramping up some of the support functions that we would need in -- be it in headquarters or out there. All of that, again, are plans even before COVID-19 and so investments clearly to be made. But the most important [ edge ] to that margin kind of question about whether there was any fantasy or upside, I don't deny it, on the one side. On the other, I'm cautious because there might be opportunities where we try to position ourselves as Nemetschek into be it a geography, a customer occasion, any special situation where we will have to take a tough decision and say, well, if we wouldn't do those, it could be short-term beneficial for the margin. I could promise you a 27% at this point in time by then, but we are thinking that it will make sense to do actually and go into these directions and position ourselves and rather remain conservatively in the margin quality. And again, a 25%, 26% is extraordinary. I don't have to tell you that. When we compare it with some of the other news coming out from be it competitors, be it from other industries, other verticals. So in a sense, we feel that we want to keep our powder dry to also be enabled to, a, be prepared for a situation that could be worsening still and we don't know yet; or b, a situation where we see opportunities to step in. And those opportunities typically come at a price. They might come at a decent price or a fair price, but still they will cost something and we want to be prepared. So if you allow us, our thinking is, the more we know about the year and the more we progress, be it in April, in May, in June, after the half year numbers, we will try to keep you updated. We will try to be as transparent as we can and as we used to, I think, and as we've shown in the past. But at the moment, I think it would be really too early to talk about a big margin upside there. Then just to finalize the answer to your question, the investments. Well, we clearly have to make investments, be it in sales and marketing and service offerings, be it in the footprint out there, in the renovation of office space. Approximately, we would see a CapEx or the investments in the magnitude of some [ $20 million ] but that's not kind of the investments that we meant earlier when we were talking about maybe some more integration and such kind. Those, I think, will have to be financed from the run rate, from the operational costs, investments in linking the brands, linking the software solutions, making them more open, creating more connectors so that we could offer the -- a bundle of software solutions to the end customers. All of that, I think, we will be talking about for now almost 1.5, 2 years to the market. And there's a clear expectation that now that we're in the COVID-19 we would not stop all of those. We're in the last 1/3 of developing some of these great solutions, and we clearly want to finish them. I hope that answers your questions, Chandra.

Yes. That was very helpful.

And the next question received is from Oliver Schmidt of Metzler Asset Management.

The first one is do you see increasing price pressure from the customer side, or have you just witnessed some hesitance with regard to the final buying decision? And the second one is also related to this. How do you see the behavior of your key competitors in the current market environment? And do they stay disciplined, so far, or has it changed over the last couple of weeks?

Yes. Thank you, Oliver, for your question. The price pressure, I cannot really comment that I've heard a lot from the teams, so far. And again our pricing is somewhat also, can I say, more adjusted or more fair towards customers' needs and expectations. And I'm always trying to compare this with some of the questions we would get about, "Why don't you do the same aggressive price increase like your main competitor in design, Autodesk, has been doing over the last 3 years?" And well, because -- and that's our typical answer, that it's because we think that's not creating the greatest customer delight. We want to give value to the customer and then also demand a good price for that. So no, price pressure is not something I have heard really big time from the teams, at least not so far. And then talking about competition, I think we're all, in a way, sitting in the same boat. I mean those competitors that we would like to look at typically. And they've partially different fiscal years. We'll be expecting, I think, Autodesk coming out then in the next weeks. They've been saying very optimistically at the beginning of the year, even COVID-19 had started already, that they think that it will not have a big impact, so let's see what they have concluded. Meanwhile, other than that, I think we're all sitting and -- or being seated in a similar situation. I don't think that competitors would be of our biggest concern, quite frankly, at the moment.

And the last question for today is from Martin Jungfleisch of Kepler Cheuvreux.

I have a follow-up from my side. And one of your strategic initiatives was also to target larger customer groups, which are usually in the hands of Autodesk. And can you provide some color on how that is developing and if these larger customers are rather going for best-of-breed solutions or demanded platform solution? And then also to -- and the second question is on to follow up on the competition, from the previous questions. Can you provide some color on how you see competition, especially in the Build product family? And with Autodesk's BIM 360 platform and; also Procore, which is to my knowledge planning an IPO this year, do you think they have become more visible or more aggressive?

Yes, yes. Thank you very much, and all great questions. And let me try to answer this last one here quickly. Well, Procore as well as, I think, the Bentley IPO, I'd be surprised if they could execute in this kind of environment their original plans, quite frankly. But I don't have more insights there than you, so we will have to see whether investors are willing to pay what was desired originally in the business plans there. It's certainly not the best timing. Our -- there is a smaller competitor, at least partially, RIB from Germany in pockets of the Build business, not broadly, but pockets and parts of the Build business. I think they're very busy internally with the announced merger or getting acquired by Schneider. So it sounds like some of the competition there is busy on other fields. And I don't know how management thinks that where the most attention needs to be addressed to currently, but we are currently going after the customer delight and customer support in these days. And the bigger customers, which is an excellent question. I think this is still a topic where Nemetschek has to make more progress in the coming years. I think this is something that we intended for quite a while. The moment where we have maybe a better bundling also of some customer solutions, I think, will be easier for bigger customers to deal with us. I don't think we would be going after something that you mentioned, a platform or a marketplace or the BIM 360 from Autodesk. I mean these are tools that others have occupied already. And the market will yet show us what are the sorting out and what are the ones that will survive and will stay, as opposed to those that are maybe redundant in terms of their offering. We cooperate with many of these already, but you're right. The so-called key account business or, call it, bigger customers or named accounts business is not really within the DNA of Nemetschek as a group. And it couldn't, so far, because the journey over the last years was that we keep the independency and the autonomy of the individual special solutions. And we have great guys that have software solutions for a special need here and a special area there. And they could -- if you're being a bigger customer, they have almost requirements for all of that from design, over builds, to -- down to manage and operate solutions. So I think we are well equipped, in theory, to address those. We're working on them. The question is how much focus can we address and can we allocate to this at the moment, but it's an -- it's still a theme that you rightfully follow up on. I don't think we have so much to show yet, but it's on the agenda of top management, clearly.

Ladies and gentlemen, as far there are no further questions, I hand back to Mr. Kaufmann for some closing remarks.

Yes. Thank you very much, so for those who are still in the line here. Again a big thank you for your loyalty, for your interest. Stay tuned. I think overall Nemetschek as a group is well equipped to get your investments or shareholders' investments through an unprecedented situation. It is clearly new for any of us, what happens currently. And we'll continue to drive [ on site ] as long as we don't have much more clearance, but we'll stay focused and alert and, again, prepared for everything that might come. Thank you very much for today's participation.

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.