In the first quarter of 2024, Bechtle AG (ETR: BC8) delivered a robust performance despite the ongoing macroeconomic headwinds, outperforming many competitors in the sector.
CEO Thomas Olemotz highlighted the company's solid results in Q1 as a promising sign, although he cautioned that these early figures might not serve as a reliable indicator for the full year.
Bechtle AG remains confident in its outlook, expecting IT demand to rise in the latter half of the year and is sticking to its ambitious targets for 2024.
Key Takeaways
- Bechtle AG reported solid Q1 performance, with a 3.4% increase in business volume and an almost 4% rise in EBIT.
- The international segment saw a robust 14.3% growth, notably in the Netherlands, Belgium, and the UK.
- The software business, particularly in the public sector abroad, contributed significantly to the margin expansion.
- Operating cash flow was particularly strong at €45.3 million, indicating effective working capital management.
- Bechtle AG had a 6.4% increase in headcount, with acquisitions accounting for 60% of this growth.
- The share price saw an initial increase at the start of the year, followed by a lateral trend and then a slight decline back to the starting level.
Company Outlook
- Bechtle AG reiterates its March forecast for the 2024 business year, aiming for a significant increase in business volume, revenue, and earnings before tax.
- The company is optimistic about the second half of the year, traditionally stronger for the business.
- Growth areas such as cybersecurity and digital transformation are expected to drive investment and demand.
Bearish Highlights
- Business volume in Germany fell by around 4%, with SMEs showing a pronounced reluctance to invest.
- The public sector in Germany experienced delays due to the late adoption of the national budget.
Bullish Highlights
- Strong international performance, especially in the public sector, contributed to the overall positive results.
- The software business abroad drove margin expansion despite the top-line pressure.
- High partnership status with key vendors like HP Inc (NYSE:HPQ). enhances sales, training, and service capabilities.
Misses
- The application of IFRS 15 standards led to a discrepancy between reported revenue and business volume, with 10 percentage points of growth lost abroad.
Q&A highlights
- The company addressed the high level of uncertainty in the market and its impact on customers and capital markets.
- Management discussed the strategic focus on internationalization and the strengthening of top-level management in key markets outside Germany.
- Bechtle AG emphasized its positioning in the field of artificial intelligence as a future-oriented investment.
Bechtle AG's first-quarter performance in 2024 shows resilience in a challenging economic environment, with the company successfully leveraging its international reach and software business to maintain solid growth and margins.
The management remains cautiously optimistic for the remainder of the year, expecting to meet its ambitious targets bolstered by strategic initiatives and a strong focus on emerging technology trends.
Full transcript - None (BECTY) Q1 2024:
Thomas Olemotz: Thank you. Welcome, ladies and gentlemen, to our Analyst Conference on the First Quarter of 2024 at Bechtle AG. I am delighted to see that our event is met with such interest. Before I follow my brief introduction by presenting the key figures for our business performance in the first quarter of the current year 2024, I would like to make what I consider to be the most important statement at this point already. It is two in particular. One, against the backdrop of the persistently challenging macroeconomic conditions, our performance in Q1 can be considered very solid. This is particularly true when measured against the figures of many of our peers or competitors. Two, nevertheless, from today's perspective, the first three months of the current financial year are not really a reliable indicator for the rest of the year. And moreover, we continue to assume that IT demand will improve in the second half of the year. And this is why we are sticking to our ambitious targets for the year as a whole. So much, ladies and gentlemen, for my preliminary remarks, which may serve as something like a heading for our first quarter of the current financial year. As usual, the content of the following presentation is divided into four main sections. As usual, we start out by looking at the business development and share price performance, then we'll shed some light on some highlights that are particularly important for the future of our company and then at the end of our presentation. As usual, we will have an outlook on the remainder of the year. But first, business development. You will, no doubt, have already seen the figures this morning in the run-up to our call. At first glance, it seems a little like the world is upside down. While we are seeing more pressure on the top line, we were actually able to expand the margin bottom line. Most of you would probably have expected it to be the other way round in the current situation. The main reason for this development is, once again, one might add, our very successful software business, but this time in the public sector abroad. And you know the mechanics of the balance sheet that is behind that. According to IFRS 15, we are not allowed to recognize classic software business in full as revenue, but only to the extent of the margin. In mathematical terms, this already means a good margin development. But let's now take a detailed look at our first quarter and start as usual with the development of business volume. Business volume growth was 3.4% in Q1. With a view to the high year-on-year figures, we can actually be satisfied with that, also, seeing the persistently challenging conditions. Organic growth was also positive at just under 1%. Look at the regions. Once again, confirms the value of the strategy we have consistently pursued in recent years, that is, of a more international orientation of Bechtle AG. At 14.3% growth is particularly strong at our international companies, also in organic terms at 8%. In the Netherlands, Belgium and the UK in particular, we achieved very significant growth, especially in our public sector business. In Germany, however, the volume of business fell by around 4%. The reluctance to invest among German SMEs remains more pronounced than in other countries. In addition, the public sector experienced noticeable delays in call-offs from existing framework agreements due to the very late adoption of the national budget, although this effect will be resolved as the year progresses. And this brings us to revenue. This is not a new issue, but it is particularly evident again in this quarter. In my view, the application of IFRS 15 is distorting the view of our strategically relevant business development, which is also the reason why we always start our reporting with the development of business volume. Software, whether as a traditional license purchase or more commonly these days as a cloud service, is an integral part of our business model and vital for our company's future. However, we are only allowed to recognize this business in revenue in the amount of the margin. As a result, no less than 10 percentage points of our growth are lost abroad when reporting according to IFRS-15. For the Bechtle Group, the discrepancy between business volume and revenue is almost 6 percentage points, which is higher than ever before. However, this does nothing to change the difficult situation in Germany. We continue to face the greatest economic challenges here. Let's move on to the earnings trend and take a closer look at EBIT. Overall, we can be satisfied with our earnings performance. With an increase in EBIT of almost 4%, we are ahead of the trend in business volume and of course revenue. We were thus able to increase our margin by 30 basis points. The aforementioned high proportion of software was a key factor in this development. As a result, the cost of materials showed a disproportionately low development compared to revenue. We were thus able to compensate for higher personnel costs and depreciation and amortization. Other operating income also increased. We once again benefited from higher marketing allowances from vendors, particularly in France, which provided additional support for the e-commerce segment. This partly explains the very different development of the segments. As announced several times, however, we expect other operating income to be lower in the further course of the year. To conclude the analysis of our key figures, let's take a look at the operating cash flow, which is very gratifying. Cash flow from operating activities totaled €45.3 million in the first quarter, up more than €65 million on the previous year. As you can see from the chart, we're also well above the absolute values of recent years from a quarter-on-quarter perspective. Our working capital management measures, which we have built up over the last few years, are proving their long-term worth. The cash outflow from the increase in inventories is almost zero and we continue to generate a high cash inflow from the reduction in trade receivables. Of course, the subdued growth particularly in March has also contributed to this positive development, but this is of course nothing new. Our cash flow sometimes comes under temporary pressure when there is strong top-line growth. Weaker growth on the other hand can generally have a positive effect on cash flow. And this brings us to a look at our headcount trends. At the 31st of March 2024, Bechtle had 15,245 employees. This equals 6.4% or 921 people more than in the same quarter of the previous year. Acquisitions brought 553 new colleagues to Bechtle accounting for around 60% of the total increase. In purely organic terms, employee growth was only 2.6%. This is still very moderate. Considering the high level of economic uncertainty, it is and will remain our entrepreneurial decision to take a measured approach to headcount growth. This can also be seen when comparing the numbers with those from the end of last year. Here the increase in headcount is only 0.6%. However, I will admit that deciding whether to accelerate or hit the break is not easy at this point. On the one hand, we have to keep personnel costs at bay in the here and now, but on the other hand, we must not lose sight of the future viability of Bechtle, because in principle, we need more employees to enable our future growth. Let us now turn to the development of our share price.
Unidentified Company Representative: The high level of uncertainty which we perceive at our customers due to the overall economic conditions can also be felt on the capital market even if there are other reasons behind this momentum. You know that better than I do. At least in Europe, this is more than obvious. Large caps, however, are less affected by this trend than small and mid-caps such as Bechtle. And what is more, expected interest rates developments play an important role above all for the tech sector and contribute greatly to the high level of volatility we see on the markets. That is the backdrop to assess the development of our share price. At the beginning of the year, the share price of Bechtle went up. As of February, however, there was a kind of lateral development. And in April, the share price eased and is now back on the level of the beginning of the year. All in all, not truly dramatic, but obviously not satisfactory either. One has to admit, however, that as a single company, we can hardly beat the overall trends and fundamental drivers of share prices in the markets. What we can do, however, is showing stability and resilience even at times of macroeconomic and geopolitical uncertainties. And in my opinion, the key one numbers we are sharing today show that we have been able to do this fairly well. Let us proceed then to some additional use beyond the figures, which, however, are highly relevant for our company. And these are the essential figures for the first quarter 2024. Our highlights can be assigned to three main areas of activities. First of all, our international focus, then our partnerships, and third, our position in the field of artificial intelligence, which is essential for the future. Let us start with two appointments which strengthen our international management visibly. Now, two most important markets outside Germany, Switzerland, Austria, that is France and the Netherlands, to be precise, vice presidents are now responsible for all Bechtle Group activities in the respective country. That's Marijke Kasius in the Netherlands, and Mathilde Bluteau in France. They are now vice presidents for the respective countries. This reflects our strategy of broader internationalization also at the top management level. And at the same time, this visibly strengthens the regional market responsibility in the two countries. In line with this management organizations, by the way, the acquisition in the Netherlands and France were assigned to the IT e-commerce section, just as our Spanish and British acquisitions. We're currently checking, by the way, if our segmentation is, in fact, ideally suited for future development. You'll know how important the relationship with our vendor partners is for a business. Select as news in that field are therefore almost always part of my presentation. Above all, when it comes to our biggest vendors, the status we've been awarded after hard work is a critical success factor. Partnerships are essential for our business at Bechtle. By achieving the highest partnership status, we can benefit from comprehensive manufacturer support in sales, training, and service processes. The fact, for instance, that Bechtle has been awarded the new highest partnership status by HP Inc. as an HP Global Power Elite Partner is far more than a mere aside. As an HP Global Power Elite Partner, Bechtle is one of only six global partners achieving the highest partnership standard at a global level. The status applies to all countries in which Bechtle is represented. This cements the excellent decades-long collaboration between the two companies on the national and international stages. The third and last point I'd like to address refers to our position in the field of artificial intelligence. In addition to Hebron, Bechtle is setting a site on transforming the Rostock location into a hub for innovative AI applications by our subsidiary Planet AI, marketed throughout Europe by the entire Bechtle Group. One essential factor is the proximity to the University of Rostock, with which Planet AI has been collaborating closely for a number of years. A cooperation agreement signed in January 2020 forms the foundation of joint application-oriented AI research, which will now be further expanded. Both partners have already successfully completed several joint projects in the field of AI deep learning funded by the EU and the state of Mecklenburg, West Pomerania. For us, AI is a clear future-oriented topic and we position as early on in this field a clear signal to the market, our customers and the competition. Let us conclude with a look at our forecast for the whole year 2024. Ladies and gentlemen, I've already mentioned it at the beginning. Together with the presentation of the Q1 numbers, we confirm the forecast of March for the 2024 business year. The figures are sound enough, but even in an ambitious environment, they don't fulfill our own expectations. But we still have nine months to achieve all our goals. And we will definitely use the time ahead. You all know the cyclicality of our business and you also know that the second half and the fourth quarter in particular are decisive for the overall success of a business year. We are thus optimistic and confident that we will be achieving the targets we have set ourselves. What is the basis of our optimism? Well, the trends in the industry remain valid. Independent of the economic development, there are clear areas of growth. In particular, in the field of cybersecurity, demand is continuously rising and the EU's NIS2 directive forces numerous companies to meet minimum cybersecurity standards. That in turn means that many of our customers have to invest in this field. In addition, the digital transformation can't be stopped. The developments linked to AI will even accelerate this transformation. And here too, many of our customers have to invest further. The similar applies to classical IT investment. Therefore, our forecast for the business year 2024 is unchanged. Once again, we want to significantly increase both business volume and revenue, as well as earnings before tax. EBITDA margin is to be in line with last year's figures. So much, ladies and gentlemen, as regards the current development and the outlook for the remainder of 2024. Thank you very much for your attention and I'm happy to take your questions now.
End of Q&A:
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