Welcome, ladies and gentlemen, to our analyst conference on the first quarter of 2024 at Bechtle AG. I'm delighted to see that our event has 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 statements 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'll 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're 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 around 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. 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. 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 six 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 EUR 45.3 million in the first quarter, up more than EUR 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.
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. This brings us to a look at our headcount trends. At the March 31st, 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 brake 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.
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 smaller mid-caps such as Bechtle. What is more, expected interest rate 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. In my opinion, the Q1 numbers we are sharing today show that we have been able to do this fairly well. Let us proceed then to some additional news beyond the figures, which, however, are highly relevant for our company. 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. In our 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 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 all know how important the relationship with our vendor partners is for our business. Sector's 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 Heilbronn, Bechtle is setting sights 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 us 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. 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 IT 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 same 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 to 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.
Ladies and gentlemen, we will now start our question and answers. If you want to ask a question, please press star and one on your telephone. If you want to withdraw your question, press star and two. For questions, please press star and one now. The first question is from Jannik Siering of Stifel. Here we go.
Thank you. Good morning. I have three questions to start out with. Dr. Olemotz, the first one is based on your statements in the middle of March, which were quite confident at the time. So it seems that the month of March was rather weak in the end.
Can you explain what happened in the course of the quarter? That would be very helpful. The second question is about the difficulties in the public sector in Germany, in particular. Due to the discussions we're having around the national budget, are you expecting a turnaround in Q2 already, or is this rather something for the second half of the year? And the third question is about other operating income, which was again high. You already said that you're expecting this number to go down, but can you explain the drivers for this, please, also with a view to the limited topline numbers in Q1?
Thank you very much, Mr. Siering. You are absolutely right, of course, starting out with the first question. Within this quarter, March was weak, and that was quite unusual. Why was it unusual?
Well, you've been monitoring Bechtle for some time now, and you will know that the last months of each quarter are usually the stronger ones, and this is particularly true for March, usually. We had some effects because of the baseline effect from the year-on-year numbers. There was this order backlog at the time, so the numbers we were up against were rather high. But nevertheless, the month of March was unusually weak. And the reason for this, I've already hinted at it during my earlier remarks, the reason can clearly be found within Germany. And if we were to drill down even further, it would be because of the weak development of the SME business and the business with public sector clients. These are the two reasons why the month of March, year-on-year and also comparing to earlier years, was unusually weak.
And this brings us on to your second question relating to our expectations for the public business. We actually believe that the public business will pick up again. Over the course of the year, we saw a weak trend in recent months, and the reasons for this were that there was an unusually low number of tenders published in the first quarter of this year, which has no immediate effect on our revenue because winning a tender usually comes much lower on the revenue side or shows its effect much later on the revenue side. And there were also fewer calls within our remaining framework agreements. And this is due to, well, let's call it discussions around the national budget, meaning that the budgets were not exercised to the extent that we were used to.
Now, this is something that always affects Q1 in any year, but in the past, we normally saw some countertrends starting as early as March, but not this year. The reason why this March was rather weak is relatively transparent, namely the reasons I just gave you. Other operating income, yes, was again at a high level in Q1, and the effect is really the same that we saw last time around. It's basically because these are vendor, this is vendor money that we use to invest in our business, and it manifests in different cost types. But we cannot allocate them on a one-on-one basis. So you can, for example, you could say, "We'll allocate some of this money to our training costs," and then that will have a positive effect on our personnel numbers. But we're not really able to do that, only to a very limited extent.
This is why these allowances come in under operating income. The main focus this time around wasn't Germany so much as France, where we were able to have such income come in, and it definitely also strengthened our e-commerce position in France. But what I said at our financials conference in March already, we do not believe that other operating income can remain at this high level over the course of the year. I think there's going to be, well, some decline over the next few months or so.
Thank you.
Next question from Barclays.
Hello. Thank you very much for hearing my questions. First question relating to the guidance. You said that March was weaker than you had expected, also with a view to our year-on-year numbers. What effect does that have on your guidance? Would you expect that the lower end of the guidance is more realistic, that the basics have not changed? That was my first question, and then I have a follow-up question.
Yes, from today's point of view, and that is important to note, we're looking more towards the lower end of the guidance. So at this point in time, that is what we need to do. And the greatest uncertainty in this respect is, however, and this is why I just stressed the fact that this is today's point of view, when our SME business is going to pick up again over the course of the year. And there are a few factors that make us think that it will be the case, and this is why we didn't change our guidance. This is why we believe that demand will pick up here in the second half of the year.
And on the other hand, we are still within the range of expectations of the large vendor partners. Most of them believe that the second half of the year is going to be stronger than the first. And there are some, let's call it, technological developments that could prove to be beneficial for us. Also, because of regulation, I already mentioned NIS2 in cybersecurity. All the provisions and regulations related to that cannot be implemented one-on-one in IT. And there's still the upgrade of the operating system for Microsoft, which usually also supports our client business with a little time lag. And there's also still the decisive question as to when the macroeconomic situation will show its effect on the SMEs, especially in Germany, meaning that the situation can be improved again. And there are the first cautious indications.
For example, in April, we already had a very promising order come in, which makes us believe that our structural assumption that this is just a temporary effect is absolutely valid. And this is why we didn't change anything about the guidance, because we still see these opportunities going forward. I already mentioned the public sector business. In Q4, we usually see the strongest quarter for public sector clients, and that is still ahead. So we have every opportunity to perform according to our guidance this year. But of course, we need to assume that looking at our topline will be moving towards the lower end of the guidance. Yes, and it also depends on the KPIs you look at. The gap between business volume and revenue was as much as six percentage points this quarter. And of course, what Mr. Olemotz said is correct when it comes to revenue.
But looking at the business volume, the situation would probably be a bit more relaxed.
Thank you for that. Second question relating to April and Q2. Can you tell us something about your performance in April already at this point? And then you have been talking about a stronger H2. Can you explain your expectations for the second half of the year, and what do you think is going to realize in Q2 already? Answer?
Well, for Q2, let me give you a short flashlight. This is relating to April. We don't see any major changes vis-à-vis Q1. So in secular terms, we're still fighting the general macroeconomic trend, and it also shows that there is a stronger development abroad than in Germany. The SME business is weaker than all other areas, and the client business, therefore, is hit much more.
Having said that, the month of April has seen good order intake, so an increase here. We're not double-digit yet, but it is in the upper range, single-digit. So that's a positive trend. We have seen a good earnings situation in April too, looking at the contribution margin in particular. And this also suggests, with a view to margin and profitability, that April is going to prove to be a good month. The decisive question is going to be what will happen in the second half of the second quarter in terms of our enterprise business and the public business. But at this point in time, we cannot give you a reliable assumption for this. A very brief technical question. I've noticed that the organic growth is no longer part of the report. Could you share the organic growth figures for the two divisions?
Yes, I can provide you with those. In the system house business, organic growth was at 6.2%, below the previous year. At e-commerce, referring to revenue in organic terms, we are 3% below the previous year. In total, if I add it up and weight it, it's 5% below the previous year in organic terms. Yes, thank you.
The next question, Knut Woller , Baader Bank.
Thank you. A long-term question, Dr. Olemotz. Value chain, how is that going to change due to the AI developments and the future-related topics, which in my view will change Bechtle's position because you become more and more a partner of the customers and you have to provide more solutions moving away from reselling? How do you assess this? And a brief question referred to the cycle you've mentioned.
You said you expect the end of the Windows 10 support will have implications. What about AI? Do you see any revival of the demand in the hardware sector? Thank you, Mr. Woller, for your questions. I would like to start with the first question.[audio distortion] How is our position going to change within the value chain?[audio distortion] To provide a proper answer here, you have to make a clear distinction between short and long term. What do I mean here? Well, in the short run, it is indeed the case that I don't assume that our position will fundamentally change. What am I saying here? Well, in the short run, like with other technologies, and that is successfully happening right now, the technologies of the big vendors are brought to the market right now. The best example here is the Copilot initiative, which we've launched together with Microsoft.
We've acquired 5,000 Copilot licenses for ourselves. That was communicated by Microsoft and had great implications in the press because it was the biggest deal in Europe at the time. Why did we do that? Well, at the end of the day, we are firmly convinced that if we want to sell these products to our customers, we need to work with them. So these 5,000 licenses have been decently rolled out in our organization. And what we try to do now is to develop use cases, which we can take to our customers in turn and show them what the application of Copilot means in terms of productivity and productivity gains. There are certain initiatives also by other companies. But basically, it means that we translate the technologies of vendors in use cases for our customers. And I've mentioned this in our March conference.
That is the biggest challenge still, to develop these use cases, to build these use cases so that at the end of the day, a customer is willing to invest here. I guess we are still at the very beginning. And well, it's not only Bechtle who is at the beginning, but the entire sector here. But in the long run, and that brings us to our commitment to Planet AI, which I touched on briefly, in the long run, it is true that we expect to reach a different kind of value chain perception at the customer's side by offering the application developed by Planet AI and making that available through our sales across Europe. So the step towards a specific application, which we don't do right now, which we would market, so an own Bechtle application, that is the step which I see in the long run.
At the end of the day, that is the essential motivation for us that drove us to acquire the majority of Planet AI. As regards to the increasing demand linked to AI, well, we assume that this will also have implications on the classical infrastructure and service business in a positive sense, of course. At all big vendors, we see a lot of technological innovations. Above all, when it comes to AI-supported chips of the latest generation, you have very different devices, high-performance devices, which then, and here the technologies come together, will make a difference at the edge. The edge always means the general field, decentral applications. That is a clear trend and development which helps us at Bechtle as a decentral company. With that, we can service customers in the wider range, and that helps us.
These technological innovations, well, we expect a positive support here for the development, above all, in the back end of the year because the products I've just described are now being brought forward to the market.
Yes, thank you, Dr. Olemotz. A brief follow-up question linked to the changes in the value chain in the long run here. I know it's early days to speculate on that, but how is that going to impact the margin potential of Bechtle if you compare it with the earlier view here?
Well, Mr. Woller, to be really specific, what are the margins of this business? Well, it was a strategic argument to start our investment in Planet AI. Today, the situation is such that the activities which have higher margins than our current group margin, these activities are still fairly limited.
So we expect a positive impact on the margin, but this will be felt more in the long run than in the short run. But it will happen in the long run, well, not least because the business will have to grow for many years to have a significant margin impact at group level. But the margin of these AI-supported devices that are launched currently, that is attractive at the front end even today. I don't think that once this becomes a commodity, that it will remain at this level. But typically, with these technological innovations, once they come to the market and we remain an important strategic partner, and we are that, so this all leads to attractive gross margins.
Thank you very much.
The next question, Martin Jungfleisch, BNP Paribas.
Good morning. A couple of questions. Hardware versus service demand. The general hardware demand with SME, was that weaker against Q3 and Q4 2023? And service demand, was that declining as well, or was that decoupled from the hardware development? And another question to the software, which was fairly strong in Q1. Which vendors? Was that Microsoft Copilot or others? VMware or others?
Well, I'll start with the second question. Mr. Jungfleisch, indeed, once again, it was Microsoft. To be fair, we have to say Microsoft is one of the vendors that benefits the most by the AI trends of our industry because when it comes to the use of certain products, Microsoft is really close to the users here.
You have to admit, if you look at how simple it is to integrate Copilot into an existing Office suite - I don't know if anyone of you has sort of played around with Copilot - but we have to admit that the obstacles to try out the product, use it, and integrate it in the Office suite are fairly low, are extremely low indeed. And if you look at the installed base of Microsoft at a global level, then it doesn't come as a surprise that Microsoft right now is particularly successful. And that's also reflected in our figures. So the development in the software, generally abroad, cloud-based - so we're not talking about classical license business, not in our case either - so they are mainly driven by the good development in the Microsoft environment. Coming back to your first question, hardware versus service.
Well, basically, we can say that the service share increased overproportionately against the previous year's quarter, but we are still in a kind of qualification phase. What do I mean with that? Well, this gives me the opportunity to explain other operating expenses, earnings. We said we recognize it as other operating income, but this income is closely linked to the business. Currently, and for some time now, we are about to expect our skill spectrum, in particular in the service field. With the classical SE services of the past, you can't make proper money any longer. So in the service field, I mean, I don't have the figures, but I'm fairly confident that it is true, that we have to bridge a certain time with less utilization.
So the service sector has increased if you measure it against the classical hardware revenue, but classical utilization is below the previous years.
That, of course, impacts profitability. The money we're showing in other operating income is used for that in particular. It is used to boost the skills in the service sector. We have to adapt it to the market requirements. If you have good partnerships, the vendors are willing to pay for the upskilling. That's the current situation we see in the service field. No weakening here. There's still a high level of demand. The share has increased against the previous year. Utilization, however, is not at the level we want to see in the long run.
Thank you very much.
Next question from Bank of America, please. Alicia, your line is open. You can ask your question. All right. We change over to the English-speaking questions. This will take a little while, so please bear with us. The first question comes from Michael Briest from UBS. Please go ahead.
Good morning. The guidance obviously has a range. How realistic is it that you think you could have achieved the high end of the range, 10% growth for the year given where you've come out on Q1? And then in terms of M&A, I think last quarter you talked about opportunities in Southern Europe. What does the pipeline for deals look like right now? And then finally, just on Windows 11 and the COVID replacement cycle, it sounds like you're not seeing much at the moment. What are you sort of anticipating or baking into the guidance for the second half? Thank you.
Thank you for your questions. Your first question regarding our guidance, I already answered kind of that question in the German room.
Looking at our guidance from today, I have to say it's probably more realistic that we reach a guidance something around, let me say, 5%, 6%, 7% than 10%. But as I already said, it's still possible that we reach, let's say, 8%, 9% as well during the year. The main reason for that is that we expect some catch-up effects in the second half of the year, especially coming from our SMB business segment and coming from our public segments. Both of them were pretty weak in the first three months of the year. That's why we still keep our guidance regarding the full year. Regarding the opportunity, our M&A opportunities in Southern Europe, we still have a, let's say, promising shortlist. Our focus lies especially on Spain and Italy these days, and we are in-depth discussion regarding a potential target in Italy.
But it's still too early, really, to give you a valid answer on the question how realistic is it that we will see a signing and closing in the first half of the year.
Maybe to add that, we regularly get the question, especially after the convertible bond, "What about M&A?" And you never can blame that. But surely with one acquisition we already did this year, the smaller one in Spain, you can imagine that this is not our goal. That is not where we at Bechtle and management, Mr. Olemotz, are satisfied with. Absolutely. Regarding your third question targeting Windows 11, as I already said, I expect, especially in the second half of the year, kind of, let's say, supporting effect regarding our own figures, especially in our SMB business coming from that effect.
If we see already, we will see already that kind of, let's say, push in the second half of the year. It's not quite sure looking at the situation from today. But again, especially on the background of the fact that we kept our guidance for the whole year, we still expect a stronger, let's say, stronger second half year in comparison to the first half year. And the Windows 11 effect is one of the reasons why we kept our guidance. But it's only one reason, as I already explained. It's hard to calculate that. It's hard to calculate that. But as Thomas mentioned right now, it's a mix. It's the mix that some of our customers have postponed since 12 months right now, some growth checks, and the pressure gets higher.
It's the fact that they know they need to replace Windows 10 because the support will end next year. And the fact that with AI, they know that many of them need new hardware. So in this mix, this could lead to a higher willingness to invest, hopefully already in the second half this year and maybe a little more even in the next year. Thank you. As a reminder, if you wish to register for a question, please press star followed by one. So follow the normal questions. Would you like to conclude the conference with some closing remarks? Do we skip back to the German room, or do we keep in the English room? So we keep in the stay in the English room. So from my side, thanks for your question. I'm looking forward to reading your comments. Hopefully no, I'm convinced.
Positive comments because, as I already said, we can look back at a really good start of the year, a solid first quarter. We kept our guidance. Even the conditions are still challenging. That is what we expect for the rest of the year. Thanks again, and have a nice day.