Dear ladies and gentlemen, Welcome to the Earnings Call of Nemetschek Group. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. If any participant has difficulties during the conference, please press star key followed by the zero on your telephone for an operator assistance. May I now hand you over to Stefanie Zimmermann, who will lead you through this conference. Please go ahead.
Thank you, operator. Hello, everyone, and a big welcome. Thanks for joining our earnings call today to discuss the results for 2021 and the outlook for the current year with us. With me today are our CEO, Yves Padrines, and our CFOO, Axel Kaufmann. Today's conference call is being recorded. A replay of the call will be available at our website after the call. Additionally, you will find the presentation, the annual report, and the press release on our investor relations website as well. Now, let's get started. A brief look at the agenda. In addition to the figures and strategic highlights in 2021, we will give you an update on our subscription roadmap and of course, for the outlook for 2022. Before we get into the numbers, it's my great pleasure today to introduce Yves Padrines, who has been our CEO since March first.
I would like to turn over to Yves.
Thank you, Stefanie. Hello, everyone. Welcome to Nemetschek's Q4 and Fiscal year 2021 Earnings Call. I'm thrilled to be part of this call for the first time today. I'm now exactly 22 days into my tenure as CEO of the Nemetschek Group. I would like to use this opportunity to briefly introduce myself. I'm very excited to join the Nemetschek Group, which I don't need to tell any of you, is a wonderful company and a global market leader of software solution for the AECO and media entertainment markets. Professor Georg Nemetschek has transformed an initial idea into one of the most admired companies in our industry. I was personally attracted to the business due to its unique and remarkable history, and also the very strong brands, which are very close to their customers with a great culture of innovation.
As you will hear today, not only did we continue Nemetschek's track record of strong revenue growth combined with a high profitability in the last year, but we also strive to continue the development in the current fiscal year, 2022. Building on this strong foundation, I'm here to lead Nemetschek to its next phase of growth, to steer and sustain the evolution of its impressive success. Some of you in this call may know me from my previous role as CEO of Synamedia. Synamedia is the world's largest independent video software provider for pay TV, telco, and media companies. The business was a carve-out from Cisco, owned by Permira and Comcast Sky. In my position as CEO, I built a high-performing business, transformed and stabilized its global operation, and positioned the company for continued growth.
Before that, I was Vice President of Global Service Provider for EMEA at Cisco, responsible for the full suite of Cisco products and services, for major telcos, broadcast, and media companies, as well as cloud and managed services providers. I joined Cisco as part of the sale of NDS, where I had a range of senior executive and general management roles. In my early career, I began in management consulting with PricewaterhouseCoopers, along with other exciting stints with Vivendi in France, where I started in i-TV, but also in Creative Labs in California, where we launched a music website, a startup. I strongly believe the Nemetschek Group has a unique opportunity to grab the potential in the overall building life cycle.
We have world-class teams and best-in-class solution covering the full spectrum of the AECO sector and of course, in media as well with 3D animation. Our job is to ensure that Nemetschek Group continues to enable creatives in the construction and media industries to shape the world. I look forward to engaging with you all in the years ahead. Thank you again for joining us today, and I will now hand over to Axel Kaufmann, who will present our fiscal year 2021 results.
Thank you, Yves, for this encouraging introduction and also from my side, a warm welcome to Nemetschek's fiscal year 2021 earnings call. As usual, we have prepared a short slide deck that Yves and I will briefly walk you through so that we have sufficient time for the Q&A session afterwards. On page 5, we start with an overview or a recap of the various strategic highlights of the year 2021 in each of our three strategic focus areas: operational excellence and growth, M&A and venture investments, as well as innovation leadership. First, our efforts in the field of operational excellence and growth. Apart from the successful completion of the first fully fledged integration of various brands, good example is Redshift and Red Giant into Maxon, we further combined our forces and competencies in the build and design segment.
To give an example, we integrated successfully SDS2 with its competence in the field of steel construction into ALLPLAN in order to strengthen our leading brand for engineering software. Concerning the successful further shift to more cloud and data-centric business models, including subscription, will come in a minute. Innovation and technological leadership have always been a core part of the Nemetschek Group's D&A. In 2021, we solidified our position as an innovative leader again on various fronts. For example, in the field of smart building or energy intelligence, digital twin, and with our increased cloud and mobile capabilities in the build segment, which will be essential for our upcoming subscription transition.
Last but not least, in line with the announcement of our venture investment strategy at the beginning of the year, we made already three minority investments in young and highly innovative companies from the U.S., Germany and Norway. Specifically, this has been Reconstruct, Sablono and Imerso. Those companies will help us to further increase our innovative strength and to cover important future topics such as AI, twins, real-time project monitoring and quality control. Our clear objective is to continue and even further accelerate that approach in the future. We were also successful in the traditional M&A field. Maxon further strengthened its position by acquiring Pixologic, the leader of 3D sculpting and painting software, which perfectly complements their existing product portfolio. With this, coming to the financial Revu of 2021 financials.
As usual, we start with a short overview of the last quarter, Q4, on page 6. On a high level, we saw a very successful development with the continuation of the trends of the previous 9 months. Strong growth combined with high profitability. Our top line grew by 17% in Q4. Main growth drivers were once again our Build and M&A segment, as well as subscription and SaaS revenues, which increased by nearly 42% on a currency adjusted basis. On this strong development, we were able to increase the share of subscription and SaaS revenues to a new record high of 19%, a year-over-year increase of 400 basis points. The over proportional increase in profitability corresponds to a margin of almost 33%.
This development is a function of the high level of returns and revenues, and improved efficiency, as well as our healthy operating leverage overall. Looking at the bottom line, the increase in the EPS to EUR 0.33 in just the last quarter was a bit lower than what we recorded in our EBITDA growth. However, let's keep in mind the comparable numbers from last year, and especially low tax rate in the fourth quarter, 2020, versus the normal good level of around 20% this year. With this, let's look at the summary of our key business highlights for the full fiscal year, 2021. No surprise, it shows a very similar picture to our Q4 results. Strong organic growth of more than 15%, mainly driven by our recurring revenues and combined with an over proportional earnings growth at record high margins.
I would also like to draw your attention to our high cash conversion rate of almost 97%, which once again underpins the high quality of our earnings. The resulting strong growth in free cash flow of more than 40%, combined with a new record high in earnings per share, enable us to propose a dividend of EUR 0.39 per share, a year-over-year growth of 30%, and the ninth consecutive increase in a row. Last but not least, we have also further improved the quality of our balance sheet, represented in important metrics such as the equity ratio, which is now at 51%, and a net cash position of around EUR 30 million.
Therefore, the strong earnings and strong cash flow development, along with our extremely solid balance sheet, provide us not only with a high degree of safety going forward, but simultaneously enable us to act flexibly should value generating M&A targets or venture investments opportunities rise up in the coming quarters and months. As mentioned several times, increasing the recurring revenue share of our business, mainly by a phased transition to a more subscription and SaaS model, is one of our key priorities. On page 8, we therefore included an update on the great progress that we have made in the recent past. We're very pleased with the development of our subscription and SaaS revenues in the fourth quarter and throughout the entire year of 2021, with a foreign exchange adjusted purely organic growth of nearly 50%.
While also our license sales continued to grow with more than 10% in 2021, we were able to once again increase the share of recurring revenues in total to a new record high of 61%. Taking a closer look at the different components of this recurring part of our revenues, it becomes clear that our segment tailored subscription strategy is particularly successful. Starting from just 5% end of 2018, we almost quadrupled our subscription and SaaS revenues by the end of last year, and we plan to continue this development in the coming years. Now, to conclude my view, let's look at our four segments on page 9. You can see how each of those segments or divisions contributed to the overall success nicely.
Starting on the left side, the Design segment, where we saw a re-acceleration of growth in the fourth quarter with a plus of 13% and a margin of more than 36%. Our Build segment was able to carry over its strong growth momentum into the fourth quarter with 20%+ on a currency neutral basis. Bluebeam continued to be the main growth driver of this segment, which confirms our strategic decision in mid-summer last year to shift its subscription transition into 2022 this year in order to win additional market shares and to start the transition from the highest possible user base. Media and Entertainment once again presented a very satisfactory development. The reported purely organic growth of 29% is in line with our outstanding performance of the segment during the first nine months of the year.
After successfully completing its subscription transition as well as the integration of Red Giant and Redshift, the margin even expanded to an above group average level of 36%. Last but not least, in our smaller segment, Manage, we still saw some negative effects caused by the global pandemic, some hesitation and limited capabilities to access or perform on-site simulations or installations, i.e. hardware and services impacted. However, we strongly believe that the promising long-term growth potential for this segment remains unchanged. We feel well-positioned to benefit from an increasing demand of smart and sustainable building management solutions. With this, let me hand back to Yves for an update on the subscription transition.
Thank you, Axel. We would like now to present you a short update on our subscription transition. You know, as Axel just said, our move to a more recurring and resilient business model is an important strategic priority for me and the entire leadership team here at Nemetschek. Let's move to page 11, and let me start by briefly explaining the why. We believe the move to a subscription or SaaS model has many benefits for our customers and of course also for us. Let me highlight the most important aspects. As you know very well, with such model our customers are more flexible and don't have to pay the high upfront investment anymore. This was especially attractive for many customers during the pandemic. At the same time, they also benefit from a higher speed of innovation and improved services.
Additionally, we also see benefits for our group. We can tap into completely new customer groups, expand our customer lifetime value, and increase customer satisfaction that will lead to an even higher retention. All in all, we are convinced that this move to a higher share of recurring revenues will not only increase the predictability of our revenue streams, but also enable us to potentially even accelerate the double-digit growth that we are seeing today in the future. We therefore plan to grow on subscription and SaaS business significantly over the next years. We have already proven it in 2021, as Axel just mentioned, where our subscription and SaaS revenues increased by 47%. We are doing it with a segment sales approach, which is a perfect strategy for this ambition.
After high growth in subscription in our media segment the last few years, we are now also seeing a strong pickup in subscription and SaaS revenue in our design segments. On top of that, Bluebeam will start its subscription and cloud transition in the middle of this year, which will even accelerate this development. Let me give you some more details about the Bluebeam transition on the next page. On slide 12. Bluebeam is ready to launch its subscription and cloud solution in the second half of this year. I would like to briefly go into a bit more details about how Bluebeam has prepared for this transition and of course, what the next steps will be.
For months, the Bluebeam team has now been working on the expansion of their product portfolio in order to offer new features with a focus on their cloud and data centric solutions. That went hand in hand with the company-wide SaaS and subscription business readiness. We also did some pilots with selected customers in order to gain valuable feedback on the new cloud and mobile capabilities. As you know, and as Axel just mentioned a few minutes ago, going into 2021, Bluebeam was faced with a historically strong growth in new users. Based on this superb business momentum, decision was made to shift the transition into 2022 in order to win additional market shares and start the transition from the highest possible user base. In addition, we use the time for additional pilot testing and improve the subscription offering even further.
We are therefore convinced that with this new offering, Bluebeam will maximize the benefits of its customers. Therefore, starting in Q3 this year, we will start with a subscription-only offering for new customers, phased globally by route to market and regions. In parallel, Bluebeam will encourage existing customers to move to subscription and will still offer the flexibility to add new licenses for additional new users as they do today. The main idea behind this approach is to maximize customer retention and expansion during this journey. This will be a multi-year transition, and we believe that the vast majority of our customer will have already migrated by early 2025 latest. Let's turn now to page 13, which is clearly important to know that we will not simply migrate our customer with the existing solution to the cloud.
We firmly believe in a customer-centric approach and believe that a subscription offering must consistently add incremental value to the customer. Therefore, as mentioned, Bluebeam developed and market-tested new features that increase customer value and make the move to a subscription offering more attractive for our customers and users. In our new Bluebeam cloud platform, in concert with our flagship p roduct review, collaboration features deeply connect user and data to enable a richer experience for all subscribers. Further, new capabilities piloted with Atlas and Rover projects will also be available in subscription packages. For example, with capabilities from Rover, we add an easy, lightweight project and field management solution. With Atlas, we bring geo-location capabilities for data and documents. As you know, building an infrastructure project sites are complex, and relevance of data is highly connected to location.
Think of it as a Google Maps for the construction site. All of that built to be accessed via an open API to enable third party and customer integration. Taken together, this is why we are convinced that the adoption and willingness to migrate will be high. Let's go to slide 14 now. I've talked about the why behind our transition, as well as the how to execute the next phase of this process. Our shareholders, and of course, you as our analysts, may want to have an overview of how well we are progressing on this journey. We therefore decided that we will provide an additional KPI regarding our recurring business. This comes on top of the already reported share of recurring and subscription SaaS revenue.
For this purpose, we have decided to introduce the industry standard KPI in the software space, ARR, annual recurring revenue, and we will do so with the start of Bluebeam transition in Q3 this fiscal year. I believe with the introduction of this additional KPI, we will provide a continuous update on our subscription transition and provide investor the opportunity to assess how well we are progressing. Let me walk you through now the current outlook for most important end market, as well as our guidance for this fiscal year 2022. On page 16, we show an overview of the outlook for two main industry, AECO, as well as, media and 3D animation markets, which combined present a huge market potential of more than EUR 45 billion.
As you can see by the green traffic light and on almost all of our end markets, it's fair to say that this current market environment has not materially changed in recent weeks and months. We therefore continue to look positively into 2022 and the long-term growth of our business. Of course, be assured that we closely track the development concerning the war in Ukraine, the economic sanctions against Russia, and the resulting implications on the global economy. Given our small exposure to Russia and Ukraine, which is below 0.5% of sales, we currently see only very limited impacts on our business.
Despite this minor business impact, we, and I'm speaking here for myself and on behalf of all my colleagues at Nemetschek Group, hope that this terrible conflict will come to a peaceful solution and that the suffering of the Ukrainian people will end as soon as possible. Now taking a closer look at the different sub-markets. The residential sector continues to be very good. The same is true for the infrastructure market, where we see a very healthy demand situation. The only sector where we continue to still see some degree of uncertainty is the commercial sector. Looking at the 3D animation market, I can confirm that all verticals are still dynamic and growing. With that outlook as a foundation, we come to our guidance for 2022 on the last slide, number 17.
We will continue to develop Nemetschek Group successful business model by remaining focused on innovation leadership or customer proximity, as well as by targeted investment in startup and innovative companies. Based on our strong fundamentals, we therefore also expect a continued attractive growth at a high profitability in 2022. In particular, that means that from today's perspective, we expect a revenue growth at constant currency in the range of 12%-14% for this financial year, and we target an EBITDA margin between 32% and 33%. Our outlook for this year demonstrates once again the strength of Nemetschek's business model. It's fair to assume that our underlying growth would even be a few percentage points higher without the transition to a subscription model.
However, our outlook is based on the assumption that there will be no significant deterioration in the global macroeconomic as well as industry specific conditions. What are the different building blocks that give us confidence to achieve our guidance once again this year? First of all, as we highlighted on the previous slide, it's the huge market potential of the two industries that we address, AECO and Media, 3D animation. We are confident that all of our growth drivers, such as the low degree of digitalization or the increasing demand of digital content, are fully intact. In addition, it's Nemetschek's ambition to not just participate in this market, but to continue to be a market leader and to shape the industry with our best-in-class solutions. We will continue to be at the forefront of the latest technology trends such as digital twin, AI, machine learning, and VR.
Lastly, our phase subscription transition, which already started in 2019, will enable us to enter into the next growth phase in the years ahead, as evidenced by the highly successful transition of our brand Maxon on our media and 3D animation market. With that, I would like to thank you for your attention, and we are now happy to take your questions. Operator, Martin, please back to you.
Thank you. Now we will begin the question and answer session. If you have a question for our speakers, please dial zero and one on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question is answered before it's your turn to speak, you can dial zero and two to cancel your question. If you're using speaker equipment today, please lift the handset before making your selection. One moment, please, for the first question. We have a first question. It's from George Webb of Morgan Stanley. The line is now open for you.
Afternoon, Yves and Axel, welcome also to you, Yves. I look forward to interacting going forwards. In terms of questions, got a few. Firstly, could you just help us to understand a little bit the 32%-33% margin guide? From that, I'm inferring that you're not expecting a very big headwind on Build margins as you go through the Bluebeam subscription transition. Can you talk a little bit about how you see the pathway to Build margins through this year, perhaps also the same on Build growth rates, or perhaps more simply, you know, where do you see trough levels for Build margins and revenue growth as you go through this transition? That's the first question. Secondly, can you give us any feel for kind of customer economics around the Bluebeam shift?
For example, how does the year one price of a subscription compare to that of a license, and how much of a pricing uplift would you expect to achieve when you transition a maintenance customer over to a subscription? Thirdly, just a bigger question for you, Yves. When it comes to your perspective on Nemetschek's business strategy, is your approach to steer Nemetschek on its existing path set out over the past few years, or are there any kind of changes or areas such as M&A that you're focused on accelerating? Thank you.
Thank you, George, and very nice to meet you. I think we will answer together for your three questions here. Maybe I will start with the last one. Look, only the beginning after 22 days now in the Nemetschek Group, but clearly, my personal view is. Martin and George, I don't know where we were cut, so maybe George, I don't know what you heard.
Yeah, yeah.
Just, alone.
Just the very beginning of your section. When you were getting onto your kind of view on things from here.
All right.
Understandable.
What I was saying is that my view on the Nemetschek Group strategy is not to change it. We are clearly focusing on the overall building life cycle and looking at any opportunities to continue strong organic growth with our existing brands, bring innovation, bring new features to existing customers, be close to them, move to cloud solution, move to subscription and SaaS. But also, we are going to continue significantly at further investment on startups and M&A activity within the building life-cycle, AECO, but also on the media 3D animation sector. Also look to see how this could potentially accelerate some new innovation and trends in technology such as digital twin, AI, machine learning, and VR. Your question on the margin for this fiscal year.
I will let Axel comment, but I think clearly we are only starting the migration of Bluebeam in Q3, so in July time-frame. Which means that we still have the benefits of non-subscription revenue for the first half of the year. We are seeing very strong performance going on, especially with high growth on all the verticals, especially media, and still a good performance projection for the next 12 months or 10 months, 9 months on the design side.
Yeah, I think good points, Yves. Hello, George, also from my side, Axel here. I think we're you know, continuing to very carefully spending in various areas, you know, as we go into this year, what we've seen so far in the first weeks. Again, your math, I think is right that, you know, we're trying to compensate, and it seems to be possible, you know, some of those impacts that we will be facing in the second half. That makes us, you know, feel confident to give that kind of guidance. Regarding and maybe in combination to that also, you know, part of your question was whether, if I understood it correctly, we would see, you know, some pricing customer-facing uplifts or possibilities, opportunities there regarding the Bluebeam subscription.
Well, rest assured that I think the main focus of the team currently is really to convert our customers, you know, existing customers to the new subscription offering, as well as to continue to get as many new users on board as we have been getting on board in the last few months, then for them, primarily in the subscription model right away from the beginning. The focus is really not on any large pricing increases or uplifts there, you know, for the moment, right?
That's clear. Maybe if I can just follow up on that last one. I mean, I guess typically across the rest of software, when we've seen customers do maintenance to subscription shifts, on existing customers, you kind of typically see somewhere between 20% and maybe 35% uplifts on the pricing in exchange for the additional functionality you'd get. Is that ballpark the same sort of area we're talking about here?
Well, I guess, you know, again, pricing is something that all the brands, you know, those that go through a part of the transition or just have the underlying normal business take very seriously, especially in this kind of environment. Again, I mean, if we're talking about 22 in concrete, and this is the guidance call for this year, then I don't think that much of an impact from what you indicate would be included in the guidance long term. There's no doubt that in terms of, you know, the rationale that Yves was summarizing for all of you, it is more the why we're doing it and how we're doing it. Of course, you know, some of those new features will lead also into a differentiated pricing.
That's the benefit I think that we all would see as part of the rationale for that transition long term.
Understood. Thank you.
The next question is by Deepshikha Agarwal of Stifel. The line is now open for you.
Yeah, thanks for taking my question and, well, a warm welcome to you and, good afternoon to Axel. Maybe a couple of questions from my side. I just, Axel, you had historically mentioned that, because of the product wide transition, you would stick to the margin guidance range that you have historically talked about. Clearly this year's guidance range is much more optimistic than that. How should we see this evolve in the coming years as you move more solutions to subscriptions and SaaS?
Thank you. Thank you, Deepshikha Agarwal. I think again, we're trying to answer in a combined way, all of your good questions, Axel here. I mean, no doubt that when we were talking about the historical 27%-29%, I think this is what you refer to in average margins.
Mm-hmm.
For the Nemetschek Group, there could be, you know, periods, and a constant ambition, you know, to strive for higher overall, you know, and create additional value, no doubt. Again, I mean, we've shown that we can do it. I think we've delivered on the promises, that there's no reason to believe that we would limit our ambitions in the future, I would say.
Perfect. Maybe a quick one on the M&A contribution for this year from the last couple of acquisitions. Would it be fair to say it's in the low single digits?
I think it would be even fair to say that it's a bit higher, the acquisition in terms of the growth rates, but in terms of the absolute numbers, we're talking mid-teens. That's an estimation of our best knowledge at the moment. You know that the last large acquisition, Pixo logic in the media segment, is something that we totally combine and integrate it into the existing Maxon. So we're not really tracking this as a complete separate, but the dimension of how we started the year, how we estimate the year is in the absolute numbers. So that's a smaller number in terms of percentages than what you had indicated in your question. Definitely lower.
Perfect. Thank you so much.
Congrats on a very good year. Very nice to meet you, Deepshikha Agarwal.
The next question is by Sven Merkt of Barclays. The line is now open for you.
Great. Good afternoon. Hi, Axel. Thanks for taking my questions and congratulations on the good results. My first question is on the guidance, which is clearly much better than what the market expected and also much higher than what you usually initially guided over the past years, despite, you know, the headwinds from the global transition and the backdrop of economic uncertainty. Therefore, really my question here is to what extent has there been a change in the approach, how you set the guidance? Is it fair to say that you have constructed your guidance maybe a little bit less conservative way than what you have done in the past? Or has the demand backdrop simply just improved?
I was wondering if you could speak a bit about how large the market for energy efficient renovations and redevelopment is for your customers, and if this has been a growth driver for you in the past. I know that some governments have subsidized this already, and I wondered if there's a possibility that this could become a more important growth driver for you as Europe tries to move away from its gas dependency.
Sven, as you see, so clearly, in terms of the guidance, we had a very deep look at it, especially myself as a new CEO of this wonderful company. I can tell you that I'm strongly confident that, you know, these guidance are strong.
You know, I don't know. I cannot comment on the past, you know. I was not there, but I can tell you that these are realistic, fair guidance that I strongly believe we will achieve this fiscal year, both on the revenue and on the EBITDA margin. I would not say they are very conservative. I would not say they are very aggressive. I would say they are realistic.
Yeah. Sven, Axel here. I think it's also fair to say that, you know, over the last years and the times of the pandemic, we've also seen that we can, you know, get the cost of operation a little bit down in order to, you know, show the operational leverage. That's also part maybe of some of the learnings that we've seen in the last quarters. Now to your second question, I think renovation does, from what we hear, especially in the architect space and authoring tools, definitely play an important role for our people, for our customers, for our project, for our business success.
In regards to the sponsoring that you mentioned by governance, indeed, and we've seen just a recent initiative also from the European Union, whenever it's about, you know, energy efficiency, that's something typically where you would get subsidies and where you could sponsoring also on the residential side. To me, I think that's an underlying additional positive to what anyway we would've seen in the construction market advancing.
Okay. That's very clear. Thank you, both.
The next question is by Knut Woller, Baader Bank. The line is now open for you.
Yeah, thank you, and also welcome, Yves, from my side, and hello to Axel and Stephie. It's actually three questions. The first one, also getting back to the margin topic, if I look at R&D expenses, the ratio has come down to 21.8%, which is, I think, a relatively low level compared to previous years. Is that a level of costs as a percentage of revenues you see sustainable going forward? The second question, it's just a housekeeping question. Can you share with us the growth rates of Bluebeam and also its share of revenues in 2021? The last question, looking at your transition to subscriptions, I think you managed it compared to other companies quite smoothly.
Can you give us here some ideas how we should think about license growth in the coming years despite the shift to subscriptions? I think you will provide choice to the customers that already use Bluebeam, that they can add for a certain period of time still under the traditional model licenses. How should we think about or what's your view on licenses in the near future? Thank you.
Nice to meet you, Knut. Maybe let me start with your last question. Clearly, as you said, we have a segmented approach, which means that we are not doing, you know, a full migration to subscription of all our brands at once. We started over time with design. Maxon did a full transition already, and they started in 2019, and they are very, very successful in their subscription transition. Now, we are doing Bluebeam. Clearly, I think, you know, each brand, each sector, each sub-market, if you want, have specific needs. I don't think we can say that we are going to apply exactly the same business model for an architect, which is in S&P or a large construction company or civil engineering or infrastructure customer.
I think each of them have different needs. Markets are also different in terms of geography. Obviously, if you look at Western markets, North America, clearly subscription is really well-received. In some other markets, a little bit more complicated. That's why I think it's going to be a case- by- case, and we have a specific tailored, segmented strategy. It's not only segmented, but it's also tailored for each brand, each product line, we are tailoring such a migration. Also, depending on the level of new feature sets that we are able to bring forward, you know, moving to SaaS and cloud, new features for each product line, et cetera, are different for each brand.
Clearly on our side, Bluebeam and Maxon, for example, if you look at the strategy, they are quite different. At the end, the goal is to have a smooth transition and have a very high customer satisfaction, have very low churn, and make sure that retention is there and that we are going to continue to grow the business. Again, I think this tailored segmented approach is the best one for the group.
Knut, Axel here. Maybe just to add to what Yves said already. I mean, your question around the margin and the R&D. Rest assured that, you know, the management is interested in order to, you know, run the business on a sustainable level. In terms of just a single quarter, looking at some quota of some functional costs, I think we need to view that from a longer perspective. That the company is still continuing to hire and always had announced that the expenditure levels that we would have seen in 2020 and in 2021. Our ambition is certainly to continue to invest in certain areas in the business, right? It depends on the market circumstances, of course.
We would not, to your other question, break out the exact Bluebeam growth. I think that would go down to a brand level. I can comment maybe on, you know, when you look at the build division overall and its growth in the year 2021, it's a very good indication also knowing that Bluebeam is the vast majority of that division. There's not much of a difference to the remaining part of that division when you want to calculate it backwards to what was just the Bluebeam growth overall.
That again is something of the positive elements that make us feel confident to go into the transition in the second half because we've been adding constantly over the last months and quarters, new users, additional business, to that business and gaining share. Then the last part of your question, I mean, the license, as Yves was saying, license in general is an important part of our business model, especially when you think of the design division, for example, and that's why we go through this phased approach. Licenses in those areas where it's still representing the majority of the business will continue to be a very important part that we keep monitoring, keep investing, and keep also growing the business. Definitely.
Thank you, guys. Just a quick follow-up. I mean, you mentioned that this year you still have the tailwind from half a year, excluding the transition to subscriptions. Looking now at 2023, I know you don't provide guidance beyond that, but should we expect then to see a dip in terms of margins on the back of the transition? Or are you confident to be able to maintain the margin that you set for this year, despite the transition also having a full year impact of this transition in the books?
Well, this is something which is currently work in progress to see that we are currently working on. For the moment, I received some positive views for next year, but of course we need now to go deeper in the details to understand the exact impacts and mitigation plan and see. We're not ready yet, so we need more time.
Okay. Thank you.
The next question is by Martin Jungfleisch, BNP Paribas. The line is now open for you.
Yes. Hi. Good afternoon, and thanks for taking my questions. I have three, if I may. The first one is a follow-up on the guidance, really, on the Bluebeam transition. How much of a headwind from the Bluebeam transition is baked into the revenue guidance for this year? Do you still expect overall Build revenues to increase this year, or should those rather stay flattish, given the transition? The second question is on the Manage segment. The decline here was relatively surprising in Q4, following growth in nine months. What has driven the decline in the fourth quarter, and what are your more midterm expectations for the segment? The third question is on headcount.
Headcount was only up 3% year-on-year, I think which is the lowest increase in the past few years. What are your expectations on headcount additions this year, and how difficult is it really to gain the talents? Maybe you can also talk about personnel cost inflation, I think as personnel expenses were disproportionately higher than the increase in headcount. Thank you.
Wow. Hi, Martin. Good to meet you. Three good questions. Maybe in the same sequence. Look, I think Yves has indicated it already when he was walking you through the, you know, the rationale of the Bluebeam transition and what we're doing. I think it was fair to say that, you know, the growth this year would have been probably a little bit higher. We're talking, you know, a low single-digit percentage point, we would guesstimate, depending on a lot of parameters that play, you know, into this in the second half. We'll see, you know, how we'll end the Q3 and Q4. Definitely, that's factored and assumed as the current forecast stands, definitely.
The logic, yes, will be that naturally this effect will be greater next year because we'll face the full year effect. But again, we're saying it's a bit too early really to give concrete parameters or guidance on 2023, depending on, you know, how the first few months maybe of the transition will go. Therefore, I think it's a great decision that will provide additional KPIs to just show the expected success of the transition in terms of the conversion and the new winners. The question regarding Manage, I think, you know, we tried to comment on during the presentation already in terms of the overall economics out there and the environment.
It is the division, luckily the smallest, but it's the segment where we experience the most hesitation and influence from the environment. It's mid and long-term a topic that we're totally convinced. Short-term, we need to, you know, carefully look at individual projects. We need to work harder on customers that themselves do not have yet the full visibility on, for example, occupancy in office buildings. That's why, I guess the entire industry, be it including real estate, is somewhat still impacted from that. Does not mean that, again, the promising long-term growth potential that we would see. That leads us maybe to your question regarding headcount and personnel costs.
No surprise, I mean, this industry as many others, as we see it also in terms of the general inflation, does experience a job market for IT, tech, you know, R&D, but also other functional positions and costs that is asking for some higher costs. At the same time, the company, you know, is hiring, depending on different geographies, countries, sites and locations, and has continued to commit to invest, you know, in a further increase also in staff, clearly. That would be the answer to those three areas.
Okay, that's helpful. Thank you. The next question is by Deepshikha Agarwal. The line is now open for you.
Thank you. Hi, this is Deepshikha Agarwal from Goldman Sachs. Hi, Yves, congratulations on your new role. Overall congratulations to Nemetschek on a great, you know, great quarter. I have a few questions basically. The first question is more to Yves. He indicated in the release an increased focus on the next growth phase by building on sales strength as well as new technologies. Please, can you elaborate on that and give him some more color on the same? And when do you expect to see the benefit of the investments for this growth phase? When will that impact the overall growth? The second one, again, coming back to the topic of margin, definitely margin guidance has been ahead of expectations.
In the past, Yves Padrines, we have talked about hiring in FY' 22, and then there is this transition of Bluebeam. Like again, Deepshikha is trying to understand what exactly is driving this higher than expected margin for FY' 22 as per the guidance. Are there any costs that have been pushed out, or are there any longer term cost savings which are here to stay basically? What we're trying to understand is like, in that context, how should we think about the margins in the medium term? The third one is more on the venture investments. They're more in the design and build segment. Can you talk about how you expect these investments to enhance growth and contribute to growth metrics over the longer term?
Very nice to meet you, Deepshikha. Thank you. I think, look, the next growth phase is something that we need to define now. I'm here, again, only my 22nd day, but what I can tell you is that what we worked on with the team already for fiscal year 2022 guidance, as you can see, is already a next phase of growth with higher expectation than the market had on both revenue, but especially on the margin side. How do we see that for the midterm is clearly something again that we need to work on. Too early to say. We need to see now how the Bluebeam transition will work and how successful it will be and what will be the exact impact starting from Q3 this fiscal year.
Of course, we need to see how we can accelerate some innovation and on some of our brands to add new features and increase customer loyalty and retention in general, and to sell additional features and products, and to continue to be the leader providing state-of-the-art solution to our customers. Which is clearly the fact and, you know, when I start talking to customers, I can tell you that I'm receiving excellent feedback about our feature set and to find that in most of the cases, clearly, we have the best products in each of our segments globally compared to competition. Well, this is what our current customers are saying.
I'm not saying that I'm talking to people who are not our customers yet, but I'm receiving excellent feedback about our technology and features, about the company in general, by brand, obviously. Now, the guidance on the margin, again, I think here the same answer that what Axel answered before. Too early to say. We need to see what will be the impact on the transition in more detail to subscription, especially for Bluebeam. In general, first of all, for this fiscal year, we are highly confident with our guidance. In terms of OpEx, well, yes, as Axel said, it's we are still hiring, we continue to hire, so it's not like we are not able to hire.
Obviously, like any industry in any market, it's much more difficult to hire today than two years ago. We are hiring, and we are able to attract very good talents. On the startup side, we are continuing our venture investments. This is something that I want to see how we can even accelerate further, potentially. The main focus was until now to really focus on startups which are bringing additional technology or business model or complementary solutions that we have in our existing division and brands, which is still the main focus. Potentially we may also invest in adjacent startups which are in the building life cycle or in the media 3D animation cycle. We are currently looking at it. I'm having a regular review of the pipeline, et cetera.
Work in progress.
Okay. Thank you so much.
The next question is by Berenberg. The line is now open for you.
Hi, good afternoon, everyone. Thank you for squeezing me in. I appreciate that. I'm aware of the time, so I'll kinda whip through my questions. The first one I've got is on the Bluebeam transition. Just wanted to get a sense of, it was mentioned. You mentioned that the existing customers will have a limited time period to continue on the licensing model. Just want to get a sense of, you know, what is that time limit, and if you have any internal target or expectations in terms of how much of the existing customer base you would like to have transitioned in the first years, i.e., FY' 22, onto the subscription transition. I've got two more questions which I'll follow up later if that's okay.
Hi, Axel here. Good to meet you in the call again. We, you know, we talked about the Bluebeam, I think, transition already during the call. We hear you in terms of can we be a bit more concrete in terms of what is the limited period of time. Again, this is an average statement and, you know, there's definitely, I think, subject to the Bluebeam's management team's decision in individual cases. But on average, imagine about a 1-year transition period in terms of still having the option for existing customers to choose, right?
Right. Okay. Thank you. That's helpful. Then also I've got a question on margin, you know, which, you know, a lot of people talked about. Just trying to work out the mechanics behind it, I suppose, in my head. You know, we've got a few macro structural and then the transition headwinds to CRM, which in my head are worked out to about 2-3 percentage points headwinds on net margin. With your guidance, you're almost guiding up to 100 basis points increase potential for next year. I want to understand, you know, where you're able to see the margin expansion coming from. Is it in the underlying operational leverage improvements from the brand consolidation that you've done in the past? Any insights would be helpful here.
Thank you.
Yeah. I think you gave the answer already yourself. I think we'll be cautious in terms of the expenditure levels and OpEx. We'll realize a continued, you know, synergies in terms of the operational leverage as you had mentioned. That again is together with also some good developments in the coming months in terms of the operational just business performance allows us to compensate somewhat the expected effect in the second half after the Bluebeam transition.
Super. Thank you very much. Very helpful. Congrats on the quarter and a good set of guidance for next year as well.
Thank you.
The next question is by Andreas Wolf, Warburg Research. The line is now open for you.
Thank you. Congratulations on a strong year. Hi, everyone. The first question is for Yves. Hi, Yves. Welcome to Nemetschek. I understand that you're still in an early phase of analyzing the company, I guess, and getting acquainted with everything. Nemetschek has been run basically in a decentralized way so far. Adding the role of a CEO might probably focus more on a centralized approach. Is it how we should look at it? And would you, if yes, see potential to find synergies within the brands? And then the second question would be regarding growth in general in the build and design segment. What is basically driving growth? Is it predominantly right now geographies adding new users?
To what extent is it basically more revenue per user by adding functionalities? Thank you.
Just to answer your first question. I think clearly, what attracted me clearly with Nemetschek Group are the strong brands. I mean, we have fantastic brands who are very close to our customers, who are bringing a lot of innovation and are very agile, and this is clearly something that I do not want to kill. Now, it's true that we used to have even more brands, and we are already starting now to integrate some smaller brands within some bigger brands. I think this is probably something that you will continue to see over time in the future. It's not like a full centralization, but it's clearly probably doing some synergies, especially within the division. Like for example, you know, Maxon, we did some media and entertainment acquisition. We integrated all the acquisition we have done within Maxon.
We may look at that more and more. Now, saying that we are going to centralize everything is definitely not something I'm currently planning. But of course, I will analyze all the options and see what is the best for the group. But in particular, the main focus is customer. You know, what is the best for our customers? How can we bring the best innovation to our customers and help them to find solutions for their needs? So far, my understanding is that the strong brand approach and the strong customer intimacy that we have is working, because this is definitely not something that we want to kill. Now, can we do more in terms of go-to-market and look at being more aggressive on the go-to-market side?
Probably, yes, and this is something that we will look at in the future. The growth on the build and design. I think clearly what we are seeing, especially with Bluebeam, is a lot of net additional users and subscribers. Clearly, we have new seats coming with existing customers, but we have also new seats coming from new type of customers. It's definitely not a price increase, it's really adding on new seats and new customers in general, in particular on the build side. On the design side, I think we are also seeing some good traction.
Yeah. I think the, you know, part of the question we would agree with in terms of the international business, not all brands are available yet and as successful as they are in their core markets, in some new markets in terms of the internationalization, meaning going from Europe to the U.S., vice versa. That's definitely true, and we can confirm that being also a growth driver currently.
Great. Thank you. There are no further questions for the moment, and so I will hand back.
Thanks everyone for attending. We will look forward to catching up with you in the next quarter. If you have any follow-up question today, please do not hesitate to contact me or my team. Let me conclude the call. Thank you again for your attention and for joining the call.
Thank you, everyone. I look forward to working with you in the future.
See you soon.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.