Bechtle AG (OTCPK:BECTY) Third Quarter 2022 Results Conference Call November 9, 2022 10:00 AMm. ET
Participating companies
Martin Link – Head of Investor Relations
Thomas Olemotz-CEO
Conference Call Participants
Thomas Olemotz
Good morning, girls and gentlemen. Welcome to our conference call with analysts on the third quarter and also on the first nine months of Bechtle AG’s current 2022 monetary year. I am very pleased to see that many of you are interested in our company. The year seems to be coming to an end and the general framework situations we have been facing throughout the year are far from over. We all know that, and the war in Russia, from Russia to Ukraine, is relentless, and there is high-risk inflation. The global scenario The chain of origin has advanced a bit, but it is still far from returning to normal. And also, the scenario around COVID-19 is still with us, and we’re going to have to wait and see how we end this winter together.
In this overall context, we are very pleased that Bechtle AG developed very positively in the third quarter. We are like a rock in a raging sea. And we’ll show you in a minute the numbers that will reflect this trend. But first of all, only a small technician exceptionally. I won’t be presenting today, but Martin Link, the head of investor relations. The explanation is that I am a little sick. So, if you know me, I will have heard that my voice is not what it normally is, however, I will be able to answer your questions in the Q&A consultation later. So I hope you understand why we chose Mr. Link to present the presentation.
Martin Link
Hello everyone. Although I am another speaker, the presentation as a whole will remain unchanged. It is subdivided into 4 main sections. We’ll first take a look at the key monetary knowledge for the third quarter. And let’s take a quick look at our inventory performance. We’ll also look at the highlights, the extra-monetary highlights of the third quarter. And of course, we will also end up with customers for the rest of the year, we are already in November now.
Let’s start with business development. I’m sure you’ve looked at the numbers we posted at 7:30 a. m. m. y has noticed that we have had a maximum and unchanged expansion rate, basically thanks to the constant demand for IT solutions from our customers.
We have not yet registered any primary restrictions on the component of our consumers. This is especially important because we have been asked several times if we are seeing the first symptoms of recession, but this is not the case for all our consumers. consumers have identified the highest point of IT relevance and investments continue at a higher point. At the same time, we are improving in reducing our traditionally higher order book compared to the point of June 30, 2022, which has already decreased from around €200 million to €1. 6 billion. We also see this positive trend reflected in the progression of our turnover.
Turnover expansion accelerated further in the third quarter, now totaling more than 20%, even more dynamic than in the first two quarters of the year at 18. 9%. Most of the expansion we saw in the third quarter was organic. In the first nine months of the current year, our growth rate was almost 15%, given the difficult underlying conditions, I think this is a really impressive performance. Another thing you see yourself looking at in those numbers is that in a quarter like the one being reviewed in the third quarter, it becomes transparent how vital it is to focus on turnover as well. We have presented this index as a choice index because software earnings no longer deserve to be identified as earnings under IFRS 15. Therefore, revenue volume is the only index that fully reflects the scope of our software business. And this business, unfortunately, we can no longer show it in our earnings, it is a very vital commercial domain and was one of the drivers of expansion in the third quarter.
From there, let’s move on to our earnings with a 14. 6% earnings expansion. Bechtle controlled to maintain the highest point of the last quarter. Organic earnings expansion was 12. 7%. It sees a significant discrepancy between turnover and profit, and this is due to the higher overall demand for software in the third quarter, but also to higher-volume software activities that basically took position in the era considered. But demand was also higher in facilities and equipment spaces. As the figures show, the state of the global supply chain has continued to improve. But we’ve heard that we’re far from the prestige quo, and we’re seeing improvements only for individual product categories and not yet. at all points.
Now let’s take a look at the evolution of turnover in the segments and the other regions. In the segmented view, we see that the roles we’ve noticed signed in the last few quarters have been reversed. In the 3rd quarter, our growth engine was the IT Systems Home and Managed Services segments. At 21. 7%, we were able to increase sales particularly in the third quarter. Organic sales increased particularly through 18. 6%. And since the beginning of the year, we’ve been able to grow from one quarter to the next. Business is returning to normal after COVID-19 and consumers are investing in their existing IT infrastructure.
We have emphasized that our consumers have focused on newly created domestic workplace structures and on-site infrastructure investments that we will not predominate in 2020 and 2021. Therefore, there is a recovery effect. And typically, the 21. 7% profit expansion also includes some high-volume projects at a sales expansion point, that’s obvious. In the IT e-commerce segment, profits increased by 3% compared to last quarter. In addition to last year’s complicated comparative figures, this is also due to the higher percentage of software in the business. However, in terms of turnover, expansion in this segment was remarkable 7. 4%. Therefore, 3% is somewhat misleading. But still, we see that the software company is a driving force.
Let’s look temporarily at the difference between Germany and abroad. The picture is quite balanced with a slight merit for our overseas corporations. And that brings us to the evolution of our results, and first we will take a look at the evolution of EBIT through the quarter. It is relatively evident that tension has increased from quarter to quarter, a trend we expected for two main reasons: first, some of the cost savings resulting from the pandemic in 2020 and 2021 are no longer implemented this year. And the effect was even more powerful than expected, and we saw things go back to normal and the charge base increased year over year, especially in terms of vehicle prices and travel expenses.
Second, inflation has left its mark in the form of emerging prices, i. e. in the dominance of plant prices due to emerging energy prices. In addition, our business in the third quarter was characterized by a higher proportion of high volume and low margin. Hardware and software projects. And finally, we face a positive net one-time effect of €3 million in the last year and we controlled to at least partially offset this effect by reversing threat provisions in the third quarter. So it was a million dollars.
Let’s take a look at the evolution of our segments. In the System House segment, this effect was more pronounced due to close and direct contact with customers, as vehicle prices were more related to the business style of this segment. A greater impact on since we are talking about more than 80 other locations. And the high-volume projects basically sat in the System House segment, which also led to increased pressure on our earnings and margins.
In addition, last year’s unique effect was entirely attributed to this segment, the System House segment. The effects are more pronounced in this segment. But that said, a 6% margin in the System House segment is still very good. , so last year’s point of 7. 8% is definitely not the overall numbers.
In addition to the offsetting effects of all these factors, there is another explanation for why for the very positive evolution of the IT e-commerce segment, thanks to the higher percentage of small businesses, value effects had a more positive effect. The effect on and those effects had been evident in the first two quarters for either segment, but that has replaced somewhat.
Now let’s take a look at the funds that still show a positive ending. Operating money for the third quarter was minus €28. 3 million. Needless to say, we can’t be happy with this number. facets here, which we must explain. The first is that money outflows from inflated inventories have not peaked last year. And the same goes for the accumulation of accounts receivable. For either element, we are now seeing positive effects. And this is, of course, a trfinish that we would like to see continue between now and the end of the year.
Another thing we saw in the third quarter is that outflows from accounts payable relief are more pronounced. However, this effect was planned and we are confident that we will be able to handle this effect in the fourth quarter. It’s complicated to manage inventory. It all depends on the scarcity of the supply chain. It depends on whether our consumers are willing to settle for partial deliveries. It also depends on earnings expansion in the third or fourth quarter. But in terms of accounts payable, we have some discretion and plan to do that – use that discretion.
Let us now turn to the evolution of our workforce. As of September 30, 2022, the baseless workforce 13,789. This equates to 8. 2% or 1,045 more people than in the same quarter last year. 239 new colleagues were added primarily through acquisitions, accounting for about a quarter of the overall increase. In biological terms, our workforce increased by 6. 3%.
In addition to hiring new employees, HR paints at Bechtle have focused on education and further education and this was the case in the third quarter. We frequently invest in our employees’ certifications, for example, in important security and multi-architecture cloud spaces.
Now, I’ll be brief, but we’re still going to take a look at the functionality of our Bechtle inventory. Now, we are not an outlier. The scenario in the stock markets remains very tense. The reasons are well known. Dr. Olemotz has already discussed framework conditions, the war in Ukraine with its economic repercussions, such as the energy crisis and emerging inflation, persistent disorders in global supply chains, uncertainties related to global economic progression, and central bank interest rate policy. This unfavorable combination has also penalized the evolution of our action. So you can see here that since the beginning of the year, our percentage value has decreased with slight ups and downs in July and August. And they know the reasons why technology inventories are under pressure. The scenario is still ongoing.
There is an assumption that capitalization stocks show greater flexibility and also sensitivity to interest rates, but it remains to be seen whether this is true. And we can see that this is a trend that we can’t just forget or eliminate and it hits us. also. Therefore, it is not imaginable that a single action will withdraw from this. We have had fair press releases, such as the continuation of internationalization.
If you take a look at the evolution of the percentage value, you can see that this has not really been reflected in our stock position. So, those statements come and go and, after that, Bechtle’s percentage value just follows the overall stock market trend, which this year has been downward, unfortunately. Now so unfortunate, it is for our shareholders on the one hand, it doesn’t really affect us because we are still focused on our operating activities because we are convinced that the valuation in the capital markets will also praise our success.
As usual, let’s talk later about the special extra-financial aspects of the third quarter. Now we will talk about the 3 strengths, and they cover our maximum strategically vital spaces of action, namely education and obtaining professional workers, our positioning abroad and our long term. Expansion of cloud services. Let’s start with some wonderful news about the new educational year, which will begin in September 2022. During the year 2022, Bechtle set a new record with 256 interns and college students, younger than their careers at Bechtle than ever before. Throughout the organization, lately we are educating 815 young people in 12 technical and advertising apprenticeships and nine university students, 106 more than last year. The education rate in the total organization is around 6% and Bechtle aims to increase it to 10% by 2030, as you know.
There is a new professional course because we now have what is called the Digitization Management Assistant. And as far as the reasons for study are concerned, we now have cybersecurity, knowledge science and software engineering as new titles. So, as you can see, with professional and university degrees, we are back in the lead.
The next focus is a reward for the spouse who pleases us. Let me say this at the outset. Every day, we may only be offering statements about rewards, almost every day. And let’s talk about this one here because it’s special to us. Network specialist Cisco has been awarded the foundation for EMEA Public Sector Partner of the Year. With this award, the manufacturer once again recognizes the remarkable progression of public and business sector digitization projects in modernizing network infrastructure for consumers across industries.
Why is it so special? For two reasons. They honor our positioning abroad because this EMEA award is not focused on our strength in the DACH region, but on our identified specialty as a foreign player. And they know that foreignization is vital in our strategy. European player. Therefore, we are very happy that Cisco has identified us as a foreign player and awarded us this award.
In addition, this award highlights our incredibly successful positioning in the public sector. Bechtle is one of Cisco’s most powerful partners in the education industry, specifically in the high-growth market segments of schools and universities. Now, the third focus is on expanding our core knowledge capability for our customers. Bechtle expands its personal cloud capability with a new knowledge center in the Rhine-Neckar metropolitan area.
To this end, we cooperate with a placement provider, PFALZKOM. In addition to maximum availability and comprehensive security, PFALZKOM’s knowledge centers already meet the must-have criteria of the climate-neutral packaged knowledge center if a significant expansion of existing capabilities is not desired. Only vital to us, however, consumers can also use it for their sustainability report. They can report that they are a means of knowledge, which largely meets all the criteria of the needs of climate-neutral means of knowledge. Therefore, it is also vital for the use of renewable energies. For example, the Bechtle knowledge center built in Mutterstadt enables maximum availability and scalable operation of personal cloud services. And this allows us to use cloud services, and this will be good news for medium-sized and giant companies, as well as public consumers. .
To conclude the presentation, I would like to take a look at the remaining weeks of the year and give you our perspectives. Now we are in mid-November, the year 2022 will soon end. However, uncertainties remain. It is still unclear what the last weeks of December and even November will be like. And unfortunately, of course, there will also be uncertainties, especially for the year 2023. At Bechtle, we are very pleased with what we have achieved so far. The evolution since the beginning of the year is completely in line with our expectations and, in some cases, even exceeds them.
And you saw it when you looked at our numbers. However, the fourth quarter is decisive for the good fortune of the year as a whole. And consequently, some of you who also participated in Capital Markets Day have spoken to us in the meantime. We will know, we check our prospects, our forecasts for 2022. So, even in August with the numbers of the second quarter, we checked the guidance and have not updated it. Some of you hoped we wouldn’t build it.
Let me also tell you why we are fully aware that the most sensible line is above our forecasts, above our forecasts. And that the intelligent possibilities will be overcome. Moreover, October’s figures are not the explanation for why we checked our forecasts or forecasts because, once again, earnings expansion is incredibly smart and has peaked. However, after all, forecasts are made up of parts. not only the expansion of turnover, but also the expansion of net income.
And then we will have to take into account also the evolution of the margin. And if we don’t put together our forecasts, it doesn’t mean there will be a bad profit progression in the fourth quarter, but it does mean that uncertainties about charge progressions are incredibly high. And overall macroeconomic progressions remain uncertain. And that is why we prefer to leave our forecasts, our orientations as they are.
And let me give you this, because if I’m in the driver’s seat, I’m also allowed to make a non-public comment. Considering that other corporations have twice trouble correcting the management problem twice.
We think it is very sensible to leave our recommendation as it is. This does not deserve to be a sadness for the capital market. As I just explained, we have a very transparent view of the progression of the top line. They are exceeding our forecasts, but the uncertainties about the outcome and margin are such that we deserve to be in line with the capital market consensus. in 2023. So that was it. Thank you very much for listening.
Q&A session
End of questions and answers