Gland Pharma Ltd
NSE:GLAND
Gland Pharma Ltd
Gland Pharma Ltd., an Indian company with a robust heritage, has made its mark in the global pharmaceutical landscape primarily through its adeptness in injectable medication. Founded in 1978 by P.V.N. Raju, the company’s journey has been one of steady ascension, characterized by a firm commitment to quality and innovation. Operating in a market where precision and reliability are paramount, Gland Pharma has specialized in the development and manufacturing of complex generic injectables, a niche that demands rigorous regulatory compliance and state-of-the-art manufacturing capabilities. With its extensive product portfolio, Gland Pharma serves a diverse range of therapeutic areas, including anti-coagulants, anti-biotics, and anti-virus medications, catering to hospitals and healthcare facilities worldwide. This strategic focus has enabled the company to build a reputable name in both domestic and international markets, becoming a critical supplier in the intricate supply chain of modern healthcare.
What distinguishes Gland Pharma from many contemporaries is its business model that hinges on backward integration and robust R&D capabilities. By taking charge of every aspect of production—from procuring raw materials to the final packaging—the company achieves cost efficiencies and ensures unwavering quality control. This integration extends beyond manufacturing, as Gland Pharma has cultivated strong relationships with strategic partners globally, facilitating its penetration into regulated markets such as the US, EU, and Australia. It harnesses these connections to distribute its products extensively while also acquiring ANDA (Abbreviated New Drug Application) approvals that cement its standing in these regions. Financially, Gland Pharma's revenue is largely derived from this steady export of generic injectables, riding on the ever-growing demand for affordable healthcare solutions. Through these strategic endeavors, the company encapsulates a blend of Indian manufacturing prowess and global pharmaceutical acumen, keeping its financial health robust and its market reach expansive.
Earnings Calls
In Q3 2024, Bechtle faced challenges with an overall 1.1% decline in business volume, primarily due to tough comparisons from a significant prior year software project. International growth was notable at 10.7%, while Germany saw an 8% drop. Revenue rose 2.2%, partially misleading due to past benchmarks. Despite cost pressures from personnel and operating expenses, cash flow from operations improved to nearly EUR 290 million. Bechtle's employee count grew 5.2% year-over-year. The company anticipates a stronger Q4, focusing on growth from M&A initiatives and public sector clients, although overall financial performance for the year remains below expectations.
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Thank you very much. Welcome, ladies and gentlemen, to our analyst conference on Q3 of 2024 and thus, the first 9 months of the current financial year of Bechtle AG. I'm very happy to see that you're interested in our company. The most important ratios on the business development in Q3 were already covered in our ad hoc statement of October 22. Never before in its history has basically had to adjust its guidance twice in a year. You can imagine how hard it was for us. And at the same time, how extraordinary the circumstances were that forced us to do this.
Having said that, our numbers speak for themselves. And of course, we feel obliged to communicate openly and frankly. Today, let's take a deep dive into how our business developed in Q3. The contents of the following presentation are, as always, categorized sections. We start with a look at our business development, especially in Q3 of the current financial year, followed by some news again, with a strong focus on our M&A activities beyond the numbers. And at the end of the presentation, we're going to take a look at the remaining few weeks of this year.
But let us start with business development. We are still lacking demand momentum from our most important customer groups. This is particularly true for our SME business in Germany and France, but also our public sector business has fallen short of expectations. With a view to the bottom line, we are also feeling the cost pressure. In addition to personnel costs, which have increased as a result of acquisitions, we are seeing a sharper rise in other operating expenses. Vehicle costs, in particular, have gone up more steeply. This is due to higher electricity costs and the elimination of the environmental bonus for electric vehicles in Germany.
Due to the size of our vehicle fleet and the degree of electrification as part of our sustainability strategy, this constitutes a significant cost driver. We probably wouldn't be talking about these items under normal circumstances. But our growth currently is not enough to compensate for these cost increases.
Speaking about growth, let's first take a look at the development of business volume. The growth of the business volume lost even more momentum in the third quarter after a very high level in the prior year quarter, we now see a decline of 1.1% or minus 1.9% in organic terms. In the prior year quarter, we had a very large software project with a volume of around EUR 150 million. Unfortunately, we have not been able to win such a large scale deal in the current year, which means that the benchmark in the third quarter was very high. Even if it is not apparent from the consolidated figures, the development was quite different in the various regions.
We were able to grow by 10.7% internationally with organic growth still at a very good 8.8%. In Germany, however, our business volume fell by 8%. On the one hand, this is due to the aforementioned previous year effect that we posted in the domestic system house segment. On the other hand, it is also due to the very gloomy mood and economic situation in Germany.
Our revenue after applying IFRS 15 developed slightly differently. In the third quarter, revenue rose by 2.2%. What at first glance, appears positive is basically just an opposite effect to the large-scale software business in the prior year quarter. Due to IFRS 15, we had to make a significant reconciliations from business volume to revenue in 2023. However, these were lower in the third quarter of the current year. Nevertheless, after 9 months, we are within striking distance of the previous year's level in terms of both business volume and revenue. I'm mentioning this year, although I am, of course, aware that we withdrew our forecast in our ad hoc release on the 22nd of October.
In the third quarter, however, we also saw a further upturn in the business with public sector clients. However, the said large-scale software deal last year was also with a public sector client. So we did not succeed in reaching the high comparative figures of the previous year in Germany. Adjusted for this effect, however, we also see a gradual recovery in business with public sector clients in Germany.
Let's now take a look at the development of our business at segment and regional level. I already mentioned that the various regions are developing differently. We see this particularly clearly in business volume, but also when looking at revenue. While we're still struggling with challenging conditions in Germany and France, our business in other regions has developed positively. For example, we have seen positive momentum in the IT system house & managed services segment in Austria and Switzerland. In our IT e-commerce segment, Belgium and the U.K., in particular, showed strong growth.
It remains to be seen whether these are sustainable structural differences in the respective markets. However, in my view, this once again clearly demonstrates the importance of Bechtle's broad international footprint. This is where our strength and future line also in contrast to some of our competitors. And with this, we come to the earnings development, and let's now take a closer look at our EBIT.
EBIT remained considerably under pressure in the third quarter as well. There were several reasons for this. One, of course, our costs. I already mentioned personnel costs and a sharper increase in other operating expenditure. There was also a further increase in our depreciation due to, among other things, ongoing investments in our own IT. Secondly, manufacturer bonuses. Due to the lack of top line growth, we have not yet achieved many of our partners' targets so far. This was different in 2023 when we already cleared some hurdles during the year. We expect the situation to improve in Q4, but we will certainly not reach the level of the previous year in the 2024 financial year. And three, other operating income. As we already communicated, we see a decline here. The higher growth in other operating income still helped us in 2023 to better compensate for cost pressure.
Let's now take a look at something very encouraging, ladies and gentlemen, namely our cash flow. Cash flow from operating activities from January to September was almost EUR 290 million. The positive trend of the 2 previous quarters, thus continued in Q3. The swing compared to the same period of the previous year is around EUR 100 million. This is a clear sign that the measures we have taken to optimize cash flow are showing lasting success. We continue to be able to reduce our inventories. Although the potential for optimization is no longer as great as it was a year ago, this is no reason for us to relent in our efforts.
And in the area of trade receivables, we continue to see success from our improved receivables management. To some extent, the weak growth is also helping to ease the pressure on capital employed. However, without our internal measures, these achievements would not have been possible.
Let's now turn to the development of our employees. As of the 30th of September 2024, Bechtle had 15,608 employees. This equals a year-on-year increase of 768 people or 5.2%. 531 new colleagues joined Bechtle through acquisitions, which is almost 70% of the total increase. In purely organic terms, employee growth was only 1.6%. As already mentioned several times throughout the year, this development is the result of very conscious entrepreneurial decisions in this very challenging situation we're in. At the same time, however, we're also benefiting from efficiency gains that allow us to decouple employee growth from the targeted group growth to a certain extent.
Let us now turn to some of the nonfinancial highlights in the third quarter of 2024. We can assign these reports to 2 fields of action, namely, our employees and our commitment to training young people. And as I've already mentioned, our M&A activities as part of our internationalization strategy.
Let's begin with our trainees. Bechtle started the new training year on the 1st of September with 286 trainees and university students and dual study programs. We are thus training 890 young people throughout the group more than ever before. We offer 13 technical and commercial career paths and 11 dual study programs. And by the way, we aim to take on all our trainees and students. Why? People development is one of the strategic action areas in Bechtle's sustainability strategy and also part of our CSR activities. Bechtle has been providing trading for almost 40 years and has its own academy offering comprehensive further training and qualification programs, an important building block for securing the future.
Ladies and gentlemen, this brings us to our M&A activities, which were once again very successful. In the United Kingdom, we were doubly successful in October. With the acquisition of Qualcomm, we brought a classic system integrator on board. The company, which was founded in 2005 and is headquartered in Newbury, closes a gap between 2 existing Bechtle locations in London and Chippenham. Qualcomm currently employs 44 people and generated a business volume of EUR 30 million in the past fiscal year. Qualcomm's core business includes digital workplace solutions, intelligent network infrastructure and not to forget, IT security.
And just 9 days later, we announced another acquisition, DriveWorks. Leading software developer of design automation configure price good solutions is joining the Bechtle group. The products are specifically designed for companies that use SOLIDWORKS 3D CAD software. This acquisition strengthens our position as one of the most important SOLIDWORKS partners in Europe.
Let us now turn to 2 further acquisitions. But this time, in Germany. Bechtle has acquired SIG system information based in Neu-Ulm with 2 additional locations in Erfurt and Jena. The IT system house, founded in 1997, generated a business volume of roughly EUR 25 million in the past fiscal year and currently employs 50 people. With this well-established and regionally well-known company, Bechtle is noticeably strengthening its market position in the economic region around Ulm. In [indiscernible] basically acquires Arwinet and its spin-off KubeOps, 2 companies that focus on cloud services and Kubernetes, the strategically very important growth area in the context of the discussion about digital sovereignty and the public sector -- in the public sector.
Kubernetes is an open source system originally developed by Google to efficiently manage applications in so-called Containers. The company employs 93 people, highly specialized people and generated a business volume of roughly EUR 7.4 million with the public sector in particular.
Let's now take a look at the remaining week of the 2024 fiscal year. Ladies and gentlemen, I don't really need to say much here. Two profit warnings and 2 changes in the guidance in 1 year speak for themselves. One could be tempted to shrug off 2024 and quickly forget it. But that is not our style at Bechtle. Of course, 2024 will not be a successful year. Other, we still want to make the most of the remaining weeks. The figures for the first 9 months do not meet our expectations. However, we want to come a little closer at least to meeting them with a better performance in the fourth quarter. And with a positive performance in the fourth quarter, we also want to set a good starting point for a more successful 2024.
So what exactly are we expecting? Well, the following still applies in terms of the economy as a whole, we should not expect any significant positive impetus. However, the trends in the IT industry are intact. We do not see structural prices in IT, but rather an economic one. There are still many growth areas that we, at Bechtle, can address in the context of the ongoing digital transformation and the increased use of AI. And in addition, there are the special drivers that we are all familiar with. The end of Windows 10 support will push the replacement cycle.
And when it comes to cybersecurity, the NIS2 Directive will further increase demand. We expect our business with the public sector to provide stronger impetus in the future than we have seen so far. And finally, our international business will continue to contribute to growth, both organically and through acquisitions.
That, ladies and gentlemen, is our performance in the first 9 months and the outlook for the rest of the 2024 financial year. Thank you for your attention, and I'm ready now to take your questions.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]