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Good day, and welcome to the interim management statement Q1 conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Thomas Honoré. Please go ahead, sir.
Thank you very much, Sergey. My name is Thomas Honoré, and I'm the CEO of Columbus. And let me just start today's meeting by apologizing for my voice. I'm using it too much. So I will try to speak as little as possible today and leave most of the conference to Hans Henrik, but I will also be ready for Q&A. I am here with Hans Henrik today, who is the Group CFO of Columbus.I will start the presentation by going through the agenda for today's call. Let's go to Slide 4. We will start the presentation by looking at the highlights of the first quarter, followed by an income statement. Then we will present our financial value drivers and the Geographical and Business segments. Afterwards, we will cover our expectations for 2018 and our updated long-term guidance. And finally, we are open for a Q&A session. Let's go to Slide 5 to begin the presentation. Revenue grew by 51% to DKK 469 million. The growth is primarily driven by the acquisition of iStone and HiGH Software. EBITDA before share-based payment amounted to DKK 51 million, which is a growth of 75%. The growth is due to an increase in the profitability in our services business as well as the 2 acquisitions, as I just mentioned. Overall, our EBITDA margin before share-based payment was 11%. Columbus Software had a strong start, where revenue increased by 38% to DKK 27 million. The result before tax increased by 92%, amounting to DKK 32 million. The integration of iStone is progressing as planned. And we experienced a very positive approach across the business. All in all, a fantastic start of the year for Columbus, where both software, Columbus Care and services performed according to plan with the acquisition of iStone and HiGH Software with almost 2,000 people and well positioned to lead the digital transformation of our customers worldwide. I will now hand over the conference over to Hans Henrik, who will cover the income statement.
Thank you, Thomas. And as Thomas said, we reached the revenue of DKK 469 million, which is a growth of 51%. Our result is negatively affected today by a declining dollar that affects revenue negatively about -- with approximately DKK 13.3 million and the EBITDA by approximately DKK 1.1 million. Further, the decline in British pounds and Russian rubles also has effect but less effect on revenue and the results. So in total, the declining currency rates affects our revenue with a total of DKK 18 million and EBITDA with about DKK 1.3 million. Service revenue increased by 64% and staff cost by 54%. Both increases are primarily due to the acquired companies. And our EBITDA before share-based payment increased by 75% to DKK 51 million. Depreciations and amortization rose by 189% to DKK 28 million. Included in the increasing amortization is an extraordinary writeoff related to Columbus Software of approximately DKK 15 million. Net financials are positive, impacted by a currency gain on our remaining outstanding payments in connection with the acquisitions of iStone in Swedish krona. Columbus has hedged this outstanding payment in Q1 and no further significant currency adjustments are expected on this matter. Profit before tax increased by 92% to DKK 32 million. So let's go to Slide 7, where Thomas will take us through our financial value drivers.
Thank you very much, Hans Henrik. I will now present the financial value drivers and how we performed in the first quarter of '18. Please go to Slide #8. The service revenue increased by 64% to DKK 370 million. The improvement is mainly due to the acquisition of iStone and HiGH Software. Service revenue is negatively impacted by the currency decline in our main currencies, U.S. dollar, British pound and Russian ruble. Further, service revenue was impacted by the fact that Q1 2018 has 4 working days less compared to Q1 2017. Chargeable hours increased by 55% to 57%, which is in line with expectations. We're very satisfied with the progress of our service business, which is our largest revenue contributor. Next slide, please. Columbus Software sales increased by 38% to DKK 27 million. Columbus Software sales include subscriptions, cloud and licenses. Subscriptions grew by 39% due to a strong renewal rate of previous year sales of perpetual licenses. The license sales increased by 9% due to a high demand in the beginning of the year. Cloud revenue rose by 315%, which is also in line with expectations. We are satisfied with the development in sales of our own software. Please let's move to Slide 10, which is recurring revenue. The recurring revenue consists of Columbus Software subscriptions, external subscriptions, Columbus Care, hosting and cloud revenue. These revenue categories are based on long-term engagements with our customers and support the role of Columbus being a strategic business partner. In Q1, recurring revenue increased by 29%, constituting 21% of Columbus' total revenue. The progress is mainly due and driven by 52% growth in Columbus Care contracts and total cloud revenue, which grew by 234%. As I mentioned earlier on the software slide before, we saw good progress in sales of our own software, our own cloud software as well as the financials that we also saw good progress in total cloud revenue. We consider these results to be satisfactory. Next slide, please. This was the reporting on our financial value drivers. I will now hand over the presentation to Hans Henrik, who will present the Geographical and Business segments. Please go to Slide #12.
Thank you. Yes, and I'll start by taking you through Western Europe. Western Europe is significantly impacted by low points to our currencies as British pounds. iStone and Columbus DK are delivering according to our expectations with high activity. EBITDA rose by 70%, which is line with expectations and a satisfactory start of the year. Thanks to our teams in Western Europe. Next slide. So now to Eastern Europe. In Eastern Europe, revenue decreased by 17%, primarily due to a slow start of the year and negatively impacted by the decrease in Russian rubles. EBITDA decreased by 22%, which is also due to a slow start in sales and the development in rubles. Overall, a slow start in Eastern Europe. However, we expect to see a pickup during the year in the region, so thanks to our teams in Baltics and Russia. Now to North America. Overall revenue declined by 26% compared to last year. The development is due to declining sales in the U.S. market, as we already announced in the previous stock exchange releases. And EBITDA grew by 78%, which is due to the adjusted cost level executed in 2017. We now begin to see a positive progress in our U.S. business and we are working intensely to return to growth. Thanks to our team in the U.S. Let's move to Slide #15, Columbus Software. And here, we saw progress in our software business, where total revenue increased by 119 -- 109%. This progress is mainly due to the acquisition of HiGH Software in January 2018 and high demand from customers in the beginning of the year. Columbus' software subscription rose by 62% due to strong license sales in previous years. Cloud conversion is running as planned and shows progress overall. Cloud revenue grew by 249%, even though the numbers are still small. We are satisfied with development in our software business, so thanks to our team here. Next slide, please. So I'll hand back the conference to Thomas, who will take us through status on the iStone acquisition.
Yes, thank you, Hans Henrik. Yes, we wanted to give you an update on the Stronger Together plan, which we are executing together with iStone. And it's an integration process and it's progressing as planned. And we see very positive cooperation between the Columbus teams and the iStone teams. Already from the beginning of the integration, we experienced a strong cultural fit between the 2 companies. And today, we are 4 months into the process, and we can confirm that we have a strong set of common values that support a smooth integration of our 2 companies. The integration plan is focusing on 2 business streams: growth and efficiency. Both streams are progressing very fine and we are executing according to plan. Next slide, please. Now we look at the short-term guidance for 2018. 2018 will be focused on growing our business organically with retained profitability. Furthermore, we will see a strong focus on integrating iStone, as I just pointed out. The management is also focused on returning the U.S. market to growth and profitability, as Hans Henrik mentioned earlier in the presentation. We expect a revenue in the range of DKK 2 billion, which is a growth of 64% compared to 2017. EBITDA is expected to be in the range of DKK 200 million, a growth of 35%. Software revenue guidance is expected to be in the range of DKK 90 million, corresponding to a growth of 8%. Dividend is expected to be unchanged with 10% on nominal share capital. Let's go to Slide 19 for our long-term guidance. Columbus has updated the long-term guidance for the next 3 years, incorporating the acquisitions of iStone and HiGH Software. With the acquisition of the 2 companies, we have taken a large step in reaching the financial goals of 2020. Our focus will be to grow organically. And we have the ambition to grow the business with an average growth rate of 3% to 5% each year. In '17, we delivered an EBITDA margin of 12%. With the acquisition of iStone, the EBITDA margin for 2018 is expected to be in the level of 10%. However, we maintain the long-term guidance of 11% EBITDA margin as we progress with the integration of iStone and the recovery of the U.S. business. With the acquisition of iStone, we have reset the baseline for recurring revenue from 28% to 23% of total revenue in 2018. We expect recurring revenue to grow to 25% of total revenue in 2020. Further, we expect to continue our 10% dividend policy. These were our long-term financial guidance. Next slide, please. I will now hand over the conference to the operator, Sergey, for questions. Please, Sergey, let's see if we have any questions today.
[Operator Instructions] Our first question comes from the line of Andrew Carlsen of ABG.
This is Andrew from ABG. A couple of questions from my side. With regards to revenue, could you please elaborate or give some color on, say, what is organic and what is -- come from the acquisition of iStone and HiGH Software company with regards to, say, the Columbus Software? So is there any, say, contribution from the acquired companies in driving the strong growth in Columbus Software? And is it primarily within, you would say, the services we can see the contribution of the 2 acquired companies? That will be my first question.
So do you want me to go, Hans Henrik?
Yes.
So we are growing by 51%. The primary growth is coming from iStone. But we also see growth on the Columbus side in specific business units. Of course, we do not see growth in the U.S. business, as already announced, which is affecting our overall organic growth. When it comes to software, specifically our own software, we have seen the first examples of Columbus Software sales through iStone. But it is not significant yet. But we expect that it will grow over the year and that it will pick up through the next few years.
Okay, clear enough. And then moving down to the EBITDA, reported EBITDA of DKK 51 million. Could you please kind of walk me through how -- so bridging to your guidance of DKK 200 million in EBITDA, it seems like a very strong start to the year, given the normal seasonality in EBITDA with EBITDA being fairly strong towards the end of the year. So what is it that I should remember to pull out of the numbers before extrapolating on the DKK 51.45 million you reported in Q1?
So you're right that it was a strong quarter, a strong start of the year. I don't know if there are any specific things you have to extrapolate or remove before you do it. I think that we have a good start with 57% chargeability. We see pickup in the U.S. So we do go into a good start of the year. However, it's too early to say that the situation will carry on for the rest of the year. Of course, we hope so. But right now, it's too early to say.
But does the number include any one-offs? So is this after any significant one-offs, meaning that the underlying EBITDA is even higher maybe?
Yes, Hans Henrik?
I think I can maybe add to that if you have DKK 51 million in Q1, it may seem very strong. iStone acquisition started out very strong in Q1 in terms of EBITDA. And we do not, as management, expect that it will maintain the same steam in the remaining quarters because we are close to finalizing major big projects. And we do expect that there will come a little bit of, how should I say, lower margins from iStone in the coming quarter. Further, we have also announced that we will -- we have some integration cost, and we have not really opened the box of spending these integration costs. We're still sort of in planning phase in our Stronger Together program. And that's why sort of it looks like a very -- if you just sort of -- that Q1 is normally a lower quarter. So that's the reason. However, we do see also a very strong EBITDA progress on, you can say, on the organic side in the Columbus entities despite the lower -- that we, in effect, have all major currencies against us. So that's -- I don't know if that sort of...
Yes, okay. So just to wrap up the integration cost, how should we see the DKK 10 million to DKK 15 million that you guide for, say, allocated over the remaining 3 quarters? Is it going to be evenly? Or is it going to be the first half or second half or -- just kind of an idea. Because I guess you will utilize the DKK 10 million to DKK 15 million you have in integration cost, I guess.
Yes, we don't guide on quarters. But we still have the same opinion and assessment of our year-end result of an EBITDA of DKK 200 million. That has not changed during Q1.
Okay, excellent. And then down to the, say, the extraordinary amortization of software, DKK 15 million. Could you please elaborate on what it is? And say, is it something we can expect to happen further again?
It's related to -- that we -- when we look into the portfolio of operating to the cloud, all our Columbus Software is primarily something that complements the Microsoft stack. And Microsoft, they do change every now and then. And how that bakes into -- or how that integrates. And we have a couple of products that are -- that we feel or where we see a weaker revenue stream in the coming years. And that's why we have reduced the carrying value of these 2 products. To expect that to continue, we are not even -- I don't -- I cannot simply foresee that we will have anything that will come later. Of course, I can never say never for the future years. But for 2018, there's definitely not any indication of any further impairments of our Columbus stack. We feel we have a strong and good software portfolio in general, and -- but we felt that we needed to take an extraordinary look at these couple of products.
Our next question comes from Niels Andersen of BankInvest.
I had a question concerning the expected improvement in the U.S. Could you talk about the visibility for that, for instance, order intake trends or other sort of things that validate that we should see an improvement during the year?
I remember your last question, Niels. So I must say that this time, we delivered what we said we would deliver. And we see the pipeline picking up in the U.S. We are seeing that we are winning deals and the business situation is normalizing. So we have no indications that the progress we are seeing now will stop during the year.
But progress, your sales is down 26%, so more talking about the improvement in sales. And do I understand you correctly that order trends has also turned around, so order intake validates that we should see an improvement in sales trends during the year? Is that correct?
So last year, we lost around 30 people, 30 consultants. And therefore, we're not able to produce more than we are right now. So now we -- the situation has turned around. We are beginning to hire people. We do see order intake. However, we will not see growth in the U.S. business before year-end. But we do see a significant improvement in EBITDA and that will carry on through the year.
There are currently no further questions in the queue. [Operator Instructions] If there are no further questions in the queue, I would like to turn the call back to our speakers for any additional or closing remarks.
I just want to make sure, Andrew, that you did not have any further questions. You said you would come back?
We have a follow-up question from Andrew Carlsen.
Of course, we can talk for the next half hour. What I would like to just maybe wrap up is just to make you -- no, no, no, I have one additional question. But I can take it here online. There's nothing secretive or anything. It's just to understand, say, again coming back to, say, you reiterated your EBITDA guidance of DKK 200 million. And Hans Henrik clearly states that, say, we shouldn't necessarily extrapolate the strong EBITDA that iStone has carried into Q1 going forward. But you just mentioned that given the fact that you expect the U.S. to return, and we've already seen, say, a significant improvement in EBITDA in the U.S., again shouldn't we say -- shouldn't that also, say, support my notion that, given this high level, that you can actually carry it forward through the following quarters with an expected increase in contribution in EBITDA from the U.S., given your expectation of, say, improved sales? Could you please talk to that?
So in the DKK 200 million, we do anticipate an improvement in the U.S. already. And we have not seen that it will improve more than we anticipated. Therefore, that is always already factored in, in the guidance. And then it's simply too early to say. We still have a lot of moving parts in the business. It is a strong Q1. And we are reluctant to, let's say, extrapolate that into Q2, Q3 and Q4. So we are a bit cautious on this one.
And there are no further questions in the queue.
Okay. So thank you very much. Let's conclude today's call. Thank you, and goodbye.
Thank you. That will conclude today's interim management statement Q1 conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.