© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
[Audio Gap] and gentlemen, and thank you for standing by. Welcome to today's first quarter interim management statement conference call. [Operator Instructions] I must advise you that this conference is being recorded today on the 30th of April 2019. I would now like to hand the conference over to our speaker today, Thomas Honoré. Please go ahead, sir.
Thank you very much, Nadia, and thank you for the introduction. And welcome to Q1 earnings call for Columbus. My name is Thomas Honoré, and I'm the CEO of Columbus. Today, I'm here with Hans Henrik Thrane, who is the Corporate CFO. Let's start the celebration today and go to Slide #4 because tomorrow Columbus is turning 30 years old, and what a journey it has been. And I'm really excited to pre-warn this anniversary. We were founded in 1989 as Dolberg Data, 8 people in Jutland in Denmark. We went through a global expansion starting in 1992. We were listed at Copenhagen Stock Exchange in 1998. And we have acquired more than 15 companies over the time. We established a global delivery center in 2012. We launched a new strategy in 2012 called Columbus '15 and a current strategy in 2016 called Columbus 2020. In 2018, we launched the 9 Doors to Digital Leadership, which is a way for us to take our customer in the hand and lead them through the digital journey of their business. And today, 2019, we are 2,000 people across 17 countries. We are a global company, we are operating globally. And I'm really proud to lead this company of highly experienced skills and very talented people around the world. So congratulations to Columbus for the 30 years anniversary. And now let's move on to the business agenda for today. We will start today's presentation by looking at the highlights of the first quarter. Then we will review the financial value drivers and the geographical and business segments. We will also briefly cover our expectations for 2019 and long-term guidance. And finally, we will open for a Q&A session. So now let's go to Slide #6, highlights Q1 2019. And we believe we had a good start to the year. Revenue grew by 3% to 800 -- excuse me, DKK 482 million compared to the same period last year. If we isolate for the fact that we divested our SAP ERP business last year, we have an organic growth in Q1 of 7.2%. EBITDA amounted to DKK 60 million, which is a growth of 19%. Net results before tax increased by 11%, amounting to DKK 36 million. And the Columbus Care continues to show great progress, growing 14% in the first quarter. The integration of the acquired companies, iStone and HiGH Software, are progressing as planned. And we experienced a very positive development across the businesses. All in all, we are satisfied with the financial results of Q1 2019. I will now hand over the conference to Hans Henrik, who will cover the income statement.
Thank you, Thomas.As Thomas said, we reached revenue of DKK 482 million, growth of 3%, and organically growth of well 7%. The growth is driven by our service business growing 3% and, again, organically, isolated for the SAP divestment, we grow the service business 8.5%. Columbus Software declined 16% as we had an extraordinarily high revenue in Q1 2018. Growth in the Columbus Cloud is, however, picking up well in Q1. External software is also contributing to growth with an overall increase in revenue by 7%, which comprises both subscriptions and licenses. Subscription increased by 6% and licenses decreased by 4%. EBITDA increased by 19% to DKK 60.5 million. The development in EBITDA is affected by the Dutch GAAP IFRS 16 compared to 2018. Depreciation and amortization declined by 22% to DKK 22.1 million. In 2018, we had an extraordinary amortization of DKK 15 million related to own IP. Depreciation is also increasing due to the adoption of IFRS 16. Finance income is dropping as we, in 2018, had an extraordinary currency gain on our contingency payment related to iStone. In 2019, we are amortizing the IFRS 16 leased assets, resulting in a technical financial expense. Further, we have financial expenses related to the amortization of the contingency debt related to iStone. Net result before tax increased by 11% to DKK 35.7 million. So let's go to Slide 7, where Thomas will take us through our financial value drivers.
Thank you, Hans Henrik. I will now present the financial value drivers and how we performed in first quarter of 2019.Let's go to Slide 9. Service revenue increased by 3% to DKK 380 million. Organically, the increase was 8.5%. The improvement is mainly driven by the increase in Columbus Care services and a general progress in the services business, where especially the business areas M3 and Commerce showed strong progress. Within customer work, chargeable hours showed a small decrease of 1 percentage point from 57% to 56%. The development is primarily caused by lower efficiency in Russia, U.K. and U.S. However, we see high activity level in both our traditional ERP business as well as increased demand for our offerings within cloud, analytics and BI and customer experience. In general, we experienced a good progress in our services business. We consider the results satisfactory and in line with our expectations. Next slide, please. Columbus Software sales decreased by 11% -- oh, excuse me, by 16% to DKK 22 million. The development was expected due to an extraordinarily strong Q1 in 2018, as Hans Henrik just outlined. Columbus Software sales includes subscriptions, perpetual licenses and cloud. Subscriptions declined by 13% and license sales declined by 48%. Columbus Cloud has come off to a good start with a growth of 46%. And cloud now constitutes a larger part of Columbus Software sales than licenses, which has been the expected outcome due to the cloud conversion. We are convinced that our software sales will come back to positive growth during 2019. Please, let's move to Slide #10, recurring revenue. The recurring revenue consists of Columbus Software subscriptions, external subscriptions, Columbus Care and cloud revenue. In Q1, recurring revenue increased by 9%, constituting 22% of Columbus' overall total revenue. The progress is mainly driven by a strong growth in Columbus Care contracts, which grew by 14%, as well as an increase in total cloud revenue of 54%. We consider the result as 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 13.
Thank you, Thomas.So once again, we start out with Western Europe, where revenue grew by 11%, which is impacted by growth in both U.K. and Denmark. This growth is mainly driven by a strong growth in service revenue of 9% and DKK 26 million. This is affected by a positive development in Norway, Sweden and Denmark and is a satisfactory development. Columbus Danish business unit experienced high activity across the business, which has generated high utilization in the services. EBITDA increased by 65%, amounting to DKK 51 million. All in all, a satisfactory development, thanks to our teams in Western Europe. So now to Eastern Europe on Slide 14. In Eastern Europe, revenue increased by 9% and the local currency revenue increased by 12%. Key reasons for the increase is mainly driven by service revenue of 8% and external software by 22%. Columbus Russia grew its service business with 15%. And Columbus Lithuania shows good progress in general, growing in all parts of the business. Columbus Estonia grew the business with 6%. So despite the positive development in revenue, Eastern Europe ended up with a decline in EBITDA of 22% or DKK 0.7 million. If we normalize for the IFRS 16, the decline is 54%, DKK 1.8 million. The key reason for this decline is increased in stock cost in Columbus Russia. And Columbus Russia has stocked up as increased activity is expected going forward. The decrease is therefore partly due to timing. Furthermore, software deals are moved from Q1 to Q2 in Columbus Russia. It is expected to catch up on EBITDA during Q2 2019. So thanks to our teams in the Baltics and Russia. So let's go to Slide #15, North America. In North America, revenue declined by 11% and EBITDA declined by 83%. The decline is in line with our previously announced expectation for the first half of 2019. We still expect a continued decline in revenue and EBITDA during the second quarter of 2019. We believe that we have the right team in the U.S. However, as the turnaround has not yet materialized, we are now in the process of hiring a new general manager. It is needless to say that U.S. is currently against to our overall financial performance, but with the team we have in the U.S., we're determined that U.S. will be normalized again. So thanks to our team in the U.S. So now I'm on Slide 16, Columbus Software. Our Columbus -- our software business is behind largely due to an extra strong Q1 in '18. Columbus Cloud revenue is showing strong progress with a growth of 34%. This year we have really seen that the appetite for perpetual licenses is rapidly decreasing and that almost every customer is requiring cloud products. HiGH Software is now fully integrated to our software company to increase and we have a strong sales pipeline for our demand dynamic solutions. On the product side for Q1, the Dynamics NAV -- NAV Anywhere, the business integration suite and RapidValue is showing the strongest progress. Service revenue is behind last year due to the late ramp-up of some bigger projects and reorganization of our rental development team. We are satisfied with the development in our software business, thanks to our team in [indiscernible]. So now I'll hand back the conference to Thomas, who will take you through our 2019 guidance as well as our long-term guidance. So please go to Slide 18.
Thank you very much, Hans Henrik. I will now cover the financial guidance for 2019. We expect revenue in the range of DKK 2 billion, corresponding to a growth of 6%. We expect EBITDA in the range of DKK 240 million. Software revenue guidance is expected to be in the range of DKK 110 million, corresponding to a growth of 8%. Dividend is expected to be unchanged with 10% of nominal share capital. This means that we are maintaining our full year guidance on all the guiding parameters. Let's go to Slide 19 for long-term guidance. Columbus will continue to grow organically through the execution of 9 Doors to Digital Leadership. Our ambition is to grow the business at a compounded average rate of 3% to 5% each year. We maintain the long-term ambition to reach 25% recurring revenue in 2021. And we also expect to continue the 10% dividend policy. We strive to reach an EBITDA margin of 13% in 2021. It means that our long-term guidance has not changed for this release and remains unchanged. So I'll now hand over the conference to our operator, Nadia, for questions.
[Operator Instructions] The first question comes from the line of André Thormann.
Just a couple of questions from my side. In terms of Columbus Software and external software, I see that the external -- that Columbus Software is going a lot down, which you also explained, and this is partly due to the cloud conversion. Should we expect the external software to go more down in terms of -- due to the change you explained about in the last quarter from Microsoft partly? Or have I misunderstood something?
No, that's true. However, we saw some deals from Q4 going into Q1 for the external software which is causing the primary increase of external software in Q1. So we still expect over time that external software will decrease in terms of license sales. So that's correctly understood. And the reason -- the primary reason why the internal software, Columbus Software is declining is probably because we had a very strong Q1 2018. We expect that our software business will return to growth, and that we will see some significant deals converted in Q2 and Q3, both cloud and perpetual.
Okay. So -- but then for Columbus Software, shouldn't that go up not only for cloud but also for subscriptions? I understand that the licenses you expect will be out within something like 3 years. But what about subscriptions, should that also grow?
Yes. No. So general subscription should increase not as much as cloud. But assuming an attrition rate of maybe 4% to 6%, the subscription should increase over time. The reason why it does not increase in Q1 is because some of the revenue that we had in a extraordinary transaction last year was booked against subscriptions. So that's not the picture you will see going forward, where we will see, or should see, at least, subscriptions go up. Not in the same rate as cloud but still increase.
Okay. And this, too, is that also what is driving the decline in ISV revenue on 70%...
Yes. Yes.
Okay. Okay. I understand that the revenue growth is primarily driven by services and Columbus Care, especially M3 and Commerce. Do I understand correctly that M3 and Commerce was something you gained by the acquisition of iStone, right?
That's correct.
Okay. So is it correctly understood that the revenue growth that we see is primarily driven by iStone even though I know everything is organic now?
Well, no, that's not totally correct because we see growth in U.K. in the rate of 6.5%. We see growth in Denmark of 15%. And we also see growth in -- as Hans Henrik said, in Russia and in Baltics. So it's a combination of growth in Columbus and in iStone. But we do see significant growth in the Commerce business, which is natural because that's a business that is growing and a market that is growing a lot. And then also our M3 business in iStone. So it's a combination.
I understand it is coming from multiple places. But the majority, is that coming from Sweden and iStone or...
No. I think this -- I think it's actually in those units that we have in Western Europe: Norway, U.K., Denmark. We actually see a general good progress in service business across all units, except actually U.S. where we have a decline. So that's actually a good progress in the service in general. So it's not carried by the former iStone group or the Swedish market as such. I think it's pretty evenly spread.
Okay. Okay. But just to be sure. In terms of the chargeable hours, you mentioned the 1 percentage point decline which is due to lower efficiency in Russia, U.K. and U.S., as I understand. But what is this -- can you give some more flavor to this lower efficiency in Russia and U.K.?
In Russia, we have a number of large customers and then we run big projects. And then when they sort of are coming to an end, they can sometimes be a -- you can see a transition time until we go ahead with the next phase and that can harm the efficiency for a couple of months. So that is sort of a -- that we are moving to the next phase in -- with one of our biggest customers that has been with us for many, many years. So it's not unusual we see these sort of fluctuations in the Russian efficiency. But once they're up and running again in the next phase, they normally run at a very high utilization. So that is Russia, you can say sort of transition to the next phase with a couple of big customers in Russia. Then for U.K., we -- that thing here because there's been so much uncertainty about Brexit. Actually, some of our customers, they call us and say that we have to postpone some work or at least start very, very small. So that -- until we have more clarity about whether it's a hard Brexit or a soft Brexit, then we start seeing that, that our customers becomes cautious about their spending. And that's sort of -- that is harming the efficiency in the U.K. so -- until we have clarity. So therefore, we'll also see what we can do in the U.K. in order to adjust our organization if that uncertainty continues. But they will have to make up their mind in U.K. one way or the other, whether it becomes a hard Brexit or soft Brexit. And we believe that regardless of what the outcome is, the certainty about what's going to happen will help us going forward. Then come -- the last part was the U.S., where we have the situation. We know in U.S., where we're still struggling getting the deals in. So that's also taking us further south, aligned with the decline in revenue in the U.S. So that's sort of the 3 key reasons for the declining efficiency overall.
Okay. In terms of what you say about Russia for the next phases, for the big customers, this is also why you mentioned you see an increase in the staff cost in Russia, right?
Yes. They are -- but it's also related in Russia that -- we are gearing our organization to more organic growth. And therefore, we are, in many units, investing in onboarding new people who can develop the new doors in our go-to-market framework, or what we call the 9 Doors. So it is partly related to that we are onboarding people to develop new market opportunities in that market as well as we are onboarding people to -- sort of to the old ERP business as well.
Okay. Then maybe a follow-up to that one is that your last reported number of employees was 1,845 as I see it. You're didn't report in this one. Can you, in any way, give me the number?
Please repeat that question, André.
So your latest reported number of employees was 1,845, but that was in Q4. Can I, in any way, get the most recent number because I understand that you have taken in some employees across regions.
So we don't report that number in quarterly announcements, so you have to wait to first half on that one. So Nadia, do we have any other questions from any other participants? There does not seem to be a question. So André, why don't you just carry on?
Yes. Okay. Then I will just do that. In terms of the U.S. business, we maybe have to talk about, is there -- we see another decline here which was also as you guided in Q4, right, and as we have seen. But is there any bottom level of the U.S. business for some contracts? Or can it potentially go to 0 if the worst?
So it can potentially go to 0. That's not our plan. Our plan is to begin, first, top line growth and then corresponding EBITDA growth. So we do see some of our businesses in the U.S. performing well, but we also have some of our businesses that is still under pressure. And we're working as hard as we can and hope to be able to announce a new business unit executive within a relatively short time. And that will be the starting point of a new turnaround in the U.S. We are comfortable that we have a team of good delivery people. People, in general, in the U.S. However, we still need to see top line growth and that's really the name of the game now, to close some deals and to begin to deliver on it. The organization right now is short of work, and we need to find work for them.
Okay. Okay. But the next trigger to maybe the turnaround, that will be a new sales executive, as I understand it, right? Or is there any others?
Actually, the first thing is a new general manager for our U.S. business. And that general manager is hired with a very specific aim to increase top line growth. So that person has a very strong or should have a very strong marketing and sales and customer engagement role. And so that's actually where we start the first year around, by having that. We did not have that previously. Here, we had a general manager who was focused on delivery and internal integration. And now we're turning the perspective outside and aiming for growth in our key market areas in the U.S. Of course, that is not something that happens from one day to another. It will take some time. But we are -- we have the time that we need to make the turnaround happen. And we believe that the U.S. market is an interesting market for Columbus and that we eventually will turn this business around and that we have a huge growth potential in the U.S. business with a new leadership team.
Okay. Just a follow-up on that one. When you say slow turnaround in the second half of the year, does that mean that we will see less declining growth or positive revenue growth in this [indiscernible]
Well, we think we will have a less decline growth in Q2. And hopefully, a growth in Q3 or Q4.
Okay. In terms of the order intake you mentioned in Q4 which looked good for Q1, which proved correct because at least how I see, it was a good Q1, do you see anything for Q2?
No, we don't have additional guidance today.
Thank you. Dear speakers, there are no further questions at this time. Please continue.
Okay. That does seem to be the case. So Nadia, why don't you conclude the web conference today. I would like, from our behalf, to say thank you for your participation, and we will speak to you all very soon. So thank you very much. Nadia, over to you.
Thank you. That does conclude teleconference for today. Thank you for participating. You may all disconnect. Have a nice day.
Thank you.