Columbus A/S

CSE:COLUM

Earnings Call Transcript

[Operator]

Thank you for standing by, and welcome to the Columbus Financial Report Q1 2021. [Operator Instructions] I must advise you the call is recorded today, Tuesday, the 18th of May 2021. And I would now like to hand over to your first speaker today, Mr. Hans Henrik Thrane. Please go ahead, sir.

[Hans Henrik Thrane, Corporate CFO & Member of the Executive Board]

Thank you, Tracy. So welcome to Columbus presentation of Q1 report for 2021. I'm Hans Henrik Thrane, and I am currently acting CEO, but also our corporate CFO in Columbus. So let's start to go through our agenda on Slide #4. And here we'll go through -- take you through the highlights of Q1, and then we will end the presentation with an outlook for 2021 and the long-term guidance, followed by a Q&A session. So now let's go to Slide 5 of the presentation which is a welcome to our new CEO. And I'd like to start the presentation by welcoming our new appointed CEO, Soren Krogh Knudsen. Soren Knudsen comes with a background within the manufacturing consultancy and advisory on digital transformation. And I am really confident that Soren Knudsen will both complement and accelerate our organic growth and strategic execution towards our position as digital trusted adviser. Soren will join Columbus on June 7, and we look very much forward to welcoming him into Columbus. Next slide, please. Columbus delivered a very profitable first quarter with a 40% EBITDA increase. Overall, revenue declined by 8% due to the capacity adjustment we executed in second quarter last year due to the COVID impacting in March last year. So all, we are fewer consultants now than we were Q1 last year despite that we actually started hiring people again in Q4 last year. So despite the overall revenue decline, we have realized growth in our strategic growth areas as digital commerce, data analytics and customer experience. The EBITDA increase was mainly driven by higher efficiency as the rate of invoice hours rose from 54% to 58%. Also tight cost control and less travel cost plays a role in our improved EBITDA. Consequently, EBITDA margin increased from 9% to 13%, which we consider a satisfactory result. With regards to the strategic execution in general, we reached an important milestone in focusing on consultancy in digital transformation only. Therefore, the completion of the divestment of our software company on January 26, was an important milestone. With the sale of To-Increase, Columbus realized a net proceeds of DKK 859 million. This proceed was also the reason for Columbus paying out an extraordinary dividend of DKK 6 per share in April this year. Another step in our strategic execution was the divestment of our Baltic entities in Estonia and Lithuania completed on March 30. Further, we are currently reorganizing and implementing a more focused and simplified operation with increased customer centricity. This means that we reorganize the business into global business lines and local market units. This reorganization allows us to pull together our global strength around our service areas and create full customer focus in each marketplace. We also changing the way we strategically work with customers, which means that we are -- we focus our capabilities on our prioritized customers. All in all, Q1 was a good start of the year, where we generated a strong EBITDA growth, and we took the first important steps into our new strategy, Focus23. Looking ahead, forward, we have built a solid pipeline for the coming quarters, and we do expect to deliver top line growth already in Q2 this year. Next slide, please. On this slide, we have illustrated the bridge between reported numbers and what we call normalized numbers. We have also included this in order to demonstrate currency impact on our business. The adjustment operation for loss-making contract in the last year's numbers is related to the Norwegian fixed price project we have previously disclosed. In Q4 last year, we made a settlement with the customer, and therefore, we will not have any further negative impact from this project going forward. So the key takeaway from this slide is that despite a revenue decline, we have managed to improve our normalized EBITDA significantly with an improved EBITDA margin as a result. Next slide. So I will now -- this is the full income statement. And I'll now briefly touch on this. Our is slightly decreased compared to last year. This is primarily related to the capacity adjustment back in March and April last year. External product cuts -- project cost has also decreased significantly due to reduced usage of subcontractors. This is a significant part of the capacity adjustment. Other external costs decreased by 52% in Q1 2021 to DKK 22 million, primarily related to less internal travel cost, employee-related cost and provisions for bad debt that are lower this year than last year. Columbus realized a profit before tax of DKK 48 million in first quarter 2021, corresponding to an increase of all 103%. The increase is mainly driven by the positive EBITDA development and financial income from currency adjustments. Profits after tax for discontinued operations amounts to DKK 721 million in Q1. The result is mainly related to the realized gain of the sale of To-Increase in January this year. So now I'm on slide, development in service business first quarter. Service revenue declined by 5% to DKK 349 million in Q1 2021. The decline is impacted by the reduced number of consultants, especially in our cloud ERP business declining by 8%. However, we see a high demand for digital transformation and especially our new strategic business lines, digital commerce, data analytics and customer experience and engagements are increasing, respectively, 4%, 9% and 45% compared to first quarter last year. Columbus Care declined by 4% due to decline in the consultancy revenue. However, the recurring revenue from our Care contracts did increase by 21%. Next slide, please. And here, you have the development in our recurring revenue. In first quarter, recurring revenue was at the same level as last year with DKK 95 million. The recurring revenue continues to constitute a larger part of the total revenue with Q1 recurring revenue constituting 23% of total revenue. The development in recurring revenue shows great progress in Columbus Care contracts and cloud products, and a decline in subscription. Going forward, Columbus expects subscriptions to decline as part of the cloud conversion. However, the decline in first quarter is higher-than-expected due to a larger decline from SMB customers in our U.S. business. Next slide. Our chargeability is significantly higher in Q1 2021 than last year, amounting to 58% versus 54% last year. The high demand in Q1 2021, combined with the reduced number of consultants resulted in a very high utilization of our consultancy business despite that most of our employees are still serving our customers remotely working from home. We consider the development satisfactory. Next slide, please. So I'll now shortly present our market units. As you'll see, we have changed the segment reporting from geographical segment to market units, which gives a more detailed view into our business. Next slide. Most of our market units declined in revenue due to the reduced number of employees, as already mentioned. However, Columbus Norway delivered a growth in first quarter with an improvement across the business. Especially our market units in U.S. and Russia have -- are affected by corona pandemic as well as a decline in the U.S. dollars and Russian rubles compared to last year. The reported decline in revenue for U.S. is 17%; however, in local currency, the decline is 9%. The reported decline in revenue for Russia is 33%; however, again, in local currency, the decline is 17%. Despite the revenue decline in our market units, we have managed to deliver significant EBITDA growth. The improved EBITDA is mainly driven by significantly higher efficiency across all market units and by cost savings, in particular, less travel cost, employee-related costs and provisions for bad debt. Particularly, our market units in the U.S. have been able to improve their earnings in the first quarter compared to last year. When the corona pandemic broke out back in March 2020, Columbus did its utmost to mitigate risk and to keep the business in good health by adjusting the business to expected activity level. During Q4, 2020, we began to see the market picking up. And therefore, we started onboarding people, which is expected to continue throughout 2021. In first quarter, market demand has significantly increased, and we have a solid pipeline, we expect revenue growth for second quarter 2020 and onwards. Thanks to all our market units. Next slide. Outlook. And I will now cover our outlook on Slide 15, with the top line or headline Guidance for '21 maintained. Columbus is confident that there is a great market potential in what Columbus brings to market. And despite the continued COVID-19 uncertainty and the negative market impact that management believes that there are business opportunities going forward. With our Focus23 strategy, it is Columbus' long-term ambition to gradually increase profitable organic growth to minimum 10% annually from 2023. In our latest 2021 guidance, which was public -- published with our annual report for 2020, we had included Baltic's fully expected revenue and EBITDA. As we divested Baltics in first quarter this year, Baltics will not be included in the figures for the continued business for 2021. Based on the financial performance in first quarter, current order book and pipeline, our guidance for full year '21 remain unchanged despite this divestment of the Baltics countries. So revenue is expected to be in the range of DKK 1,650 million to DKK 1.8 [ billion ], corresponding to a growth between 5% and 14% organic growth. EBITDA is expected to be in the range of DKK 125 million to DKK 150 million, corresponding to an increase between 1% and 21% compared to the 2020 EBITDA adjusted for customer provision and earn-out adjustments. Next slide, please. So this was sort of the end of my presentation. And here, just sort of the overview of our upcoming events. So let's go to next slide, and I'll hand back the conference to our operator, Tracy, for opening up for questions.

[Operator]

[Operator Instructions] We have no questions from the telephone line, sir.

[Hans Henrik Thrane, Corporate CFO & Member of the Executive Board]

Then let's conclude today's call, and thanks to everyone listening in, and I wish everyone a great rest of the day. Thank you so much for listening and showing your interest into Columbus. Thank you.

[Operator]

Thank you. That does conclude your call for today. Thank you all for participating, and you may now disconnect.