Columbus A/S

CSE:COLUM

Earnings Call Transcript

[Operator]

Good day, and welcome to the Columbus Interim Report Q1 2025 Conference Call and Webcast.[Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand you over to your speaker of today, Soren Knudsen. Please go ahead. Your line is open.

[Soren Knudsen, executive]

Thank you very much, Peter, and good afternoon to all of you. Welcome to our Q1 financial results report. Today is slightly different from those that join us on a regular basis. I'm in the U.S. So the technical setup we're using today differs a little bit from our normal one, but I think this will work just fine, and we will go through it in the usual way.

As always, I'm joined in by Brian, our CFO, who sits in Copenhagen today, and he will take us through parts of the presentation as well. Following the presentation, there will be a Q&A session as the webcast supervisor said. So that will come at the end of the conference. So let's please go to Slide 4, where I will start with some of the -- commenting on some of the financial highlights.

In Q1, revenue ended with a slight decline or resulted in a slight decline, mainly driven by continuous challenging conditions in the Nordic market, whereas the U.K. and as you'll see later on, also the U.S. were on a positive trend, U.K. being up 17% in the quarter and is one of our big markets. EBITDA increased by 32% when we adjust for the extraordinary gain or income of DKK 20 million from the M3CS legal case we had in Q1 last year.

I think this confirms the robustness of our Columbus strategy and our business model as well as our EBITDA15 plan. This means that the EBITDA margin was at 10% compared to 7.9% in Q1 2024, again, when adjusted for the M3CS legal case.

The contribution or the raw performance of the business, if you will, increased by 2 percentage points to 25% in Q1 this year compared to 23% in Q1 last year. And this is primarily due to our improved project execution and I would say, a fairly strong cost discipline, which we've exercised in the past quarters.

The cash flow from operations decreased by 27% adjusted for the extraordinary gain in Q1 2024, the cash flow actually improved by DKK 3 million in Q1 going to DKK 17 million in Q1 of 2025, which again is underpinning the soundness of the business.

And then I would like to go to Slide #6, if you can just confirm that. So 3 things to comment on, the earnings quality and then something that drives our ability to generate growth onwards. And then finally, a comment on the strategic review.

I think it's clear from the results that we have been able to continue our journey towards the EBITDA15 despite a relatively flat development of our top line. This is driven by several factors.

As I said on the previous slides, the project execution is a key part of that, but also the overall efficiency, which is sort of the vocabulary we use to describe how much of our delivery capacity we are able to deploy to customers, but also the price point we sell that at. So we are very content with the development of these points. And that leads me to #2, which is what is also necessary to drive our future growth.

If you look to the graph on the right on the slide, you'll be able to see sort of in indicative terms that what we would describe as a hesitant market in the past 15 months has resulted in a really cautious approach to the workforce. So we've seen a flat to slightly declining size of headcount in our organization.

We see the bottom point of that development now, and we are starting to add size to the organization again. So we're going to do that whilst we still maintain the high efficiency level and the same price point as before, those being the 3 key indicators that we look for.

What leads us to this decision about adding growth to the organization is a combination of the current backdrop that we're working against, but also the sales pipeline where we are starting to see some pickup in some of the markets that have not developed favorably in the past quarters.

The churn, as indicated by the lower part of that slide is not going to come super drastically, but more like a groundswell where we start to add slowly to selected area of the business and integrate that, deploy that to customers and then gradually gaining pace as we go through it.

And then the final point, there's already been a question also I could see about the strategic review. There is not so much we can comment on at the present time. But just to say that we are going carefully through that process, as we described from the very outset, evaluating both the long-term, but of course, also the consideration offered. And I think we, as the executive team are managing that just fine whilst still being very focused on executing the day-to-day operations.

And with that, I would like to hand over to you, Brian, and then I will be available for questions towards the end of the call.

[Brian Iversen, executive]

Thank you, Soren. And let's move into the financials a bit more detailed. If we can have Slide 8, the service revenue per business line. As Soren mentioned, we experienced a slight decrease in Q1. And if we see the split on the slide here, Dynamics, which is by far the biggest Business Line, actually had a flat to minus 2% slowdown in revenue quarter-over-quarter, especially the Norwegian market saw a slowdown within the Dynamics business and Denmark came out fairly flat.

M3 had a slightly bigger decline of 9% compared to the same quarter last year, primarily because we saw over the year, and we also spoke to that during last year, they shifted some major project or finalized some major projects last year in Q1, which then ended pretty strong.

And then saw the shift over some quarters and is slowly regaining momentum on new and also very big projects that starts up. This process can take some quarters actually, even though we would love them to jump from the one to the other. But -- it's not always like that.

Digital Commerce, also mentioned earlier, we saw a major restructuring last year. They are slowly recovering, still seeing a decline on top line. We also adjusted the capacity significantly during last year, but we actually do start to see some pickup.

And one of our key points here is also to regain the profitability in the business. As you remember from last year, they were pretty low, almost 0. I'll come back to that.

So -- but still they declined. They're also heavily in Sweden and the retail market, which is basically to hit areas, both Sweden and the Swedish economy in general and then the retail up there.

Finally, data and AI continue a strong growth, 28% in the quarter. And it's basically all over. We see a solid request. And here, we are looking for more people to support the growth and the request that we get within this area. So it looks very positive, although on a minor size than our other businesses. Good.

Let's move to the contribution margin slide, Slide 9. That's where we look at what is then the profitability in our different Business Lines. And I think here, as Soren also mentioned, we move -- combined for all Business Lines, we increased the profitability from 23% to 25%. That's what we call the contribution margin, which is a very strong move and also what we have been working really hard to look at the bottom line and make sure that we have a profitable setup.

If we look on each business line, Dynamics 365, which is the new name since they merged with -- or we merged them with our CXE business. They saw a slight uptick of 1%, which is basically not slight. That is a lot of work in just moving this 1% in average up to 26%. And we are very happy with that development in a market where they do see some headwind on the top line.

M3 declined with 1%. As I mentioned before, they had a very strong quarter back in 2024. And if you remember the full year, they made 19%. So we are happy that they sort of regained the momentum and are back in an acceptable level on the contribution margin.

Digital Commerce, 11%, same as last year, although they are up compared to full year last year, they are also -- we do see some regaining in profitability in this business line after the major restructuring we made during last year.

And finally, Data & AI, probably a very bad quarter or at least a good increase of 21%, but they also had some headwind in the Q1 last year. So I would not celebrate that as even though it looks very impressive, they are just up on a level on the plus 20% that we would expect them to be on.

So, overall, a strong uptake in our contribution margin, which is the basis of the uptake you have seen in the EBITDA margin. This is where the bulk part of the business, the cost and the management lies. So, we are very happy to see that and especially when this has been one of our key focus areas of the past quarters in this turbulent market. Good.

Let's move to the next slide, that is Slide 10, market units. We are not as such measure our market unit on profitability. We measure that on our Business Lines, as mentioned earlier. But still, we look at how is it going in the different geographies we are in.

Sweden a decline of 11%, the biggest one from DKK 148 million to DKK 131 million revenue in the quarter. Again, we continue to see some uncertainty, some hesitance from our major customers in starting.

We don't feel like they are closing or abandoned projects or whatsoever. But many of our customers need to think twice, just wait and see if there's something news around the corner and so on. Eventually, they do tend to start maybe with a bit smaller bites in the first round, but still, it's moving. And we follow that very closely. And then every time we ask our businesses, how it's going, what does it look like, there is some positive sign. But still -- in the figure for the quarter, it's minus 11%.

Denmark, a decline of 6%, actually for the first time in many quarters, a slight slowdown here. Again, roughly the same activity, but a small decline over the quarter.

U.K. continued to move upwards, plus 17%, as Soren also mentioned. We have a very strong base and then consultants over there. They are also extremely good in involving rest of the delivery setup we have from India, especially in some of the major projects. So we are happy to see that. And so they continue a good -- on the good momentum.

Norway is also hit like Sweden with a lot of nervousness up there. And we did see a decline of 18%. U.S., although a smaller amount, we are happy to see that they are slowly turning over there and a 50% increase, it's DKK 9 million still, but it's good to see, and we expect them to have hit some kind of a button in the revenue side.

You might remember that there was a slowly decline during the past years, but they also see we gained some momentum over there. So overall, 2% decline in the quarter, which is -- it's okay in the tough market out there, but we also certainly expect that to slightly turn the coming months. Good.

Then I will just move to the outlook slide, that is Slide 12. Very briefly, we maintain our full year guidance, organic growth of 7% to 9% and our EBITDA margin expectations guidance of 10% to 12%.

We are, of course, in the current market, and then we also look at how is it going and our colleagues out there, et cetera, monitoring that very closely and have also increased the constant follow-up on our pipeline, our projects and how is it going. But we still have a trust in that -- so we keep the current outlook.

Yes. I believe that's all from my end. Then it's over to questions, if there is any. To Soren and I, sound is still on

[Operator]

[Operator Instructions] We currently don't have any questions from the phone conference at the moment. So I'm going to hand it back to Soren and to see if there's any questions from the web.

[Soren Knudsen, executive]

Okay. Thank you very much. I'll just give it a second here. So far, I'm not showing any questions. I do appreciate we had the one from the beginning regarding the strategic review. But at the present time, there's no further information to be shared on that.

All right. So with that, I think we'll close the call down here. It's 4:20 where I am in the U.S. So it's been a good early start. Just see if there was one question coming in here.

Can you give an estimate -- okay. So there's one question that has just come in, which is, can you give an estimate of the Easter effects on the margins? So just to explain that question to everybody, that means that the Easter alternates between being part of Q1 results or Q2 every year for all -- for all companies, I guess.

And this year, it was part of the Easter hits Q2, so the quarter that we're currently working in and is not in the Q1 results. And that means to Michael's question, that Q1 is positively impacted by the Easter effect. And from a margin perspective, we don't really do a detailed calculation on that. It's roughly 2 working days Brian, can you comment on -- do you have an estimate on that?

[Brian Iversen, executive]

Yes. Not a specific number, but I can say that for the full quarter, it was -- we had 1 day more because we also have to take into consideration how the New Year ends. So the quarter is not due, but 1 day, the month as such was too. So I would say it, it's minor. It's not -- we cannot blame this day for a big jump.

Then you are down to these details where you could bring in other pluses and minuses, extraordinary terms. And -- but of course, it will hit us again in Q2, somehow, the day or whatever holidays there is. And then for the full year -- for the half year, it's a plus and minus.

[Soren Knudsen, executive]

Okay. Then we have a question from Jonathan Sharp here. The full year guidance implies a pickup in growth. What visibility do you have on improving demand?

Okay. Let me try to talk a little bit to that one. So clearly, we do have some visibility of that now. So as I mean the U.S. now, I will start here. So we have a very good visibility of our U.S. business compared to that it's a relatively small business unit. And as you could see from before, we saw a 50% uptick on a quarter-over-quarter in this quarter.

And we have closed some contracts that have not yet gone into full delivery, which gives us a positive indication on the U.S. from a I would say, from an M3 business division, the second largest business division, as Brian was just talking to before. We have also seen a very strong pipeline and many of them have now been signed and will -- during Q2 and Q3, Q4 go into full delivery mode.

Dynamics, we are seeing a stronger pipeline in some of the countries. I would say, particularly Sweden is a country where we have developed a strong pipeline. We still need to close some of them, but they are in the final stage.

And then the final one, I would just mention on is the Commerce one, which has been one of the harder hit business units for some quarters now. As Brian was saying before, we've done a capacity rightsizing of that business unit late last year.

Again, as Brian was saying, it's very driven by the Swedish economy and by Swedish retail in particular. And we are seeing a big uptick in some of the pipeline and sales activities we have there. And that's some of the visibility we have now in combination with the current stock of work and the current business performance as measured by efficiency, which has sort of been crawling up slowly in the last few months.

Okay. I show no further questions. So with that, I would like to thank you all for joining us, and we will be back with the Q2 results. or if we have anything to share earlier, we will, of course, do that. Sorry, did we show one last question -- in the start of Q2? All right. So we show one last question, which I will just cover here. Can the start of Q2 reassure you that Columbus can still grow by at least 7% for the full year?

So we've obviously taken the start of Q2 into consideration when presenting these results. I don't think I can answer just yes to that question. It also takes, of course, a successful Q3 and Q4 to deliver on those results.

Okay. Good. Thank you very much for joining and looking forward to seeing you or talking to you again when we present results next time. Thank you.

[Operator]

Thank you. So this concludes today's conference call. Thanks for participating. You may now disconnect.