Columbus A/S

CSE:COLUM

Earnings Call Transcript

[Soren Knudsen, executive]

Welcome to all of you for today's webcast, where we will be diving into our financial results for Q2 of 2025 and also having and look at the combined first half year. My name is Soren Krogh Knudsen. As the operator just said, I am the CEO of Columbus. And with me is Brian Iversen, our Group CFO, who will help me present.

So I will start with just a brief overview of the financial highlights. Then I will follow up with some observations on market and operational highlights. Then Brian will take over with a run through of the financials in a bit more details and then going to the guidance section, and then we'll finish on a Q&A session.

The revenue for Q2 in 2025 actually ended with a slight decline. We're still seeing some of these challenging conditions, particularly in the Nordic market, whereas our U.K. and U.S. actually continued the positive trend that we've also reported on in previous sessions. It should be noted that there were actually two fewer working days in Q2 of '25 compared to '24 and that obviously impacts the comparison negatively.

Our EBITDA declined by 27% when adjusted for the extraordinary income we had in Q2, '24. Overall, this is mainly a result of a weaker top line and also a slightly weaker efficiency in Q2 of '25.

The contribution margin -- and the contribution margin is higher up in the result calculation. So basically, looking at the contract profitability increased with 1 percentage point to 19% in Q2 of 2025, compared to 18% in Q2 '24. And this is primarily due to further improved project execution, something that we've been working on for, I'd say, for the past 4 years. So we continue that positive development. Brian will cover in his section how each individual business unit has performed on that.

The cash flow from operations increased by 13% from DKK 16 million for the same quarter last year to DKK 18 million in Q2 of 2025, and we think this, again, underpins the soundness of our business and that we have a very close relationship with our customers, which we are particularly pleased with in a period like this, where we're seeing a little bit more sort of turmoil on the global markets.

Last point here comments on our two business units. So the runner up business unit, the second largest and the third largest. And we've reported to you in previous sessions that both of these units have gone under different types of restructuring and development over the past years. And this is really working for us. And compared to last year, same quarter last year, our M3 unit is up 13% in terms of efficiency. So the -- our ability to sell the hours basically that are available to us. So 13% is very big increase up to 68% now, and digital commerce is up 10 percentage points to 63% in June compared to June 2024. So these two units have some significant improvements, which we will also be able to see when Brian comments further on the development there.

Let's go to the market and operational highlights. So just to comment on, and what is on my radar, and the rest of the group management team. The first point is called scaling our organization. These corners are very challenging as we see shifts in the market that are not uniform across the business. So some geographies are fairly unaffected by geopolitical statements. Some are very affected for short term. Some business lines thrive and some less so. So like we've done with our M3 and Digital Commerce department in the previous years, we are very, very keen on sort of the pinpoint structure improvements where we're not just painting across all geographies, or all business units. We're really assessing each business unit on each geographical level and making necessary adjustments, either in capacity or we're changing the customer focus.

We might change some of the profiles that we are hiring. So despite that our team size has gone down somewhat, it's not because we're not hiring. It's actually because we are changing the skill set of the organization to suit future needs. So this is a very important task. And again, as I say, it's not something which can just be done with a simple strategic decision, which will then be carried out in each country and in each business line. It really needs to be bespoke for each of them.

A comment on the AI. So things are developing very fast, and we have very interesting projects. So we continue to showcase the possibilities. We're running internal programs for further sort of proficiency development, our own staff. We are testing various tools internally as well. It means a lot for our own efficiency. But perhaps the most important one to bring forward is that we're seeing now a very clear strategy from Microsoft on how they envisage the market developing for what we would call -- I would call it sort of the simpler end of the capability, of the technology, and it's really about how to completely automate simpler and more repetitive work tasks. Its very similar to what we've talked about for years with just process automation, but with much more contextual understanding.

We have a big role to play there. It's a huge transformation, which is a non-technology transformation for all our customers in adopting this technology, and basically changing their human side of the organization to embrace this. And this is something we are spending a lot of time on developing our service offering for.

And finally, we've taken the opportunity after we closed down the strategic review to take all the learnings we have from that. We had, as you know, a multitude of dialogues with industry players, financial players. And that gave us some inspiration. So we are giving currently our strategy, a midway health check. We are approximately halfway into our health check, particularly with a focus on the top point of the slide, how to scale the organization.

We've also been doing some further development on our Evolve offering. That's the part which is a recurring revenue and which -- basically in periods where we're not doing any major projects for our major customers. This is how we work with them, and this is also usually how we secure the next bigger arrangement. And we want to change some things there and put more emphasis on getting more of this. So more recurring revenue in the future.

As I said, also, lots of development in data and AI, and also a lot of attention is currently being given to updating our understanding of the M&A landscape and the opportunities there. We are still in a situation where the -- we consider the debt level of the company low. We consider the operational cash flow as strong. And our ability to obtain further funding is also strong, and we are seeing some indications that the price point of targets in the market is starting to come down to acceptable levels. So we might pursue some opportunities there.

That concludes that, and then I'll hand over to you, Brian, for the financials, and we shift to slide -- the service revenue for Q2 2025.

[Brian Iversen, executive]

Thank you. Thank you, Soren. And as always, let me start with the service revenue for Q2 per business line. As Soren mentioned, we saw an overall decline in the quarter of 4%, and that is only driven by our biggest business line dynamics, which saw a decline of 9%. Remember, dynamics account for around 65% of our total revenue. So therefore, it had a significant impact on the group when they see a decline.

On the other side, M3 and Digital Commerce both saw increase in revenue compared with the same quarter last year. And that is actually the first time in 6 months, or 2 quarters, that we see that they are returning back to growth as I mentioned after some kind of restructuring and shift in major projects and starting up new projects. So this is a very positive sign in a challenging business environment that we see here. So that is super. Data and AI had a flat development in the quarter.

If we move to the next slide and our contribution margin, which is the lowest, let's say, profitability KPI for our business lines. We can see that dynamics, so a decline of 2 percentage points during the quarter. Again, if you have a lower revenue, you -- we did see a lower efficiency, which again means we don't get our good resources out working on contracts. And that impact, of course, the business line contribution.

On the other hand, and goes well in hand with the organic growth that we saw in both M3 and Digital Commerce. They saw a strong uplift in contribution margin, M3 from 14% to 21% in the quarter, and Digital Commerce from minus 4% to 12%. You might remember that Digital Commerce went to quite a serious turnaround during last year and especially Q2 last year was hard hit based on that restructuring. But it's really good to see that M3 is now getting up in the 20s where they should be, and that is from hard work on strong delivery to -- also to new clients out there.

Data and AI saw a dip, it's a minor number. So a small impact. Give some 5 percentage points dip, 10 percentage points, mainly due to that they continuously invest in new resources on board that needs some training and some setting up on new projects, and that do have a short-term cost when you are growing in a good pace.

Good. Then let's have a look at the service revenue per market unit, or country, for Q2. Sweden, had a flat development compared to the same quarter last year. It's still some headwind over there. But we managed to get them at least on par, and that is an improvement compared to previous quarters where we have seen a decline, I believe, over the last 2 or 3 quarters at least.

Denmark and Norway has seen a decline in revenue. Especially Denmark and Norway, where Dynamics is big. I mean it's one of the biggest player have had some headwind due to postponement and decision-making on new projects. And as Dynamic is fairly big in both countries, it does have a negative impact on the country organic growth development.

U.K. continue, although a bit lower percentage growth patterns. I believe in the last years, we have seen strong growth from their side. And it's 2% for the quarter, but we still see some very good perspective over there. And U.S., although on a lower value, so a steep increase, mainly from very strong projects or new projects in our M3 business lines. where they start to get a very good and strong foothold.

Good. Then let's move to the Page One, or the first 6 months of 2025. Its the same story. Dynamics for the first half year, a decline of 5%. As mentioned before, project hesitations and start hesitations from new projects is seen, especially in Norway, and in Denmark and in Sweden. M3, you will see a minus 4% decline in revenue for the first 6 months, but as I just mentioned. Q2, we do start to see the turning point for M3 after some quarters with shift in projects from -- in this business line. Digital Commerce also saw a good Q2, but started the year a bit lower after the restructuring. So year-to-date, minus 4% growth. And data and AI. Obviously, they had a strong Q1, and therefore, they ended the first half year on plus 13%.

On the contribution margin for H1, or the first 6 months. Overall, we have seen a 1 percentage point increase from 21% to 22% for the first half year. And I'm certain that this is due to the proactive adjustments of our capacity, as Soren also mentioned before, and that is a continuous work. And secondly, strong project execution and therefore, a strong and good project margin, which we have a high focus on.

As you will see, if we look at each business line, Dynamics have seen a flat development for the first 6 months, 24% to 24%. Whereas M3 have moved up especially in Q2, moved up in the -- to 23% contribution margin, close to Dynamics now. And those of you who have followed it for years will know that M3 have been in the lower 20 upper teens in the past years. I think this is a really strong development that we have seen in this business line.

Digital commerce is out of the tough times. Starting to get up there, not at where we want it to be. The same with data and AI. But they are smaller business lines. We still do some investments and the Digital Commerce has been through some restructuring, where there was some slip over also in the beginning of this year.

So overall, a very satisfied result on the contribution margin for the first half year. And we are happy to see even in our environment, that is a bit tough out there. We see an improvement in our basic business capability of returning revenue to even better profitability.

Then let me end this slide show with the service revenue for the first half year for our market units. And again, a bit the same picture headwind in Denmark and Norway, both down especially impacted by the Dynamics. The project hesitations. And then U.K. and U.S. continue the upwards trend. Not that it's not a tough market in U.K., or in U.S. for that sake, but we do see a good tractions and some strong wins with our teams in these two countries. And especially U.K. is starting to get up in -- up there together with -- on Denmark size, they have grown quite significantly in the past 3 years.

So that was all on the specific business line and markets. Then let me finish off before questions with our outlook. As we announced the 16th of July, and you might know, all of you. We adjusted our margins based on the current outlook and what we see in the market, and we adjusted the full year guidance for '25 to revenue of a level of around DKK 1.7 billion on par with 2024, so roughly at 0% growth. And we thereby also adjusted our EBITDA margin from previously 10% to 12%, to now 7% to 9%. And -- so -- and we came also with the explanation and a small input on that in the 16th of July announcement.

Good. That was all from me. For now, then I'll hand over to the operator, and then it's open for questions.

[Operator]

[Operator Instructions] And your first question comes from the line of Yiwei Zhou from SEB.

[Yiwei Zhou, analyst]

It's Wei from SEB. I have a couple of questions, and I'll do one at a time.

Firstly, when looking at your Dynamics unit and it's clearly a challenged situation. But can you confirm it is solely driven by macroeconomic uncertainty, rather than the AI disruption? Or the customer is concerned to use the U.S. technology?

[Soren Knudsen, executive]

Yes. Okay. Thank you for the question. So I'll just summarize. So it's particularly to the situation of Dynamics, a Microsoft platform and whether the slowdown in growth and in some geographical markets, negative growth is caused by anything else than the macro factors and that could be this digital sovereignty discussion, and also you say, an AI impact. So let me start with the easy thing.

So digital sovereignty is something that we discuss both with Microsoft and how to better segregate the operational environment in the future, and it's something that customers have an interest in, but it's not something that has an impact on their decision to engage with the dynamics platform.

To the second point, I think on the contrary, actually, the AI -- the embedding of AI into a suite, a software suite like the Dynamics as part of the Microsoft biz app suite, it is very impressive and it's probably more working to their advantage now. So it is mainly down to macroeconomics.

However, I do also think that there's a fourth element here that would be our internal -- we've grown a lot in Dynamics over the past years. And sometimes you plateau on growth. You need to reshuffle your leadership setup like we've done for Dynamics and in M3. And we are -- we've been working on that for a while, and we continue to go through some steps where I think we, in Columbus, can have a better approach to business development in the market, and we're starting to see some of that come through.

I think particularly the U.K. market that perhaps goes without saying is still strong. We are seeing a lower growth than we normally see, but it's still a very, very strong market for us. The Danish market, which has had the stock change from growth to some negative growth, we still have a very, very high efficiency on the team. So the profitability is there on the Danish team. And now we just need to look for these opportunities to start growing the team again.

Swedish and Norwegian market a little bit more tricky for us, and we're building there, the work for us is more of sort of a really heavy pipeline building, and we've been in that process for a while due to the delays.

I'd like to perhaps say a word about -- everybody is talking about this dragged out decision-making, prolonging hesitance in the market but what it actually means for us? Two examples, one for existing customers and one for new. So first, for the existing.

A big part of our business every year comes from existing customers. They then communicate the desire to run a big project that could be an acquisition that needs to be moved on to a core platform or something else. That's what we're used to, and we're still seeing that. However, is very often when we have communicated a starting date of Q1. This is without competition that we are already in there. They're just saying, okay, get ready, we're going to deliver this. We're going to start in January. Then nothing happens. They have to delay it. They have to discuss things with the Board. However, what is good for us, it comes back to us 6 months after. It doesn't go away. It's not permanently shut down, and most of it comes back just up to at least a half year later than expected. So we need a much bigger overbooking, if you will, of our resources.

And the other one is for the new customers where we typically go through a very rigid competition process against our competitors. We -- we get it narrowed down in the field of competitors. We enter into exclusive negotiations. We negotiate the contract perhaps, and all of it. And then suddenly, the whole thing is just put on a hold. But they very often come back to us. So we have a number of these things that then come back.

And so at the moment, it's about closing that gap in the pipeline to be more overbooked. I hope that answers the first question, yes?

[Yiwei Zhou, analyst]

Yes. That was very clear. Can I follow-up on the auto Dynamics in Denmark. It was one of your peers talk about a tougher competition from the international vendors to implement the Microsoft Dynamics for the -- in the prices. There was -- you have talked about it for 2 quarters. Are you seeing the same thing, or you are confident that you are still winning, have a good win rate?

[Soren Knudsen, executive]

So our win rate actually on the dynamic side has actually gone slightly up in this environment, but there are just less decisions being taken. And I do see some competitors -- we've always seen a competitive landscape. I don't consider the competition to be -- no worse or less than before.

Clearly, some of the more -- perhaps more distressed organizations will opt for some price decreases in this period of time, but it's not something that has really affected us. And as Brian was just talking about the contract -- the contribution margin, we stick to the guidelines we have. and build these long-term relationships.

[Yiwei Zhou, analyst]

Okay. Great. And then also on the pipeline, I mean how is current trading, if you can indicate a bit? Since now you have 2 months more visibility after closing of the Q2.

[Soren Knudsen, executive]

Sorry, can you just say that again?

[Yiwei Zhou, analyst]

Can you talk about the current tradings since you have 2 months more visibility now after Q2 [indiscernible].

[Soren Knudsen, executive]

Yes. There's nothing which we can currently report on there. And that's -- obviously, the quarter isn't close, but also 1.5 months of Q3 has now passed, but that -- those are the summer months, and they are very hard for us to predict on. There's nothing that has led us to sort of report on extraordinary events.

[Yiwei Zhou, analyst]

Okay. Okay. Fair enough. Yes. Yes. And then a question to Brian. Regarding the guidance -- EBITDA margin guidance for this year, up 9%. I realized that you had a sort of a nonrecurring item in Q2. And then you also indicated that it could actually adjust the capacity. What I understand is that could be -- potentially be some sort of staff reduction?

The 79% is it after the nonrecurring items? Or is it before?

[Brian Iversen, executive]

I mean, we are not one of the companies, as you know, that we just sort of go after stuff. So everything is included in the 7% to 9% EBITDA margin. Also restructuring and so on.

And you're right, we actually had a negative -- we actually had a cost of DKK 2 million, extraordinary cost of DKK 2 million and I decided not to take that out because it was minor, so we did that as well. But a fair question, [indiscernible] it's all interesting, so to speak.

[Yiwei Zhou, analyst]

Should we expect any meaningful restructuring cost of service payments in the second half?

[Soren Knudsen, executive]

Okay. So Brian, perhaps I can take that one because I will also just include the question on the -- from Michael [ Hollerer ] here who is asking us whether we regardless of all the macro factors, if we will start to cut headcount, which is also sort of pertaining to the same question.

So we will, and we are doing capacity adjustments to our organization. I would like to make it clear that it is not any way a hiring freeze. It goes back to what I said before about bespoke plans for each geographical business units. So some are hiring, like data and AI, and Denmark is hiring very heavily at the moment. But there are areas where we are adjusting some capacity.

And also on the overhead costs, we are trying to bring that more in line with the slower growth than what we saw. So that's clear. And we -- there's an additional question here.

I assume that you -- that you continue to have the goals of 2026, the EBITDA 15%.

So at the moment, and we will report if we change anything, that remains our goal. Obviously, as you can see from the adjusted guidance in '25, we would have liked to get to 10% to 12% already this year. But we understand why we're not getting there, and it's efficiency and it's headcount. So it's something we're fairly good at controlling.

So we think that the business model is really working. The contribution margin is there. The quality is there, the customer continuation is there. But yes, as we reported, there is hesitance in the market.

Then the final question, can we expect that the share buyback will remain at the current level year out?

[Brian Iversen, executive]

Yes. I mean, we are under some strict rules around it. So we cannot sort of guarantee or expect that. But -- but we continue as planned, and as we can. But it's basically out of our hands, that's something we have outsourced to Nordea that is managing this part for us and not that involved with.

[Soren Knudsen, executive]

Yes. Yes. So let me try also, Brian. I mean the way it works for us, we have set aside the amount communicated that is the trading mandate that has been given as it should be under the rules. And it is depending on how quickly we chew through that amount that's been set aside.

All right. Thank you. I think that concludes -- that's all the time we have. Thank you for the great questions. Very exciting and challenging quarter for us. The strategy is definitely working. So we're seeing the returns and focusing on the right customers, the right industries, the right solutions, but the market is challenging. We look forward to report back to you at the end of Q3. Thank you. That concludes the call.