Columbus A/S

CSE:COLUM

Earnings Call Transcript

[Operator]

Good day, and welcome to the Interim Management Statement Q3 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Thomas Honoré. Please go ahead, sir.

[Thomas Gregers Honoré, CEO, President & Member of the Executive Board]

Thank you very much, Sergei, and welcome to everybody for -- to this call. My name is Thomas Honoré, and I'm the CEO and President of Columbus. And today, I'm here with Hans Henrik Thrane, who's our group CFO. I will start the presentation by going through the agenda of today's call. Let's go to Slide #4. We will start the presentation by looking at the first 9 months of 2018, followed by an income statement. Then we will present our financial value drivers and our different business segments. Afterwards, we will cover our expectations for 2018 and our long-term guidance. And finally, we will open for a Q&A session.Let's go to Slide #5 to begin the presentation. I'm at the slide called Highlights Year-to-Date 2018. Revenue grew by 52% to DKK 1.4 billion. The growth is primarily driven by the acquisitions of iStone and HiGH Software as well as an increase in sales of Columbus Software. EBITDA before share-based payment amounted to DKK 119 million, which is a growth of 22%. The increase is driven by the acquisition, but also due to a significant cost adjustment in the U.S. business. EBITDA is impacted by accelerated integration costs in iStone in the third quarter. Columbus Software grew by 34% to DKK 79 million, and then profit before tax increased by 8%, amounting to DKK 66 million. The integration of the acquired companies are progressing as planned, and we experienced a very positive development across the business. All in all, we are satisfied with financial results for the first 9 months of the year. I will now hand over the conference to Hans Henrik, who will cover the income statement. So please, Hans Henrik.

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

Thank you, Thomas. So everybody should be on Slide #6. And as Thomas said, we reached a revenue of DKK 1.4 billion, a growth of 52%. Columbus Software contributes with a growth of 34%, which coming from both Columbus existing portfolio of software as well as software portfolio in the acquired HiGH Software company. External software sales all increased by 2%, which comprises both subscriptions and licenses. Subscriptions increased by 7%, and licenses declined by 25%. The decline in external licenses is due to the fact that a large number of customers buys the licenses directly from the vendors, whereas Columbus receives an agent fee only. Further, the decline in -- is affected by a decrease in external software sales in the Columbus U.S., as previously announced. Service revenue increased by 72%, and stock cost increased by 61%. Both increases are primarily due to our acquired companies. EBITDA before share-based payment increased by 22% to DKK 119 million. Share-based payment increased due to acquisitions of iStone, where we have initiated an incentive program for key employees as part of the integration.Depreciation and amortization rose by 76% to DKK 52 million. Included in the increase in amortization is an extraordinary write-off related to a Columbus Software of DKK 50 million in the first quarter of 2018. Net financial income is positively impacted by a currency gain on the estimated earnout debt to iStone minority shareholders. Columbus has had this outstanding payment in Q1, and no further significant currency adjustments are expected on this matter. The net results before tax increased by 8% to DKK 66.2 million. So let's go to Slide #7, where Thomas will take you through our financial value drivers.

[Thomas Gregers Honoré, CEO, President & Member of the Executive Board]

Thank you, Hans Henrik. I will now present the financial value drivers and how we performed in the first 9 months of 2018. Please go to Slide #8. The service revenue increased by 72% to DKK 1.1 billion. The improvement is mainly due to the acquisition of iStone and HiGH Software. Within customer work, chargeable hours increased from 52% to 54%. We experienced high activity 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 the services business despite U.S. not fully being back on track. With a revenue growth of 72%, we consider the results satisfactory and in line with our expectations.Next slide, please. Columbus Software increased by 34% to DKK 79 million. Columbus Software sales includes subscriptions, perpetual licenses and cloud. Subscriptions grew by 20%, due to a strong renewal rate of previous year's sale of new perpetual licenses. The license sales increased by 37%, due to high demand from our customers. Columbus Cloud revenue rose significantly, growing 129%, which is also in line with our expectations. We're very satisfied with the development in the sale of our own software.So let's move to Slide #10, which is an overview of our recurring revenue. The recurring revenue consists of Columbus Software subscriptions, external subscriptions, Columbus Care and Cloud revenue. In the first 9 months of 2018, recurring revenue increased by 26%, constituting 22.5% of Columbus' overall total revenue. The progress is mainly driven by 49% growth in Columbus Care contracts. And as I mentioned on the software slide before, we saw very good progress in sales of our own cloud software. As you can see in the graph, total cloud revenue shows very good progress, increasing by 153%, which consists of Columbus Cloud and external cloud revenue. We consider the results to be satisfactory.Next slide, please. This was the reporting on our financial value drivers. I will now hand back the presentation to Hans Henrik, who will present the business segments.

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

Thank you, and I'll start by taking you through Western Europe. Revenue grew by 115%, which is mainly impacted by the acquisitions of iStone, which continues to deliver good progress and high activity. The service revenue increased by 141%, which is a very satisfactory development and, again, due to iStone as well as a general increased demand from our customers. Columbus' Danish business unit experienced high activity across the business, which has generated high utilization in the service organization. Columbus U.K. continues to deliver solid results. However, the result was -- [indiscernible] was impacted by a lack of people in the service business. And in Columbus Norway, the result is characterized by lagging sales, leading to low utilization in the service business. All EBITDA increased by 14%, amounting to DKK 73 million, and the EBITDA is impacted by accelerating -- accelerated integration cost in iStone in the third quarter, which has resulted in higher integration cost for 2018 than earlier announced. The reason for this is that the integration of the organization is being executed faster than initially planned. In Q3, year-to-date, the integration cost amounts to DKK 14 million. So all in all, a very satisfactory development. So we -- thanks to our teams in Western Europe.Next slide. Now to Eastern Europe on Slide #13. In Eastern Europe, revenue decreased by 8%. In local currency, revenue declined by 2%. The key reason for the decline is that last year's numbers included the Latvia business unit, which we have now divested to a strategic partner. If we normalize for Latvia, Eastern Europe delivered a growth in revenue of 7% in local currency. Furthermore, the revenue is affected by a decline in external software, which decreased by 39%. We see a hesitance from customers to invest in new ERP because they are uncertain about the transition to the cloud. This market reaction was the same as we saw in Western Europe last year as the cloud conversion started. We expect to see positive growth as the market is maturing. Columbus Software increased by 50%, which is due to a number of [ large ] software deals in Columbus Russia. Columbus Lithuania shows good progress in general, growing in all parts of the business. And Columbus Estonia is challenged by the conversion to cloud, leading to lower revenue and EBITDA. Despite the decline in Estonia, we maintain EBITDA at the same level as last year. Thanks to our teams in Baltics and Russia.Next slide. So now to North America. North America is a segment where we are most impacted by the currency effect. All revenue declined by 20% year-to-date compared to last year. And in local currency, the decline is 13%. In real numbers, the currency impact is DKK 20 million. The decline in revenue in the U.S. is due to slow pipeline conversion, as we have announced in earlier quarters. EBITDA grew by 158%, which is due to the adjusted cost level and reduction of the organization in order to compensate for the reduced sales. In local currency, EBITDA grew by 184%. As we have announced earlier, we are working intensely to return to growth in our U.S. business. However, the turnaround will take longer than initially expected. Thanks to our teams in the U.S.Columbus Software business on Slide #15. We saw great progress in our software business where the total revenue increased by 88%. The progress is due to the acquisition of HiGH Software in January 2018 and to a high demand from customers in general. Columbus Software subscription increased by 24% due to strong license sales in previous years, and Columbus Software licenses increased by 32%. We especially see growth in the sales of the software product, DynaRent, which grew by 193% in a combination of cloud and perpetual license sales. We experienced that more and more customers recognize our deep domain knowledge on the rental side and choose to implement DynaRent. We also see strong growth in the sale of our food solution, which grew by 176%. It is primarily our dedicated focus on the food industry in our business units in the U.S. and DK that pays off in terms of selling our software alongside service projects. Finally, our IEM solution grow by 111%, also in a combination of cloud and perpetual. The cloud adoption has continued to accelerate, as expected. Many customers are still starting small in the cloud as they do not see the need to buy all licenses upfront, but we are also getting bigger cloud deals. In the first 9 months of the year, Columbus Cloud grew by 118%. Services also grew -- showed good progress, which is coming from the acquisition of HiGH Software. We're very satisfied with the development in our software business. Thanks to our software team.So now we are on Slide #16 and an update on Stronger Together. So we are now 9 months into the integration of iStone. And the process is running as planned, and we experienced a very positive approach across the organizations. As mentioned earlier, the integration of the organization is happening faster than initially planned. This means accelerated integration costs, which is -- which increased [ re-amounts ] to DKK 14 million. As mentioned earlier, we have entered into a strategic partnership with itelligence, which included a sale of iStone SAP, ERP business unit to itelligence Sweden. We keep the experience within SAP customer experience, which is a cornerstone in our -- of our commerce business. The integration plan is focusing on 2 business streams: growth and efficiency. Both streams are progressing very fine, and we are executing according to our plan. An example of the integration progress is that Columbus Norway has become one company with one leadership team, and the 2 Oslo offices have now moved basically together in the iStone buildings. Furthermore, we are progressing with stocking up resources within M3, Dynamics and Columbus Care in our Global Delivery Center in India in order to support and grow our businesses globally. And during Q3, iStone moved to the same mail and calendar system of platform as Columbus, which gives a better foundation for collaboration and working together. So all in all, a very positive development of the Stronger Together program.Next slide. So I will now hand back the conference to Thomas, who'll take you through the guidance for 2018 as well as our long-term guidance. Please go to Slide #18.

[Thomas Gregers Honoré, CEO, President & Member of the Executive Board]

Thank you, Hans Henrik. We expect the 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. now let's go to Slide #19 for our long-term guidance. With the acquisitions of iStone and HiGH Software, we are taking a large step in reaching our financial goals for 2020. Our focus will be to grow organically, and our ambition is to grow the business on an average rate between 3% to 5% each year. 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. We expect the current 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. This was the end of today's call. I will now hand over the conference to our moderator, Sergei, for questions and answers.

[Operator]

[Operator Instructions] There are currently no questions over the phone. [Operator Instructions]

[Thomas Gregers Honoré, CEO, President & Member of the Executive Board]

Okay, Sergei. I think that seems to be the end of the call today, that there are no questions. So thank you very much, Sergei. Why don't you close the meeting?

[Operator]

Certainly. Ladies and gentlemen, that will conclude today's conference call. Thank you for your participation. You may now disconnect.