Columbus A/S

CSE:COLUM

Earnings Call Transcript

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to today's Q2 results and launch of new strategy. [Operator Instructions]. Also, I must advise that this call is being recorded today, Thursday, November 12, 2020. And without any further delay, I would now like to hand over the call to your first speaker today, Mr. Hans Henrik Thrane, Interim CEO of Columbus. Thank you. Please go ahead.

[Hans Henrik Thrane]

Thank you, Rahman. And as said, my name is Hans Henrik Thrane. And the presentation today, I'm at Slide 4, will cover 2 main parts. First, I'll present the highlights and the financials for Q3. And then I'll present our new strategy Focus23. We will, at the end, have a Q&A session where we hope to get a lot of questions from you. So let's go to Slide 5 to begin the presentation. Q3 was the start of a major transition for Columbus. On October 28, we jump-started the execution of our new strategy by announcing the potential sale of our valuable software company To-Increase. And today, we are launching our Focus23 strategy. In our U.S. subsidiary, we have initiated a new simpler organizational structure, which I will cover later. During Q3, we have continued to steer Columbus through another quarter -- another challenging quarter and impacted by COVID-19 with good results. We believe that we have demonstrated quite some resilience throughout our company. Q3 has also been affected by 2 extraordinary elements. This is an adjustment of earn-out and a loss on a fixed price project in Norway. This time, we have shown you normalized EBITDA numbers to better understand the underlying business development. Due to the initiated sales process of our software company and the closing of Spain, these entities are now consolidated on a single line in our P&L, both in 2019 and in the 2020 numbers. So in the numbers, we walk you through today, if excluding, To-Increase in Spain. This is what we call the continued business. The numbers presented in our webcast and in our Q3 report is for Columbus continued business. COVID-19 has affected our markets in different ways, especially our markets in Eastern Europe and U.S. has been hard hit by the global pandemic with major lockdowns. We have also seen a number of new customer investments, which are still on hold, and Columbus has further gauged in a number of time-limited COVID-19 discounts. Consequently, our total revenue has declined by 13% in the quarter. And organically, this decline was 15%. Columbus Care continued to progress with revenue increasing 4% to DKK 40 million in Q3. And recurring revenue constitutes a bigger part of the total revenue with Q3 recurring revenue being 20% of total revenue. Product revenue in total is at a lower level as to increase software business as held for sale. However, our Cloud continues to grow rapidly with 34%. Since the COVID-19 stroke, the world, we have continuously adjusted our business in terms of cost and capacity to the changing market conditions. With a tight control of our costs, we have improved normalized EBITDA by 25% to DKK 24 million in Q3, providing a normalized margin increase of 2 percentage points to 7%. Reported EBITDA, including the extraordinary elements just mentioned, decreases 24% to DKK 39 million in Q3. And profit before tax declined 50% primarily due to the lighter impact of the earn-out reversals in 2019. So now I'm on Slide 6 with the header organic revenue and normalized earnings. On this picture, we have illustrated the bridge between reported numbers and normalized numbers. The customer provision is related to the Norwegian fixed price project we have previously disclosed. The reversal of earn-out is primarily related to the fact that the close down of Spain has had a negative impact on the earn-out as it was part of the iStone acquisition. So the key takeaway from this picture is that despite a revenue decline, has managed to improve our normalized EBITDA in Q3 and maintain at the same level year-to-date, thus increased the EBITDA margin. So next slide, I'm now at the highlight year-to-date 2020. The overall message here is the same as for the quarter. The COVID-19 has impacted our business since March this year, and consequently, revenue year-to-date has declined by 5%[Technical Difficulty] again due to the continuos demand and costs, we are delivering a normalized EBITDA of DKK 89 million versus the same levels last year. Revenues from both Columbus, Columbus Care and recurring revenue [Technical Difficulty] good performance. Next slide. Moving now on to the income statement and I will now briefly comment on the income statement[Technical Difficulty] Other external costs decreased by 21% in Q3[Technical Difficulty]in some of our businesses, as we see markets picking up again in some[Technical Difficulty] Financial expenses is increasing [Technical Difficulty] in earlier this year, and further impacted by currency adjustments relating to [Technical Difficulty] And also on this slide, where you can see that to increase and staying consolidated on the one line, which is the second last line in the report here, where it included in the P&L.So now we'll go to next slide. And we are now on the Slide 9, financial value drivers. Due to the potential sale of our software company To-Increase, we do not report on the financial value by our Columbus software as this is not part of that continued business.So I'm now on Slide 10. Columbus Care continued to progress with an increase of 4% in Q3 and 16% year-to-date.As the consequence of the COVID-19 marginal impact, our service business declined by 15% in Q3 and year-to-date by 5%.As I just mentioned, we have started to hire again[Technical Difficulty] so we expect to see a smaller decline in our services for Q4.We can also that our improvements[Technical Difficulty]are increasing again in the current quarter. The capability or efficiency is at the same level as last year, however, with the reduced number of[Technical Difficulty]And I'm now at Slide 11. Recurring revenue continues to constitute a bigger proportion of our total revenue. Year-to-date, our recurring revenue increases from DKK 288 million to DKK 305 million, at growth of 6%, constitutes 25% of our total revenue.We are very satisfied to see, this big contribution from the growth in our Columbus Care.And now to our geographical segments on Slide 12. And let's move on to Slide 13. Western Europe is actually where we are expecting this modest revenue decline. And in Western Europe is where we've had -- we have been impacted by the consumer project in Norway and the iStone earn-out and closing our entity in Spain, as mentioned in the beginning of the webcast.In Q3, revenue declined 4%, driven by decline in service revenue, which is partly offset by product revenue increasing 12%, may be due to a strong plus cloud increase of 54%.Year-to-date, the revenue is stable with a small decline of 1%. The reported EBITDA declined by 12%, by DKK 43 million. And however, normalized for this cost operation and earn-out, the increase is actually 68% to DKK 27 million. So thanks to our teams in Western Europe.Now I'm on Eastern Europe, Slide 14. In Eastern Europe, revenue declined by 10%, again due to a decline in service revenue and a decline in product revenue. EBITDA declined by 30% in the quarter, by year-to-date we have remained stable in EBITDA DKK 10 million, again due to cost savings and capacity adjustments.So thanks to our[Technical Difficulty]And I'm now on Slide 15, North America. Due to the continued presence of COVID-19 in the U.S. the turnaround for U.S. is slower than we have expected. This is also changing the way, the customers are engaging with us. And in order to meet the market demand, we'll focus the business in two different units or divisions that support improved customer engagements. One focus on larger customers, and one focusing on small and mid market customers.This has been accelerated by the COVID-19, in that the synergies between the two markets is less than the complexity it creates to run them in the same unit. At the same time, our current Manager, with this pursuing role at Columbus, we thank him for developing the current team and believe that our current leaders within the organization will be able to run and lead the business in this more simpler and focused time.Next slide. I'm now at Slide 17 to cover our outlook. In the interim report for the first half of 2020, our full year guidance for 2020, we announced the following guidance. Revenue between DKK 1.750 million and DKK 1.850 million. EBITDA in the range of DKK 175 million to DKK 185 million. Based on the financial performance in Q3 2020, current order book and guidance forecast, our full year guidance for 2020 for the total business including assets held for sale is stronger. So revenue is unchanged at the same level. The range for EBITDA is adjusted upwards with DKK 15 million to the range of DKK 190 million to DKK 200 million.Adjusted for the assets held for sale in this continued business, our full year guidance for 2020 for our continued business is as follows: Revenue is expected to be in the range of DKK 1.6 billion to DKK 1.7 billion.And EBITDA is expected to be in the range of DKK 125 million to DKK 135 million. And this is our guidance that was like the reporting for the continuing business. As we talk about all-in-all the -- what has happened is that the EBITDA has been upwards by about DKK 15 million.So the net adjustments in the revenue, the EBITDA from To-Increase and the cost is available to gross profit.Next slide. So we are now on Slide 18. And this was our Q3 financial reporting. I'll now test the settings of the webcast and go into the launch of our new [Technical Difficulty]And I'm very excited to introduce you to Columbus new strategy which we call Focus23. And so it is all about focus -- customer focus, people focus growth and stability. So let's go to the next slide, Slide 19.So the starting point for our Focus23 is solid. Our 2020 strategy has taken us far, we have a dominating position within Cloud ERP market covering both Microsoft Dynamics and M3. In fact within Infor M3 and Microsoft, we are global leaders.Columbus is a Nordic leader within e-commerce and our application infrastructure management services has grown to a significant size with a deep catalog of services. Further, our offerings within modern workplace and data analytics has grown from being toddlers to growing teenagers. Since 2015, we have developed a well-established service catalog covering a wide portfolio of relevant digital solutions for our customers. This is what we call 9 Doors to Digital Leadership. In comparison with many of our usual competitors, Columbus has a well-established set of Global Delivery Centers, which gives us additional access to great people and talent. When we engage with customers, we are known for high-quality in what we do, and we are in control of our risks. And then a very key in our new strategy. The ability to measure customer satisfactions or loyalty. This is a key in delivering more services to our customers and to get better references or advocacy. We have a well-established measure for the net promoter scoring, and we have improved the NPS score significantly over the last 4 years. And last but not least, our financial position is strong in terms of financial leverage and cash generating. So I'm now going to Slide 20, strong growth opportunities. Apart from a great starting point, the market potential and what Columbus is doing for our customer is highly relevant and a prosperous demand for the services provided by Columbus. In this picture, we have collected digital market expectations, matching our 9 Doors to Digital Leadership. Our 9 Doors to Digital Leadership, in fact, covers most of the digital needs for our customers within our core industries, food, retail and manufacturing. So what you should take away from this picture is that there's a great growth potential in what Columbus brings to market. Okay. I'm informed that we have to put a pause, 2 minutes for improving sound. Hang-on. [Technical Difficulty] Yes. The sound goes through. Now I think, I will start with -- go back to Slide 18, and start the strategy announcement again. Well let's go to Slide 19. So the starting point for our Focus23 is solid. Our 2020 strategy has taken us far, and we have a dominating position within Cloud ERP market covering both Microsoft Dynamics and M3. And in fact within Infor M3 and Microsoft, we are global leaders.Columbus is a Nordic leader within e-commerce and our application infrastructure management services has grown to a significant size with a deep catalog of services. Further, our offerings within modern workspace -- workplace and data analytics has grown from being toddlers to growing teenagers. Since 2015, we have developed a well-established service catalog covering a wide portfolio of relevant digital solutions for our customers. This is what we call 9 Doors to Digital Leadership. In comparison with many of our usual competitors, Columbus has a well-established set of Global Delivery Centers, that gives us additional access to great people and talent. When we engage with customers, we are known for a high-quality in what we do, and we are in control of our risks. And then a very key in our new strategy. The ability to measure customer satisfactions or loyalty. This is a key in delivering more services to our customers and to get better references or advocacy. We have a well-established measure for the net promoter scoring, and we have improved the NPS significantly over the last 4 years. And last but not least, our financial position is strong in terms of financial leverage and cash generating. So next slide. I'm now on Slide 20, strong growth opportunities. Apart from a great starting point, the market potential and what Columbus is doing for our customer is highly relevant and a prosperous demand for the services provided by Columbus. In this picture, we have collected digital market expectations, matching our 9 Doors to Digital Leadership. Our 9 Doors to Digital Leadership, in fact, covers most of the digital needs for our customers within our core industries, food, retail and manufacturing. So what you should take away from this picture is that there's a great growth potential in what Columbus brings to market. Next slide. So we are now on Slide 21 -- Slide 21, yes. So with a solid starting point and a great market opportunities, Columbus has developed the Focus23 strategy to leverage this market situation. And this slide is our elevated pitch of our strategy. Columbus will focus on becoming a true global consultancy, extending with more digital advisory. We'll grow the business by focusing on our industry legacy within food, retail and manufacturing. And with that dedicated focus, we aim to reach a market position as digital trusted advisor. To execute, we will focus our organization, our operations and business applications to operate more focused and efficient to clear the path for more smooth collaborations and knowledge transfers. We will continuously improve our service offerings, our 9 Doors to Digital Leadership and turn these services and solutions into higher customer value. We'll continue to improve our high customer satisfaction to maintain and create customer loyalty. This is the key in executing organic growth and margins. So overall -- the overall objective is to increase the value for our customers, improve customer satisfactions and thereby increase organic growth and improved EBITDA margins. I'm now going to Slide 22, future market position. With our Focus23 strategy, we have the ambition to claim a broader and higher value position in the market in order to create a sharper competitive edge or space of blue ocean within our industries, food, retail and manufacturing. Combining IT application, consultancy and more system agnostic digital advisory is intended to create a unique space for us. We want to create the layer of holistic digital advisor that connects the more technical business application advisory to generate business anchored digital transformation strategies with a safe implementation engine. So as the picture illustrates, we will grow moving northeast in the diagram, expanding by increasing our focus and services on larger customers and more digital advisory. We believe, we are able to make this expansion as Columbus has global reach and natural presence, well-developed global delivery model and a wide portfolio of services and solutions and a strong industry focus. Next slide. This is Slide 23, growth through focus. This picture is to illustrate how Columbus intend to grow organically. The diagram is 3-dimensional by focusing on customer developing and targeting -- by focusing on customer development and targeting our larger customers, we get access to larger investments. This is the horizontal line. The vertical line is next dimension. Here, we focus on maintaining and improving customer loyalty through trust and value creation for our customer. This dimension is the key to unlock the value potential at our customers. With trust and advisor, we will be able to deliver more of our services and solutions to the same customers. The third dimension is to increase the number of solutions or services to each of our customers or what is also known as share of wallet. By leveraging our advisory trust and loyalty, we believe we can create value by serving our customers with a number of different solutions and services. So all in all, growth through focus on larger customers, customer loyalty and a broader set of services. So now I'll go to Slide 24. We have now set the direction for our Focus23 strategy. We have covered our market potential and our strategic market position ambitions. So now I will go through our strategic element that covers what we will do in order to execute on our ambitions and why? We have grouped the strategy into 4 elements: call these 4 elements Focus & Simplify, Empower, Sustain and Delight. Focus & Simplify is the foundation element in our strategy. This element is about creating a foundation to make collaboration in terms of customer engagements simpler and more customer focused. The next element Empower is essentially about our people and competencies and what we are able to serve our customers with our 9 Doors to Digital Leadership. Sustain is about contributing to the global sustainability at the end both internally and for our customers. And the last element is about creating and maintaining customer loyalty through continuous value creation, trust and advisory, so the customer will demand more of our digital services and be an advocate for our services and advisory by referring us to new customers. Now on Slide 25, Focus & Simplify. As I said before, this element is an important foundation to support our strategic target position. What we want to achieve with this element is to focus on our customers and always be able to serve our customers with the best teams. We will implement on common global operating model with uniform business processes. And further, we will implement common business applications across the company, all in order through each collaboration across countries and business lines. With the expected divestment of our software company to increase, we will be able to reduce the number of business logics within our company. It is very different to run software development company than it is to run a professional service company, thanks to different business logics. I'm on Slide 26, Empower. This element is about our people and services and solutions. In order to be able to create more value for our customers, we will need to continue developing and maintaining our digital services and solutions within our focused industries. Then it's a matter of empowering our people, we will extend our development of competencies, both within technology, industry knowledge, advisory skills and leadership. And we improve our ability of knowledges of -- knowledge transfers within our organization. And last, but not least, we will work with leadership and culture in order to improve our collaboration across different businesses lines and countries with the goal to serve our customer in the best possible way. Slide 27, Sustain. To Columbus, the sustainability agenda is important in our business. As technology is an important tool for our key industries to run more sustainable businesses by optimizing productions or reducing waste we believe that Columbus will be able to help our customers being more sustainable. We will advise our customers on digitalization within industry stability through technology. We'll also identify errors in our own ways of working and operating where we can reduce energy consumption. Now on Slide 28, Delight. We want to be more for our key customers. We want our customers to acknowledge that we listen and understand the digital business needs and the strategy and advice on the digital and transformations. By creating higher value to our customers, we achieve a better customer experience, resulting in a higher customer satisfaction, long-lasting relationships and strong customer references. With the people competencies and the digital solutions from the Empower element, we will create value by engaging our competencies and services to our customers. We will do this by developing digital strategies, together with our customers to a bigger extent than we do today. And we will also deliver value by implementing these digital strategies with our very competent people and our well-defined services. With this combination, we will become the digital trusted advisor and deliver value for our key customers. In order to ensure that we meet our customers' expectations, we will extend our current customer loyalty measure to a more extended customer feedback framework. Delight customers is the key to our revenue growth, which is twofold, more revenue from each of our larger customers through a broader range of services delivered. This is also what we call the cross-sell. The second element is that the stakeholders, the influencers from our customers will refer us to new customers. This is the most valuable PR we can ever get and should be available source for new customer opportunities. Delight customers and Delight people goes hand-in-hand. We want to create a culture where a customer acknowledgment to our people is a key source of positive feedback from customers. Next slide. I'm on Slide 29, financial ambitions. So with our ambition is to expand our market position through focus on larger customers within our industries, we have set an all financial ambition. As we gradually execute our strategic programs, we have the ambition to gradually increase our annual revenue growth rates to be minimum 10% in 2023. The ambition is to generate this growth primarily through a strong focus on our key customer segments within food, retail and manufacturing. We believe that we with the market potential, combined with the more simple and focused organization, there are great chances for Columbus in reaching the financial ambitions to grow organically while increasing profitability. This was the launch of Columbus new strategy, I'm on Page -- Slide 30, growth through focus and simplicity. I thank you for listening. And then if you go to Slide 31, just brief upcoming events. We have our annual report in 2020, where there will be a more in-depth description of our strategy. So please go to next slide for the Slide 22 (sic) [ Slide 32 ], and I will hand back the conference to Rahman for handling questions. Thank you.

[Operator]

[Operator Instructions] Looks like there are no further questions on the phone lines. Please continue.

[Hans Henrik Thrane]

Okay. But if there's no question, then let's conclude the conference. I -- apology for the sound. We will investigate what happened, but -- for that disturbance. But thank you for listening. I hope you got most of the conference. Yes. So thank you. Let's conclude.

[Operator]

So that does conclude our conference for today. Thank you all for participating. You may all disconnect.