Columbus A/S

CSE:COLUM

Earnings Call Transcript

[Operator]

Good day, and welcome to the Columbus Interim Report Q3 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. And I would now like to hand you over to your speaker of today, Soren Krogh Knudsen. Please go ahead.

[Soren Knudsen, executive]

Thank you very much, and good afternoon to everybody. Welcome to this webcast where we will be presenting our financial results for Q3 of 2025 and the year-to-date 2025 results. As always, I will be going through briefly some financial and operational highlights, first. I will then hand over to our Group CFO, Brian, who will take you through the financials in some more details and finishing off with the outlook for the full year of 2025. And then we will have a short Q&A session at the end of the call.

So Q3, we saw a decline in revenue of 7%. It's driven by market conditions in Denmark and Norway that remain pretty challenging for the time being. We are seeing some uptick in our pipeline. But for now, we still have a lower-than-usual activity in the market. In Sweden, that has been subdued actually market-wise for a couple of years, we are starting to see a recovery kicking in. And in the U.S., we're actually enjoying a continued positive trend, and we are structuring around that to maximize the growth we have there.

In Q3, our EBITDA declined by 18% when we adjusted for other operational income and expenses. This is primarily due to a capacity adjustment, which we'll comment on later in the presentation. And overall, this reflects the impact of a weaker revenue, which we see mainly deriving from a slightly lower operational efficiency than what we're usually operating at. And this, again, is what the capacity adjustment will address as well. Our contribution margin ended at 23%. That's broadly in the same level as in Q2 of 2023 -- sorry, in Q2 of 2024, where we had 23% when adjusted for these extraordinary redundancy provisions that we had now, which are at DKK 11 million.

And I think we can say this demonstrates that we have a pretty strong and stable project execution. It leads to very profitable projects. We have very little in the way of guarantee and rework, and we have high customer satisfaction remaining. So it's mainly about having enough activity that is because of the lack of top line revenue. On the positive side, at the end here, our second largest business line, M3 continues to deliver solid performance and increasing performance. We've been working a lot for this over the past years. In this quarter, we're seeing revenue growth of 8% in Q3 of 2025. And we have a contribution margin that's up from 13% in the same quarter last year and is now sitting at 20%, which is starting to get in the range of where we would see a well-performing business unit. So this journey and improvement journey of M3 is by far not over, but we're really seeing some results now, which we're very pleased with.

If we move on to the market and operational highlights. I think we need to start by saying that we are still seeing this continued caution, which we call it in the market. So it's basically a lack of demand. We are seeing that customers tend to think twice about everything. They tend to postpone investment decisions. They tend to chop investments up in smaller bites than normally. However, that being said, that slowly also leads to a catch-up effect for many of the customers because the ambition -- the long-term ambition for them remains the same.

And that leads me to the second point is that we're starting to see the benefit of staying very, very close to our customers. Despite this lack of demand, we've not strayed from our customer focus. We've not strayed from our industry focus in 2025. And we've continued to develop the investment plans with these customers. And there are signs that this is starting to come through to fruition. And in Q4, which we are in now, we have a pipeline which has a fairly high number of large contracts that are up for final Board approvals at customer sites, and it will be an important thing for us to achieve a good win rate here.

Also a comment on the right side of this slide, which tells you something about the development of our efficiency. So in Q1 and Q2, you can see we're operating at 62%, 63% which is not -- it's pretty respectable, but it can be a little bit higher, can be 65%, 66%, 67% even. But you're then seeing this drop in Q3, which leads to the revenue shortfall that we -- that I've just alluded to. We are now -- we've reported to you here in the light blue. This is important to say this is part of Q4, not Q3, but this is October in isolation. You can see that it's risen from 58% to 61%. And that is before we see any uplift from this capacity adjustment exercise because those people that we have been -- unfortunately, that have had to exit the company are still on our salary books. So we still report them as part of the efficiency figure. But that number in total leads to a 2.5% increase or improvement in efficiency as well.

So we see, again, in summary, our win rate when we have something to bid for is intact. So we do win when decisions are being made. We're staying very close to these customers. We're seeing a big lineup of decisions for November, and it will be important for us to win our share of that. In terms of winning, for those that are not so familiar with our business, once we have won a large contract, there is a ramp-up phase, which consists of -- usually, we have some sort of explore or prepare phase which is done by a slightly smaller team. And then we -- then the bulk of the team, the construct part of the team will enter shortly after that. So an important thing is also the timing here, how much of this can benefit Q4 and how much of it will flow into Q1 of next year.

Let's go to the next slide, please. Okay. So again, we have adjusted the capacity, as I said, overall, 89 headcounts affected, but it is not to say that we have only downsized. It's also a shift of competence. So we are actually hiring quite actively for different types of competence profiles that we need going forward. Very much of that is within the AI space. But also, as you can see, some of our geographies are growing. So of course, we continue to hire there. And in other pockets, we've had to do adjustments. So it's not like we have a hiring freeze, but we are adjusting where it makes sense, and we're building out and investing where that makes sense.

The last point here on Slide 7 talks about the engagement level of our workforce. So we are paying a lot of attention to this. So obviously, '25 is a tough year. We started with the strategic review. We're seeing a demand shortfall in the market. We've had to do our capacity adjustment exercise. And we've really committed to being transparent to our workforce, telling them what our strategic considerations are and keeping them in the loop. And I believe we're seeing a very big benefit here when it comes to a very recently conducted employee survey, that shows us that we still have a highly engaged workforce. We are well above the benchmark that we always compare ourselves against. And it's important to us that we keep investing in having a workforce that's motivated, that's engaged and has full belief in the future despite going through a slightly tough period.

Going to Slide 8. So I want to talk to you in the next 3 slides about the adoption progress of AI and what is actually happening. We're starting with a little bit of a classic hype cycle here. And I think I've spoken to most of you about this one before. Dunning-Kruger cycle. So you know that at that very peak, H4, you have this -- the height of expectations, which is typically then followed by the trough of dissolution because things take longer time than experienced. And I think there is some learning here.

And if we start by going to the far right, you can see that the AI personal boost, which I'm sure you're also experiencing, actually raised through the entire curve fairly quickly. And we are now all benefiting from that work-wise and also in our private lives, and it has tremendous benefits. So -- and this is pretty old news. Now the H2, the AI professional boost is somewhat different. And the main difference to the personal boost is that we start to give our copilots or whatever we're using access to corporate resources. And that gives a whole other level of professional boost because we now can access things that are just not on the worldwide web, but all the company's internal repositories are in this. So this is done by many, not by all. So I wouldn't say we're not fully there yet, but we are certainly in our company, but also many of our customers, we are reaping those benefits right now.

Then it comes to the slightly more complicated things. And I don't think we are very far down that journey, right? It's the H3 and H4. H3 is a true functional boost with semi-autonomous processes, automated workflows and leading ultimately to H4, which is this true agentic fully autonomous behavior where an entire workflow, an entire role description is now handled by an agentic entity. And we haven't seen yet at all the full ROI on large scale for customers. Everybody can come up with a few good examples, large-scale adoption is yet to be seen. So -- and I would say the impatient from customer side is growing. There's less appetite now for long 10-, 5-year visions. There is a lot of appetite for return on investment, proof of concept, something simple and truly working that we can scale on.

So if we go to the next slide, I've got 2 examples of how that could look. This first one is an example of an organization, global organization with a fairly complex setup of benefits and compensation plan, a lot of variable incentives linked to the company's financial KPIs, obviously, subject to local law, employment law in the countries where the employees are employed. This has led to enormous amounts of man hours being poured into basically analyzing, providing updates where are we on these incentives, what happens if we need to change, how many are in each? How much accrual does the finance department need to make? So -- and here, the solution has been basically developing in Copilot Studio, a model that can track both the financial data, that's internal, obviously, incentive data, that's also internal, HR data that's also internal and local law initiatives or legislation and handle that. So fairly complex, maybe not the most exciting example you can think of, but it's fairly complex, and there's a lot of man hours being saved.

Learnings work. It's very positive. The solution really works and can shift the mindset. A different learning was we are often talking about that the development of agentic entities will be democratizing. Everybody, every one of us will be able to set up an agent. The experience so far is that's clearly not the case. You need highly specialized skills to do this still. Possibly, it will be more user-friendly with time, but it's not as easy as marketing will make it sound. We also see hidden costs being triggered because the compute power required to do all of this, you have to be fairly smart how you set it up. Otherwise, you will generate -- you rack up a pretty large bill in terms of the compute power you consume. And we also see the need for both governance and validation because if you set this up wrongly, you will get the wrong results and you will make the wrong decision. So as expected, but a very positive and beneficial case.

Let's quickly take the next one. I'll go a little bit faster here. But this one is a very simple one to understand. It's order handling flow. So a lot of orders received by e-mail. Previously, some manual handling in terms of entering these work orders into the systems and tracking them. You can automate this simple Power Automate flow. And basically, you get a -- you still have a human at the end of the loop to control and validate. But actually, the fault rate is much lower because you have less tipping involved with it. So -- and it makes it then prone for next wave where you can take your automation further.

Simple example, but it generates cost savings. At the same time, it's much less vulnerable for peak workloads because obviously, this one can work 24/7 over Christmas, if you have a higher order flow, it doesn't really trigger a backlog or anything like that. It's capable to keep up. So 2 simple examples for you, and I hope that sort of informs some of the many, many small cases that are being implemented on a weekly basis. With that, over to you, Brian, for the financials.

[Brian Iversen, executive]

Thank you, Soren and definitely interesting. I think even for an old conservative finance guy, I start to see that there is actually money in and there's tremendous upside in this AI that we've been talking about for years now. But it's coming, and I feel it, and we also see it internally in Columbus as well.

Okay. Let's have a look at our Q3 first, as always, revenue per business line. And first, Dynamics. Our biggest business line counts around 60% of our combined revenue. So of course, if they are having a hard time, we see it on the group, as Soren also mentioned. And again, it is Norway and Denmark that is where Dynamics is facing a headwind and they end up with a minus 12% decline in revenue Q-over-Q.

On the other side, as Soren mentioned, M3 is getting back on the growth path. That's very good to see. U.S. and Sweden is some of the countries where they see a strong uptake and new customers as well. And M3, which many of you might not know, we have an extremely strong position within the manufacturing business basically around the globe. And I think that there is more to come from that business line definitely. Digital Commerce, flat development. Data and AI, a slight decline Q-over-Q. They had some project changes and -- but are gearing up again in the coming quarters when we look into the future.

Good. Let's look at the bottom line or the contribution margin for our business lines when we measure them on their profitability. As again, dynamic is down, it is closely linked to the efficiency. And of course, the odd part of our rightsizing is done in Dynamics in the quarter. So that is -- that will cost around 5 percentage points on their bottom line for the quarter. But still, they are down, and they are working on getting back on track. M3, as Soren mentioned, a very strong quarter from 13% to 20%, 7 percentage points up, strong projects and also improvement in older projects that we see that we have a good grip of the margin and how we drive the project. Both with happy customers and also a happy supplier.

Digital Commerce, flat development. Data and AI is strongly linked to the revenue, a bit too low efficiency in the quarter. Also some new guys on board that just need to gear up and get some basic education in different areas. So we do expect a comeback here in the coming quarters. We normally don't talk much about it, but our other local business or IEM is actually driving a very strong, not small business because they are bringing more money to the table as Data and AI and some of the others. And I think it's worthwhile mentioning that they are gearing up and also growing when we look at the coming slides.

Then let's have a look per country or market units, as we call it. Sweden, Soren mentioned it as well, slowly getting back, not over the top yet, but minus 1% Q-over-Q. It's good to see. It is our biggest country. Denmark continued to face some headwind from some very strong quarters as well the previous years. But still, we do expect more from our, so to speak, home market where we are sitting, and we also feel like that will come.

U.K. is down with 7%, actually the first time in 4 years that they have a negative quarter. So it's not that we say it's fair enough, you take a breath, but they do see some big shift in some major contracts. And if I do calculate it organically because there have been some with the pound, it's a 4% decline. So not that we say fair enough, we keep up the pace, but we do expect them to be back in the growing path also in the future.

And Norway is still and it has been the previous quarters as well, area that we are facing some headwind. We do see and Soren mentioned it, we have some strong pipeline out there, and some of it is definitely also in Norway. But let's see. We do expect the uptake definitely in the coming quarters up there as well. The U.S. is continuing up, lower value, but still on a strong growth path. That was the quarter.

Then let's have a look at the year-to-date numbers, slightly same story. Dynamics, we talked about year-to-date down with 7%. So the fast one will see that actually in the last quarter, it's getting a bit faster. We do expect that to even out soon and then getting back on track. M3 year-to-date on a 0, they have, on the other side, seen an uptake in the past quarters. So getting on the right side of the 0. So year-to-date, flat development compared to last year. Digital Commerce being through a very hard turnaround is getting back on track. And Data and AI actually year-to-date, they are still on a slight plus in a challenging market.

On the margin side, year-to-date. Dynamics, 2 percentage points down. One, if I adjust for the redundancy costs that they faced in Q3, which is still not the level where we would like them. They are working hard on it. And -- but although on a -- keeping on a healthy level, as Soren also mentioned, we do earn money on the projects and the work that we do. M3 growing from 18% to 22%, which is 4 percentage points, not 3 as we have written here, it's actually even better. And that is good to see that they also start to get back. It's, of course, helped by improved efficiency and some very well-delivered projects out there.

Digital Commerce, continuing the upward trend compared to last year, which was also very low, but it's also good to see that we can turn it and slowly move back on the right level. Although it's still a way to go, they should definitely be above 20%, and that is also in our planning. And then again, our EEM or the other -- we call it other local business, it's mainly what we call the enterprise information management systems, which is systems that make our customers smarter, more efficient and compliant in the way they work, have seen a strong uptake. There is a bigger part of project revenue in this business line as well, but they are actually both growing and improving their bottom line due to very strong delivery.

Yes, final slide, before the outlook and questions, if any, is the market units revenue year-to-date. Sweden, still down year-to-date, 5%, as you remember, trending slowly upwards towards the 0 or flat development. Denmark and Norway, if I take these 2 jointly do face some headwinds, definitely Norway. We also start to see some of the pipelines in these areas of our business in these market units. And then again, U.S. and U.K. is continuing a strong growth path also in difficult markets, to be fair, in these 2 countries, but with a solid performance. And we also continue to invest in these countries to basically to be able to deliver the growth that we see.

Then let me end on the outlook slide. So based on the first 3 quarters, we basically maintain our full year guidance that we announced in July. We adjusted it slightly downwards. And again, that is DKK 1.7 billion in revenue or as we -- I think we wrote back then around the level as last year, so a plus/minus 0% growth. And then EBITDA margin in the range of 7% to 9%.

Good. Then it's back to operator or questions, I believe.

[Operator]

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

[Yiwei Zhou, analyst]

I have 2 questions here. Firstly, on the current trading, is it possible to give us an indication how the current look like? And you talked about a solid pipeline and we also talked about the improving customer activity. Have you seen those already start to translate into more revenue for you already here in October? And then my second question is that you have done the rightsizing. I was wondering if this is completed or we should expect more in Q4?

[Soren Knudsen, executive]

Okay. Thank you very much for the 2 questions. So the first one, are we seeing any effects already in the beginning of Q4 of the -- in terms of increased activity levels? Second one, are there further redundancies planned? So let me take the first one here. I showed on slide -- so on Slide 7, as you could -- sorry, on Slide 6, we have -- in October, we have a slight uptick in our efficiency level. I can see we have another upcoming question on that, which shows a 3% increase in efficiency. But we're still not obviously where we want to be. We have the 2.5% coming from the capacity adjustment. So -- as to your question, the remainder when I talk about this pipeline are contracts that are due to be closed, which means for us, won or lost. And as I said earlier, we have seen that even with less things to bid for, we are maintaining our win rate, but we still have to win these.

And they are to be won from today, where we already have one case actually that we've won today and through the end of November. And when we talk about this pipeline, it's basically it consists of 2 levels. There's one level, which is I'm personally very interested in. They are typically the biggest bids, and then we also track the bulk of smaller opportunities that we work on. And the true effect of that is going to be seen towards the very end of Q4, which we are sort of approaching now and then the ramp-up also going into Q1 of next year. So the true effect is yet to come is the answer or the majority of the effect is yet to come.

And your second one, we have no further major redundancies planned. But obviously, we're running a tight ship. We're performance managing the organization. We know that we need to look for where do we have great resources that may have a little bit poor efficiency compared to what they usually have, but they are contributing to our sales process. So we want to hang on to them and where do we perhaps have resources that no longer fit the profile that we need so that we can also free up capacity for hiring new competencies that we need.

Should I continue? Okay. I have 2 here on the screen. One is -- both from [ Michael Houga ]. There's been -- for several quarters, it's been difficult for you to raise your efficiency to much over 60%. It should be at least 70%. And -- so the question is, wouldn't it be a good thing to cut into the staff.

And that is exactly what we have done. So these are the 89 redundancies that have been made and carried out and the DKK 11 million accrual that has been made for that exercise that is basically having a negative effect on this quarter. And the 89, we find to be the correct figure. And that's a balance between doing what is best for us right now, but also looking at what does it take for us to go back into growth.

[Brian Iversen, executive]

And then I might take the second one about the share buyback program that we are driving. You asked if we -- or if we have halved it or something. What we do is basically we ask the bank to manage it for us within a fairly strict rules and calculation about what can you buy depending on some statistics from previous months or even quarters. So I can trust you that we are not sort of -- we don't manage them that way. We ask them to do as much as we can within the rules there are. So we don't manage that, Michael. So trust me, we -- I'm pretty sure we do what we can do until we reach the limit that we have stated that we would like to hit.

[Soren Knudsen, executive]

Yes. So the answer is we have not changed anything. And that must also mean, Michael, that we have to perhaps double check that this must mean that there is a change in the 20 days gliding average, which is what defines how much our share buyback program can do. We have not changed anything. Okay. Any more questions?

[Operator]

We have another question here from Yiwei Zhou from SEB.

[Yiwei Zhou, analyst]

It's Wei again. Just also a question on the market condition. I was wondering the higher activity, customer activity you mentioned, is it a sort of a broader market recovery? Or is it sort of your sales effort driven higher activity?

[Soren Knudsen, executive]

That's a very good question, Wei. So I will say to start with that I'm very proud of the sales effort that we have delivered throughout 2025. It takes a lot to stick with some of these processes that have now been delayed for more than a year and to keep the teams, and it's not just a salesperson, it's an entire engagement team that's done designs, estimations and basically wanting a result out of that, whether that be a win or a loss, but then at least you can move on, but they've really stuck with it. And we've never felt been tempted to sort of go after new customer segments or smaller customers or new industry vertical. We know what we do for these customers. We know they appreciate it, and we know they are strong companies that will come back. So I think part of it has to be our sales effort.

But that being said, and this is purely speculation on my side, I think that a lot of our customers have been working through an initial -- just about to say, shock effect, but we've seen a lot of geopolitical, macroeconomic trade policy changes compressed into a very few years, perhaps starting with '22, '23, certainly '24 and then culminating here in '25. And I think everybody -- every responsible Board and executive management team has felt the need to sort of take stock of where are we, how we affect it, how will this affect our long-term plans, short-term plans.

And as more and more of them, and again, it's speculation from my side, feel that they have a firm grip of -- and understand some of the changes. Since their digital ambitions remain the same, they tend to go back and revisit the investment plans. And I think there's also, to some degree, we are benefiting from that. And it's hard for me to quantify how much comes from each camp.

[Operator]

Thank you very much. There's no more questions on the phone conference at this point.

[Soren Knudsen, executive]

Thank you. And I think we're 6 months -- 6 minutes past the hour. I want to respect everybody's time. Thank you very much for dialing in. Obviously, we have a lot going on. We look forward to keeping you updated as we progress through this very exciting Q4 leading up to a fresh start on the new year. Thank you very much, and enjoy the rest of your day.