Columbus A/S (COLUM) Earnings Call Transcript & Summary

Sorry for the small delay here. Welcome to today's company introduction with Columbus and the company's CEO and President, Soren Krogh Knudsen; and Group CFO, Brian Iversen. We are happy to have you here, Soren and Brian. And just before I will hand over the call to you, I will just let the audience know that you can write in your questions in Danish and English. We have already received some questions. So -- and the procedure will be that I will ask the questions to Soren and Brian after the presentation in the Q&A session. So for the next 20, 25 minutes, the call will be -- and the presentation will be held by Brian and Soren. So with that, I will give the word over to Soren.

Well, thank you very much, [ Kasper ]. That was stressful. We just have to fix the audio here last second. Thank you to all of you who have joined. Brian and I will do our very best to give you an introduction to Columbus as a company, but also, I guess, to Columbus seen as a share. Yes. And Kasper, as you said, we prepared a slide deck, we'll aim to go through it in about 20, 25 minutes. And then we are happy to answer any questions you might have. We'll be going through sort of the order of sequence here is the Columbus at a glance, we will comment briefly on management and Board, the market segments we address and the customers and then the strategy, and that will then be followed by the Q&A as Kasper saying. So first up, to give you a little bit of a feel for the company. We are approximately 1,600 employees, all pretty much dedicated to the mission of digital transformation. We spread across the geographies that you can see here, and I'll just try to give that a little bit more flavor. There's definitely a center of gravity now around the Nordics with Sweden being our -- both our largest market and also the largest base of employees. Denmark coming in second and Norway and actually the U.K. roughly on the same spot. So if you will, you have almost sort of between 400 and 500 employees in Sweden, about 300 in Denmark, 200 in Norway, 200 in the U.K., not quite like that, but sort of order of magnitude, then you'll have that right. Then there's a large population of colleagues in India, mainly based out of Hyderabad, but also a small office in Pune that serves a specific purpose. And then we come to sort of our smaller setups. So the next one I would mention is the U.S., which is still very important to us. We are about between 50 and 60 employees today, but it's an important market, both in its own right, but also we have many international clients, obviously, that are represented in the U.S. and as such, we need the capacity of our U.S. colleagues to support that setup. That brings us then to the smaller delivery centers that are not markets really in their own right, which is Chile and Poland and the Czech Republic as well. So that's the spread of the 1,600 employees. The business units that you can see in that dark blue overlay. We have one which is called Cloud ERP, which is the biggest unit we have. It comprises several different technical platforms. So it's not just one, but it's Dynamics D365 for Microsoft, it's business central for Microsoft, it's M3 from Infor and others. It's important for me to say upfront that ERP has a little bit of a dusty image sometimes, but ERP has come a long way. So it's not a simple finance system today. ERP comprises warehouse management, transport management systems, dealer management systems, there is a clear link to digital commerce, which is also a very big business unit. So for me, the way to think about ERP is really sort of the core -- it's a core business application that has a numerous integrations to other core systems in a company, which is why we like that area so much. Commerce is really what it says it is. That is building and implementing the platforms that allows the company to do transactions with their customers. And those customers can be business-to-business or it can be business-to-consumers. Same way as when you buy Christmas presents later today, this will run through a commerce platform. Our Commerce business is somewhat different in terms of who the partners are in the sense that we -- that market really sees a lot of different companies. It's very much a best of breed, and we partner with a lot of them. So think about at least 20 different platforms that we master. So we are quite agnostic in that sense on the platforms we work on. Data & Analytics, exactly what it says, spans from old-school business intelligence up to modern AI technology. It's an area where we're seeing a lot of growth in recent year. And I would say, an area where we expect even more growth in the years to come. The CXE unit, Customer Experience, the simple way to think about that are system that also touches the customer's customer without necessarily being a Commerce system. So that could be field service, could be marketing automation, could be pipeline orchestration, all of these things are within our Customer Experience unit. And it's also a unit that has grown more than the average of the company lately, and we expect it to continue to do so. And then the final one being security, where we made an acquisition earlier this year in April. The way to think about security, I think, for you is really to know that it's very much an umbrella term. So if somebody says, we are an IT security company, the immediate next question should be IT, what part of IT security? There are very few companies that cover everything. We are specialized within the area of identity and access management, which is the one that's concerned with -- on all the other platforms we implement to make sure that we have the right management of profiles, so that people have access to do everything they need to do, but they don't have unnecessary access to stuff they don't need access to. We see this as one of the major areas of improving. So the whole philosophy is here that you will be compromised as a company, you will suffer a breach at some point. And by having IAM under control, your -- the damage of a potential breach will be minimized greatly and that's why we focus on that. Okay. Moving on, Brian, so I'll just cover the history briefly before we come to the numbers. So Columbus is really -- we're not new to the game, but we've gone through some phases. Here we've split them up in 3. It's the best way of telling our story, we find. But really, we started way back in 1989, better Microsoft-based very much an IT reseller of profile. It means sort of a distribution partner of big software companies and making such a lot of our revenue not directly from the customers but in arrangements and alliances with big software partners. Then comes a long stretch there from [ 2005 to '19 ], where we also developed our own IP. We're very focused on big geographical expanding -- expansion sort of covering the globe. That's also where we set up the first center in India. And then the period described from 2020 to '23, it's really a quite stark change of strategy. We focus in much more on geography as we become slimmer in our geographic footprint. It's something I believe greatly in my experience, you need to have a certain size in a given market to truly become competitive and ultimately also profitable. We've exited Russia due to all of the events. And also, we've sort of finalized this move from being perhaps more a reseller based model to being a pure consultancy model. So all our revenue or 95% of our revenue today comes directly from our customers for the advice and implementation services we render to them. And those are the phases. I think what you will see is that the new strategy from '24 to '26 will not look dissimilar from the one you have from '20 to '23. So there's -- we're not proposing and you will see that later on in the presentation, a huge turnaround there. So it's very much a momentum strategy that we are presenting to you. Over to you, Brian.

Yes. Just to make sure that the mic is working. Financial highlights, the numbers is from Q3 year-to-date, just to give you a flavor of where we are. We have seen a strong growth in the first 3 quarters on 14% organic. When we adjust for the heavy currency headwind we see from our Norwegian and Swedish market and also our M&A as Soren mentioned. Out of this revenue, DKK 152 million is what we call recurring revenue, primarily from our Care contract, where we help our customers to manage their IT back office setup. It's around 14% of our revenue. And on the bottom line, our EBITDA, we ended the first 9 months on 6.9%, almost a percentage higher compared to last year. Those of you who have listened to our strategy presentation last time also of the Q presentation, now that this is an area where we had some major programs to improve the bottom line. And to finalize the numbers side, we have a strong cash flow and more than DKK 70 million up compared to the same period last year. And one of the elements here is, of course, that we have good customers or heavy customer that pay on time. And I think this is a very healthy sign in the consulting business as [ it was ]. And to end this one, I can just say that we maintain our guidance for 2023 that we laid out at the beginning of the year with a growth -- organic growth of 8% to 12% and margin between the 7.4% to 9%. All right.

Yes. Thank you, Brian. That takes just the up-to-date financials. We'll go back into more of a sort of a company presentation starting with the management now. So yes, the dark haired, still -- while I still have hair, that's me, that's Soren. I joined Columbus back in June 2021 after about 12 years with the PA Consulting in various positions, managing countries in the Nordics and ultimately, all of the Nordics and in my final year as part of the executive team there. So if I should just say sort of what I think the Board's rationale was for picking me is probably the acknowledgment that Columbus is truly a consulting company now and has been for a while. It should be run as such, should be run as a consulting company, not as a software company. So what I've been able to and continue to contribute with is perfecting the art of a consulting company. It's a lot about managing people, developing people, minimizing attrition, finding the right people, attracting them. It's about the customer dialogue, taking that up to CXO level rather than being further down in the chain. It's also about operational management of the company. You need to be very sharp on time management, having sufficient resources with a particular skill set and not too much of them. So that's really some of the disciplines that I carry into it. And if I can take the liberty of just introducing you, Brian, I asked Brian to join back in October 2022, we needed a bit of a shift on the profile on the CMO and CFO. And it's really down to the same reasoning as for myself, is running a consultancy company is really about operational excellence, is that all the operational processes. You just mentioned cash collection, Brian, and staying on top of that. Our management of time, management of resources is a major discipline and you have a very strong profile within that. So then just an introduction to the Board. The Chairman is up in the left corner, Ib Kunoe, who's also our majority shareholder. There's been a lot of speculations around that. I can try to answer some of them after the presentation. He has been a long time shareholder of Columbus, very committed to the company. And also, I would say, perhaps well known for being an investor in the whole digital landscape of Scandinavia, mainly through his shareholding of the Atea company group as well. The Deputy Chairman is Sven Madsen, who also is the CFO of Consolidated Holdings, which is sort of the ownership structure for Ib Kunoe and his family. And then you have -- on the bottom left, you have people that are strictly sort of in for there to cover specific functional areas, Peter Skov is a former accountant and has been assisting a lot in the design and the new operational model of the company, especially prior to Brian arriving. Karina comes from a consulting background like myself from [ parts ]. She's been very strong on purpose development, values, employee value proposition, all of these things. And then finally, Per Kogut, who joined us as the most recent member of the Board comes from a background -- perhaps some of you will know him as a CEO of NNIT, who's also an actor on the -- mainly on the Danish, I would say, IT consulting side. So he also has a wealth of experience. That is the Board.

All right. Yes. Then let me just before, Soren, deeper into the company as such, just to have a frame of where do the revenue actually rise from. And as you can see here on the slide, our 2 biggest business lines, as we call them, is Dynamics and M3. This is basically the backbone IT systems, as Soren mentioned, the goodwill-based, the Cloud-based ERPs. Now it's much more about organization to try to optimization, et cetera, helping our companies securing the right setup and processes. And then when we move further to the right or to this, what I'd call it, smaller or upcoming business lines, we have the Digital Commerce, Data & Analytics and Customer Experience and our Security. All of them with very heavy growth, and this is where our -- both our strategy and company comes into play that we have a lot of synergies between the lines, of course, business lines, but also the newer one is where there is really a lot of need and growth that we see from our customers. The other split that we added to the presentation is that the market units. Today, we run the company based on business lines. But of course, we still look at the market especially in terms of revenue and how we make synergies within the market as well. But here, Sweden is the biggest -- by far the biggest country we are in, and we have a very strong position. It's also a intrigue country where our business line entry [ itself ] has a very strong foothold, and we have a lot of strong consultant in that space. And after that, we will see it in Norway and Denmark as companies that is upcoming, and there is still a lot of room to grow, which basically is in all markets. U.K., I think it's worth mentioning even when we see some headwind in the market as such. We have managed to have quite a super growth over there and there is a lot of request for our services and in space we are. So this is the split. The rest is a smaller company. As a mentioned, we have, of course, a good foothold in U.S. and in Germany, we also have few [ straight ] down in the [indiscernible], for example. So -- but this is the split that we see within our markets and where the revenue is coming from. All right.

Thank you, Brian. Yes. Then maybe just a short comment from me on these two slides would be -- I think the slides -- I'm sure the audience is aware, but when you look at Norway, there's a currency effect, as you also alluded to before, and the same thing goes for Sweden. Yes, it's no secret that it hasn't been the greatest year for Swedish, Norwegian Kroner. And yes, that's just part of our reality. And if we -- I would also like to make a comment if we just briefly go back one slide, and you could see that the M3 business division with a negative growth of 3.7%. For those that have followed us since I started, we have been working hard to sort of reestablish our base. We've been working within for the parent company of M3 to set up a new network and investing heavily in new people joining Columbus. I have a pretty firm belief that we have made the turning point. And obviously, the proof will be in the coming quarterly results of whether we're succeeding in having a somewhat higher activity level here. But that M3 unit is also hit very much by the Swedish Krona because the majority is in Swedish. So. Yes. So a little explanation about what our customer dialogue looks like today, what drives demand for our services. I think it's fair to say that in the past, perhaps we have not been very involved in these discussions, but we have -- also in the past, benefited because they lead to digital investments. But in the past, it was more like a conclusion from a customer that they needed to invest in a platform that Columbus had expertise within, we would get a request. Can you build this? Do you have resources with the following expertise? And we could say, yes, and then we could compete on that. So what has changed now is really that we enter much earlier in that process and which is where the company discusses what kind of digital investments do we need to prioritize? What's the sequence of them? What kind of geographical rollout plan do we want to have? Which platforms are we going to work on first? Because, in essence, everything could do with more investments. So the CIO and the Board, the CXO team is always faced with a prioritization exercise. And being part of that is our ideal understanding of how it should be, because then we can bring our expertise to bear. What's being discussed right now, so what's -- and what's been the work done, in my opinion, not necessarily for the customers below here, but also this will be true for them as well. But supply chain disruptions is still a very, very big topic. Some of it is still actually on settlements going all the way back to COVID, some is caused by the new geopolitical risks. So there's a lot of reshoring activities, supply chain security, de-risking, not decoupling thinking, I think, are some of the terms that are well known. And you can say, what does that have to do with Columbus. But every time a decision is made to change anything in the supply chain that drives work for us. That needs to be remodeled within the systems. If they end up discarding something or carving something out, we need to assist in that if they end up acquiring another company to speed up the process, that's us as well. Second one, speaks a little bit about the automation pressure, and this is really going back to the universal problem of lack of labor, which is still a very real thing and we can attest to it ourselves. So there might be sort of short pauses in that war for talent, as it's referred to or something like that. But the -- in essence, it stays the same. So all the companies that we work for are very motivated to free up capacity within their work source, not very rarely with the aim of taking people out of the organization, but more so to free them up for more intelligent work. And there's still a lot of simple work going on at the bottom of the pyramid that can be automized. And then, of course, we can add to that now also sort of the productivity gains from newer tools like generative AI and all of these things that add to that agenda. So that's a very big thing for us as well. Digital channel requirements, this is about optimizing the buying experience for customers when they buy it from our customers, it's still -- it's come a long way, but there's -- it's still a tip of the iceberg experience. So I think something that has been referred to here for a long time is omnichannel experience, so the linkage between physical channels and digital channels is still not optimal. The buying experience on the digital channels are still not optimal. So there's plenty to work on and it has a great linkage with the ERP platform as well. So we have many dual customers within this universe. Sustainability and compliance is very much driven by the need for companies to, of course, improve their ESG profile, but also from strict regulatory reporting requirements that the platforms that we help supply needs -- they need to supply the data for that reporting. So that drives activity as well. And then finally, I think I already commented on Security, very much around the identity and access management for now, but we could see ourselves expanding that as well. So moving on quickly, Customer segment focus. This is something we changed with the Focus23 strategy, which is now outgoing, but it has been extremely successful for us. So it's largely unchanged going into the new strategy. In short, what it means is that we focus on the large size and multinational customers and the medium and regional customers, so that could be sort of a European player. We don't go any lower than that, and we don't go any higher than that. And that has been super successful. I think the only question which is not sort of self-explanatory is, why don't you go for the full global S&P 500 companies? And it's really a question of size of being able to match them and there are some big, big global players much larger than us that it's their turf for now, and we see our time better spend in the segment just below it. So a few comments about the strategy. I would say the first one is that we maintain a goal of 10% organic growth per year. But we have a very strong program in place to improve our EBITDA margin, our profitability, which I'll just come back to very shortly because I think that needs some explanation. If you remember, Brian, just presented to you before that we are -- I think it was [ 7.6% ], I believe, in that. So that is roughly a doubling of the EBITDA margin, and that will require some explanation. But first, to the 10% organic growth, if I could just go to that one. Really, these are our growth numbers. And as you can see, we came from negative growth. The aim was to turn that around. We succeeded. In the middle part of this slide, you can see we are sort of between [ 3.7% and 11% ]. That's at a point of time where the market is probably growing somewhat faster than that. So we're not taking market share. And then you can see the last 4, 5 quarters, we have significantly stronger growth. But the market is actually not contracting, but growing significantly slower. So we start to take market share. The whole thinking about the strategy and the reason we settled for 10%, which is lower than what we have now is that we expect the market growth to be quite modest in the coming 3 years. So we are -- we think 10% on the organic side is the good thing to do whilst we can work on improving our EBITDA margin. So going from very strong organic growth, whilst optimizing your revenue also for higher profitability, you can pose some challenges. On top of that, there could be some acquisition growth, we've not done that in the past 3 years, primarily for the reasons of -- the one primary reason is really, we've been occupied with streamlining our own company, changing systems, changing processes, changing organizational form and embedding a new strategy, and we felt it would throw us sort of a little bit off course if we started to add a lot of acquisitions into it. We have done 2 now in this year, but smaller ones to test ourselves, and we feel we're ready. So acquisitional growth, we do expect to be a bigger part of it going forward. It's also for the reason of multiples, I must say, the pricing of the target companies that we're looking at is much more reasonable now than it was a couple of years ago. So we're going a little bit counter. The number of transactions being struck is going down. So we feel that us being active in the market, there's just a lot of companies that are interested to talk to us now. So we feel it's more in an opportune time. On the EBITDA program [ 15 ], where will the improvement come from? I think it's a good question. And I would like to start sort of from the [ 1.3 ] to under scalable model. That's simply due to that the engine that we've built over the last 3 years is built to run a consulting company, all the systems, all the functions we need to do that. And the shoes are just a number of [ 2 ] too big. We could cut back on costs if we wanted to, but we think we want to grow into it. So we can grow our consulting staff, our revenue, our number of customer faster than our underlying supporting costs will grow. So that's to be -- to account for 1.3 percentage points. Efficiency is a measure for all our consultants, how much of the time available for them, are we able to bring to bear to customers for payments. We've improved that a lot over the last years, but we feel that there is about 2.1 percentage points to go. We've improved a lot more than that, and there's a limit to how far you can go if you still want to develop your people and develop services, et cetera. But we feel that that's a pretty safe place to put ourselves working towards that. The delivery mix of 1.8% speaks about really 2 things. One is the seniority level. We've had a very top-heavy organization. We haven't traditionally done a lot of intakes of graduates and accelerators. So we have a very senior population of consultants. We would like to stay that way. We're not looking to become like a classical leverage consulting company with a lot of juniors for senior, but we would like to change slightly. So we have already started last year our intake of more junior resources that we then train and take to customers. And that makes for a better organization, I feel, but it actually also brings a better margin. And then the final one is of several things comprised, but I think a good way to think about it is just the price point. When we work for the right customers, we are able to differentiate ourselves. We have a higher price point. We also less -- make much less mistakes than we did in the past, leading to less rework on our side and that is both better quality for the customer. We're better able to adhere to time lines, but it also brings better margin. Yes. And that's the bridge to -- that we'll follow. It's important to say, it's a journey. It's not something we aim to achieve the full effect of in '24. It's a bridge that spans from now and into '26.

Perfect. Thank you, Soren and Brian. Brian, should we take some questions?

Yes.

All right. First of all, we have a lot of questions from an investor, and I'll try to bond them. So first of all, the investor asked about your view or thoughts on how to increase the liquidity in the share. And maybe in that relation, you can also give some perspectives on the speculation about the potential delisting and so on. Maybe, yes, I'm not sure what you can say here, but maybe you can give us some perspectives on that.

Yes. Certainly, I can say I am somewhat limited, of course. But in terms of -- let me speak to what Brian and I and the rest of the group management team will do to improve the liquidity is, obviously, we try to run the company as best as we can, but we are really trying to improve on transparency, and this is not new, something I started from the day I started. Being extremely transparent about what we work on, how far we've gone on our journey, what are the problems. So I believe transparency is essential for any listed share, of course. And the other part of what we are really trying to do is to be as predictable as we can to the shareholders. So I guess these are normal things, but at least we understand we have an important role to play in terms of providing the optimum information level to all shareholders. But that doesn't take away from the question. I guess, what's implied is that when roughly 60%, which is currently owned by consolidated owned or controlled, that takes away from the liquidity, especially given that the share is not the biggest. So yes, I would say the following is just we've been set up like this for a long time. So now there's been some pressure coverage lately, which was mainly, I think, due to an anniversary, a birthday. But there's also, I think, which is just -- we operate in the world, we have, and I believe Mr. Kunoe is a very long cited investor always has been. So I just ask that we remember that. I'm trying to find something which makes sense and which can be said. I think Brian and I also have some options, to be honest, to grow into it. I mean, what has been said and which I could probably attest to that we don't have the optimal size for being -- for being listed, especially when part of the share capital is locked down. That's what's been said. So if we assume that's right, it's not my statement, but that's a statement that's been made. Part of solving that can be growing. So we just demonstrated our plan for growth to you. And -- but part of the solution can also be acquisitive growth, as I showed before, beyond what is sort of to be expected buying 50 people here, 100 people there. So part of it could also be something which is a larger acquisition because we have the financial capacity to do so. So we're not very heavily leveraged today. That's not something that's been written about that much. And then there are the obvious speculations about delisting through consolidated delisting through private equity. And I've seen all of the articles, but I'm not really at liberty to comment on anything.

No, perfect. Then we have a question about the competition. Maybe you could provide a kind of short overview of the competition. And in that regard and also in relation to the M&A strategy that you have, there's also a question about the opportunity for a potential merger with another consultancy firm. What is your take on that?

So the competition is one that -- yes, it's a really good question, and it's -- and I would answer it like this is our competitive situation is different in every country, which is a good thing for me because it means that our differentiation strategy is working. So in every country, there is almost nobody that looks like us, but that doesn't mean we don't have competitors. But we have a unique blend of being fairly large. We have a good global setup. We think and operate like a global company. We have a certain reach in where we have our own offices and our own implementations staff for our own capabilities, and we have partnerships to cover the rest. So we can go very global. But then combined with the segment I showed you before, the customers we go for, the smaller local companies can't really cater for their needs and the very big global companies are not ideal in my view, again, catering for their needs because it becomes a mismatch in size again. So I feel like with this strategy that we've been running for 3 years and we continue, we are doing our very best to create a segment of one. And it doesn't mean that we don't have competition. But I really couldn't mention one global competitor that is meaningful in every market. So yes. And then you -- sorry, the second part of your question was...

Yes. There was also a question about the potential...

Yes. And there are obviously some companies we find more interesting than others to look at. I would say if we do something of a larger nature, it would follow the footprint that we have. So it would be more likely to happen in the Nordics than anywhere else. We're quite happy with the geographical focus we've created. It provides -- it makes us more competitive. It also makes the financials of the company stronger. So yeah, that's definitely an option.

Okay. And then we have a question -- another question here. How resilient do you expect that your business will be in a recession scenario? Or let's say, an economic slowdown.

Yes. And that's a little bit what I tried to comment on with the 5 bubbles because that's -- some of them are linked, actually. So especially the first one was the one that was called supply chain is actually linked to slower macro economics, geopolitical rifts and all of that. And I also said that the growth numbers that we have in our strategy actually plans with us going backwards somewhat in organic growth. So if you saw the target for organic growth, it's actually slightly lower than what we've performed at. My experience, having gone through several financial crises with consulting and all of it is that this notion of that, well, consulting cost is something that can be just caught away. It does not apply to Columbus. I mean, we are an integral part of running daily operations for our customers. We don't do that many optional things. So a customer really rarely will choose sort of should we continue to work with Columbus or should we not continue. What they will more do is sit down with us and say, we need to slow down our investment cycle a little bit, what's the best way to do that? That can then have a slightly negative impact on our activity level, but it's not this binary. Do we have work, do we not have work. So I've estimated that times in the following 3 years will be slightly tougher, more like they are now than prior to February [ 24, '22 ], which was really sort of the changing point, I think. So we're expecting this to continue, maybe even get slightly more difficult. So we have to compete very hard, and we are comfortable in that.

Perfect. I think we went through all the questions and the time is running out. So with that, I will end the event today and say thank you very much for the presentation to both of you, Soren and Brian. And also thank you to the audience [ who were listening ] today. So have a good day, everybody.

Thank you very much. Thank you.