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

Good day, and thank you for standing by. Welcome to the Columbus Annual Report 2023 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Soren Krogh Knudsen, CEO.

Thank you very much, operator, and welcome too all of you on the webcast and the call in bridge. My name is Soren Krogh Knudsen and I am the CEO of Columbus. I'm accompanied here today by Brian Iversen, our Group CFO. And at today's call, we will be covering both the financial highlights for Q4 as well as the full year. We have a short strategy update and we'll go into the guidance for 2024. So, Brian will be covering the financial performance for Q4 in 2023 and the full year as well as a short update on our ESG numbers. And we'll end the presentation, as always, with a short Q&A session. So, let's go to Slide 4 to begin. Yes. And we start with the financial highlights for 2023. And, yes, like most businesses, we've been navigating a nervous market, somewhat affected by, I would say, geopolitical turmoil and also some macroeconomic uncertainty, resulting in slightly longer sales processes. And I would say some, although moderately postponed decisions and project starts. But despite all of this and also perhaps because we were anticipating it, we have gained market share, and we have managed to grow our business in the past year. We concluded our 3-year strategy, which was called Focus23 with a goal of reaching 10% profitable growth by 2023. And in a market that was estimated to grow by 7%, we surpassed our financial expectations by delivering 11% growth in 2023, measured in Danish Krone and also amounting to slightly above DKK 1.5 billion. Adjusted for currency and acquisition, we actually delivered a revenue growth of 15%. And I know Brian will get back to the currency fluctuation, which is affected, and it's also something that we've shared on these quarterly updates before. So, it's fair to say that all major business lines and most market units contributed to the revenue growth. Especially our strategic business lines and by strategic business lines, we mean also the units where we have high growth expectations that would be Data & Analytics and customer experience and engagement, and they did show a very rapid growth. Overall, EBITDA increased by 28% to DKK 118 million with an EBITDA margin of 7.6%. This is an improvement from last year, but raising our EBITDA margin will be our focus area for the coming strategic 3-year period, the '24, '25 and '26 that new heights covers. But I think it's also fair to say that, obviously, we started work already in the latter half of last year. And as you can see from Brian's presentation, the Q4 results from last year, we're starting to see some benefits. For the year of 2023, we raised efficiency from 63% to 67%, which is a strong development. We can expect to see some further improvement, but compared to where we started out and what we consider sort of top-end performance, we're starting to reach a really good level here. And we can then move on to other improvement criteria. I'm particularly pleased with the robust growth in our operating cash flow. This is a very positive indication also that we have our business on the right track. So, all in all, I'd say we are satisfied with the results in 2023 and expect also based on what we're seeing now, the positive development to continue in 2024. So, let's have the next slide, please. So, in Q4, Columbus met progress, positive progress in most areas of the business despite the aforementioned uncertainty in the macroeconomic climate, and we did deliver a growth of 13% in line with expectations. And, again, adjusted for currency and acquisition, the growth was 16%. Our EBITDA for the period amounted to DKK 40 million with an EBITDA margin of 9.6%, up from 8.1% in Q4 of 2022. So, Q4 was also contributing to draw up the full year result for 2023. We're pleased to see the earnings trending upwards towards the end of the year, of course, because it tells a little bit that when the exit velocity of 1 year is high, we tend to have a better entry velocity into the new year. The results in Q4 were generated by positive developments in all business segments with especially strong development in the U.K. and in Denmark. And, all in all, we are satisfied with the Q4 results, ending the year with positive expectations to continue the growth and improve our profitability in 2024. I will now hand over to Brian, who will cover the financial review.

Thank you, Soren. And as we have had on our previous Q calls, just a brief update on the currency. As we talked about during 2023, the currency do work against us, especially on the top line. Around 50% of our revenue is arising from Norway and Sweden, which have seen a heavy devaluation of fair currencies, especially in the beginning of the 2023. The full year impact showed you on the previous slide was 6 percentage points on the growth, DKK 68 million. In Q4, it was 5 percentage points and EUR 18 million negative impact on the growth calculation. So, we are actively calibrating our operation to mitigate this change in currencies, although we do see a slight negative impact on our EBITDA as well, but it's not something we quantify in general. My next slide, we'll then look at the business line growth. So, a bit more detailed, where the growth arising from. And, I think I'm happy that we can say that it's actually coming from all our business lines. Although there is some slight variation in the pace they are growing. Dynamics and by far, our biggest business line is moving fast, and we see strong growth in both Denmark, Sweden and U.K., and we'll continue in all our markets to be a strong partner and keep a very strong relationship with Microsoft. From the business line M3, we have seen a strong growth in Q4, 19% in constant currencies. And for the full year, 6%. So, still a fine growth but in the low end compared to our other business lines. We did start out the year, as you remember, in M3 with a fairly low growth, but it has really picked up at the end of the year and as you can see in Q4. Both arising from increased activity on some of our major clients and also a strong win of new clients across the borders. Digital Commerce do see a decline in Q4. We have had some headwinds in both Norway and Sweden after strong growth for some years but still, they came out of the year with a growth of around 10 percentage points measured in constant currencies. Data analytics continue with a robust growth, primarily led by U.K. and Sweden, and we continue to see a strong cross-selling and leverage on our strong consulting pool in this business line. CSG demonstrated growth and is progressing across all our main markets, and we continue to invest in additional consultant teams to meet the strong demand within this business line. All right. Security, the new member of our family. We don't have any comparison. But nevertheless, they have landed well within Columbus. We have been working hard on getting them into our operating model, creating cross-selling and pipelines. And I can say that they have been well integrated and are now also physically here in Bello, they moved to our office in Bello from a different location where they were sitting. So, all in all, a good start and a strong member of our family. Strategy and change business line is a minor one, and they have been very strong in facilitating the sales and the management of major projects across the business lines. But we have decided from next year to include them as part of the market unit setup, and we will not report on strategy and change as a separate business line from 2024. So, overall, we are satisfied with the growth in our business lines, and we anticipate continuing growth in the coming quarters. All right, let us have a look at the business line contribution. I think we have the page up now and the contribution margin. This is, as mentioned before, one of our absolute key performance indicators. That is also something we decided from 2023 to report on in our quarterly and annual reports. So, you can follow the development in a bit more detail than before. And if we start with our Dynamics business line, they continue to deliver both on the growth, as I just mentioned, but also on profitability. They saw a growth in the contribution of 20% in Q4. And for the full year, they improved the contribution margin with 1 percentage point from a strong high level. One of the key drivers for the business line and where they have been very strong is to work with a high efficiency and to use the strong pool of consultants across our different markets. M3 ended on a high in Q4. They had a solid efficiency and a good use of the consultants in some important projects across the markets. And on the full year scale, you will see that they were flattish development, 20 percentage points or 20% contribution margin mainly due to a fairly turbulent slow start in 2023. But we are happy to see that there is a pickup at the end of 2023 and also in Q4. Digital Commerce have demonstrated a rapid growth but they have seen or been very heavily involved in the Norwegian development in the past years, and they have also seen a slowdown, as you can see, the market development in Norway, also in Q4. So, they are digesting a heavy growth and that has resulted in a flat margin development in 2024. But we expect them to grow further on the margin and margin percentage in the coming years in line with our long-term strategy. Data analytics and CSG both strong development in contribution margin as expected, and they continue to harvest on strong customer deliveries and increased synergies within the business line when they turned bigger. There is increased usage of the consultants also across borders. So, we are very happy to see that besides a very strong top line growth, we can also continue the growth on the business line contribution. Security, as you can see, we will definitely conclude another 100% as expected, the first 9 months, but we have initiated different activities to improve profitability for the coming year. And they have been working hard on the integration and getting part of the Columbus family as well. But I know that there is 100% focus on the bottom line and profitability from 2024. So, overall, we are very satisfied with the development and contribution from our business lines. Same in line, as Soren mentioned, a tough year, some headwind on the exchange rate challenges. And we, of course, continue to invest in our business line as well when they grow. So, all in all, a strong and approved development in our business line contribution markets. All right. Let's move to the next slide. That is 2 of our other KPIs that we have been reporting on during the year. Efficiency, not that I want to mention much here. We had seen a slight take-up of 2 percentage points. And people working in the consulting industry know that the higher you get, the more difficult it is to go with high percentages, at least to make sure that you have heavy and efficient and strong consultants. But we are still growing. We are not at the end, but it's a continuous work to make sure that we have the right scale and the right number of people across our markets to deliver the right efficiency level. Recurring revenue, we are running around 13%. I believe it was around 14% last year. So, more or less the same. It's still a high focus for us to make sure that we have a good stable base of recurring revenue. It's a focus area to continue to strengthen our care business, and we do start to see some progress that we certainly hope will come, and we will talk a bit more during 2024. All right. The last slide on my list is the market unit growth. Remember that we don't measure profitability on market units from the top line to see how it is going in our different countries. And, again, I will talk about the development in constant currencies as that give the most clean picture of the underlying activity in the market. Hopefully, we'll start to see a more stabilized exchange rates within our markets, we can drop these constant currency numbers as well. But let's see how it works out. Sweden is our largest market, around 36% of the total revenue, came out of the quarter with 18% growth in constant currencies. And this is, as mentioned before, clearly into our M3 business that has really come back on track in the latter end of '23. And then for the full year, a 15% organic growth in Sweden, which we are very happy to see. And we really get a bigger and bigger foothold in Sweden in all our different business lines. Denmark is growing fast as well 31%. ICY contributed with 35% actually in the quarter and 31% for the full year. And without ICY for the full year, it was 90% growth, which is also a very strong achievement in the Danish market. And we definitely gained a lot of market share each quarter at the moment. The development in Q4 in Norway was less impressive. As you can see, minus 6% for the full year, basically flat or 1% growth. We have definitely seen some headwind up in our different business lines, and we are working hard to regain the momentum in 2024. But this flat development is also coming on 2 to 3 years very strong growth before 2023. U.K. continued to grow fast. It's a huge market. We are a big player, if you look the revenue yet, but we are really gaining market share and been growing for the quarter with 66%. The quarter in the smaller markets can, of course, vary a lot depending on closure and some major projects coming in and out. But still, if you look at the full year, we see a very strong growth of 46%. And I think this is something that we will hopefully continue to see going forward as well. U.S. smaller market, we talked about it before, it's still a key market for us. We do see a lot of activity there, and we are coming out with a slight growth of 5% for the year, which we are happy to see as they also have some headwind over there. So, overall, besides Norway, which is not bad, but flattish, it's a strong growth and a balanced growth across our markets. And I think this is a very healthy sign for us between 2023. So, that was all, no, sorry, I actually have the ESD. We have that each year now and I think it's fair to say it's getting more and more important and that we actually have spent quite some time on the report this year and to prepare for the 2024 CSRD compliant reporting that we are gearing up to. Overall, I think we are making a lot of progress within the area, both internally where we are looking at our double materiality assessment and where we also try to look at our business with new glasses on and how we should report and where we actually impact the different areas within the CSRD framework. But also as important externally as we do advise and we do know a lot about numbers and collecting of numbers with our clients, and we have some different offerings that we are working on and did initiate it with some of our customers to see how we can support them in this area. On the social aspect, our general distribution, which we have a high focus on, we know the industry is not known for having too many women, but we are working on it, and we've seen a flat development. I think we are more or less in line with the industry. In 2022, we made some initiatives within diversity and inclusion, such as introducing a new diversity, equity and inclusion policy, new courses in our Columbus Academy, and we also launched a woman inspirational network setup. But our overall goal is to attract more women, we definitely see a big benefit of getting that up to a more equal setup and only for Columbus, but also for the industry. Our employee satisfaction for the year was plus 50% compared to plus 47% last year. This is an all-time high. And, in general, and that's what it says is we have happy employees. We try to keep a balanced setup in the way we work and the way we operate and that gives a positive response on that one. On the attrition and sickness and absence, our attrition and sickness and absence have decreased attrition was 70% in 2023, down from 25% in 2022. And the sickness was 2.15%, which is, in general, a very low number as well. So, all in all, I think we have a good progress in our ESG metrics. We continue to work hard with them. There's also a new ground for us in some areas, but we are progressing very well. So, now I'll give the word over to Soren again.

Thank you very much, Brian. And I will give you a very short strategy update on new heights, mainly if some of you haven't been able to see our presentation of the new strategy and also just go into some operational milestones that we've set for the year of 2024. But just going into the top line of the New Heights strategy, we launched it in November '23, and we have the financial ambition to deliver a compounded annual growth rate of 10%, which is actually around the level we are already operating at slightly lower and improved over the 3 years, our EBITDA margin to 15%. Very short comment on the 10%. It takes into reference that we see a market where the market growth has significantly slowed down already this year. So, we continue to take market share, but we feel it's a prudent growth number to have a sustainable growth number for the 3-year period. So, let's go to the next slide to cover the 4 strategic initiatives that will drive growth. So, in the strategy, we have leased 4 strategic bets to drive growth in the coming 3 years. The first one is that we aim to strengthen our market position by harvesting the benefits of the new acquisitions and potential coming acquisitions into high-growth services. Last year, we did expand into the security market with the acquisition of ICY Security. And in January, we invested in extending our offerings within Digital Commerce with the acquisition India's gain, which is primarily based in the U.K. and in India. Furthermore, we might invest in our own expansion into areas by hiring new profiles and building new expertise areas ourselves. Second one, we're expanding in terms of sector. We had 3 focused sectors before, manufacturing, retail, food and beverage, which has served us very well to be super focused. We feel it's now time for us to add a fourth sector vertical and that will be life science and has already commenced. And perhaps it's fair to say we already started a little bit in 2023. So, we already have a pretty big number of customers within that sector. The third one, we're going to accelerate our position in what we now call the Evolve Services. This is what we named Care before, and these are the ones that you will see as the ones that have a recurring revenue. It has grown in 2023, but it grows slower than our overall consulting business. And we have some initiatives coming up to bolster that. We would like to see that having a slightly bigger share of overall revenue news than what we see today. So, there's investment going into that. And finally, we have initiated the EBITDA 15 program, which has a number of activities that will see us improve EBITDA margin on our journey towards the ultimate goal of a margin of 15% in 2026. So, that's the overall one. Then moving to the next slide. A couple of milestones. Just to show you here, yes, in January, we did reach our first milestone. We got in new heights with the acquisition of India's Gain, very short on what they do. They fit into our Digital Commerce space. And they specialize in something which you can call Click Rate Optimization. So, it's basically optimizing e-commerce user interfaces for a better experience and ultimately for our customers a higher sales conversion. So, we're very happy to have them on board, and we're in full swing of integration. They're very strong in the U.K., but we would like to see them expand their offerings into Scandinavia, where we are quite strong on the commerce side. Yes, let me go to the next slide, please. So, the milestones summarized for 2024. Life science is a new market for us with great synergies to our existing businesses, and our ambition is to build a strong market position in this sector vertical or this market seen a sector virtual. Our market unit in Sweden and also in particular, I would say, our business line dynamic in full swing and also leading internally in terms of establishing themselves in this new industry vertical for us. Also, in 2023, we launched a global AI innovation program with the purpose of exploring new growth potential and increasing business efficiency for our customers. So, it's essentially very much about all the new AI functionality embedded in the big platforms they've invested in. It's being made available to them. And our role is to make sure they see a benefit for it. That's the shortest I can say about it. In terms of the EBITDA 15 program, if we try to sort of what are the 4 main streams simplified, we will continue to focus on efficiency, although as I said before, we've reached a pretty decent level. There is still some benefit for us to gain from this one. We will further rebalance a little bit to our service centers. And by service sensors, we mean our centers in India, in Poland, in the Czech Republic and in Chile, which have delivered very, very high quality, and we can make better use of them going forward. We continue to have a focus on, I would say, sort of general commercial excellence expertise in the company, which is about, for instance, Brian was expanding on the currency issue. We need to have that better mirrored in our contracts to rebalance the risk of currency and other matters for that. And then, I would say, the last one is a more generic one, leveraging our Columbus business model. This is something we've already seen great benefit from, but it's more like a maturity journey in terms of making best use of experts resources across the borders, cross-sell potentials that will drive down overall sales cost, et cetera. So, that's several streams that we have embedded into this one for now. This is a very compressed run through, and I hope you will have time to see the full strategy unfolded from previous presentations. And then, I think we should move to the outlook for 2024. And I have to go through this statement before I get to it. So, here goes. The outlook is subject to the general uncertainties in our markets, such as the current macroeconomic conditions, higher-than-normal exchange rate volatility and continuous geopolitical situation that may impact the general business environment. Although we continue to see a strong demand for our digital advisory and services, we do anticipate that some reluctance in IT investments and the need to divide projects up into smaller bites, if we say smaller phases, we'll continue throughout 2024. If the general uncertainties worsen during 2024, it may impact the group's growth and margin negatively. And then, based on the financial performance in 2023 and the current order book as well as pipeline and forecast, our full year guidance for 2024 is as follows. For the organic revenue, we guide a growth of 8% to 10%. And for the EBITDA margin percentage, we guide 9% to 10%. And that concludes the presentation. I think we're already a little bit short on time, so, we will go straight to questions and provide our answers to them.

[Operator Instructions] As there are no questions on the phone line, I will now hand over the questions on the webcast.

Okay. And at the moment, we show no questions. All right. Thank you, everybody, for joining, and sorry for keeping you 6 minutes over time. We'll adjust for our next run through. Michael is asking us here, have you seen any slowdown in the business in the first month? Or, yes, I guess that would be months for January and February of this year that's in your guidance? So, no, we have not seen a slowdown in the first 2 months of the year. So, our guidance should be seen in a full year perspective that we continue to keep a very close eye on, as I said before, how geopolitical turmoil and any macroeconomic developments will affect our customers. But in terms of our current activity level, our current pipeline and our current order book, we have not seen a slowdown yet. Thank you. All right. And we end on that. Thank you very much. I hope to speak to you again as we present the first quarter results, which will be about 2 months from now. Thank you.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.