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

Thank you for joining today's webcast where we will be presenting our financial results for 2024 and also have a look at the Q4 results in isolation. I am Søren Krogh Knudsen, I'm the CEO and President of Columbus. And I'm joined by Brian Iversen, our Group CFO, to help me present the results. I will start going through financial highlights and some operational highlights, and then Brian will take over for a more detailed run through of the financial results. And at the end, we will have time for a brief Q&A session as well. So let's start with the financial highlights. First, regarding our revenue. We've achieved what we consider a relatively strong revenue growth. And the reason we call it relatively strong at 8% is that some of the markets we operate on, we have seen a bit of a downward trend that pertains particularly to the Swedish and the Norwegian market, but other markets have -- other geographical markets have performed extremely well. So all in all, leading to an 8% growth, 7% of that organic growth. We saw 30% increase in our EBITDA, taking us to DKK 153 million versus DKK 118 million in 2023. That results in a margin of 9.2%, which is up from 7.6% in 2023. Our profit before tax increased by 47% to DKK 58 million, and that's mainly arising from improved operations and less net financial items as well. Cash flow from operations increased by DKK 59 million or 77% compared to 2023, and that's mainly due to this continued focus that we've been having over the past years on a more commercial mindset, how we drive the business and also an optimization of our working capital. Let's go to the next slide. And the next one, again, thank you. I will just very briefly comment on this strategic review because I suspect some of you would like to -- for us to comment, it's still going to be very limited what we can say about this. So to point one, we're following the plan we set out. As you can imagine, it's a fairly structured fairly detailed. It's a stage gate plan, and we are proceeding exactly according to the plan we set out. Of course, we're aiming to finish this as quickly as possible. However, we will absolutely take the necessary time to complete all the stages of the review to the fullest extent, and that's the best I can say. And in terms of where we are in this plan, they all look pretty similar. We are still in the early stages of engagement with interested parties. So I can say, there's still some stage gates for us to pass through. We will come back, of course, with more information when the time is right for that. So going to the next one. I would like you to follow me through this sort of a brief review on how the New Heights is finding its way into Columbus. We're going to go through these 4 sections in the blue overlay. First one is just revisiting all the assumptions we had when we defined the New Heights strategy to check if they are still broadly aligned with the reality we operate in. We did foresee already back in 2023 when we did the strategy work that the next 3 years would be marked by higher uncertainty in the market. And we also foresaw rather flattish development in terms of market growth. So marked decline in market growth compared to the previous years. And we knew we had to be a bit more nimble not upfront-load too much cost and investments to be able to adjust to these conditions. So we were already at that point, sort of fairly stabilized and we've consolidated some things. So that section has proven to be pretty accurate in terms of what we're experiencing today. Strategy was then set out as a growth excellence strategy, meaning really doubling down on the things that were working in the Focus23 strategy, taking on board a few select new areas that we wanted to double down on and then keep our growth momentum in this slightly more restrained market and then work a lot on our bottom line improving, which is also exactly what is happening. That takes us to the third section, which is sort of how has the experience been in the first year. Markets have indeed developed at this mixed pace. So we are very, very focused on continuously optimizing pockets of operations because they all experience different market conditions at different times to -- so we're very attentive to optimizing down on a sort of main business unit scale. We can't just look at the main business units. We really have to look at each business unit in each geography to find the best plan. We've taken some actions to stay financially fit. I'll just come back to them on the next page, some of them. But overall, we are seeing good progress on all our strategic initiatives. For the future, we still maintain our ambition with the strategy, the 10% year-on-year growth organically, a 15% EBITDA margin by 2026. And in terms of the revenue, especially the revenue, of course, we would like to see some improvement in market conditions, especially, I'd say on the Swedish market is going to have a big impact on us. Yes. And then with regards to all this, I would say, let's say, geopolitical and also, to some extent, macroeconomic uncertainty, we continue to monitor this very closely and talk to our clients about it, and we'll make the necessary adjustments accordingly. So the next one. Brief highlights about some of the things that we've achieved in our first year of the New Heights operation. We said we would establish the Life Science as a stand-alone industry vertical, which we've done. We're seeing really good progress there. New customers coming in. I believe we have a 20 -- you will come back to that 22% revenue growth. So we're very pleased with that, and we will certainly continue with that. Accelerate Evolve is around the investments in our maintenance, optimization, integration and innovation, ongoing agreements with customers, which typically take over when we don't have big projects. This has also grown faster than the rest of the business on average, which is what we want to see. We've had to conduct last year also a small performance exercise to right-size certain parts of the business in certain geographies, as we've talked about. We reorganized our digital commerce area to reflect these new circumstances. We also had to restructure our security to move it closer to our core business units, which we've done. And we finalized now the integration of Endless Gain, the acquisition we did within CRO. We have launched an investment program into generative AI mobilization across our own business, but also towards our customers, which is getting a lot of publicity internally here with us and helping us stay up to latest developments. Further strengthened our leadership, onboarded a new CTO and a new Chief Marketing Officer, made a change also in terms of the Swedish leadership team, which is working well and also doubled down on the existing industry expertise forums that we had for our 3 verticals already and the both now being life science to make sure we capture and we use that knowledge systemically when we go to market. That's a little [indiscernible] on last year. And now over to -- sorry, I have one more before we go to Brian. I just wanted to inform you that we've done a further change of how our operating model works. So we have merged 2 business lines. One is the Dynamics business line previously focused on Dynamics F&O and -- but also Business Central. And then we had a separate line for what we call CXE, the more frontline oriented platform. So that would be CRM, it would be field service, membership portals, et cetera. We've merged them for the 3 reasons I've listed underneath. So we see a big trend from -- primarily from Microsoft to merge the 2 technologies more and more, driving sort of operational and architectural synergies. We experience also when we go-to-market, that it's harder and harder to separate our go-to-market efforts. So we prefer to take this to market collectively. And we also expect some operational synergies from running them as one team. So that has been done operationally. And I believe from next time we report, Brian, they will be consolidated in the reporting.

Yes, Correct.

Good. And you might ask what about the parts of CXE that do not pertain to Microsoft. First of all, I would say that this was to 90%, a Microsoft-based business unit before and a few of the resources working in other areas will then migrate to that area. So it's been a lesser exercise. It's more been in combining the 2 teams. And then there are some similar activities going on to build the same sort of capability within our M3 team. Yes. Over to you, Brian.

Yes. Thank you, Søren. Let's first have a brief view on our Q4 numbers. And here, we actually saw a relatively flat development in our revenue of 1%. Again, Dynamics had a smaller growth of 2% and M3 ended with a small decline of 2 percentage points. So we did start to see some flattening in the activity at the end of 2024. If we look into the markets, it was mainly Sweden and Norway, which we also have seen in previous quarters that -- where we saw some headwind and some slowdown in activity, although we have a lot of interest from our customers, there is some postponement and some delays in decision-making, of course, due to the general market conditions overall. Denmark, U.K. and U.S. continued a strong growth with double digits actually also in Q4, which we're very happy about, and we have some very strong teams that is really pushing and continuing a good trend in these markets. Bottom line-wise our EBITDA also fairly flat compared to the same quarter last year or a small decrease of 5 percentage points if you take it into the DKK 40 million compared to the DKK 38 million that we ended up with. As we -- as I mentioned, we see a smaller slowdown in activity. We have also adjusted our FTE's. So if you look at carefully in our report, we actually see a small decline in our average full-time employee of 4% or around 50 people, we take an average over the 2 quarters. And that is, of course, as Søren also mentioned, we continuously look at the markets, the activity and stay agile and align our organization to the activity as good as possible because that is, of course, the key point in the consulting business. Efficiency wise ended at 62% flattish. Some of you would remember that we started a bit slow in the beginning of the year compared to 2023. But now we are on par for the fourth quarter here, not that we are fully on full expectations, but still a slight improvement. Good. So that's to the short update on Q4. We then go back to the full year 2024 and have a look at the business line growth or revenue. And here, we see that our main business line or the biggest one, Dynamics had a solid and very strong 11% growth during 2024. So they continued. Again, Denmark and U.K. was really 2 markets that took off on continued strong growth pattern. M3, 6% growth accepted. They had a very good first half in 2024, then they see a lot of, let's say, change in major projects, some were ending and new is starting up, which unfortunately go a bit slower than anticipated sometimes also in the current market, but they ended up with a fine 6% growth. Digital Commerce, minus 8%. We have talked a lot about it. They had a major restructuring, and they are also heavy into the retail market in Sweden, which is basically 2 minuses. Sweden is a tough market and then the retail on top of that. Therefore, they ended up on a low or decline. And then again, our strategic business line, Data & AI and CXE continue the double-digit growth, which we are very happy about and expect to continue also in the coming years. Good. Let's move to the next slide, which is the profitability per business line or what we call the contribution margin, the way we measure it also internally, again, Dynamics, our biggest machine is delivering a nice increase from 26% to 27% contribution margin. And that means a lot also depending on the size, as you can see also on the graph here. M3, flat development. They struggle a bit when they are changing bigger contracts. You do tend to see some people sitting a bit longer on the bench that you would like. On the other hand, it is super good consultant, and you would like to keep them for the longer run. And we do also look into some exciting contracts coming up in the coming quarters. Digital Commerce, yes, we have been through that in the past quarters as well, severe hit. We also had some heavy restructuring costs in that one. They declined around 40, 45 people over the year, and that unfortunately do have -- do take some costs with. Data & AI and CXE, a slight decline in profitability for the full year. Again, it's a smaller business line. So if you invest a bit and you do spend some more time on development and sales, it has a pretty high impact on the bottom line percentage, but it's also something that we see. And as you saw, the heavy growth is continuing. And then for us, that is a key factor for these 2 strategic business lines. Yes, other local business is primarily our [ EIM ] or document handling business that had a good uptake and also a much sharper focus on profitability in the business that definitely showed off in 2024 compared to last year. Good. Then let's have a look as we normally do, how do we go in the market units of the various countries that we are in. And as we have mentioned a few times and still some headwind out there. Sweden declined with 9% over the year. And of course, that does hit us as it is by far our biggest markets, and on the other hand, Denmark and U.K. continued with a strong growth, gaining market share and really out competing some of our good colleagues in the market, and we're happy to see that. Again, here, Dynamics is one of the bigger ones that is impacting this strong growth. Norway ended on a fairly flat if you adjust for FX, it's a smaller part locally this year. So -- but we have a sharp focus on that, but Norway as such, also saw some difficult conditions. U.S. flat, down in the smaller markets and the same with our other smaller markets like Germany, and where we primarily do have some minor business there. Yes. Good. Then I have now the full year, brought in extra KPI slide, something that we pay a lot of attention to internally in the business is cash. I learned once that cash is king, and I try to massage that into the organization here. And we do see some growth, a nice growth in our cash flow from operations, it continued to grow, should with improved operations and EBITDA, it should fall down to the cash and into the bank account. And that is also what we see and what you can see from our balance sheet eventually. The other KPI that is a key point for us and actually also a strategic pillar is our enabling functions costs and the cost should be measured in percentage of revenue. And one of our main point is that, that has to or should dilute over time because we do believe we have a very strong well functioned back office set up here, I mean, facility, finance, marketing, HR, IT, and Group function. And that is definitely set up to be able to handle increased activity, definitely. So -- and -- but I'm happy to see that -- to share that we do see that this is decreasing over the past years that we have started to look at that in this way. All right. Then my last slide, sustainability update, there is a lot of nice opinion about that. We have -- we are within the CSRD, let's say, we are a size that we have to report according to the new CSRD rules, and you will see that in our annual accounts or annual report, we have 56 pages, I think we have, which we are very proud of presenting. There have been a lot of work going into that. We have also been learning a lot to be fair. But overall, we see ourselves as that we enable sustainable impact for our customers. That is where we by far have the biggest contribution to this. But of course, internally, areas like diverse and talented culture ensure responsible business conduct is areas that is key for our consulting business. And that is also not something new. You will see in previous annual reports that, that is what we have been reporting on and are focusing on to make sure that we have heavy employees that we have the right culture, the right setup and the right opportunities among our colleagues and countries. Yes. I will not go further into that. We could probably spend an hour or two, not myself, but somebody who could help me in this area, but let's leave that for now. Good. Then, I'll get back to you, Søren.

Yes, great. And that leaves just the outlook before we commence the Q&A session. So if you have any questions, you can start to prepare them. But exactly as it says, based on the financial performance in 2024 and the current order book, our pipeline forecast, we maintain our full year guidance for 2024. We issued that already earlier. And the outlook is as follows: for the organic revenue growth, we guide 7% to 9%, and the EBIT margin -- EBITDA margin 10% to 12%. And you can see on the right side, this should be seen based on the 2024 performance, which was standing at 7% for the organic growth and 9.2% for the EBITDA margin. And with that, we would go to the questions-and-answer session.

[Operator Instructions] No questions coming through via phone lines at the moment. So I will hand over to you to check for any questions via the web.

Yes. I don't see any questions so far. Let's just give it a few more seconds.

The report is also 161 pages. So there is, let's just say, a lot of information in there for people who have an hour or two in an evening, boring.

Yes. So we got a question here. Given the slightly slow development in Q4, what makes you confident that you can grow 7% to 9% in 2025? How has 2025 started? And how much visibility do you have for the rest of the year? Okay. Great question. So let me start by talking to what gives us a bit of confidence for the new year. I think a good way to start is just to look at some of those growth driving units we saw last year, particularly the U.K. continues to deliver good growth for us. And we also see a strong -- I would say, in terms of how much visibility we have, we also have a pretty strong bottom, if I can say, sort of a guarantee bottom performance that will give us some confidence in the year. In terms of the upside potential, Brian was talking to the M3 business unit that achieved 6% growth last year. And you tried to describe, they came into last year strong. Then we had some slower quarters. And then we had a pretty stark intake of new orders in Q4. So we are expecting some upside potential from the M3 business units. And we're also working a lot on strengthening pipeline further in the Dynamics area. So these would be some of the sort of highlights of what can make the impact. But I think you're right to point out that if Q4 is slow, Q1 is not likely to start markedly different. So we are very attentive to sort of slowly achieving this pickup in Q1 and then building on that momentum in Q2, 3 and 4 of the year. Another thing to keep an eye on, I would say, is sort of outside of Columbus, but that we monitor closely, and that is the activity level of the Swedish economy, which just seems to be improving. So we've now seen 5 rate cuts, 5 consecutive rate cuts. We're seeing GDP numbers improve slightly. PMI numbers improve slightly. I don't think we're out of the woods yet, but there are some indicators, both externally, but also internally from Columbus, the way our pipeline looks for Sweden. That indicates that in the later quarters of the year, we could see a pickup in Swedish activity level from Columbus. Thank you. I think the Sweden one, I just answered towards the end there. On Norway, so Norway, I would also say we expect an improvement. We didn't see such a stark decline in Norway in 2024. And it should be said that Columbus had very, very strong growth in Norway in '22 and in '23. So we kind of plateaued a little bit into '24, maybe not so much just because of the market, although the market was also hit in Norway. And we are still -- we continue to invest a lot in winning new contracts in Norway. And hopefully, we can also achieve an improvement there. Okay. Thank you very much. Yes, what do they say? Stay tuned for further news from our side. We'll let you know as soon as we have something to report. Thank you very much for joining the call.

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