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

Welcome to today's event where we have the pleasure to present Columbus. As you can see here on the front page is the financial results of Q2 '25, of course, in focus today, and the expectations for the remainder of the year. As always, we are joined by CEO, Soren Krogh Knudsen; and CFO, Brian Iversen, who will take us through the presentations and answer questions in the end. As always, there's a box down below, you're very welcome to ask questions. You're very welcome to do it in days also, and I will try and translate to the best of my abilities. But for now, I think I will hand the call over to you, Soren.

Thank you very much, Michael, and thank you to all that have joined us for the session. We look forward to taking you through the Q2 results and the first half year combined. So as Michael was just saying, I am joined by -- just see if I can switch the slides. I don't think I actually -- can you just take me forward. Thank you. I'm joined by Brian Iversen here, our group CFO. I will be taking you through a short financial highlights, some operational highlights, and then Brian will dive into the financial results in a little bit more details, followed by an update on the guidance or I should say a reaffirmation of the guidance as issued and then we'll take the questions and answers. So for Q2, we had a quarter where we had a slight decline. We continue to see some headwinds, particularly in the Nordic market, whereas the U.K. and the U.S. actually both continued the positive trend. I think there may also be some headwinds on those markets, but we are able to perform with positive growth still in those markets. It should be said that the Q2 had 2 fewer working days compared to the same quarter last year as Easter fell in the second quarter and not in the first quarter. So that impacted the top line negatively in the comparison. Our EBITDA declined by 27% when adjusted for the extraordinary income, we had in Q2 of 2024, overall the result of the weak revenue and efficiency performance in Q2 2024. So it's mainly driven by the efficiency. Our contribution margin increased by 1 percentage point to 19% in the second quarter of 2025 compared to 18% in last year's Q2. And this is primarily due to improved project execution. So this is -- contribution margin is how we measure the gross contribution coming from the projects that we execute on, and is essential for us driving the EBITDA improvement. Cash flow from operations increased by 13% cash -- and the cash flow improved from DKK 16 million in Q2 last year to DKK 18 million in Q2 of 2025 this year. And again, this underpins the soundness of the business and tight contract and control of the customer payment terms and also the quality we deliver with. The efficiency for M3 and Digital Commerce has increased significantly compared to last year. M3 is up by 13 percentage points to 68%, and Digital Commerce is up by 10 percentage points to 63% in June of 2025 compared to June last year. And we always measure that -- it makes a lot of sense to look at just the last month as the efficiency is more an expression of the velocity of the business and is likely continue into the next month and the next month. So we have -- we see a fairly slow development of efficiency due to the size of our organization. So either it's going slightly upward and/or slightly downwards. So it doesn't move with step changes. But what we've seen here is a really great increase from both M3 and from Commerce. We're really happy about that. We've been working hard on developing pipeline and organization for almost 2 years for these 2 units. So we're very happy to see the results coming in. The next slide, please. And the next. Yes. So a little bit of a focus on the shifting market landscape. We currently have a lot of focus on how to scale our organization and how to optimize our organization going forward. It's true as with most other businesses that we do see geopolitical and macroeconomic headwind at the moment, but it is very fragmented. That means we have a lot of pockets of possible growth, and we have some pockets where we need to adjust a little bit on our capacity. And the most dangerous thing is actually, if you give all of the business units, the same medicine because that won't work. So at the moment, we are very focused on going into each business line in each geographical market and assessing exactly what is required here. We have a strategic hiring plan for each of these units, but we also where necessary, we'll do the downsizing of some roles if we see a shift in either the workload or the skills needed in the future. I would particularly mention here, our Dynamics organizations, as I've just said before, we've just gone through a long period of developing our M3 and Commerce division. Currently, we have a lot of focus on our Dynamics division, the biggest division that we have. Going to the second point, and pertaining to artificial intelligence, which is a very -- again, a very hyped and very used work, we see some particularly interesting developments at the moment. The first one is perhaps what you would be expecting from us is that we're using the technology available for us. We've given some customer cases that you can look at, which basically aid decision support or the output of certain business processes, which is very interesting on its own and definitely part of the future. Where we're seeing something new is this Agentic workforce, where, particularly in our collaboration with Microsoft, we've had some meetings in the U.S. just before the summer. And gained a much deeper understanding of what the rollout will look like in the coming, I would say, 1 to 5 years on a much deeper level. So perhaps these examples are not so super interesting in terms of use cases. But really, centered around how to take out all the high frequency, low complexity tasks with a completely autonomous agent workforce that will be able to act on its own. Technology-wise, this is definitely doable, but the interesting work for us also lies in the organizational transformation, all the governance required, how humans and Agentic workforce will collaborate. So we see this as a great driver of work for us in the future. And then -- yes, it's just -- it's gone from very visionary to being some much more specific points on what will be required, how will this work, how is it going to be faced in. And then the final point is just to say following the close down of the strategic review, we did to assess the ownership structure. We closed it down in May. We've taken this opportunity to look at a number of strategic assumptions that are baked into our strategy, but also opportunities, which have perhaps come around since we launched that strategy. So we're doing a, I would say, a health check. It's not a new strategy, but we are adjusting some strategic parameters where we think it makes sense to make these slight adjustments for the remaining 1.5 years that we have left at the current strategy period. And then I would say in terms of the operational highlights, the way to look at the financial numbers also that Brian will be presenting now is that we have the efficiency under control. We have the contribution margin, as you will see under control. We have the overhead costs under control. So what we're really looking at right now to get back to the organic growth that we've presented in the past many, many quarters is the headcount. And at the moment, we are a little bit cautious in terms of adding headcount. I was hoping that we could start to more aggressively add headcount now. But given sort of, the planning horizon is not the longest at the moment. There's still a lot of geopolitical, there's still a lot of macroeconomic uncertainties. We are running a little bit conservative to protect our EBITDA. So what you really need to look at going forward is when we actually start to add a lot of headcount again. We are doing that selectively now, but I think it's still too early to really go on the accelerator. And this is the main tipping point of how to drive growth in an organization accounts. Good. Over to you, Brian.

Yes. Thank you, Soren. Then let me dive a bit into the results, Business Lines and per Market Unit as usual. We start with Q2 for the Business Line revenue. And here, we -- overall, we saw a decline of 4%, and the main -- or the contributor to that was our Dynamics business line that fell with 9% in the quarter compared to same quarter last year, especially in the Norwegian and the Danish market saw a hit and see some headwind there. On the other side, as Soren mentioned, we do start to see a positive uptake in M3 and Digital Commerce, both had a small but positive increase in revenue. And this is actually the first time in, I believe, 3 quarters that we see that. So we are happy to see that, that effort in changing and pursuing opportunities is paying off. Data & AI had a flat development in the quarter. And as Data & AI is a fairly small business lines few projects starts or postponements or changes do impact quite a lot on them. If we move on and look on the contribution margin, our business lines capability of making profit. We saw a small decline in Dynamics with 2 percentage points from 23% to 21% in the quarter, whereas -- and we are extremely happy to see that, that M3 is trying to get back in the 20s to 21% in the quarter. And Digital Commerce, as you might remember, last year, they had a major restructuring and therefore, also this minus result, but they are also starting to get back in double-digit profitability. And that is a very strong turnaround that this team has made during the past quarters. A small dip or quite a big dip in Data & AI. They have invested in some new resources to support the future growth, as Soren mentioned. We are, of course, taking people in where we see future possibilities. Then let's have a look at the quarterly development in our Market Units on the revenue side, Sweden, for the first time in many quarters, actually, we start to see that it's bottom out, it's a flat development. And we start to see some lights and some uptake over in our Swedish market, which is the biggest, as you can see, we are happy to see. On the other hand, Denmark and also Norway, if we take these 2, saw a significant dip quarter-over-quarter, and we do see definitely some postponement and hesitance in new projects and also existing projects where we have add-on sales that is postponed now and U.K., still positive, a bit more slowed than we normally see in the double digits, but it's still good activity over there. That was all for the quarter. Then we also have our status for the first half year. I'll do it quick. As mentioned before, Dynamics down with 5% also in both Q1 and Q2, whereas both M3 and Digital Commerce for the first half is down with 4 percentage points, but we do start to see that this is turning, as you also saw in Q2. And Data & AI, they had a very strong Q1, not so flat Q2. But overall, we see a good uptake in that business line for the first half year. On the contribution margin, as Soren mentioned also for Q2, but the same for the first half, overall, a 1 percentage point increase for -- in how we manage our business in the Business Lines, which is a very strong development in a period where you actually see a slight decline on top line because that do require adjustment of your capacity, and as everybody know, consulting, you don't take people in and out overnight. It's a difficult decisions that you have to take now and then. And again, as you -- as mentioned, both M3 and Digital Commerce is starting to get back on an approved level, whereas Dynamics is running flat due to the quite heavy hit on the top line for the first half year. Good. Then let's have a look on my last slide is the service revenue per market. Overall, a decline in the different markets for the first half. We do see headwinds. But as our U.K. is still seeing a nice strong growth of 10%, but our Scandinavian market is still seeing some experience, some headwinds due to project delays, as mentioned as under Q2 as well. Good. That was all for our fast walk-through of our Business Lines and markets on top line and profitability, then we go to the outlook slide. And as already communicated back in July, we did take a serious look at how does rest of the year go and what do we see of forecast from our business units and after some thorough discussions and deep dives, we decided to adjust our outlook to hit a revenue of around DKK 1.7 billion, same level as last year. And then our EBITDA margin around 7% to 9% is our forecast or outlook on that one down from the 10% to 12% that we forecasted back in -- when we announced it in the beginning of the year. That's all from me. Then let's move to questions. So we have some time for that.

Terrific. Let's jump into that. Do you experience on customer loss? Or is it only postponements?

So this is almost exclusively driven by postponements. I mean when you have the size that we have and the number of customer we have, there will -- from time to time, there will be a customer leaving. I would almost say that number is lower than what it usually is simply because of the inactivity in the market. So the problem that the industry has, including Columbus, is that less big investments are initiated and the duration to get from an investment decision by a customer to the start of a project now takes longer than in a normal business environment. So if you look at that process, it goes from issuing some sort of RFQ, RFI, initial dialogue and RFP will follow that. So the tender document, we will submit our proposal. We will compete with 4 to 6 other vendors. We will get -- we still have a very high win rate. So we're very good at getting down to the last 2 and also the last one. And that process is still fairly normal. What then follows is what is exceptional in the current market is that going from being the last one to signature and start takes longer. So typically, the Board will become much more deeply involved than in a normal environment. So this is usually decisions taken by the executive management. This now goes to the Board meeting. Perhaps it can't be handled within one Board meeting. The Board asks some questions, and then they reconvene in 3 months, so we're losing half a year. So that's the main problem.

Does that mean that your opportunity pipeline actually, your pipeline is growing. I guess that kind of must follow this that the longer it goes out, the more buildup you have in potential pipeline. I know, of course, it's more uncertain when it will get executed, but so how you're seeing the pipeline growing?

Yes, we're definitely seeing the pipeline growing. So we work with a weighted pipeline. So -- but where we're really seeing the growth is the number of entries. So given that it's a little bit unpredictable how long the decision-making process will be from some of our customers, they usually communicate actually a set time for us, okay, this is the expected contract signature date. They say that right at the front of the process, but very often then they have to postpone that. That makes it a little bit more difficult for us to resource plan. So we -- if you will, we overbook a little bit more, we work on more entries and more prospects than we normally would to ensure we have the activity level or the output, if you will, at the end.

Does your '25 guidance includes expectations of market improvement in the second half?

It does not. We don't think we -- I mean, Brian was just alluding to some things at the moment. We're seeing Sweden and we're seeing Sweden coming back to flattish developments after quarters of negative growth, which is positive. We see some of our business units obviously performing, but we see that more as a result of our own work. So our overall assumption is that the markets will not improve significantly through the remainder of 2024. We see this business environment as at least lasting until the end of the year. We'll, of course, reassess. We do that quarter by quarter. We do reforecasting. We have our business reviews. But for now, we are not seeing any big uptake, and we have not planned for that as such.

You guide for flattish growth and you had negative growth. Is that the comparison base that is the reason why you don't expect any uptick or some of it also driving not better markets, but you have more visibility on plans getting executed in the second half?

Some of that. And then also -- so the way we work with this is quarter-by-quarter comparisons of the forecast. I think some of this is also down to the performance of Q3 and Q4 last year, and the relative strength. So Q1 and Q2 last year were actually very strong quarters for us. So yes.

Perfect. Is the '25 -- 2026 goals on your EBITDA margin, still achievable. You alluded to that you were looking at your strategy and maybe realigning it a little bit, but do you still believe the goals for EBITDA margin is achievable?

So yes, our long-term goals included both the EBITDA margin of 15% and a CAGR of 10%. So in isolation, seeing it in isolations, as you asked earlier about the EBITDA margin, that would definitely be possible and would also be very doable, but it's the combination with the organic growth rate, of course, on the top line that makes it more -- otherwise, there are simply parts of the business where we are currently invested that we could just slow down or stop investing in. We -- for now, we're sticking to our long-term guidance. I think it goes without saying that having more favorable business conditions now would be better in terms of reaching our goals. So we're continuously looking at ways of developing the business positively, it is more difficult under current business circumstances.

Then there is a question. Has the strategy process had any negative effect on your growth. I'm thinking it will always draw some attention from you as a management and maybe on the lower level of management. So do you feel there's any explanation here of the strategy process has taken some of your growth out?

I don't think it's fair to say that it's taken any of our growth out. Of course, there are -- I would say, there are 2 very minor negative effects. One is that I have tied up some of my own time and the group management's time, M&A functions legal in preparing and running this exercise, but I also see a lot of value coming from it. I don't think that's a significant factor to consider. And the other one, which is a significant factor to consider is the interest in this exercise from our employees. The customers are not disturbed by this exercise. But the employees, of course, have a keen eye on what they think will happen, what will it mean for them, is there a geographical change coming, is there another strategic angle being introduced? So that does cause some -- potentially, it's not managed carefully, it can cause some defocusing of the organization. I don't think we've experienced that. We have communicated very transparent and clearly with our organization, and it's not been -- it's not been costing us growth.