Good day, thank you for standing by. Welcome to the Columbus Interim Report Q2 2022 conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you will need to press star one and one on your telephone. You will then hear an automated message advising your hand is raised. If you wish to ask a question via the webcast, please use the Q&A box available on the webcast link any time during the conference. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our speaker today, Søren Krogh Knudsen. Please go ahead.
Thank you very much, operator, and thank you to all of you for joining today's call. My name is Søren Krogh Knudsen, and I am the CEO and President of Columbus. I'm accompanied here by Nicole Bluhme, our Head of Global Finance Operations, and together we will take you through today's agenda. Let's start with going through the agenda on slide four. The topic of today's presentation is, as the heading suggests, our performance of the second quarter of 2022. I will walk you through the financial and operational highlights of Q2 and the first half first, and then Nicole will share the financial review, and we'll take you through our market units and outlook before we open up for questions. Let's go to slide five to begin the presentation.
It has been an intense Q2 for us in Columbus, not to say, the full first half of the year, and I believe it has been the same for most other companies around the globe. The business environment has in many ways changed with the Russian invasion of Ukraine, increased inflation and quite uncertain supply chains, which has impacted some of our customers. As you probably know, we executed the closing of our activities in Russia in March as a direct consequence of the invasion. Despite these uncertainties in the market, we have actually experienced a good progress across the business during Q2. We have continued to deliver projects to existing customers, and we have also signed up a good number of new contracts, new labels for us.
We've succeeded in onboarding the new employees we hired in Q3 and Q4, and getting them increasingly assigned to new customer projects, so they benefit our efficiency. We still have a fully determined focus on executing our Focus23 strategy. In Q2, the focus has been on strengthening our organization further, strengthening the leadership team to meet the market demands both now and investing a bit in the future. We hired our new CFO, Brian Iversen, who will join us in October. Brian has a really impressive background from several listed companies, and especially within optimizing and transforming a global finance organization. When he joins, his focus will be to further streamline our business processes and our financial operations, and I really look forward to welcome Brian to join Columbus.
Also, in the beginning of August, we onboarded two other key leaders and welcome them to our team. The first one is Claes Reinholdt Kongsdam, who will lead our growth in Denmark. We have said before we want to invest further in accelerating Danish growth. Also Michaël Navon, who will be leading our global business line, strategy and change. I'm very convinced that these two leaders will accelerate our both our strategic focus, but also our growth and ultimately sort of support our journey towards becoming the preferred digital advisor for our customers.
During Q2, we continued also the strong focus on what we call One Columbus, which was highly needed, strengthening our culture and ways of working, trying to become really as one operating company. The focus implied investment in activities such as a new global leadership principles program, which complements something we delivered already last year, which was the rollout of our global values, and that has really strengthened our employee engagement and employee satisfaction score.
All in all, the second quarter of the year has been heavily focused both on building a strong organization to fuel the growth, continue to strengthen our efficiency to drive up the profitability to where we ultimately want to be, but also securing great investments in securing a pipeline of incoming orders from the second half year to ensure that we have simply sufficient work to keep growing and to keep increasing our efficiency. In Q2, we saw basically good progress in all areas of the business with the majority of our market units delivering top-line growth. Our Norwegian market unit continued their strong growth, which we already told about at our last call, and delivered a growth of 6%.
The Swedish market, which is our largest market by some margin, I believe they're about 42% of the overall revenue share now, delivered 9% growth. Columbus UK also delivered good progress in their revenue growth, although there we are still working to get our efficiency and number up. We basically took on board the new employees, so we've grown the organization, we've grown the revenue, but we still need to have full usage of that. Looking at our business lines, we are particularly pleased with the development in some of the newer lines. That's Customer Experience, it's Data and Analytics, it's Digital Commerce, which are some of the key new lines we need to occupy that space as full digital advisors.
They all delivered double-digit growth numbers. Our Cloud ERP business declined 2% overall. Clearly it's something where we need to reverse, and we are committed to reverse that into positive growth in the second half of the year. Looking at the financial highlights. Combined, we grew by 4% to DKK 390 million. Likewise, the service revenue as part of total grew by 4%, amounting to DKK 334 million. The EBITDA for Q2 amounts to DKK 60 million, corresponding to a decline of 30% compared to Q2 2021. The EBITDA margin is 4.2% compared to 6.3% in Q2 2021.
The decline is mainly due to investments in our organization, so growing the workforce. But also our investments in process improvements, in the ways of working and some of the things I've mentioned. We had some salary increases and a little bit of cost increase due to what we call sort of a revert to something that resembles normal in terms of we've been traveling a bit more, et cetera, to rebuild relationships both internally and with our customers. We have established and already before the summer some cost and some pricing initiatives to improve our margins. And we expect to see, or we know we will see that effect in the second half year.
Also, to increase the margins further, we need to continue this journey of improved efficiency. We already knew it was materializing, and we can say it's continuing to materialize. We are now at 64% for Q2. We were at 62% for Q1 when we talked to you there, and we were at 59% back in Q4 2021. I can say that the last month of Q2, if we look at where did we get to there, we were at just above 65%. That's obviously before any of the small adjustments to the workforce we have made kick in, as they don't benefit us before the second half of the year.
In the coming quarters, this will basically continue to be our main performance indicator to improve on as it's directly correlating to the EBITDA. So all in all, I would say we've come very, very far in our transformation. It was quite an ambitious strategic transformation, as we've told you about before. Still have some work in front of us for the second half year, particularly starting to basically mature in the model and seeing the profitability pick up to catch up with the revenue growth which we now have established. I will now hand over the presentation to Nicole, who will present the full financial review for you.
Can we please have the next slide for Nicole?
Thank you, Søren. I will now briefly cover our income statement. Revenue grew organically by 4%, as stated earlier. Our service revenue and product revenue increased equally by 4%. Our staff costs increased by 7% to DKK 272 million. The increase is primarily related to increase in average number of FTEs by 121 in Q2 2022, compared to Q2 last year. Additionally, we have seen an increase of 22% in all external costs, which is back to a pre-COVID level across all our market units. This is primarily seen in travel costs and expenses for social employee activities, which were minimal during the lockdowns.
Other operating income is positively affected with DKK 17 million as a positive outcome of a dispute with two former minority shareholders of Hestum, who had violated the terms in the share purchase agreement. As a result of the dispute, Columbus is no longer obliged to pay the remaining contingent consideration and will also receive some financial compensation. As stated earlier, EBITDA for Q2 amounts to DKK 17 million, corresponding to a decline of 30% compared to Q2 2021. EBITDA margin is 4.2% compared to 6.3% last year. Columbus' hourly sales prices have been at the same level as Q2 2021. However, combined with an increased cost level, the EBITDA margin is negatively affected. We are currently working with pricing and cost initiatives to improve the margin and to reach a satisfactory level.
Columbus realized a profit before tax of DKK 2 million, a decline of DKK 5 million compared to last year. The decrease is mainly caused by the decline in EBITDA. Next slide, please. We are now on the business line slide. In Q2, service revenue increased by 4% to DKK 334 million. In this chart, you can see the service revenue split on our global business lines. Cloud ERP declined by 2% to DKK 171 million, covering both the Dynamics 365 and also the M3 Business. This is not considered satisfactory and remains a focus point for us. Columbus Care delivered a growth of 3% to DKK 71 million. The revenue increase is mainly driven by Columbus Sweden, Denmark, and Norway.
Digital Commerce grew by 13% to DKK 47 million, which is primarily coming from Sweden. Data Analytics grew by 29% to DKK 15 million. The revenue increase is driven by Norway, Denmark, and Sweden. Customer Experience & Engagement grew by 75% to DKK 13 million. The revenue increase is coming from Sweden, U.K., and Norway. Year to date, our service revenue grew by 6% to DKK 677 million. We are satisfied with the organic revenue growth in our business line, and we expect an increased growth during the remaining two quarters of the year. Next slide, please. Now to recurring revenue. Recurring revenue increased by 7% to DKK 80 million in Q2 2022.
Cloud continues to grow, delivering a growth of 64%, and cloud is expected to take over the majority of our current subscription in the future. This trend is also reflected in subscription, which declined by 13%. Columbus Care contract declined by 2% and is not satisfactory. The recurring revenue now contribute 21% of the total revenue for Q2 2022, which is an increase of one percentage point from Q2 2021. Year to date, the development in recurring revenue shows good overall progress, growing by 10%. Next slide, please. Efficiency is measured as customer work delivered divided by available customer hours, and is an important key performance indicator. Efficiency for Q2 2022 was 64% for the group.
This is an improvement compared to Q1 2022, which was 62%, and also compared to Q4 2021, which was 59%. During the first half of the year, we have a special focus on improving efficiency in our global delivery center in India. The initiatives includes implementing performance management and also a better integration into our new operating model. The efforts are materializing and is expected to continue during the second half of 2022. Next slide, please. I will now hand over the presentation to Søren, who will go through our market units and our outlook.
Thank you. Yeah, we are now on slide 11. The majority of our market units delivered growth in Q2 of 2022, ranging from 6%-9%. The Swedish market, which is our largest market, delivered a 9% increase in service revenue in Q2 2022. If you combine the first half of 2022, it delivered 7%. The growth actually is driven by all business lines in Sweden. In Norway, we continue to have a fairly strong momentum, growing by 6% in Q2 of 2022, and we are now at about a 10% growth year to date.
The growth is mainly driven by the business lines Digital Commerce, Data & Analytics, and Customer Experience & Engagement. The UK market delivered 9% growth in Q2 of 2022, mainly due to a number of new customer projects. The growth is mainly driven by the business lines Cloud ERP, Columbus Care, and Customer Experience & Engagement. Now, Denmark declined by 6%, mainly due to a loss of two major Columbus Care projects. The US also declined by 11% due to more or less a general slowdown on our existing projects.
So now I'll go to the outlook as the final point before any questions from you, so you can start thinking about that. In terms of guidance, we maintain our guidance on a revenue span of DKK 152.5 million-DKK 162.5 million, corresponding to organic growth of 8%-15%. We also confirm our guidance on the EBITDA in the range of DKK 120 million-DKK 145 million. Just to sum it up, I would say we have come far in terms of implementing our strategy, but we still have a great deal of work ahead of us.
I'm expecting now we'll start to reap some of the benefits that we've sown, and that we've invested a lot in establishing in the past year or a bit more than a year. Some of the key focus areas will be to extend digital advisory capabilities in more areas of the business, so in more geographical areas of the business. We need to introduce even more customer development programs towards larger customers. We have that in many of our countries, and we can see that we succeed with that. We need to further refine our go-to-market approach within our business-critical solutions. Basically attaining this position as a trusted advisor. We do continue to see a great demand for our capabilities in the market.
Our order books or backlog, as we call it, and pipeline for the coming quarters have been put under a lot of scrutiny by us, and we see them as good. With improved efficiency and execution of our pricing and cost initiatives, which we did already ahead of the summer break, we do remain confident to maintain the financial expectations for the year. Columbus' ambition during the current strategy, if you remember, is to gradually increase our profitable growth to 10% annually by 2023. Yes. That is what I have for now and then I'm happy to take any questions or comments from your side.
Thank you.
I hand it back to you, operator. Thank you.
Thank you, sir. As a reminder, to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. If you wish to ask a question via the webcast, please use the Q&A box available on the webcast link. Once again, if you would like to ask a question via the telephone, please press star one and one. There are currently no phone questions, sir. I will hand it back to you.
Great. We do have questions via the web. I think what I will do is I will read them out loud, and if I can answer them, I will. Otherwise, I will count on the assistance from Nicole. The first one is from Jonas Bachmann. The guidance of EBITDA of minimum DKK 120 implies EBITDA margin at a 10% level in H2 of 2022. EBITDA margin level in Q2 is at 4% despite strong utilization. How can you be comfortable with such increase, and what are the drivers? Okay, thank you for the question, Jonas. It's a good one and understandable that you ask it. There are a number of components to my answer. Let me start like this.
First of all, actually, having gone to 64% is not strong. We are still in transition, and we need to approach 70% by year-end. That would be a good utilization and would be the first phase where we consider whether we should go further in our target utilization for the company. That indicates that there are at least six percentage points more to play for.
As you know, I'm sure you do, the nature of the consulting business is that once you get up in the utilization, the growth that is caused by growth and efficiency obviously grows your top line, but it actually grows more or less the bottom line by the same measure because you've already paid for your cost. That's why each percentage point up here is really worth fighting for, of course. That's the first thing I want to say. Another thing I want to say in terms of the EBITDA is that we have done certain initiatives, both in terms of adjusting our structure and our workforce in the first half of the year.
Obviously the cost benefit from cost decrease does not hit us immediately, as they do if there are some employees that leave us or if there are facilities that we are no longer using. We usually have a delayed effect of the decisions we take. Some of these will benefit us in the second half of the year. Other indications I could give you. Some speak a little bit to the same measure. Something that makes us a bit more confident is we struggled very much with our efficiency in our big global delivery center in India in the beginning of the year.
They came out of a very long lockdown later than this part of Europe, where I think the majority of you are sitting. There might be one from the U.S., but at least compared to continental Europe, they came out quite a lot later. We did a very big change in our operating model during COVID, which was a little bit hard for them to absorb. There had been a decline back in 2021, which we have now addressed. We're not fully at the level where we want to be in India. We're at 55 now, and we've actually increased it by 17 percentage points already. Not 17%, but 17 percentage points.
We came from a very low level, and we now reached up to about 55 before the summer break, and we'll continue to see that grow, so it doesn't drag down our group average. I think the final one I have more components, so it's a sum of many parts to increase this. The final maybe two final ones to mention is we ran a pricing initiative, which we've started also back in Q2. Adjusting your market pricing with customers when you're in our business is not something you can do by issuing a new price list. We basically need to engage in dialogue with all customers.
They're typically, you know, there's some conditions for an ongoing project. We might have a framework agreement. They're not necessarily all the same. Then you need to negotiate a new outcome. It's fairly work intensive. We've gone through a lot of that work already, and we're starting to reap benefits from that as well. Final one, attrition is basically. I will say here, I mean, attrition expressed by the number of people that leave us, that we don't want to leave us, is going down. It's going down by quite some with quite a pace right now, and it helps a lot on our EBITDA. I think it's for two reasons. I don't think so. It is.
The first one is, you know, it costs us money to find the people and to recruit them. Also obviously once they are here, we need to onboard them, and they don't become fully productive for some time. If not that many leavers, we don't have to hire as many to either stay at the same level or grow, and that gives us better EBITDA. Also, I think it's safe to say on this note that we don't aim to grow our headcount that much as we did last year. It's maybe one area where the strategy has been a little bit affected by the geopolitical turmoil. While we're doing pretty good, we try to take risk in a bit smaller bites.
If you remember, we had a huge intake in Q3 last year. I'm still very glad we did it. Had we done it under the current conditions, we would probably have aimed for the same number, but maybe not in as big a bulk. Now they benefit us. I'd say these are the main components. I hope that answers your question. Sorry. I'll go on to the question from you, Doug. At your midpoint margin, you guide for 11% EBITDA margin for the second point in Q2, adjusted for the positive one-off close to zero.
Can you please give us a split on how much you will improve margins from the cost reductions, increased prices, increased efficiency, et cetera, so we can get a better understanding of it? I think I explained most of this already, except you're asking for a more specific split. I cannot give you the split, Doug. I don't know if we potentially provide it at some point. We'll try to. I don't have it yet. I can say that the main part is coming from and the lasting part will come from our efficiencies. I can also say that increased prices will play some role, but it's more likely something that will build up over time.
I'm going to go out on a limb here without having numbers , and saying the increased price has not been the main contributor in second half year. That's more for 2023 and onwards. We need to be lining up new projects. We need to continue to deliver some of these projects we have, and they are long projects. I can speak to some of the cost reductions, and that is in a sub DKK 10 million range, but it's about what I said today. I'd rather be accurate than guess the number. Finally, I can also. I guess you would call that cost avoidance.
We paid for many things in the first half of the year in terms of changing senior leaders, basically paying out the termination type of things, which we're not incurring the same cost in the second year. I hope that answers your question. Over to Michael. A new part, two questions. Assuming the 2022 outlook is realistic, we need to see if it can step up in both revenue growth and profitability for H2 2022. It's obvious that you are taking additional capacity in and pricing is the most expensive part of the outlook. However, can you please explain the math in the current guidance? That is volume, price increases, costs given the current profitability on the acquired businesses.
Given the current profitability of the acquired businesses, do you see a need for goodwill write-downs with the 2022 accounts? The answer to the last one is no, Michael. You're asking about the EBITDA again. What else can I say in terms of what we are doing here? We're looking at, as we break down what we need to deliver in terms of EBITDA for the second half year. We basically break it down by business unit and by country. Then we have basically broken down by each hour manpower plan of everybody we have.
We look at the order backlog we have to work against, how much can we increase our profitability of that? We look at the coverage, as we call it, expressed as the number of or so the coverage is expressed as a percentage of coverage we have for the business we need to cover for, basically. We've worked quite diligently. We've already saw some pick up in this, so we've improved on it. The measure we are aiming for is to give insight, is we want to have about a 300% coverage unweighted of the order intake need we have. Because we know we at least win 1/3 unweighted. This is everything that comes in right to the very end.
This is what we check for each of the business units and go through them and look at the quality of what is in the pipeline. Is there anything more I can say about that? Volume pricing. I think otherwise I have said as much as I can. Okay, the next one I can be a bit more specific. Dennis, you're asking a question. Can you put some numbers from where is the decline in Cloud ERP? Right.
First of all, I think it's a small adjustment, but if I could just say that, the Cloud ERP actually the way I look at it is a combination of the cloud project business and the sister of sibling care unit that relates with that. If you look at the combined figure overall, it's more like flat. I don't wanna split hairs. It's not sufficient growth. Why don't we have sufficient growth? I think there's just one specific thing that needs to be mentioned, and then there's more of an overall thing. The main problem we have is that we lost momentum in our M3 business compared to last year.
I think we talked a little bit about that before. It was sort of an event where we lost five employees and have been rebuilding from that. It affects mainly only M3 and mainly M3 Sweden. When you ask where does it come from, that's where it comes from. We have actually rebuilt quite a lot of our strength and I think if you look sort of month-over-month, we're starting to come back. Comparing to the second quarter and the first half year of last year, we still have that decline. That's a specific reason.
Another one is less specific, and that is basically that we've had to put a lot more oomph into our business development, and that mainly goes for U.K., where it's already working and you can see growth coming out of U.K., but also for our home turf of Denmark, where we're not seeing sufficient growth. Actually, it's not true for Sweden and Norway. It's basically we need to or we'd have to build a stronger business development engine, and we're starting to see in terms of the coverage I expressed before and the order backlog that we have more to work against.
The final one is that although we've now balanced the U.S., so you can see EBITDA wise, we've balanced it. As you know, that has typically been a problem area for us financially for many years. Now we have more like a neutral-ish result contribution wise, but revenue wise, we're not growing that part at the moment. I cannot say for that part that we expect to reverse it in the second half of the year. I have my focus on the bigger markets. Okay. From Daniel, you mentioned geographic expansion is key to growth. Can you provide a bit more detail on specific regions? Additionally, you mentioned disappointment in Cloud ERP.
Can you provide more detail on the specific facts? Okay. Daniel, I think I covered the cloud one as best as I can now. On geographical, I want to be very specific because I might express myself wrong. We're not, per se, looking to get into altogether new geographies for Columbus. We are looking for. We're still in a situation where, compared to Columbus in the past, we have a lot more business units than we had in the past. These business units ideally should be strong and profitable in every one of our geographies, and they're not yet. You're starting to see the revenue growth from them. We talked about the double digits before, but some of the teams are fairly small still.
You don't become truly profitable before you get a critical mass behind it. That's what's meant by it. An example could be if we take a country like Sweden, for instance. In Sweden, we have established Data and Analytics. We've now built a team. We're starting to see good growth from it. Because we grew it, we couldn't have the efficiency we liked. Now, at the very end of the second quarter, we finally got them up, not to perfect efficiency, but where they start to have a genuine positive contribution to our EBITDA. There could be other examples. It's not Sweden is missing the units.
It's just we have a mix of strong units in every country, but no countries have the full breadth of Columbus end-to-end spread. That's the shoes we need to fill, if that makes sense. What is our feedback on the two care contracts we're losing? There's nothing more I can say about that. I don't feel there's anything systemic in that. We are one of the premier care contract providers in market. There's nothing I could say where I think is sort of representative for development or anything like that. There's competition in the market. Yeah. No. I don't have a specific comment for that.
Or anything like that. There's competition in the market and. Yeah. No. I don't have a specific comment for that. Great. We'll start the final one we had on the web. Good. Unless there are any final. I don't know if the ones on the phone can. If people want to ask an expanding question or anything, if you can still do that. Was it star one ask?
Star one and one, sir.
One and one?
Yes. There are currently no phone questions.
All right. If there's nothing else on the web that's come in, that is what we have for you today. Thank you very much for joining, and look forward to talking to you again next time.
Thank you. This concludes today's conference. You may now disconnect. Speakers, please stand by.