Earnings Call: Q1 2021

May 18, 2021

Thank you, Tracey. So welcome to Columbus presentation of Q1 report for 2021. I'm Hans Erik Thane and I'm currently acting CEO, but also our Corporate CFO in Columbus. So let's start to go through our agenda on slide number 4. And here we'll go through taking you through the highlights of Q1, and then we will end the presentation with an outlook for 2021 and the long term guidance followed by a Q and A session. So now let's go to slide 5 of the presentation, which is a welcome to our new CEO. And I'd like to start the presentation by welcoming our new appointed CEO, Soren Knussen. Soren Knussen comes with a background within the Manufacturing Consultancy and Advisory on Digital Transformation. And I am really confident that Knoebelsen will both complement and accelerate our organic growth and strategic executions towards our position as Digital Trusted Advisor. Soren will join Columbus on June 7, and we look very much forward to welcoming him into Columbus. Next slide, please. Clovis delivered a very profitable first quarter with a 40% EBITDA increase. Overall revenue declined by 8% due to the capacity adjustment we executed in Q2 last year due to the COVID impacting in March end of March last year. So all we have fewer consultants now than we were Q1 last year despite that we actually started hiring people again in Q4 last year. So despite the overall revenue decline, we have realized growth in our strategic growth areas as digital commerce, data and analytics and customer experience. The EBITDA Increase was mainly driven by higher efficiency as the rate of invoiced hours rose from 54% to 58%. Also tight cost control and less travel cost plays a role in our improved EBITDA. Consequently, EBITDA margin increased from 9% to 13%, which we consider a satisfactory result. With regards to the strategic execution in general, we reached an important milestone in focusing on consultancy in digital transformation only. Therefore, the completion of the divestment of our software company on January 26 was an important milestone. With the sale of to increase, Columbus realized a net proceeds of DKK 859,000,000. This proceed was also the reason for Columbus paying out and extraordinary dividend of DKK 6 per share in April this year. Another step in our strategic execution was the divestment of our Baltic entities in Estonia and Lithuania completed on March 30. Further, we are currently reorganizing and implementing a more focused and simplified operation with increased customer centricity. This means that we reorganize the business into global business lines and local market units. This reorganization allows us to pull together our global strength around our service areas and create full customer focus in each marketplace. We are also changing the way we strategically work with customers, which means that we are We focus our capabilities on our prioritized customers. All in all, Q1 was a good start of the year where we generated a strong EBITDA growth and we took the first important steps into our new strategy, Focus 23. Looking ahead forward, we have built a solid pipeline for the coming quarters, and we do expect to deliver top line growth already in Q2 this year. Next slide, please. On this slide, we have illustrated the bridge between reported numbers and what we call normalized numbers. We have also included this in order to demonstrate currency impact on our business. The adjustment of provision for loss making contract in the last year's numbers is related To the Norwegian fixed price product, we have previously disclosed. In Q4 last year, we made a settlement with the customer. And therefore, we will not have any further negative impact from this project going forward. So the key takeaway from this slide is that despite a revenue decline, we have managed to improve our normalized EBITDA significantly with an improved EBITDA margin as a result. Next slide. So I'll now this is the full income statement. And I'll now briefly touch on this. Our Cost is slightly decreased compared to last year. This is primarily related to the capacity adjustment bank in March April last year. External project cost has also decreased significantly due to reduced usage of subcontractors. This is a significant part of the capacity adjustment. Other external costs decreased by 52% in Q1 21 to DKK 22,000,000 primarily related to less internal travel cost, employee related cost and provisions for bad debt that are lower this year than last year. Columbus realized a profit before tax of DKK48 1,000,000 in Q1 2021 corresponding to an increase of all 103%. The increase is mainly driven by the positive EBITDA development and financial income from currency adjustments. Profits after tax from discontinued operations amounts to DKK 721,000,000 in Q1. The result is mainly related to the realized gain of the sale of Tuncrys in January this year. So now I'm on slide development in service business first quarter. Service revenue declined by 5% to DKK349,000,000 in Q1 2021. The decline is impacted by the reduced number of consultants, especially in our cloud ERP business declining by 8%. However, we see a high demand for digital transformation and especially our new strategic Business lines, digital commerce, data analytics and customer experience and engagements are increasing respectively 4%, 9% and 45% compared to Q1 last year. Columbus Care declined by 4% due to decline in the consultancy revenue. However, the recurring revenue from our care contracts did increase by 21%. Next slide, please. And here you have the development in our recurring revenue. In Q1, Recurring revenue was at the same level as last year with DKK 95,000,000. The recurring revenue continues to constitute a larger part of the total revenue with Q1 recurring revenue constituting 23% of total revenue. The development in recurring revenue shows Great progress in Columbus Care contracts and cloud products and a decline in subscription. Going forward, Columbus expect subscriptions to decline as part of the cloud conversion. However, the decline in Q1 is higher than expected due to a larger decline from SMB customers in our U. S. Business. Next slide. Our chargeability is significantly higher in Q1 2021 than last year, amounting to 58% versus 54% last year. The high demand in Q1 2021 combined with the reduced number of consultants resulted in a very high utilizations of our consultancy business, despite that most of our employees are still serving our customers remotely working from home. We consider the development satisfactory. Next slide please. So I'll now shortly present our market units. As you'll see, we have changed the segment reporting from geographical segment to market units, which gives a more detailed view into our business. Next slide. Most of our market units declined in revenue due to the reduced number of employees as already mentioned. However, Columbus Norway delivered a growth in Q1 with an improvement across the business. Especially our market units in U. S. And Russia have are affected by corona pandemic as well as a decline in the U. S. Dollars and Russian rubles compared to last year. The reported decline in revenue for U. S. Is 17%. However, in local Currency, the decline is 9%. The reported decline in revenue for Russia is 33%. However, Again, in local currency, the decline is 17%. Despite the revenue decline in our market units, we have managed to deliver significant EBITDA growth. The improved EBITDA is mainly driven by significantly higher efficiency across all market units and by cost savings, in particular less travel cost, employee related cost and provisions for bad debt. Particularly, our market units in the U. S. Have been able to approve their earnings in the Q1 compared to last year. When the corona pandemic broke out back in March 2020, Columbus did its utmost to mitigate risk and to keep the business in good health by adjusting the business to expected activity level. During Q4 2020, we began to see the market picking up. And therefore, we started on boarding people, which is expected to continue throughout 2021. In Q1, market demand has significantly increased and we have a solid pipeline. We expect revenue growth for Q2 2020 and onwards. Thanks to all our market units. Next slide. Outlook. And I will now cover our outlook on slide 15% with the top line or headline guidance for 2021 maintained. Columbus is confident that there is A great market potential in what Columbus brings to market. And despite the continued COVID-nineteen uncertainty and the negative market impact, the Management believes that there are good business opportunities going forward. With our Focus 23 strategy, it is Columbus' Long term ambitions to gradually increase profitable organic growth to minimum 10% annually from 2023. In our latest 2021 guidance, which was public toughest with our annual report for 2020, we had included Baltic's fully expected revenue and EBITDA. As we divested Baltics in Q1 this year, Baltics will not be included in the figures for the continued business for 2021. Based on The financial performance in Q1 current order book and pipeline, our guidance for full year 2021 remain unchanged despite this divestment of the Baltics countries. So revenue is expected to be in the range of DKK 1650 1,000,000 to DKK1.8 billion corresponding to a growth between 5% 14% organic growth. EBITDA is expected to be in the range of €125,000,000 to €150,000,000 corresponding to an increase between 1% and 21% compared to the 2020 EBITDA adjusted for customer provision and earn out adjustments. Next slide, please. So this was sort of the end of my presentation. And here, just sort of the overview of our upcoming events. So let's go to next slide and I'll hand back The conference to our operator, Tracey, for opening up for questions. Thank you. Thank We have no questions from the telephone line, sir. Then let's conclude today's call. And thanks to everyone listening in, and I wish everyone a great rest of the day. Thank you so much for listening and showing your interest into Columbus. Thank you.