Chief Executive Officer & President, Columbus A/S
Columbus – A look into Q2 2024 with CEO Søren Krogh Knudsen
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About Søren Knudsen
In interviews covering Columbus’s 2024 full-year and quarterly results, CEO Søren Krogh Knudsen has described the company’s performance as being driven by its largest ERP business lines, which he said benefit from long planning horizons and large corporate customers who continue projects despite market concerns. He noted that the company saw a slowdown in its M3 division beginning in Q2 2024, with other units performing strongly through the first half, while overall organic growth reached 7% for the full year, slightly below guidance. Knudsen stated that the company is in a defined strategy process that could lead to outcomes including consolidation or a sale, but declined to elaborate beyond saying the process is following a stage-gate plan. Knudsen has attributed margin improvements to better contribution margins, higher hourly rates, improved project quality, and more efficient use of subcontractors, rather than cost-cutting, which he said he prefers to avoid in favor of growth. He has pointed to a pickup in the pipeline in Sweden’s digital commerce unit as a positive indicator, but cautioned that macroeconomic and geopolitical uncertainties remain challenging and have informed the company’s expectations. Despite headwinds in utilization and isolated weakness in security and e-commerce, Knudsen expressed confidence in the company’s ability to continue optimizing project contributions and strengthening its junior resource layers.
Transcript (9 segments)
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Interviewer0:00
I'm sitting here with Søren Knudsen, CEO of Columbus. You just released your Q2 results so let's dig a little bit into those. Looking at the top line, the Nordic IT consultancy sector has looked very challenged this quarter, but you delivered 8% organic growth, 10% for the half year actually, in the top end of your guidance. So challenge in market development but you're still delivering. What's behind that?
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Søren Knudsen0:22
I think what's behind it is that primarily our two largest business lines – the combined ERP business lines – are performing very well. These projects tend to have a very long planning horizon, and the customers that we serve today are very big corporations as well. So whilst they might have some concerns, they don't stop these projects. So we continue delivering, we continue expanding on them. So I think we benefit tremendously from knowing our positioning strategy – who do we serve, who do we work for, and what we do really well.
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Interviewer1:04
And then let's look a little bit further down the line. The margins have also been a terrible story actually in the Nordic IT consultancy sector. You're also suffering a little bit from lower utilization – you know, how much you use your workers – and it looks like a little bit like it's in security and digital e-commerce, you know. So can you explain a little bit about that and have you done something to mitigate that so it's not a problem going forward?
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Søren Knudsen1:28
Yeah, and you're definitely onto something. It's a little bit of a tale of two cities. So the majority of the business fares very well – the ERP business units, but also our CXC business unit, our data and AI business unit – and they also perform well in terms of contribution. But we do have two challenging business units that are both challenged in terms of revenue development and margin development, and those are the exact units: e-commerce and security. And we have indeed done something in the second quarter. So when it comes to e-commerce, we've sort of completely reorganized the unit. It's a new way of organizing it, different setup for the leadership team, more market focused, but we've also done some capacity adjustments to it. And you could say largely the same for the security business – we started a bit earlier already back in Q1 with the first capacity adjustment, but a big reorganization in Q2 and a different focus, so now much closer aligned to our cloud services – the ERP units where we have more market strength. It's actually a different type of security service that we want to expand in, whilst maintaining what we already had, and a further capacity adjustment. So that's already been concluded and it's already contained within the Q2 numbers.
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Interviewer2:55
So you have reiterated guidance, but we've also seen some downward adjustments to guidance in the Nordic IT sector. You have reiterated yours: 8 to 10% organic growth and 9 to 10% margins. Can you talk a little bit about the business climate? Because we're hearing from everybody in this sector that customers are prolonging the decision process. And secondly, talk a little bit about what is it that makes you expect still to lift margins into the second half? Is that because you were so swift out and fixing the lower utilization?
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Søren Knudsen3:35
Yeah, I think part of the solution for us has been that the problems we had were very isolated, so they were quite easy for us to address. It's much more difficult when you are soft across the whole business with 1,600 people. We could sort of go in and pinpoint the problems and address them. When it comes to the outlook, I don't think we are currently expecting a big pickup in the second half year. So it's a little bit challenging – it has been a little bit challenging and we expect that to continue. We don't see any immediate solutions to all the bigger geopolitical issues and also macroeconomics are absolutely still challenged and provide some uncertainty. So we've taken that into account when we look at our expectations. But we also just have to say that we have now, after two or three years of professionalizing the business, a very, very good way of looking into the future when we can look at our order backlog, we can look at our pipeline, we can look at the projected work we have for our customers, and we trust those numbers more and more going forward. So for us, it's a combination of looking at the things we're in control of and the things we're not in control of. And we spend a lot of time looking at this right now, and the conclusion for us is we're expecting market conditions to be fairly similar to Q1 and Q2 in the remaining two quarters. And I think we've even taken sort of a smidge that it could get slightly more challenging.
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Interviewer5:18
Okay, perfect. Then let's look at the longer term. You have this 'New Heights' strategy: 10% around organic growth, but doubling the margins from your starting point. And you've done a lot of stuff to start this. Can you see some early signs of that working? All the different building blocks that should keep your margins up. And talk a little bit about everybody seems to have a little bit of underutilization in this business. How hard is it to keep the ball on the eye here and is that maybe also very important to keep the ball on the eye and then react swiftly?
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Søren Knudsen6:02
Yeah, so all of the initiatives that we presented at 'AIT 15' we've kickstarted all of the initiatives, of course, and some of them have a three-year sort of run in, but we can certainly start to see some of the results. I would say the most positive for me is to look at all of the projects that we do and then see the first gross contribution margin that we obtain from that. So that's a question of both optimizing what's good, but it's certainly also a question of avoiding very bad projects, because that's both a financially bad position for us to be in, but it also inevitably means that a customer gets disappointed. So basically reducing the number of projects that don't run according to plan has already brought us the first big uplift. We've also seen a big increase in the amount of hours delivered out of our offices in Hyderabad and in Poland. So that works, but there's still a long way until we reach our full potential. We also continue to work on this rebalancing of the organization. So we have very much of a diamond shape right now with many senior resources. We don't want to be a pyramid with few seniors and a lot of juniors; we would just like to strengthen the junior layers relatively. And we're doing that. If the business climate had been less challenging, I would probably have done that a little bit faster, but those are the conditions we operate under. So I'd say we're following plan.
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Interviewer7:49
Thank you, Søren Knudsen.