Hello and welcome to the Coor Service Management Q1 report 2024. Throughout the call, all participants will be in a listen-only mode, and afterwards there will be a question-and-answer session. Please note that this call is being recorded. Today I'm pleased to present AnnaCarin Grandin and Andreas Engdahl. Please begin your meeting.
Thank you, and welcome to the Coor Q1 report. Before presenting the report, I will give a short introduction of Coor. We are the leading facility management provider in the Nordics and offer our customers a broad range of services. We future-proof our company by driving and steering from a triple bottom line perspective, meaning that we are taking a business, a social, and environmental responsibility. From a business perspective, we have a clear ambition to have a stable and solid financial development with high customer satisfaction. From a social perspective, we have a clear ambition to attract the best talent in the market as well as support and develop our employees. I'm very proud of leading a company where diversity and inclusion make the difference, where we believe diversity creates an even more successful company.
We have a clear ambition to improve the environment. Our environmental targets are approved by the Science Based Targets initiative, which means that our environmental targets are in line with the Paris Agreement to limit the global warming increase to 1.5 degrees Celsius. With our knowledge and competence, we also support our customers to reduce their environmental footprint. One way to get to know Coor is to view the company from different perspectives based on our total turnover of SEK 12.6 billion. From a contract type perspective, we see that the split continues to be stable with the IFM contract just under 60% and single service contract just over 40%. Slicing the turnover by service line, we see only small variations compared to previous quarters, and cleaning continues to be our largest service line with 40% of net sales.
On our customer segment perspective, the split remains diversified. So let's move over to our Q1 report and starting with some key highlights in the quarter. We continue to see high business activity in the first quarter of 2024. We see a solid pipeline of medium and small-sized contracts in all segments and also a few larger contracts in process. So overall, we see strong growth opportunities in the Nordic market. And we are proud to have extended a number of key contracts at the start of the year. The IFM contract with ICA has been extended with five years. Coor is continuing to deliver services to 20 facilities, both warehouses and offices, in a new contract focusing on partnerships. And the IFM contract with Saab has also been extended by five years.
The new contract period will include new services and facilities, while property management services will be conducted by another supplier. Coor also secured a three-year extension with Heimstaden comprising services for 120 properties in Stockholm and Malmö. In Denmark, the IFM contract with Topsoe has been prolonged and extended with additional services. The contract with VTT in Finland has also been extended. During the quarter, Coor secured several new contracts, including an IFM contract with Sweco for the delivery of workplace-related services to all their offices in Sweden, and that contract starting in May, a contract with high focus on service experience and sustainability. In Denmark, we secured a new contract with Clever for the joint development of sustainable café concepts for the charging station, and the first café will open up in August. In Norway, we have signed a new IFM contract with Aibel in Stavanger.
After intense integration work during the fourth quarter, we started the new large IFM contract with Swedbank in mid-December. The startup phase has progressed good, and we are well up and running with that contract during Q1. The integration of the acquired Swedish cleaning company Skaraborgs Städ is proceeding as planned and is adding value as expected. We expect the integration to be finalized now during spring. In the Q3 report last year, we announced an action program to accelerate the company's progress towards its long-term margin target. The implementation of the program is proceeding according to plan and is expected to generate the anticipated profitability improvements in 2024. A successful example of harmonization of our processes is the implementation of group common HR processes with a common tool in all countries that will set the foundation for enhanced and more efficient administration with high quality.
So we move over to our triple bottom line results for Q1 and starting with the business dimension. Organic growth is 2% in the quarter. The growth results from the new contract as well as high variable volumes that more than offset ended contracts. Acquired growth is 3% in the quarter, fully related to Sweden with the recent acquisition of Skaraborgs Städ. And the EBITDA margin for Q1 is 5.1%. That is in line with previous year but still below our margin target of around 5.5%, and our intention is to accelerate towards margin targets. Cash conversion is an LTM number and ended at 90%. Leverage is also an LTM number, 2.4%. That is in line with our target to stay below three, but our ambition is to reduce our leverage somewhat during this year, 2024. Moving on with our performance in social and environmental responsibility.
In the first quarter, the group's TRIF amounted to 5.9%, which is a significant improvement compared with the first quarter previous year but somewhat weaker compared with full year 2023. On the environmental KPIs, we see a positive development. On Scope 1 , CO2 emissions from our vehicle fleet, that's declined by 13% compared with the same period the previous year. We still have an increase compared to baseline from 2018 in absolute numbers, but all countries work actively with increasing their share of electric vehicles. They work with a more effective fleet management and use HVO fuel instead of diesel where possible. All to boost the trend and to continue to reduce CO2 emissions in absolute numbers. For Scope 3 and science-based target-aligned suppliers, we continue to make progress, and we are now at 19%.
We continue to push our suppliers to align their targets with science-based targets and also actively steer our spend towards the ones who are approved. With that, I hand over to Andreas to continue with the details on the financials.
Thank you, AnnaCarin. As you heard from AnnaCarin, we continue to grow. Organic growth for the quarter was 2%, and that is despite the ended contract with Ericsson having full impact in the quarter. Acquired growth adds another 3%. So net sales is up almost SEK 150 million versus Q1 last year, and that takes us to a quarterly net sales of close to 3.1 billion SEK. Adjusted EBITDA amounts to SEK 160 million, which gives us an EBITDA margin in the quarter of 5.1%. Financial net increase in the quarter, and that is driven by a higher interest rate compared to last year. Net income is SEK 62 million, and adjusted net income when adding back amortization amounts to SEK 82 million. On the full year numbers, we see that net sales is close to 12.6 billion SEK. LTM organic growth is 3%, acquired 3%, and FX 1%.
The full year adjusted EBITDA level is SEK 613 million, which gives us an EBITDA margin of 4.9%. Adjusted net income for the full year is SEK 282 million. Looking at Q1 country by country, starting with Sweden, organic growth of 3% in the quarter from new contracts and continued high variable volume in property that more than compensates for the lost contract with Ericsson. Adjusted EBITDA is above last year and margin 9.4% for the quarter. EBITDA was positively impacted by newly started contracts, the acquisition of Skaraborgs Städ, and effects from the action program. The ended contract with Ericsson has a negative effect in comparison with previous years, an effect still somewhat amplified by lost units with other contracts, which the Swedish organization is gradually managing. In Denmark, organic growth was -4% from a couple of ended mid-sized public contracts.
Adjusted EBITDA for the quarter increased compared to last year, and adjusted EBITDA margin was 4.9% versus 4.1% last year. The stronger EBITDA margin was driven by the adaptation of the organization that was implemented during the second quarter last year. The quarter was also positively impacted by retroactive volume adjustments in one larger contract. In Norway, organic growth in the quarter was 8% from new mid-sized contracts such as Studentsamskipnaden in Oslo and IKEA. Adjusted EBITDA slightly lower than last year and adjusted EBITDA margin 3.5%. EBITDA and margin were negatively impacted by high cost in the offshore operations where bad weather conditions led to delay in the transportation of personnel. The negative development of margin was also impacted by a newly started contract with a startup phase that requires more resources than normally expected.
Organic growth in Finland was 4% from high variable volumes and a number of small and new contracts that were partly offset by a couple of smaller terminated loss-making contracts in northern Finland. Adjusted EBITDA and margin, largely unchanged year-on-year. Implemented efficiency actions in the operations had a positive impact, while high cost for wind to work had a negative impact during the quarter. Moving on to cash flow, we see that our key metric, LTM cash conversion, ended at 90% for the Q1 LTM period, in line with our target of staying above 90%. Past year received was more or less abnormal level despite the quarter ending in the middle of Easter holidays. On the LTM cash flow, the M&A item is related to finalizing the acquisition of Skaraborgs Städ in the second quarter last year.
On the balance sheet, net working capital as percent of net sales is stable compared to historical numbers and at the end of Q1 at negative 8.6%. Leverage ended at 2.4%, a slight decrease compared to previous quarters. During the quarter, Coor placed two new senior unsecured bonds in the amount of SEK 500 million each with maturities of three and five years to refinance the outstanding SEK 1 billion bonds that matured at the end of the quarter. The split in maturities provides a more diversified maturity structure of outstanding financing. With that, I hand it back over to you, AnnaCarin.
Thank you, Andreas. As usual, before we go into a Q&A, I would like to sum up our first quarter of 2024. We have high business activity at the start of the year, both new contract wins and several important prolongations. There has also been high activity with integration of acquired business in Sweden as well as startup of new organic contracts. We see continued growth opportunities in the Nordic market from a solid pipeline of mid-sized and small contracts and the visibility of some large contracts. We continue to stay committed to deliver on our financial targets. We have initiated an action program to accelerate progress towards our margin target of 5.5%, and the program proceeds according to plan in the first quarter. We see continued solid cash flow.
In the quarter, we have, as Andreas mentioned, placed new senior unsecured bonds with three and five years maturity to refinance our outstanding bond. A split in maturities provides a more diversified maturity structure of our financing. And finally, I would like to extend my warm thanks to my colleagues. With joint forces, we are building a truly sustainable and successful company. So with that, we open up for questions.
Thank you. If you do wish to ask an audio question, please press star one on your telephone keypad. If you wish to withdraw your question at any time, you may do so by pressing star two to cancel. Once again, that was star one on your telephone keypad to register for any questions. Our first question comes from the line of Simon Jönsson from ABG Sundal Collier. Please go ahead. Your line is now open.
Good morning, everyone, and congratulations to a solid quarter. A few questions from me. With the new contract signed as well as the full effect of the Swedbank contract now in the numbers, do you feel that that is enough to see slightly higher organic growth coming quarters from what you delivered here in Q1, the 2%?
Good morning, Simon. I mean, still, we need to consider that both Q2 and partly Q3 will be burdened by the effects of Ericsson. But obviously, we are very happy that we are signing new contracts that are coming back to growth, but we should still expect some slightly lower rates here the coming two quarters.
All right. Thank you. On the action program, could you quantify a bit how much impact you have seen so far and what you expect or when do you expect to see the full effects?
Absolutely. I mean, this is a program that we are gradually implementing, and we expect it to be fully up and running from Q4. There are some effects in Q1, but still on a smaller level or fairly small level. As of Q4, we expect it to be fully ramped up.
All right. Thank you. And one last from me. If we look at the segments, I think Denmark stood out, at least on the EBITDA margin, a bit higher than what we expected, at least. What do you see for Denmark in terms of EBITDA margin over time? As it has been scaling sales quite good in recent years, do you think it can reach the same kind of level that Norway did at its peak?
Yeah. Good morning, Simon. I think so. I think when we view Denmark, we have seen a growth in Denmark, and we all know that in our business, it takes a while to ramp up new business. And we also have both size and density in Denmark, so we do expect margins in Denmark higher than previous years, actually.
All right. So nothing on the potential over time here given the volume we see where it can be?
I mean, without sort of guiding exact numbers, but I mean, with a larger volume, we expect margins to gradually increase. And we have seen sort of where Norway, as you mentioned, has been in the past. So I mean, that's one reference to look at.
All right. Got it. Thanks for that. I'll get back into the queue.
Thank you. And our next question comes from the line of Karl-Johan Bonnevier from DNB Markets. Please go ahead. Your line is now open.
Yes. Good morning, AnnaCarin, Andreas. I'll continue on the same line of question as the earlier guy. Looking at the efficiency program, it seems like you had some nice contributions from it coming through already in Q1. Could you just detail what has already been executed and what is still to be done to reach the full potential of the program?
Absolutely. I mean, first of all, what we do see effects from is staff reductions that we started to implement towards the year-end here last year. We see some of that taking effect in Q1 and expect it to be sort of fully ramped up here in the second quarter. Sort of to get to a fully ramped-up program, then we are also looking into procurement where we are making spend analysis to identify different categories that we believe will be beneficial to procure across Nordic. That obviously takes a bit longer time, and we expect that to be more visible here in the second half of the year.
But you still feel confident about the total amounts that you sought to get out of the program?
Yeah. Absolutely, we do. That is running along according to plan, so we still are confident around that.
When you look at the integration and restructuring cost that you single out, how much of that is related to the program? How much is still to come, and how much is related to the integration of Skaraborgs Städ?
If you look at the IACs, you have the integration costs. Those are fully related to new contracts and the acquisition. The restructuring part is more or less related to the changes in staff that we did in Sweden here in Q1, but none of it is related to the action program. That cost was fully taken in Q4.
How do you see those costs, say, continuing into the second half of this year?
I mean, what we expect to continue is some costs related to contract startups. Besides that, we have no other visibility of sort of IAC costs yet in the near-term future.
When you look at the impacts you saw in Norway and the challenges you saw there, is that something that you already managed to, say, balance out now in Q2, or is that something that will hang over us?
I expect some of that to continue also in the second quarter, but the Norwegian operations is on that issue and sort of gradually managing that. But some effects are still to be expected in Q2, I believe.
Excellent. Looking at the good renegotiation you had with ICA and then Saab, is it a good proxy now to say that your renewal needs for 2024 is already now settled when you look at the big contracts?
I would like to say there are a few contracts still to prolong in Q4, but they are not as large as ICA and Saab. But I think you all know that working with renegotiation, that's a long-term process. So we have continuously dialogues with our customers all the time and also looking into 2025 as well, trying to prolong contracts.
When you look at the debundling that Saab decided to do here and not renewing the technical facility part of the contract with you, is that a trend that you believe you can see from more players in the market going forward? I think we had one similar kind of situation in Sweden last year, didn't we, Saab?
I would not say that we can view a trend in this dimension. I think more or less, I would like more to compare Saab with maybe Equinor, actually. From a security perspective or safety perspective, I think they have decided to go for two suppliers instead of one.
When you look at your offering, so to say, in energy efficiency, that I know Caverion has really tried to push towards their end clients, do you feel that your offering in that segment is as strong as maybe the technical service installers?
The way we view it, I think we have quite a good offer to our customers as well. I do not think that's the reason why they do not choose us for the full scope, actually. Actually, we will try to deliver this as an IFM concept anyway to Saab and together with Caverion.
No, no. Thank you for the extra color. When you're talking about new opportunities, I heard you said that there were good opportunities in the SME segment across the Nordics. There are no big new opportunities, so to say?
I think we, as I mentioned, there is a strong pipeline of new possibilities coming into the pipeline all the time. So I view the future in a positive way.
Excellent. So this should be a year for where you can possibly get back to net portfolio growth then.
Yes, hopefully. Yeah.
Excellent. Thank you very much, and all the best out there.
Thanks. You too.
Thank you. Once again, it is star one on your telephone keypad to register for any questions. Our next question comes from the line of Raymond Ke from Nordea. Please go ahead. Your line is open.
Yes. Good morning. A couple of questions from me. First one, sort of if you could describe the strengths of different geographies there a bit, Denmark against Norway and Sweden, where do you see the most opportunities right now, and where do you see sort of fewer IFM opportunities, both midsize and large-size contracts in general?
I mean, I think we have a sort of solid, steady inflow of small, midsize contracts in all those geographies, so a stable situation around that. Then we have talked for a couple of quarters that we see most of the larger cases coming from Denmark and Sweden. That is still the case. But we also actually see an active sort of small, midsize market in Norway. So right now, a positive view on all of them.
Yep. Got it. And then regarding sort of Swedbank and Sweco contracts, I think we were sort of touching on them before. But in terms of ramp-up periods, when do you sort of expect these contracts to start to contribute positively or be more in line with the overall Swedish geography in terms of profitability?
Well, Swedbank is quite a large and a complex contract. It spreads all over Sweden, delivering to all their offices. So I would like to say that we say, actually, that it will take something between 6-18 months to ramp up a new contract. And the more complex contract, the longer time it takes. So I expect to be around a year or something like that in this case, with Swedbank.
Got it. And for Sweco, is that a first-time IFM contractor?
No, actually. They had another IFM supplier before we were going to take over.
Yep. Got it. And then just curious about the midsize contract in Denmark that you stopped here in Q1. What was the reason behind that, if you could provide some more color?
Do you mean the lost contract in Denmark, the public contract?
Yeah. Yeah. That contributed to the negative growth here, the midsize public contracts.
Yeah. That is some midsize public contract in Denmark. We were, of course, in the process, but we lost that contract due to pricing.
Okay. Great. Thank you very much. I'll get back in line.
Thank you. Our next question comes from the line of Oliver Uusitalo from Aktiespararna . Please go ahead. Your line is now open for your question.
Good morning, AnnaCarin and Andreas. Hopefully, you can hear me all right. I have a question regarding the renegotiated contract with ICA and Saab. I know that you are a bit restricted in giving details regarding the contract with Saab, but could you tell us anything about the margin of these contracts? Are they any close to the margins in the previous contract with Ericsson, for example?
I mean, we typically don't comment on margins in individual contracts. But I mean, we don't expect any major changes in sort of profile on either one of them.
Okay. I understand. Then I just had one last question about the Danish market where I'm curious about the future growth perspective. Has it turned negative in this quarter? And I get that the comparables are tough. And now that you've closed a few public contracts as well, will the extension with Topsoe and Clever bring back high growth alone, or should we expect low single-digit growth going forward, or where are we?
I mean, we're closer to sort of normal low single digits with the contracts we have right now. That could obviously change depending on what we are winning. But right now, what we've seen in terms of winning, that's low single digits.
Yeah. I understand. Thank you so much. I think that's all from me for now.
Thank you.
Thank you. As a final reminder, it is star one on your telephone keypad if you have any further questions. As we have no more questions registered, I hand back to our speakers.
Okay. Thank you all for listening to this call. We wish you all a continued good day.
This now concludes our presentation. Thank you all for attending. You might now disconnect.