Good morning, ladies and gentlemen, and welcome to the Coor Service Management Q3 Report 2024 conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call require immediate assistance, please press star zero for the operator. I would now like to turn the conference over to Ms. AnnaCarin Grandin. Please go ahead.
Thank you. Welcome listening to Coor's Q3 report. I will start by giving you the key highlights of the third quarter and then continue to present our triple bottom line results. I will hand over to Andreas to present some more details around financial performance before we summarize the key takeaways of the quarter and have a Q&A. Starting with the key highlights. During the quarter, we have successfully extended several important contracts. In exclusive dialogue, the IFM contract with Alleima in Sweden has been extended for another six years, including option years, for an estimated total value of SEK 780 million . In Norway, the IFM contract with Aker Solutions has also been extended in exclusive dialogue, a contract worth SEK 150 million per year.
In competition, we have also been awarded a renewed six-year contract for cleaning services to Sønderjylland Hospital, with an annual turnover of approximately SEK 75 million in Denmark. We also continue to win new small and mid-sized contracts, and in this quarter, thereby strengthening our position in those segments. Examples of such contracts is the new security contract with Gävle Municipality at an annual value of SEK 17 million, and a cleaning contract with Degerfors Municipality at an annual value of SEK 12 million, and both are new municipalities in Sweden. In Norway, we have also won a new IFM contract with Semco Maritime at an annual value of SEK 10-15 million, which means that we also become even stronger within the Norwegian energy sector. During the last two quarters, we have seen somewhat lower demand for variable volume in Denmark, mainly among our public customers.
As we do not see an immediate recovery in these volumes, we have decided to implement staff reductions in our Danish operations in order to adapt our costs to lower volume. And towards the end of this quarter, and looking into coming quarters, we also see lower demand for variable volume in Sweden, primarily in property services, but also within conference services. We have proactively decided at the end of the quarter to initiate staff reductions also in the Swedish operations in order to adapt costs to lower demand. In total, the reduction in both countries affect approximately 70 employees. And a year ago, we presented an action program to accelerate development towards the company's long-term target of 5.5% adjusted EBITA margin.
During the last twelve months, the EBITA margin amounts to 4.8%, which means that we are still not on par with our target. The action program consists of three parts. The first part, related to staff reductions of 75 administrative resources, was completed during the second quarter. As communicated previous quarter, the second part of the action program, the harmonization of underlying processes, requires more resources and time than we initially estimated. This is due to more extensive change work related to new ways of working, but we truly believe to invest in resources to continuously harmonize our processes and implement standardized ways of working. I remain convinced that the harmonization that is carried out will contribute to us reaching our margin target.
And the third part, activities linked to purchasing efficiencies, are going according to plan, where the analysis work during the first half of the year has been completed, which will now generate continuous profitability improvements, with first effects becoming visible toward the end of the year. And we are very proud that we, this year, take the first place in Allbright's annual Gender Equality Report, and we are thus the most equal-listed company in Sweden. And at Coor, our employees, their experiences and skills contribute to our success, and this position contributes to attracting the market's best talent and make us even more attractive as a partner to our customers. And for us, it's important that we make use of all the talents that exist in the society, regardless of gender, age, ethnicity, or other.
The market outlook for facility management in the Nordics remains good, with a strong pipeline of new business. We see a pipeline with both first time outsourcing and tenders of existing contracts within both integrated facility management and single services. Over the summer, we see in our existing portfolio a clearer trend that the proportion of employees who works from the office increase. We also have continued high demand in our consultancy business advisory, which helps our customers to optimize their workplace. Let's move to our triple bottom line results for Q3 and starting with the business dimension. In this seasonally weaker quarter, Coor delivers both sales and adjusted EBITA in line with last year. Organic growth is flat, with positive effects by newly started contracts in Sweden that compensates ended contracts in Sweden and Denmark, and also somewhat lower variable volume.
The EBITA margin for Q3 is 4.1%, slightly below last year, and the LTM margin of 4.8% is still below our target of around 5.5%. Cash conversion is an LTM number and ended at 77%, and more details around that later in the presentation. Leverage, also an LTM number at 2.7, and in line with our target to stay below 3, but our ambition to reduce our leverage somewhat during 2024 remains. This year's customer survey was carried out during the second quarter, and the result was then at a continued high level of 70, which is in line with the company's goal. The customer survey also measured the Net Promoter Score, which continues to be at a high level of +15, compared to last year, +11.
Moving on with our performance in social and environmental responsibility. In the third quarter, our TRIF amounted to 6.5, which is an improvement compared with the third quarter previous year, but somewhat weaker compared with the full year 2023. On the environmental KPIs, we see a positive development. On Scope 1 and 2, CO2 emissions from our vehicle fleet and premises, we continue to see a decline in emissions in absolute numbers by 22% compared with our base year, 2018, even though Coor has grown as a company by over 30% in the same period. We have a positive trend, but not sufficient towards the interim goals in 2025, and recognize that we need to do even more. For Scope 3 and Science-Based Targets aligned suppliers, we continue to make progress, and we are now at 23%.
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. So with that, I hand over to Andreas to continue with the details on the financial.
Thank you, AnnaCarin. Net sales is 2% down compared to last year. Organic growth for the quarter was flat, where newly started contracts, such as Swedbank and Sweco in Sweden, compensates for ended contracts in Sweden and Denmark. Variable volumes are at a continued high level, but compared to the same period last year, we see somewhat weaker demand in Denmark, mainly related to public customers, and looking ahead, we see lower demand in Sweden for variable volumes in property services and conference services, as AnnaCarin mentioned earlier. With flat organic growth and - 2% from FX, that takes us to quarterly net sales of around SEK 2.9 billion . Adjusted EBITA amounts to SEK 120 million , which gives us an EBITA margin in the quarter of 4.1%.
As AnnaCarin described earlier, we have decided to make some downsizing of both the Swedish and Danish operations to adapt our cost base to reduce demand for variable volume. The downsizing affects approximately seventy employees in the delivery organization. Costs for the restructuring, amounting to SEK 27 million , have been included in the third quarter as item affecting comparability. Financial net increase in the quarter, and that is driven by a slightly higher debt compared to previous year. Net income is SEK 17 million , and adjusted net income, when adding back amortization, amounts to SEK 32 million . On the full year numbers, we see that net sales is SEK 12.5 billion . Full year organic growth is 1%, acquired 2%, and FX, - 1%.
The full year adjusted EBITA level is SEK 607 million, which gives us an EBITA margin of 4.8%. Adjusted net income for the full year is SEK 244 million. Looking at Q3 country by country, I'm starting with Sweden. Organic growth of 1% in the quarter, with strong underlying growth from new contracts offset the negative effects of the ended contract with Ericsson. This is the last quarter with volume from Ericsson in the comparable numbers, and for the third quarter, organic growth was 6%, excluding the effects of Ericsson. Variable volumes are at a continued high level, but as I mentioned earlier, we see lower demand for variable volumes looking ahead, especially in property service, but also related to conference services.
Adjusted EBITA of 126, and margins at 8% flat is largely in line with last year. EBITA was positively impacted by newly started contracts and effects from the action program. The ended contract with Ericsson has a negative effect in comparison with previous year. Also affecting negatively, we see lower profitability in parts of the Swedish cleaning operation. That is explained by excessive resource utilization, and an action plan has been initiated to gradually return to previous level of profitability during the fourth quarter. Moving over to Denmark. Organic growth of -5% in the quarter, primarily explained by a couple of ended mid-sized public contracts. We also continue to see lower demand for variable volumes, foremost in the public sector. Adjusted EBITA and margin are lower compared to last year, where both ended contracts and lower variable volumes affect profitability negative.
After two quarters with lower volumes, adjustments are made to the Danish operations to adjust our cost base for lower demand. Moving over to Norway, we see lower organic growth compared to previous four quarters, where several newly started contracts from late 2022 now are fully reflected in comparable numbers. Variable volumes are at a continued high level from periodic maintenance stops in the energy sector. During the year, both the second and third quarters have had high variable volumes related to the energy sector, volumes which mainly occurred in the third and fourth quarter in the previous year. This is also something we have seen historically, that maintenance stops vary in size and quarterly timing between years. Adjusted EBITA are in line with last year, but with slightly higher margin, where a more mature contract portfolio affects positively.
Last among the countries, Finland, organic growth of - 3% in the quarter from a couple of discontinued small loss-making contracts in the northern part of Finland. Adjusted EBITA and margins are in line with last year. Moving on to cash flow and balance sheet, we see in the top left-hand chart, our key metric, LTM cash conversion, ended at 77% for the Q3 LTM period, and that is below our target of staying above 90%. We see a build-up in working capital during the quarter related to increased approved revenue for ongoing work that takes net working capital as percent of net sales to - 7%, compared to - 8% Q3 last year.
This is a development we are not satisfied with, and we have full focus to complete and invoice ongoing work to secure reductions during the fourth quarter to get back to our cash conversion target. Leverage, and that is on the bottom right of the slide, remains at 2.7, the same as in Q2, after a weaker third quarter from an operating cash flow perspective. With full focus on the net working capital build-up and a seasonally stronger fourth quarter, the ambition to reduce leverage towards the end of the year remains. And with that, I hand it back over to you, AnnaCarin.
Thank you, Andreas. Before we go into Q&A, I would like to highlight the key takeaways from our third quarter. We continue to successfully extend important contracts and strengthen our position in the small and mid-sized segment. We see somewhat lower demand for variable volumes in Denmark, and since we do not see an immediate recovery in these volumes, we have decided to implement staff reductions in our Danish operations to adapt our cost base. Towards the end of the quarter and looking into coming quarter, we also see tendencies of lower demand for variable volumes in Sweden, primarily in property service, but also within conference services. We have therefore proactively decided to also initiate reductions in the Swedish operations to adapt cost base here as well. In the ongoing action program, downsizing of administrative resources was completed during the second quarter.
Harmonization of processes and procurement efficiency are ongoing, and we expect effects to be implemented gradually in the coming quarters. And in parts of the Swedish cleaning operations, we saw lower profitability in the quarter, which is explained by excessive resource utilization. An action plan has been initiated to gradually return to the previous level of profitability during the fourth quarter. In cash conversion, LTM amounted to 77% below target of 90%, and this is driven by an increase in working capital, primarily from an increase in accrued net revenue. We have full focus to complete and invoice ongoing work to secure reduction during the last quarter of the year. So with that, we open up for questions.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question over the phone, please press the star followed by the one on your telephone keypad. You will hear a prompt that your hand has been raised, and should you wish to cancel your request, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. Once again, that is star and one to ask a question. Your first question comes from the line of Oliver Uusitalo from Aktiespararna. Please go ahead.
Hello, and good morning, AnnaCarin and Andreas. As currency effects turnover negatively this quarter, how does this affect operating margins? Does this affect operating margins negatively as well, or do you have any expenses in foreign currencies that kind of balances this negative turnover?
Good morning, Oliver. I'm sorry, I didn't fully hear your full question. Could you repeat that?
Yes. Yeah, well, my question is basically if you have any expenses in foreign currencies as well, that balances the negative impact from the turnover?
Absolutely. I mean, most of our businesses are in local currency on the expense side as well. So, the negative effects we see on turnover, sort of, have a corresponding side of expenses in each country.
Yeah. Okay, I see. Thank you. And, as you are reducing the workforce as well on the back of the lower variable volumes in specifically Sweden and Denmark, I know this might be quite early to have a say about it, but do you view this as a structural or rather a cyclical change?
Good morning, Oliver. I can start, and I think that Andreas will fill in a bit, because when we look into variable volumes, they have the recent quarters actually been on quite a high level. And what we are seeing at the moment is that a more of a normalized volume of variable volume.
So basically, it's a cyclical change that we see here.
Okay, I understand. Thank you for the clarification. And my last question as well, Q4 is quite an important quarter in terms of variable volumes with all the Christmas parties and so on. What can you say about the booking situation in Q4 so far?
I mean, looking into Q4, and that basically the reason why we are doing some downsizing in Sweden, bookings are at a lower level today comparing to where we were a year ago. So looking into Q4, we expect bookings to be somewhat lower compared to the previous year.
Yeah. Okay, I understand. Thank you for the extra color. That's it for me.
Thank you. Once again, should you have a question, please press star followed by the one on your telephone keypad. And your next question comes from the line of Karl- Johan Bonnevier from DNB Markets. Please go ahead.
Yes, good morning, AnnaCarin and Andreas. Just want to understand if anything underlying has really changed in the operation, because historically, it used to be very good at, say, doing these kind of personnel adjustments within contracts without having to do big programs. But is there any fundamental change out there in the market that now requires these kind of annual programs that you had one you kicked in last year with a slightly different kind of focus, and now you have this one coming up here in Q2?
Good morning, Carl Johan. I think it's important that the first of all, sort of, keep those two programs apart. I mean, the previous one was very much related around organization and administrative resources and b ut what we're looking at right now is downsizing in operations based due to some overcapacity in both Denmark and Sweden. And I agree, we have been very good at handling changes in demand and doing that in sort of ongoing business. I think what we are seeing right now is, I mean, we are seeing bookings and small volumes be new orders here at summer. We have been running on fairly high volumes for a couple of years now, and with that also sort of size the organization according to that. We are right now making 70 out of the 15 or 13 thousand employees, some adjustments to make the organization and the cost base a bit more flexible here, seeing that the demand is somewhat weaker here, looking into the coming quarters. No, but we- From that perspective is something we should be able to handle in existing ongoing work.
But you would agree that seems to be an increase in complexity in your business model that might not have been the same a couple of years back, or?
No, not really.
No, not really. I mean, I think we are more looking into a position where we have seen or and also sort of build an organization for high volume for a couple of years here.
If we turn back to the program you launched a year ago that was supposed to generate SEK 50 million in cost savings within twelve months, where do you feel that you are now, given the kind of postponements you are talking about, and then maybe procurement saving coming through in the latter part of this year? Do we see any of that, those SEK 50 million benefits in the numbers today, or are all those to come, or are that number still relevant?
Absolutely. I mean, we see some of it already today. As AnnaCarin mentioned, the downsizing of around 75 FTEs has been completed, and in that respect, also reflected in the numbers. And so that part of the program is sort of completed. Looking into the procurement part, as we mentioned here, all the analysis have been completed. We know what to do, and we have started to actually act on those work streams, and I expect to see some effects of that in Q4. Then the part of the program that takes a bit more time than we initially expected and also drives more resources than we expected is the harmonization of processes.
Where especially changing the way you're working for many people is a bit more work than we expected initially. So that that's perhaps the downside right now in the program compared to our initial estimate, but we absolutely see effects from both the downsizing and expect to see effects from procurement here by the end of the year.
So if you try to quantify what is to come from what you now expect as the procurement saving, and maybe also what you expect from the harmonization of the processes, and maybe then the hard timeline for when we could expect the impact from the harmonization of processes to come floating through?
Yeah. The harmonization part is very much around making the downsizing to stick, and to make them last over a long time. And right now, them driving a bit more resources, that we expect to continue for a few quarters ahead. As I said, that takes a bit more time and effort than we expected. But the procurement efficiencies, where we expect to realize around SEK 50 million that we initially talked about, and that should be gradually implemented there in the coming couple of quarters.
Excellent. I'll come back and discuss it in more detail with you because I'm still not getting the numbers to add up fully here, I guess so. But then just a final thing for me, looking at the working capital, is there? There's nothing structural that happened that created the headwind in Q3 with payment pattern from clients becoming worse or anything like that? It's more of an end of quarter effect or how should we see it, as you describe it as being something that should normalize already during Q4?
No, nothing structurally in that. But we see a build up here in accrued revenue in a few parts of the organization. So that is something we just need to put a lot of focus on here to get that invoice and get back on track on our net working capital position.
Excellent. Good work, and all the best out there.
Thank you.
Thank you. Your next question comes from the line of Freeman Keir from Nordea. Please go ahead.
Hi, AnnaCarin and Andreas. First question for me, just regarding sort of the variable volume situation. I mean, could you maybe provide some color regards to each sector and whether you see this being a particular problem in any specific sector?
Yeah, we can start just looking into Denmark, for example. We see a decline in the variable volume coming from the public contract, actually. In Sweden, we see another situation where it's more like within property-related projects that we can see a decline. As we also described, we also can see a decline in our conference services as well. We can't see a pattern that we can see a specific industry having a negative impact. I think we can see a few things, but as we have mentioned before, we do not see this as any really dramatic change, but nevertheless, it is a decline volume coming from high variable volume going down to more normal volume. And the normal-
Got it.
Level is actually something that we expected to see in the coming quarters as well. So that's why we are doing the adaptation of our cost base.
Yeah, got it, and regarding IAC, since Q4 has already begun, I mean, what should we expect in terms of... Should we expect more IAC here in Q4 as well, or how should we think about that?
No, we have made the changes we feel is necessary for the time, and as commented here to another question, also with the flexibility we have in our cost base, we should be able to also so like continuously monitor the development on variable volumes and adjust the organization in sort of ongoing business.
Yep, very clear. And just a final one from me. In terms of run rate savings here in Q4, I don't know if I maybe missed anything here, but I assume it's no longer perhaps the previous guidance of SEK 100 million. What should we expect there, if you have any more color there?
I think we are fairly close to the SEK 100 million in run rate. We have completed large parts of the program. We have a clear view on procurement. So those are areas we are fairly confident around and then making the changes stick is something we also feel that, with the sort of guidance of some delays here in Q2, we have also a clear track on. So we are still confident about the SEK 100 million in run rate is something that we will realize.
Got it. And just one more actually came up. Regarding sort of your pipeline, you say that it remains strong. Could you maybe comment in terms of geography, where your pipeline is perhaps the strongest or any differences between geographies, yeah?
Absolutely, I can comment on that, and I think we can see the same pattern in Q3 as we have seen before, and we can see that it's a strong market in Sweden. Most of the activities we can see in Sweden, but there are also activities coming up actually in Norway, and I think we have talked about that before. It's been a bit of a low activity in Norway, but that activity is picking up, and that's good because we still need some volume in Norway.
Okay, perfect. Thank you so much for that, color, and all the best out there.
Thank you. Once again, should you have a question, please press star followed by the one on your telephone keypad. There are no further questions at this time. I will now hand the call back to Ms. AnnaCarin Grandin for any closing remarks.
Thank you, and, thank you all for listening in to this call, and, both me and Andreas wish you all the best for today.
Thank you, and this concludes today's call. Thank you for participating. You may all disconnect.