Ladies and gentlemen, welcome to the Coor Service Management Q3 2021 Report. For the first part of this call, all participants will be in a listen-only mode, and afterwards, there will be a question-and-answer session. Today, I am pleased to present President and CEO AnnaCarin Grandin and CFO and IR Director Klas Elmberg. Please go ahead with your meeting.
Thank you, and good morning, everyone. Welcome and thank you for listening in. We are pleased to present another strong quarterly report for Coor. We will follow this agenda, starting with a brief introduction to Coor and our triple bottom line, and then continue with a business and market update, followed by some more details around the financials before we sum up and take a Q&A. Coor is the Nordic market leader in integrated facility management. We have a customer-centric business model with a decentralized organization. We deliver a broad range of services to our customers. We have a clear ambition of becoming truly sustainable, and we are increasing our focus on sustainability. We drive and steer our organization from a triple bottom line perspective. We are taking a business, a social, and an environmental responsibility to future-proof Coor.
One can look at Coor and our portfolio in different ways. In the geographical perspective, Sweden is our largest country with 50% of total turnover. Norway accounts for 23%, Denmark 20%, and Finland 7%. Looking at Coor from a contract type perspective, we see that the split continues to be stable with approximately 60% IFM contracts and 40% single service contracts. Slicing the turnover by service line, we see that cleaning is the largest service line with 38%. Property is the second with 31%. Workplace, and that includes several services like reception, conference service, and office supplies, and together that adds up to 19%. Food and beverage is now at 8%. Our top three customer segments are public customers by 28%, manufacturing by 22%, and oil and gas by 18%.
All in all, Coor has a well-balanced portfolio. Moving on with our financial figures. Organic growth for the quarter is 5%, with Norway and Denmark as the largest contributors, but we also see positive organic growth in Sweden. Acquired growth is 1%, and that is fully related to the acquisition of R & K Service in Norway. That means that the acquisition of Veolia Technical Management that we closed in the end of September has not impacted the numbers yet but will do so from the beginning of Q4. The acquisition of Inspira, as we announced yesterday, is expected to impact our P&L from late 2021, but first it needs to go through the customary review by the competition authority.
We are very happy to see that the margin continues to be strong at 6.2%, slightly better than Q3 last year, with all countries except Finland improving margins versus Q3 last year. Cash conversion is an LTM number, and it continues to be strong at 94%, well in line with the target of being above 90%. Leverage is also an LTM number w ith one point six, we are below Q3 last year and well in line with our target of staying below three. From an LTM perspective, organic growth is still negative by -1%, driven by COVID-19. The acquired growth in the LTM period is 1%, and the LTM EBITA margin is strong at 6.3%. As you might remember from both the Q1 and Q2 report, we are also reporting on non-financial KPIs in our quarterly reports.
This is something we will continue to develop over time, and in this report, we have also included a new KPI within the environmental dimension, which I will come back to shortly. Customer satisfaction is measured on a yearly basis, and in this report, we have the very latest figures from our 2021 survey. As you can see, we have a very good improvement from 70 in 2020 to 74 this year. 74 is an all-time high value for Coor. We are very pleased with this level, and it's a clear signal that our customers appreciate the service and partnership they get with Coor. Employee motivation index continue to be very high with 78 in 2021, equal to the all-time high level from last year. The total recorded injury frequency is an LTM number, and the level is nine after the third quarter.
This is an improvement compared to a year ago and a significant improvement when looking back to 2016 when we started to measure and follow this KPI. Even if we have improved, we are not satisfied with our current level. We have a long-term zero vision that no one should be injured at work, so there are still rooms for improvement. In terms of gender balance, we are very proud of the fact that we have a good balance of approximately 50/50 when looking at share of male and female managers within Coor. Last quarter, we started to report on CO2 emissions from Scope 1, which relates to our vehicle fleet. We have taken a decision to electrify our fleet, and we are working on optimizing routes to reduce the number of kilometers as well. So far, this has not impacted the numbers.
It looks slightly worse than a year ago, so this is also an area where we can focus even more. As from this quarter, we will also present the CO2 emissions from Scope 2. This relates to the energy use in the form of electricity, heating, and cooling in the premises where Coor has operational control over all energy use. The measurements are carried out annually, and the value we present is the final results for 2020. Compared to the year before, we do see an improvement, mainly driven by the change to renewable energy sources. Over to our business and market update. In Q3, we see some important wins within Seco Tools and Evidensia as two examples within cleaning, but also a prestigious food and beverage contract with a Swedish authority. There has also been key prolongations.
For example, the IFM contract with Aibel, which is one of the largest contracts in Norway, as well as a long-term prolongation until 2027 with the Fredensborg Municipality in Denmark. We also have prolongations in Sweden with [inaudible] and SSAB in Finland. I mentioned the acquisition of Veolia earlier, and I will come back to that in a short while. It is also nice to see that the increased focus on sustainability is paying off, as Coor has been awarded the Gold rating in EcoVadis Annual International Ranking. EcoVadis is an independent analyst that provides annual sustainability ratings for companies. Gold means that we are within the top 5% from an EcoVadis perspective.
A number of initiatives are now on the way to reduce the climate impact of Coor's restaurant operations, including reducing the amount of waste generated by the restaurants, as well as developing new, healthy, sustainable meals. One example of Coor's commitment to the sustainable means of the future is its involvement as a leader of the Norwegian Food Revolution, a project along with a number of partners. We use some of our selected restaurants as a laboratory for research on sustainable food and eating habits in cooperation with food producers as Orkla Foods and Nofima. Looking in terms of of growth opportunities, the sales pipeline is still strong, and there is a very interesting large Danish case coming up for decision in the near future. There are, of course, competitors bidding for this as well.
We have been very active on the M&A side lately with two sizable acquisitions. Let's look a little bit more on both Veolia Technical Management and Inspira. The acquisition of Veolia Technical Management was signed in mid-July and then completed by the end of September. Veolia Technical Management has a turnover of approximately SEK 500 million and employs some 250 highly skilled people within the area of technical property services. The acquisition of Veolia Technical Management is a close fit with our growth strategy and further strengthens our position as the Nordic market leader in IFM. It is a well-run business with a sharp focus on sustainability, high levels of technical expertise, often in critical production plants and infrastructure. Inspira is a well-run family business that delivers workplace services mainly focused on cleaning for a large number of customers in mid-Sweden.
The acquisition increases Coor's geographical coverage in mid-Sweden, generates significant synergies and also our position. The annual turnover is approximately SEK 700 million with approximately 1,400 employees. As mentioned before, the acquisition needs to go through the customary review by the competition authority. In summary, these two well-managed companies will add some SEK 1.2 billion in annual turnover with highly skilled employees, both within the technical property service area and within workplace service and cleaning. Both acquisitions are financed entirely within the framework of Coor's existing financing. With that, I will leave it to you, Klas.
Thank you very much, AnnaCarin. If we then continue to take a look at our P&L, we see that the net sales for the quarter is approximately SEK 2.4 billion. That means that we're up approximately SEK 130 million compared to Q3 last year. That equals a total growth of 6%, where the organic part is 5% and acquired growth 1%. The adjusted EBITDA ended up at SEK 150 million compared to SEK 140 million in Q3 2020, and that translates to an EBITDA improvement of approximately 8%. This gives us a very strong EBITDA margin, as AnnaCarin mentioned, of 6.2% for the quarter. Amortization was somewhat lower than Q3 last year. Financial net more or less unchanged, while the taxes increased slightly due to higher earnings.
Net income is SEK 69 million, and adjusted net income when adding back the amortization, that adds up to SEK 130 million. On the LTM numbers, we see that net sales is now close to SEK 9.7 billion. The organic growth, as you heard, is -1% for the LTM period, acquired growth +1%, and we have a small negative FX effect of -1%. The LTM adjusted EBITDA margin is 6.3%, and in absolute numbers, we can see that Coor for the first time has an LTM EBITDA level above SEK 600 million, more precisely SEK 610 million. The adjusted net income for the LTM period is SEK 439 million. Going then into some of the details on the individual countries, we see that Sweden, Norway, and Denmark all show organic growth.
Norway, the highest one with 16%, followed by Denmark at 6%. We also see increased profit and margins in all of the three larger countries. In Sweden, we have a positive impact on organic growth from new contract like the PostNord contract and also expanded volumes at the Karolinska Hospital. In Q3 last year, we had fairly high volumes related to a maintenance stoppage at, OKG, the nuclear power plant in Sweden. This year, the maintenance stop is less comprehensive, and that impact the organic growth negatively in Sweden. As you know, these types of work can vary from year to year, and as you see from the comments on Norway, it can also impact the volumes in a very positive way. Margins in Sweden continues to be strong.
Cost control is good, and we see also a positive impact from some of the more recent contract wins. In Norway, as mentioned, the high organic growth is related to the ongoing maintenance project within the oil and gas industry. The acquisition of R & K contributes with 4% in organic growth in Norway, and it also have a positive impact on profits and margins for the quarter. In Denmark, we have a positive organic growth from new contract, mainly PostNord, and also somewhat improved volumes in property-related projects. On the cleaning side, we see a small decline compared to Q3 last year. Still high level of additional cleaning, but not as high as we saw last year.
Finland deliver a solid quarter, and even though the margins are somewhat lower than last year, the absolute numbers in Finland are more or less unchanged, both in terms of sales and EBITDA. Moving on then with the cash flow, we see that we had an ingoing cash balance of SEK 345 million. Operations have contributed with SEK +734 million, and the financing flow that reflects interest loans and leasing, that adds up to SEK -444 million, and the majority of that is related to us reducing the utilization of our RCF financing. Taxes is SEK -51 million, and cash out from M&A relates to the acquisitions of R&K and Veolia, and it adds up to SEK 272 million. The dividend of SEK 190 million, that refers to the ordinary dividend payment that we made in May.
Shortly after the end of Q4, we also paid out the extraordinary dividend of SEK 2.4 per share, and this will then be visible when we look at the Q4 numbers. The outgoing cash balance then adds up to SEK 122 million. Finally, a quick look at some of the details from the balance sheet and the cash conversion. Cash conversion continues to be strong, 94% for the LTM period, continued low CapEx and also improved working capital. We continue to see stable payments from our customers, no problems there. In terms of net working capital, it's negative by 812, and that equals -8.4% of the net sales. Net debt, SEK 1.3 billion, and leverage, as you heard before, at one point six. With that, AnnaCarin, back to you.
Thank you, Klas. We will shortly go into a Q&A, but before that, I would like to sum up our third quarter. It's great to see that we continue to show solid organic growth in the quarter and high earnings levels. Cash generation is strong, and with a low leverage, we still have a capacity for additional acquisitions. I really would like to thank all my colleagues at Coor for all the strong work you put in. With that, we will open up for questions.
Ladies and gentlemen if you wish to ask an audio question for the speakers please press zero one on your telephone keypad now. If you wish to withdraw your question you may do so by pressing zero two to cancel. Once again if you have an audio question for our speakers please press zero one on your telephone keypad now. Our first question is from the line of Robin Nyberg from Carnegie. Please go ahead. Your line is now open.
Hello, AnnaCarin and Klas. It's Robin here from Carnegie. Few questions from me, first related to organic growth. Could you give us any indication what you expect in terms of organic growth now in the near term? Because it's a bit more challenging than normal to estimate because you have one larger contract ending and also some new contracts. Any indication would be helpful.
All right. Let's start with that. As you know, Robin, we will not, you know, provide, in year or next quarter guidance. What we have seen in Q3 was that the organic growth has increased slightly month by month, lower in July and somewhat higher in September. Then as you mentioned, I mean, we have the contract that ended by the end of October that will impact us negatively. On the other hand, I mean, we need to see what will happen in terms of people returning to the office and how that will impact variable volumes and so on. I understand it's somewhat difficult to estimate from your side. It's slightly difficult also from our side, but we do have a positive view on volumes returning. Whether that happens in Q4 or beginning of next year, still very difficult to say for us.
All right. Fair enough. During Q3, you signed a contract with Seco Tools. Could you comment on the potential to develop that contract? How significant could that become?
I mean, the contract with Seco Tools is not a large contract if you compare to some of the other contracts that we have. Whether we can develop that further, difficult to say. First, we need to start the initial delivery, and that's a cleaning delivery that will start in the near future, and we'll focus on that to start with.
All right. In terms of new IFM contracts, how is the situation at the moment? Do you see potential to sign new IFM contracts in the next, say, let's say one to two quarters?
Yes, Robin, we still have a strong pipeline, and we see really many interesting cases in the pipeline. As I mentioned, there is one really large contract in Denmark coming up for a decision in mid-November. We are quite curious about that, and that's a public tender.
All right. Final question relates to profitability. You have recently had very strong margins. Costs have obviously been kept very low here and you have had a favorable sales mix. Going forward, do you expect Coor to be able to stay above this financial target, or should we expect normalization in margins?
I mean, I think one should expect more of a normalization in the long run. We will, of course, do our best to stay above the 5.5%, but we don't give any other guidance than the 5.5%. As I mentioned here already in Q3, we did see some initial signs related to the cleaning volumes, and especially in Denmark. I mean, we do expect to see some of the cleaning volumes to be reduced going forward. That will, of course, impact also the margins and the profitability. On the other hand, we do expect some of the other volumes to return. Then we know, as you mentioned as well, that that impacts the mix in a slightly negative way. One should expect normalization of margins going forward.
All right. That's all from me. Have a nice rest of the week.
Thank you, Robin.
Thank you, Robin.
Thank you, ladies and gentlemen. Once again, I remind you, if you do wish to ask an audio question, please press zero one on your telephone keypad now. 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. A solid set of numbers this morning. Congratulations. Just to continue on Robin's question there, looking at new contracting, you have obviously highlighted now for a couple of quarters that you see a very strong pipeline. Are you surprised that not more contracts has already been signed, so to say, and detailed at this stage, or is this a Q4 kind of catch-up opportunity? How do you see it?
Well, we have won quite a lot of important wins during the year. I think the PostNord contract, the Nordic IFM contract was really important for us as well as the DSPIN contract in Denmark. They have materialized some really, really interesting wins from our pipeline. Still there are a large number of potential contracts in the pipeline, of course. We have a positive view of that.
You don't feel that clients are still holding back on signing? Obviously, I guess the whole pandemic situation might have made them reevaluate what kind of contracts they want to sign and so on. Are we past that kind of things holding back development?
No. We still see a strong pipeline. We are not worried about that. We need to win our share of the strong pipeline.
Excellent. When you look at the Danish Property and Goverment Property Authority and that huge contract, is there a lot of special things in that contract that you need to consider? Or is it a pretty normal kind of setup when you look at the RFP for that kind of huge contract?
As I mentioned, it's a large contract, of course, but it's quite a straightforward contract within an area we are very familiar with. We do not see any hard things to solve in that contract.
Excellent. When you look at the development, obviously variable volumes, as you pointed out, is going up in certain areas and going back in others. When you look at the total impact of variable volumes in this quarter, would you now say that you are overall at a normal level, if you say it like that? Are we above or below what you would consider a normal level pre-pandemic, if you take that consideration?
We're still below in terms of variable volumes. I mean, the restrictions in Sweden, for example, they were lifted, you know, late September. We haven't seen that much of people returning to the office yet. We also see that in the restaurants that we are below the pre-pandemic levels in terms of guests and so on. Still below in terms of variable volumes.
Excellent. Klas, when you look at working capital at the end of the quarter, it also looks to be a pretty normal situation for you. Or is there any special consideration of a good end of quarter or a bad end of quarter or something like that we should have with us?
No, it's a pretty normal end of quarter, I would say. Nothing surprising in those numbers.
I think you partly answered this already to Robin, but when you look at your competitive universe, we hear a lot of comments about access to quality personnel and, say, wage inflation going on. I'm not sure if that really is relevant for you or if more it's of a global phenomenon, or how have you coped?
No, no. Actually, we don't see that in our business. As we have mentioned before, there are areas where it's more tricky to really find the right people, for example, within property service. That's why we are really happy that we acquired Veolia Technical Management when we acquired 250 highly skilled people within property service.
Excellent. On the acquisition, I saw in the comments for yesterday's acquisition when you talked about, say, a post-integration kind of multiples going down by two points, suggesting that there is, say, if integrated in core should be a 150 basis point kind of margin accretion from getting that operation into your. Where do you find those kind of synergy opportunities on the cost side?
I mean, there are basically two sources of synergies. The first one is within procurement. Being a bigger player, we do have better prices with suppliers within the cleaning service line. So that is quite sizable. There are some overlaps, so to say, in certain support functions and things like that, where we also could find synergies, both back office and to some extent on managerial levels as well.
That's why you feel so confident being able to deliver it on it already, say, within 12 months of the takeover.
Yeah, we've said during 2023.
Yeah.
Yeah, we feel confident in our ability to deliver on those synergies, yes.
When you look at, you've obviously come back very nicely on the acquisition trail during this year, having concluded three acquisitions now. Do you still feel that you have a good pipeline there, and are there more potential transactions to come?
Yeah. We have a strong cash flow. So we still have room for new acquisitions for the future.
You still feel that you have the pipeline to fill it, so to say. There's also the kind of, say, discussions going on and maybe also the internal resources for handling more acquisitions, given that you're now adding SEK 1.2 billion in revenues from the ones you have concluded, so.
Yes. We think that we can handle that, absolutely. As we have mentioned before, I think our number one priority is to have organic growth, and then we always looking for companies to acquire with a value added to our business, of course. We are also always really picky on what kind of companies we acquire. They need to be well-managed. If they are well-managed, it's also really much easier to integrate them.
Yeah. One final from me. Looking at the exit of parts of the Equinor contract, should we expect any extra cost due to that during Q4?
No, not of any larger size at least. There can of course always be some when exiting a contract, but nothing that will have a big impact on the numbers.
Thank you very much.
Thank you.
Thank you.
There are currently no further registered questions. I'll hand back to the speakers for any further remarks.
Okay. Thank you all for listening in. I hope you take care, and see you soon.