Coor Service Management Holding AB

and welcome all and thank you for listening to CORE's Q2 report.

Before presenting the report, I will give a short introduction of CORE for those of you who not yet know CORE.

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 drive and steer CORE from a triple bottom line perspective meaning that we are taking a business, social, and environmental responsibility. And from a business perspective, we have a clear ambition to have a stable and solid financial development with high customer satisfaction. And from a social perspective, we have a clear ambition to attract the best talents in the market, as well as support and develop our employees. And I'm very proud of leading a company where diversity and inclusion makes a difference. where we believe diversity creates an even more successful company. And we have a clear ambition to improve the environment. Our environmental targets are approved by the Science Based Target Initiative, and we are committed to reach net zero emissions by 2040. And with our knowledge and competence, we also support our customers to reduce their environmental footprint. And one way to get to know KOR is to view the company from a different perspective based on our turnover of 12.6 billion SEK. And from a contract type perspective, we see that the split continues to be stable with IFM contracts just under 60% and single service contracts just over 40%. And 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.

And on our customer segment perspective, the split remains diversified. So let's move over to our Q2 report and starting with key highlights in the quarter. In the second quarter, we have successfully prolonged a number of key contracts.

In Denmark, the large IFM contract with the Danish police has been prolonged with 18 months, which starts in September 2025, with a total value of some 900 million SEK over the contract term. This means that KOR will continue to deliver IFM services as restaurants, cleaning and property services to Danish police. And with this prolongation, we're also addressing maturities in 2025. Encore has also secured prolongations of the property contracts with both Atemdo and SSAB in Finland, as well as with Vasa Kronan in Sweden. And in Norway, we have prolonged contracts with Ringnäs and Storebrand. And in Denmark, we have prolonged the cleaning contract with Falk. And together with the prolongations we signed in last quarter, Core has now secured prolongations from around 1.4 billion SEK in the first half of the year with a strong year-to-date retention rate of 94%. We continue to see high business activity in the market and I'm happy that we, after prolonging the ISM contract with ICA last quarter, now also extended our partnership with deliveries of natural wide food and beverage And that will start in the last quarter of this year. And we want to continue to strengthen our position in the small and medium-sized segments with several new wins in the quarter. In Denmark, we have won a new contract with VL Elite and Hotel Odeon, and in Sweden with Mithem and Poseidon, to mention a few of them. As part of our environmental ambitions, we have launched the tool, Carbon Insight, and this tool gives our customers climate data, including a breakdown of emissions by each service in our delivery. The tool is helpful for the customers when they make their own climate impact assessment and also enable us to identify common focus areas that we can work on together. And you can read and see more about the carbon insights on our web page. And the integration of the acquired Swedish cleaning company, Skybuy Staff, has been successfully concluded during the second quarter, and it continues to give us some added value as expected. In the Q3 report last year, we announced an action program to accelerate the company's progress towards its long-term margin target. Activities in the program is proceeding according to plan. I can conclude so far into the year that it takes somewhat longer to realize the financial effects, but I am still fully confident that towards the end of the year, we will have achieved the expected effect. And on the market side, we see a solid pipeline of medium and small size contracts in all segments, and also a few larger contracts in progress.

So overall, we continue to see strong growth opportunities in the Nordic market.

Before moving on with our second quarter, I would like to say a few words about our recently published third report in the join the workplace revolution series. Our latest report describes trending technology in property and facility management and shows how progress brought by new technology can help our customers to become more efficient and sustainable and at the same time enable an even better employee experience. It is evident that technologies will play a significant role in facility management where innovative methods such as BIM, digital twins, robots, drones have the power to streamline deliveries. In using high technical competence and tools to collect data, customers receive a more data-driven way of working that helps them work more efficiently. And by sharing our insights, we aspire to play a key role in shaping Nordic workplaces for tomorrow. And Core is well ahead of this development and already works together with several customers where innovative solutions create great value. And to read more about these exciting trends and technologies, you can find the report on our web page. Well, let's move to our triple bottom line results for Q2, starting with the business dimension. In the quarter, Core delivers both sales and operating profit in line with previous year. Organic growth is negative by 1%, where growth from newly started contracts in Sweden and Norway compensate for ended contracts in Sweden and Denmark. Acquired growth is 1% in the quarter, and that's fully related to Sweden, with the acquisition of Faraboystad in May last year. The EBITDA margin for Q2 is 5.1%, and that's in line with previous year, but still below our margin target of around 5.5%. So our ambition to accelerate towards our margin target remains. Cash conversion is an LTM number and ended at 92%. Leverage is also an LTM number, and we delivered 2.7 in line with our targets to stay below three.

And our ambition is to reduce our leverage somewhat during 2024.

Moving on with our performance in social and environmental responsibility, in the first quarter, our TRIF amounted to six, or in the second quarter, of course. Our TRIF amounted to 6.0, which is an improvement compared with the second quarter previous year, but somewhat weaker compared with full year 2023. In equal opportunities, our gender balance remains stable, and I am proud to see that Core is ranked in Sweden as the most equal company in the SHE Index. The SHE Index is a tool for mapping and helping companies in their gender equality work. A third place in this year's Swedish survey means that we secured a top position for the fourth year in a row, and I'm very happy with that. On the environmental KPIs, we see a positive development. On scope one and two, and that is CO2 emissions from our vehicle fleet and premises, we see for the third time since we started measuring a decline in emissions in absolute numbers, 14%. compared with our base year 2018, even though Core has grown as a company by 33% 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. And for scope three and science-based targets aligned suppliers, we continue to make progress and we are now at 21%. We continue to push our suppliers to align their targets with science-based targets and also actively steer our spends towards the ones who are approved. So with that, I hand over to you, Andrea, to continue with the details on the financials.

Thank you, Anna-Karin.

As you heard from Anna-Karin, net sales is more or less in line with last year. Organic growth for the quarter was negative 1%. The newly started contracts, such as Swedbank and Sveco in Sweden, as well as IKEA in Norway, compensate for ended contracts in Sweden and Denmark. Variable volumes are at a continued high level and well in line compared to the same period last year. Required growth was 1%, effects 0%, and that takes us to a quarterly net sales of close to 3.2 billion SEK. Adjusted EBITDA amounted to 161 million CX, which gives us an EBITDA margin in the quarter of 5.1%. Financial net increased in the quarter, and that is driven by a slightly higher debt and higher interest rates compared to previous years. Net income is 60 million CX, and adjusted net income when adding back amortization amounts to 77 million CX. And the full year numbers, you see that net sales is 12.6 billion C. Full year organic growth is 3%, acquired growth 3%, and ethics 1%. The full year adjusted EBITDA level is 613 million C, which gives us an EBITDA margin of 4.9%.

Adjusted net income for the full year is 271 million C.

Looking at Q2 country by country, starting with Sweden, organic growth of negative 3% in the quarter, with strong underlying growth from new contracts partly offset the negative effects of the ended contract with Ericsson. Variable volumes are at the continued high level and well in line compared to the same period last year. Adjusted EBITDA in line with last year with slightly higher margins, 9.5% versus 9.3% in Q2 last year. EBITDA positively impacted by newly started contracts, the acquisition of Scaraboy Stab, and effects from the action program. The ended contract with Ericsson has a negative effect in comparison with previous years, and effects still somewhat amplified by lost synergies with other contracts. which the Swedish organization is gradually managing. In Denmark, organic growth was negative 4% from a couple of ended mid-size public contracts, as well as somewhat lower variable volumes in the public sector. Just a little bit off for the quarter, slightly below last year, that gives margins in line with last year at 4.5%. EBITDA margin was positively affected by the adaptation of the organization that was implemented during the second quarter last year, while the ended contracts and somewhat lower variable volumes affected negatively. In Norway, organic growth in the quarter was 11% from new contracts and variable volumes in the oil and gas industry, where maintenance activities have started earlier in the year this year compared to last year. For new contracts, the mid-size contracts won late 2022 are, as of now, fully reflected in last year's numbers. Adjusted EBITDA improved by over 40% compared to previous years, and EBITDA margin ended at 4.6% versus 3.7% last year. We see positive effects from higher variable volume and also from more favorable occupancy numbers in the offshore delivery compared to previous years. Organic growth in Finland was flat year-on-year, where smaller new contract balances a couple of smaller terminated loss-making contracts in northern Finland. Adjusted EBITDA margins slightly improved, where implemented efficiency actions in the operation had a positive impact. And the smaller terminated loss-making contract in northern Finland had a negative impact on profitability in the same period last year.

Moving over to contract concentration and maturity.

For contract changes for the first six months of the year, we have 300 million SEK new contracts, about 5 million SEK in annual volume awarded, 108 million SEK ended. And that takes us to a net positive of 192 million SEK. As Anna-Karin described, we continue to strengthen our position in the small and mid-sized contract segment. And in the right-hand chart, we see small and medium-sized contracts representing 61% of total volume compared to 59% last year. With a successful first six months of extension, large contract maturities for 2024 and 2025 have significantly been reduced. compared to the numbers presented at year end 2023. At the beginning of this year, we had large contracts representing 24% of total volume maturing in 2024 and 2025. That has now been reduced to 14%. More than half of the volume maturing in 2024 has been extended, and we see limited retention rates for the length of the year. For next year, around a third of the volume up that was up for renewal, has now been extended. And the remaining volume represents a more normal retention year for us. And on retention rate, we have secured prolongations on around 1.4 billion pH in the first six months of the year, and that gives us a strong year-to-date retention rate of 94%. Moving on to cash flow, we see that our key metric, LTM cash conversion, ended at 92% for the Q2 LTM period, in line with our target of staying above 90%. We continue to see stable payment patterns from our customers. On the balance sheet, net working capital at percent of net sales is stable compared to historical numbers, and at the end of Q2, at negative 7.4%. Leverage ended at 2.7, a slight increase compared to previous quarter, driven by the majority of this year's dividend, 2.4 Staker Shares, was paid out in the quarter. The extraordinary dividend of 0.6 Staker Shares will be paid out early October. During the quarter, CORE placed a subsequent senior unsecured bond in the amount of $250 million with a five-year maturity. And with that, I hand it back over to you, Anna-Karin.

Thank you, Andreas.

And before we go into a Q&A, I would like to sum up the second quarter. We have high business activity with several new wins in the small and mid-sized segment, and we have also expanded our partnership with ISCA with food and beverage service. We see continued growth opportunities in the Nordic market from a solid pipeline of mid-sized and small contracts and visibility of some large contracts. We have had a successful first six months of the year with several important customer prolongations. In total, we have secured prolongation of around 1.4 billion SEK, which also gives a strong year-to-date retention of 94%. And large contract maturities for this and the next year has significantly been reduced compared to where we started the year and we see limited retention risk for the remains of 2024. For the next year, around a third of the volume after renewals has now been extended and the remaining volume represents a more normal retention year for us. We also see continued solid cash flow. And finally, I would like to extend my warm thanks to my colleagues With joint forces, we build and develop the leading and most sustainable facility management company in the Nordics. So with that, we open up for questions.

Thank you. And ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press a star followed by the number one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star followed by the number two. One moment, please, for your first question. And your first question comes from the line of Raymond K. with Nordea. Please go ahead.

Hi, good morning. Three questions for me, starting with one to Anna-Karin regarding the restructuring program. You said it will take slightly longer to realize the financial effects, but maintain the timeline by the end of the year. I take it that we should not expect a linear improvement from here on until Q4, but could you maybe flesh out what is behind this delay and visible improvement?

Absolutely, as we mentioned already in our Q3 report, this is a change in the company where we harmonize our underlying processes but also that we choose common tools and that will build less complexity in our organization but it will also for the future make sure that our improvements can be even stronger so we can make a fix in one way and then we can have an effect of all things. I think we have started to actually try to give examples of what we are doing. I think in last quarter we said that we are a people business and we We have had different kind of processes in the HR process in each and every country. We have also used different kind of tools. And today we have implemented a common HR process with a unified tool. And that brings some efficiency and brings more quality in our data as well. But of course, those kind of examples of what we are doing in this report, we also mentioned that we are doing the same in our largest service line, which is cleaning. And I think we underestimated the time of doing this, but we really have a focus on harmonizing processes, the underlying processes within cleaning, as well as using a common tool. I am totally sure this will will really bring some more efficiency in our organization, even though it will take a bit more time than we expected. But as I said, I am confident that we will capture the potential in the end of this year.

Got it. And then regarding the contracts that have ended this year, do you sort of see a common denominator among these contracts in terms of maybe geography, reason for ending, or the customer segment that is represented here?

No, not really. I think it's more or less the same pattern as we have seen before. I think we are quite

quite confident that we have a diversified customer portfolio actually that is spread over different kind of industrial segments or geographies.

Okay great and then just final one on the sort of work from home trend. Have you noticed a trend in more customers wanting to reduce their IFM spend as a result of reduced office space?

No, Raymond. Actually, I would like to say that in all my dialogues with customers, I would like to say that most of our customers, they really would like to attract back their employees. And I think they are taking some stronger positions even and say that you should go back to your workplace in the office for the moment. But of course, you need to attract back your employees. So you need to actually spend a bit more facility management time in your premises, actually.

So we do not see a decline in that. Okay, perfect.

I'll get back in line. Thank you so much.

Thank you, Raymond. And once again, if you would like to ask a question, simply press the star followed by the number one on your telephone keypad. Your next question comes from the line of Carl-Johan Bonivier with D&B Markets. Please go ahead.

Yes, good morning, Anna-Claire and Andreas. First, on variable volumes that you highlight still remain solid and high, except maybe for public contracts in Denmark. Given that this, I guess, is your best kind of cyclical indicator and that it remains so solid, do you think we are past the worst risk on the downside, so to say, from your contract portfolio at this stage? given that something very strange doesn't happen at this stage?

Yeah, I think that is fair to assume. I mean, we are keeping track from that, but we don't see any signs of a significant decline in that. It's a fair assumption, I would say.

And you highlight, for me, it maybe variable volumes in the public sector should be more stable than in the private sector. Is there something special that is going on there?

No, I mean, first of all, we are sort of coming into summer, so that might be one thing, but we see a slight decline. That is not a significant one from a group perspective, but a slight decline, primarily towards... Small extra assignments and catering in the food and beverage part. But that's not sort of a major trend in that.

So it's more micromanagement in that respect. Yeah, I would say so. Excellent. And congratulations to all the good contract renewals and prolongification and also the new contracts they managed to sign of late. Do you feel that we are now in the cycle where I guess a lot of corporates are coming out of having maybe the same thing as you being surprised that the cyclical downturn didn't become much worse than it has and now are able to maybe focus on finding new efficiencies and then are ready to sign bigger new contracts with people like you that can create it?

Yeah, I think that is one explanation. I believe probably one.

But we are very happy with our retention rate at the moment, and we pay a lot of attention to really improve the retention rate.

I'm very happy with that.

Easy to see, easy to see. And one final for me, looking at the financial net Andreas, maybe you could elaborate a little on the size of it in this quarter and what kind of guidance we can get out of that for going forward.

We see an increase in the quarter that is primarily driven by higher interest rates. The previous bond we had, we had a hedge, a very attractive hedge on that, and that is sort of not still with us. But I think Q2 is sort of the high point of debt for us, because as I mentioned earlier in the call, we paid the majority of the dividends here in Q2. due to recent increase and sort of a slight decrease could be expected here going forward as sort of depth is coming down throughout the year.

Excellent. And looking at Norway, you indicated that maybe the oil and gas variable volumes came a little earlier than they would normally do. If that was a tailwind in Q2, should we expect it to be a headwind in Q3, or is it still normal kind of variable volumes to be expected there?

I would expect sort of normal levels in Q3. Excellent. Thank you very much.

And once again, if you would like to ask a question, please press star one. And there are no further questions at this time. I'd like to turn it back to Anna-Karin Grandin for closing remarks. Thank you.

And thank you all for listening. And I and Andrea, we wish you all a very nice summer.

Thank you. And ladies and gentlemen, this concludes today's conference call. Thank you all for participating. Please wait.

The conference will begin shortly.