Coor Service Management Holding AB

Good morning ladies and gentlemen and welcome to the core service management Q1 2025 conference call. At this time all lines are in a listen only mode. Following the presentation we will conduct a question and answer session. If at any time during this call you require immediate assistance please press star zero for the operator. I would now like to turn the conference over to Ola Klinginbord CEO and president of core. Please go ahead.

Welcome and thanks for listening in to core's Q1 report. My name is Ola Klinginbord and I'm the president and CEO of core. I started my position seven weeks ago so I thought I'd start out by giving you some initial reflections on my first time with the company, my first period here with the company and to give you an overview of the market. I will then hand over to our CFO Andreas who will present some more details around financials before we summarize some key takeaways and and have an opportunity for a Q&A. So starting out as you see from some of these illustrious pictures I've been really going around the core business during my first week. My focus has been to really get to know the business and understand our opportunities and challenges. So I really conclude going forward some insights from from all of these visits and the analysis that I make from that. However at this point there is still a fact-gathering process going on. But I've already met with many customers, I met with our employees and I can really conclude that we have a fantastic set of employees. There's a lot of high competence, there's drive, great commitment, commitment to service, commitment to our clients and strong professionalism throughout our employee ranks. There's also strong customer relationships with long-standing clients that we've been working with for many years as well as some new ones and it's really obvious that our customers' relations goes deep and are really really strong. Also it's obvious I think that we have an attractive offering and that there's really strong demand for our services and that there seems to...so that is that I think that that is really really clear. So those are some of the kind of key findings from from from these first couple of weeks in the business. Now going forward here and looking a little bit more on the view of the market, I think some of these realizations, those strong customer relationships etc. already this quarter transformed into some good deals. I would like to highlight the Ekinor win that we did this quarter which is a backbone for the Norwegian business. It's an oil and gas contract with the oil platforms and that is now prolonged for another five years with additional opportunity to prolong even further and it really creates a stable base for our Norwegian business for good times of going forward. Also in Denmark we signed a new contract with Copenhagen towers which is also a landmark in Copenhagen that we think will be good addition to our portfolio. Also a lot of smaller prolongations and new business coming in so I think it's a good testament to the fact that there is a strong demand for our services. We look we're confident from the market situation. It's stable and unaffected by some of the turbulence that we've seen in the rest of the markets, at least so far. So those are some initial reflections and with that I'd like to hand over to Andrea to take it through some of the numbers.

Thank you Ola. We'll start with an overview of the business KPIs. In the first quarter organic growth is negative 2% and that is from ended contracts and somewhat lower variable volume. The EBITDA margin for Q1 is .7% and that is a significant improvement from the .3% we presented previous quarter. Cash conversion that is an LTM number and ended at 81%. Also that a stable improvement compared to the 57% previous quarter. More details around that later in the presentation. Leverage also that an LTM number ended at 2.8, a slight decrease from previous quarter driven by the improved cash flow. On the P&L net sales ended at 3 billion 52 million SEK that is 2% down compared to last year. Organic growth negative .8% and FX negative 0.5%. The adjusted EBITDA amounted to 144 million SEK which gives an EBITDA margin in the quarter of 4.7%. Items affecting comparability during the quarter amounted to 20 million SEK mainly from redundancy costs for related to the changes in the organization that we implemented during the first quarter. Net income is 50 million SEK and adjusted net income when adding back amortization amounts to 64 million SEK. On the Fulje numbers we see that net sales is close to 12.4 billion SEK. Fulje organic growth is negative 1.4%. The Fulje adjusted EBITDA level is 530 million SEK which gives an EBITDA margin of 4.3%. Adjusted net income for the full year is 176 million. A quick status on the implementation of a more simplified and unified organization for support functions that goes both central and in the countries. We announced that in the previous quarterly report. The changes will give us a more efficient and flexible organization that has better conditions to realize the effects of the ongoing harmonization work in the company while also reducing personnel expenses in administration throughout the organization. In total the changes involve a reduction of some 130 positions and full year savings of some 120 million SEK. The new organization took effect on April 1st and the savings will be generated gradually during the first half of the year. The implementation has proceeded well. The timeline we set up has been followed and risks associated with such a change have been mitigated in a structured way. The purpose of the changes have been well received in the company and we now have partially new assignments for our staff functions with higher focus on operational efficiency. We then move over and looking at Q1 country by country and starting off with Sweden. We see organic growth of negative .6% in the quarter. Effects from new contracts that are offset by the ended property part of the contract with Saab. We also see a more normalized level of variable volume compared with high levels in the same period last year. Adjusted EBITDA of 145 percent, the current margin at 8.7 percent. A solid improvement from previous quarters margin of 7.3 percent. The operations in Skarabajstäd performed as expected in the first quarter and the measures implemented last year are now completed. High personnel costs continue to have a negative impact on parts of the operations although at lower level than in the previous quarter driving the improvement. The Swedish organization continued to actively work to strengthen its workforce planning capability to further improve operational efficiency and profitability. We then move over to Denmark. Organic growth of negative 5% in the quarter primarily explained by a couple of ended mid-sized public contracts as well as somewhat lower variable volumes within both property and for snow removal. Adjusted EBITDA at 34 million SEK and margin at 4.8 percent is significantly stronger compared to previous quarter. We see positive effects of improvements in operational control of the business resulting in better stability in the financial results. Margin improvements from previous quarter is also explained by a positive retroactive one-off effect which contributes positively with some 0.5 percent. As in Sweden there is a continued focus to further improve operational efficiency and profitability and to continue create stability. During the quarter Peter Hasbakt was appointed CEO of Core Denmark as of August 1st. Peter will join Core from his role as CEO of In Norway we see organic growth at 5% from high variable volumes which offset the effect of a contract that was proactively ended in the previous quarter. Adjusted EBITDA for the quarter amounted to 20 million SEK and margin was 3.7 percent. Performance were largely in line with last year's first quarter somewhat positively impacted by the proactively ended contract. And last among the countries Finland we see organic growth of negative 9% per quarter that is from a couple of smaller contracts that was ended as well as lower variable volumes related to snow removal. Adjusted EBITDA and margins are in line with last year. Moving on to cash flow and balance sheet. During last year we saw an increase of working capital as a result of changes in the contract portfolio and year and balance effects and to some extent due to way of working. A number of measures have been taken to reduce the level of working capital in 2025 and during the first quarter working capital was reduced by some 200 million SEK resulting in a significant improvement in our key metric cash conversion to 81 percent compared to 57 percent in the previous quarter. With that we also see net working capital as percent of net sales at the more normal level at negative 8.3 percent. The company remains focused on additional working capital reductions in 2025. Leverage that is on the bottom right of the slide decreased to 2.8 from improved cash flow. A quick revisit of the cash conversion development presented in the previous quarter. You have the numbers presented then in red at the slide. The improved cash conversion in Q1 is driven by reductions in working capital built up last year. Temporary effects from balance day effects at year M has been fully restored and is the largest single driver behind the development in Q1. Negative effects from initial build up in new contracts has been partly recovered in the quarter. The same goes for the backlog in our billing process as well as the effects in personnel related liabilities. We remain confident that with the actions being implemented our working capital profile will be restored during 2025. And with that I hand it back over to Ola.

So before we go into the Q&A I would like to highlight the key takeaways from our first quarter. We see a good underlying growth in a stable facility management market and Core is demonstrating continuous competitiveness through a number of successful tenders. Both profitability and cash flow improved in the quarter. There's continued focus on operational efficiency and to improve our profitability. The new organization was implemented on April 1st and the savings will be generated gradually through the first half of the year. The implementation has proceeded well and the purpose of the change has been well received throughout the company. Staff functions are now conducting their work partly with new assignments with increased focus on operational efficiency. A number of measures have been taken to reduce the level of working capital in 2025 and working capital was reduced by some 200 million stick already during the first quarter of the year. So with that we open up for questions.

Thank you. If you do wish to ask an audio question please press star 1 on your telephone keypad. If you wish to withdraw your question you may do so by pressing star 2 to cancel. Once again please press star 1 to register for a question. We'll pause for just a moment

to compile the Q&A roster. And we do have

our first question coming from the line of Oliver Ustitalo with Actis Parasana. Please go ahead.

Good morning Ola and Andreas and congratulations for a strong first quarter here. I was curious about these past three weeks since you updated and presented the new organization. Could you give us one more elaborate update how the new organization is holding up and perhaps also some indications when you expect to reach your margin target?

I think answering the first part of that question regarding the organizational structure, I think it has been received quite well. We have really focused on administration of staff and overhead costs primarily at the group headquarters where we have really taken a look at the focus areas. And really focused in on what are the key projects, the key focus areas now to drive operational efficiency. And really kind of focused our efforts and attention and resources to that. So I think it has been received quite well. We've also moved to new head offices at the same time. And I think the overall effect of that has been that kind of rejuvenation of energy in the central team. We also at the same time left much of the operational organization untouched. Which means that our customer delivery has remained intact and not affected by this. So I think all in all it's a good move for the company. I didn't quite catch the second part of your question.

Oh sorry. Well if you could give us some sort of indication when you expect to reach your target at 5.5%.

Well I think as I said I've only been in the business a couple of weeks and I've been spending time really trying to get to know the business and all. And we will come back at a later time with a more detailed plan for how to work both operationally and how that can translate into financial results. So I'll have to get back to you on that.

Okay fair enough. Good to hear that the reorganization has been well met at least in these early stages. Do you see any changes either in your own portfolio, customer portfolio or in the competitive landscape that might prevent you from reaching your margin target? What is your view on this?

No I don't think so. And we remain a strong force in the integrated facility management space where we have a very strong market position. And there's nothing to indicate that that will change. Now in our single service market, the property, cleaning, food and beverage etc. We have a quite limited market share and I think there's a lot of opportunity for growth there. So there's no limitations let's say in the market except for the fact that of course there's the constant new tendering and we have to remain efficient in our operations to remain competitive.

Yeah I see. Okay one last question from my end. Regarding growth, you were well flashish organically last year and I get that you're focusing on margins this year but where do you see yourself land growth wise? I mean we have seen some considerable uncertainty over these past few months, that's especially in the US though. Has this affected your customers in any way?

I think if you look at the turbulence on the international market there's a very limited effect for us at this point. And we don't see that going forward either. We have a quite stable customer base. So at this point we don't see any indications of that affecting us at this point. So on the broader question of growth I think that's part of what I'm trying to go through now together with the team here to find a new way forward and a path to continue growth.

Okay

fair enough. Thanks for good answers. It's good to have you on board Ola and best of luck out there. Thank you. Thank you.

And your next question comes from the line of Carl Johan Bonivier with DNB Markets. Please go ahead.

Yes good morning Ola and Andreas. I can only say the same. Good to have you on board Ola. And the promising start I must say. So we're looking at already the Q1 kind of turnaround that we are seeing. And on that maybe trailing down slightly more in the same questions that you already got. Looking at the efficiency program, obviously a big program. Are you surprised that it hasn't had more of a short-term impact on you?

Well. And then

I mean on the negative side because I think it comes out very, very well when you're looking at what you have delivered already during Q1.

Yeah I think I've only been on board a couple of weeks. So I think it's difficult to say whether I'm surprised or not. But from a general point of view you would perhaps have expected it to have a bigger impact if you look at it from an external perspective. I think there is a lot of opportunity to focus even more on operational efficiency and really kind of focus on resources. And I think that has shown itself in the fact that this reorganization has been able to be completed without that much turbulence in the delivery. So surprised or not, I'm not sure. But it remains a fact.

And when you're looking at it from a geographic perspective, you've always had a stronger base in the company in Sweden. And then when you now saw the variability both in Sweden and Denmark during the second half of last year, it seems like you've been. I'm not so surprised that you managed to turn around Sweden in that respect. But in Denmark already getting profitability back up even if you put back those proactives or those retroactive kind of benefits you got in the quarter. Also seems to be on a much stronger footing again.

Yes, I mean I'm cautiously optimistic, but I wouldn't call it out as a victory or a turnaround just yet. I think there's still a lot of work to be done. Once again, I'm only getting to know the company now, but I would be cautious to be calling it a victory, let's say already now. But this is definitely some positive signals and positive signs. But there's a lot of work that remains. And for all of us who have been working, have worked many years in highly operational intensive business, we know that these are long processes. And there's a lot of work to be done for you before you can really achieve change in the entirety of the business. So I would be a little bit cautious perhaps.

I buy into that and I guess it takes continuous work as well just to keep it stable. But if you're looking at it, do you see a risk for maybe backlash due to Q3 when this is getting into fully operational mood that there are new areas that might pop up as problems or something like that in the process?

Well, I think it's a little bit too early to say, but I would once again, I wouldn't say that we have completed a stable turnaround. So I wouldn't rule it out. But there's nothing that says that it will happen right now. But I wouldn't rule it out either. It is a change process that I think will take some time to

complete.

And Andreas, I think you earlier highlighted that the implementation cost of the program would be, was it 20 to 30 million or something like that? Is that still a good proxy and the rest of that to come in Q2? It is a good

proxy and I expect the remains to come here in Q2.

And then turning to the other part of the equation, obviously you have been working now with a stable portfolio for almost 18 months or something like that after the big variability. How do you see the current market environment looking at the new contracting opportunities and maybe also add the angle of variable volumes where you see that being in the cycle for the moment?

I think at the moment, looking at historical numbers, we have a quite strong pipeline of projects and a good retention rate so far. So doesn't seem to be any changes in the market from that perspective. Rather, I think we are selling efficiency and we are selling focus on core business for our clients. And I think in these turbulent times that is more relevant than ever. Then the variable volumes, I think we're keeping a close look at that. But so far it remains stable if we look across our portfolio. But there are some ups and some downs and we're keeping a close eye on that of course. That is a little bit more dependent on

access to capital, etc. for our clients. Excellent. And when

you look, Andreas, on the working capital release that you highlight, is that more now a second half kind of normalization or do you see big moves already during Q2 to get the normalization to finalize?

I mean, as I said, I think all of it might be a couple of quarters, but there is a lot of activity going on here. So we are fully confident to restore that fully. But I think gradually over a couple of quarters here.

Good. And Ola, maybe to finalize your discussion of and I appreciate that you want to take your time particularly with the new chairman coming into the company as well during the analysis for the right part of the company for the future. But maybe give us some broader points. Do you still feel that the financial targets are logical for the company? Do you see a future of the company in the Nordics or outside Nordics? Or where are your broad kind of thinking here?

I would rather not kind of preempt the findings from the work both together with the new chair and my own work. But I think generally speaking, looking at our financial targets are, I think, highly, they are realistic and I think they remain. And there is levers to pull both in terms of operational efficiency in our business and from growth opportunities in segments that we have opportunity to penetrate further. I think when it comes to geographical question, I'll have to come back on that one. But at the moment, I think there's a lot to be done in the markets where we already exist and where we already have a strong position. And so I think those are some of my thoughts at the moment. But I think there's a lot to be done already with our existing business to

make improvements.

And when you look at maybe coming with a more detailed view, is that more logical to come maybe at the Q3 stage, reporting stage, or is it too early to hope for the Q2 stage?

I think it's also something that I will have to discuss with the new chairman coming in here in a couple of weeks to make a plan for how to put forward a new strategic direction.

We appreciate that. All the best and welcome aboard. Thank you.

And once again, if you would like to ask a question, simply press the star one on your telephone keypad.

Your next question comes from the line of Rauli Juba with EMEARS. Please go ahead.

Yeah, hi, it's Rauli from Inderes. Hello, gentlemen. Just kind of continuing on the previous question, I want to bother you so much since I understand you are just familiarizing yourself with the business. But is it fair to assume, like Oliver mentioned earlier, that for the next 12 months your focus is rather on the margin improvement than driving more growth?

I think that that is a fair assumption. I think there are so many opportunities for improvement within the existing business that I think it's fair to say that that will be the focus. But at the same time, we have a strong commercial team that is creating a strong pipeline. So I think we keep focus on ourselves, but it is kind of a more continuation of what we've already been doing rather than maybe perhaps a kind of change of pace.

Yeah, that's clear. And then specifically on the reorganization savings, I was wondering how are you or how should we look at the net impact of that? Do you expect that like mostly to flow into your into your profits or is there some reallocation of cost in that sense or is part of that mitigating cost in place? And also, what should we think about?

I mean, what has been previously communicated, the sum 120 is something to be expected to flow into into profits.

OK, so that's that's that's

that's that's that's very clear. Thank you. That's all for me.

And I'm

showing no further questions at this time. I would like to turn it back to all of you for closing remarks.

So thank you for listening in to my first quarterly call for core. I hope you find it informative and that and that we will hear from it all again in the next quarterly call. So thank you very much. And that's it for us. Thank you.

Ladies and gentlemen, this now concludes today's presentation. Thank you all for attending. You may now disconnect.