Coor Service Management Holding AB

Welcome to Coors Q3 presentation for 2025. During the questions and answers session, participants are able to ask questions by dialing pound key 5 on their telephone keypad. Now I will hand the conference over to President and CEO Ola Klingenborg and CFO and IR Director Andreas Engdahl. Please go ahead.

Hello, everyone. Welcome and thanks for listening in to the core Q3 report. I would start by giving you an update on some of the events during the third quarter and talk about some of the market conditions. I will then hand over to Andreas to present some more details around financials before we summarize some of the key takeaways for the quarter and have a Q&A session. At the end of the presentation, I would also share a little bit of news regarding a CFO interim solution that we identified as Andreas departs now during the fourth quarter. So a brief summary of the events during the third quarter. Starting with market conditions, we continue to see a high level of activity in the third quarter. We see a little bit varying outcomes depending on our different geographies. One of the key success factors for us is the ability to extend existing customer contracts, which is why customer satisfaction is one of our most important KPIs. This quarter, we got our annual customer survey, which was conducted during the autumn. I'm pleased to say that our results remain strong at 72, which is an improvement from last year's 70, and above our target. So that's good news. In Sweden, we have extended a couple of important contracts with Alstom and Vasa Kronan, and we continue to win new contracts in the Norwegian market with some good successes there. Both Avinor and Chaga Egendom was signed during the quarter. But we continue to see challenges in our Danish operation, which affects our commercial ability there. We have a couple of new expanded contracts in the quarter, but also a few contract losses. And some earlier contract losses are concluded in the fourth quarter and early next year. The net effect of these changes in the portfolio are net negative, and the value of our contracts that will be concluded in the next two quarters is approximately 300 million SEK in the Danish market. To further strengthen our operational focus, I've decided to expand the executive management team, and our three Swedish divisions will now join the executive management team, giving the heads of divisions an expanded mandate and clearer responsibility for the coordination and governance of the support functions. We enable, by this, more efficient and integrated management of the Swedish business segment. This will also flatten the organizational structure, which I think will allow for quicker decision-making and increased operational control. In 2025, we've also taken a lot of measures to restore the level of working capital, and I'm pleased to see that that has resulted in significant improvements in cash conversion. This quarter, it's 96% compared to 57% for the full year 2024. As commented in the previous quarter, we continue to prioritize long-term efforts to further strengthen our ability to deliver attractive services with high operational efficiency and profitability. We started preparations for the capital markets day early next year, where we will provide an update on our progress and share plans for course future. So handing over to Andreas, take a look at the numbers.

Thank you, Ola. We start with an overview of the business KPIs. In the third quarter, organic growth is 4%. And that comes as in the previous quarter, primarily from high variable volumes in Norway. The EBITDA margin for Q3 is 4.5%. That is an improvement comparing with last year, that ended at 4.1%. Cash conversion, that is an MTM number, ended at 96%, as Ola commented on here just a minute ago. A strong number that is above our target of staying above 90%. Leverage, also an MTM number at 2.7, a decrease from previous quarter. On the P&L, net sales ended at 3 billion, that is 2% up compared to last year, where organic growth was 4% and FX negative 2%. Adjusted EBITDA amounted to 134 million, which gives us a margin in the quarter of 4.5%. Both EBITDA and margins is an improvement compared to last year. At the end of the second quarter this year, the previously announced changes in the central staff organization was completed. And effects of these changes are now becoming visible in the P&L. We see lower cost for central group functions and also positive impact on cost for central functions in the countries. Items affecting comparability during the quarter amounted to 21 million and mainly comes from restructuring costs related to changes in the Swedish management structure that Ola just commented on. And consultancy costs related to strategic review to define the plans for core future to be presented at the capital market day early next year. Net income is 43 million and adjusted net income when adding back amortization amounts to 57 million. That is an improvement with 81% compared with last year. On the LTM numbers, we see that net sales remain close to 12.4 billion. The LTM adjusted EBITDA level is 548 million with a margin of 4.4%. Looking at Q3 country by country, we start with Sweden. We have organic growth of negative 2% in the quarter, mainly a result of ended contracts. In the face of a weaker economy, we also see somewhat lower demand for variable volume, primarily in our conference service. The adjusted EBITDA and margins are somewhat lower compared with previous year. We see positive effects from organizational changes implemented earlier this year. Well-ended contracts have a negative impact. The cleaning operation improved their profitability. Last year, high resource consumption had a negative impact, but the action plan that was implemented last fall to improve efficiency in resource planning has improved profitability back to expected levels. With lower demand for variable volumes, we also have a negative impact on profitability. Conference service have a relatively high share of fixed costs, which has a strong impact on profitability as volume change. If we then move over to Denmark, organic growth of 2% in the quarter, that comes primarily from indexations. Adjusted EBITDA margins are relatively stable compared with previous year. But as Ola mentioned earlier, we continue to see challenges in our Danish operations that also affects our commercial ability. Recent changes in the portfolio are net negative, and we have contracts of some 300 million per year that will be concluded in the coming two quarters. In August, Peter Hasbach took over as CEO of the Danish operation, and he is now evaluating appropriate measures going forward to ensure an improved commercial impact in the Danish market. In Norway, we see another strong quarter with organic growth of 22% coming from unusually high variable volumes related to maintenance stops in the energy sector. These maintenance stops occur annually. The scope and timing in the year varies from year to year. This year, around half of the organic growth we see in the quarter comes from above normal levels. Adjusted EBITDA for the quarter amounted to 29 million SEK and margin was 4.6%. The strong improvement compared to last year is driven by the high variable volumes. We have signed several new contracts in Norway the past few quarters. The majority of them will be started in the coming quarters, thus having a limited impact here in the third quarter. And last among the countries, Finland, organic growth of 3% in the quarter and a slight improvement in margins compared 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-end balance sheet effects, and to a certain extent due to way of working. We have taken a number of measures to reduce the level of working capital in 2025. And in the last 12 months period, working capital has been reduced by 77 million compared with the build up of working capital of 88 million in the 12 months before that. With that, our net working capital position has been restored to a normal level of negative 7.7% as a percentage of LTM net sales. As a result of improved net working capital, our key metric LTM cash conversion also improves in the quarter to 96%. That is an improvement with close to 40% compared with the full year 2024. And with that also a level above our target of staying above 90%. And finally, leverage that is on the bottom right of the slide decreased to 2.7 as a result of a strong cash flow. And with that, I hand it over back to you Ola to sum it up.

All right. So summarizing the quarter, I think we see another stable quarter with some positive signs. So happy to see that. I think the cash conversion deserves to be highlighted since the improvement is quite significant. We see a market with a lot of activity and we see a little bit different outcomes in our different regions. The strengthening of the executive management team with more operational focus, I think, is something that we've been working quite a bit on. So I think that's the key takeaways from the third quarter. also worked to find a replacement for Andreas who's been with the core for a long time and we're still in the recruitment process and in the meantime we've decided to engage in interim service and we have appointed Daniel Warnholz to acting CFO from the 1st of November having a handover period with Andreas during about a month. Daniel has a very significant experience in the Swedish market and has been the CFO of Ambea for many years and most recently CFO of Consolis, who is a little bit close to our market. And I think also at Ambea, there is a lot of resemblance to our business. So the recruitment of a permanent replacement is ongoing at the same time. But in the meantime, Daniel will hold the chair as CFO until we find a permanent replacement. I think that concludes our presentation.

If you wish to ask a question, please dial pound key five on your telephone keypad. To enter the queue, if you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Simon Johnson from ABG Sundal Collier. Please go ahead.

Thank you, and good morning, Ola and Andreas. Maybe first, I wonder if you could please explain a bit more about the growth in Norway. You specified, for example, that half of the organic growth came from above average variable volumes. I'm wondering about the other half. Was that sort of mainly related to new clients or is it also that other clients or specifically in the oil and gas industry drove that sales as well? How should we view that?

Thanks. Good morning, Simon. No, it's sort of the growth is fully related to variable volumes in the energy sector. Half of it is sort of extraordinary sort of levels that we typically don't see. And the other half is sort of a high activity year, basically. But it's all related to the same sector.

Thanks for that clarification. Then I also wonder about, also in Norway, the public sector. This is something where we have seen positive development with the public sector starting to outsource from a lower level recently. Can you share anything about how that is progressing?

Hello, Simon. Good morning. Well, as you say, I think the public sector in Norway is quite a significant opportunity for us. Now, in the quarter, we won Avinu, which is kind of semi-public sector, I guess. And we see a lot of activity in the Norwegian municipalities, where they, in many cases, for the first time, do outsourcing. And we have dialogue with many of them. So I think it is a good opportunity, but it's also not a process that happens overnight. But it is definitely an opportunity as we see lower outsourcing levels in Norway public sector compared to other Scandinavian markets.

I see. And maybe as a follow up on that, Do you think that the current activity you're seeing is that something that you think could be enough to move the needle for your Norway operations in like the coming one or two years or something or is this more longer term than that?

No, I think it's both. I think we can see that it will move the needle for Norway and we think that it's also a longer term game. Because if we look at the total markets in the other Scandinavian markets, there is significant growth to be had for the outsourcing sector for probably a long time to come. Now, we obviously have a good momentum in Norway and has won quite a few contracts there in the last couple of quarters. So both in the public and the private sector, we see good momentum.

All right. Great. Thanks for that. That's all for me.

The next question comes from Karl-Johan Bonnevir from DNB Carnegie. Please go ahead.

Yes. Good morning, Ola and Andreas. A lot of moving parts here today, obviously. And just to continue on Norway first. To bridge the gap on group level from the Danish headwind, you said, how much do you think the Norwegian contracts than the momentum you have seen that will bridge that gap?

I mean, I think we normally don't disclose the exact revenues of different contracts, but I think it's basically on a similar type of level. So from a group perspective, those might kind of outweigh each other. However, the Norwegians at the same time have a quite significant variable volume in the quarter. So you have to do that math, I guess. But I think that the lost contracts in Denmark and the one contract in Norway is on similar type levels.

Excellent. So on group level, we should say that the fixed volumes or the contracted volumes are are stable at the moment, and if in anything, Sweden and particularly Norway is bridging the headwind you see in Denmark. Is that a good way of summing it?

Yes, it is. It's correct.

And when we look at the Danish challenges and the contract losses, could you give us some sort of granularity? If you've been wrong on pricing, have you not been able to deliver the quality in this contract, or are there more, say, contract specific issues than what has happened here?

I think there are some contract specific issues and some of them are just tenders where there has been an intense price focus, where we have chosen not to do a raise to the bottom on price. But I think from a more general perspective, we do have challenges in the Danish operations of how we keep operational efficiency in the delivery and how we keep control of all the activities going on in these large contracts. So I think it's both of the things that you said, some contract specific issues and some operationally related issues. And I think those has also led to us maybe not focusing enough on our growth. So which means that our incoming volumes have not been able to kind of compensate for the loss contracts. So Peter, who is the new CEO in Denmark, are obviously there to address some of these issues and has already begun to find a plan forward. And one of the first measures was to find a new manager for one of our business units there that has been suffering the most compared to budget. So we are taking action. But it's also, as you know, a long-term game where many of these contracts have been tendered in the recent year or even years. So it is a long-term game, but I think Peto is up to the challenge and is hard at work to try to find a good way forward for the Danish business.

If you sum Denmark up, is it proper to say that maybe half of the challenge is an in-house challenge and half is a market challenge? Or how should we see it?

Well, I think those two always interact with each other somehow. And if you have a strong management with a good view forward, you can always overcome market challenges as well. But But I think if you want to put a percentage on it, it's probably not all wrong, your estimate there.

Excellent. And obviously, a lot of last year's problems and the focus in the efficiency programs were targeted to Sweden. How do you see good things coming through, obviously, in this report? But how do you see the stability in the Swedish operation today compared compared maybe to when you took on the realm to become the CEO of the company?

I would say that it is more stable. We see a... One of the key stability indicators for me is the ability to forecast correctly the different contracts and how they are coming out in a month or in a particular time period. And I think we see an improved ability to forecast. I also see fewer contract that swings up and down a lot in volume or particularly in profitability. So there is a greater stability. I would say. And there is a lot of work that has been done by the team in the Swedish market. And some of the variability that we have seen has also been due to system changes, et cetera, that was done last year. And I think we see less of that in the year and also in the coming time period.

Excellent. Then obviously looking at the target that was put up before you came in that you should get back to 5.5% margins in 2026 basically and maybe having that pace when you now leave 2025. Is that still a logical kind of assumption given the challenges you see in Denmark and the development you see out there?

I think we are not indicating any change to that ambition at this point, but we will revert with some more details around our targets, not only for the year, but also going forward during our capital markets day in Q1. And we have been doing quite a lot of kind of analysis on what we can expect, but we're not changing the 5.5 ambition at least. Excellent.

Good move on free cash flow in the quarter, obviously, and the balance sheet is strengthening up quite nicely. Obviously, we noticed that you haven't started the 50 million share buyback program that was highlighted earlier. Is that something that now looks more logical, given that you have re-established your financial strength?

Yeah, I mean, the balance sheet is strengthening and we are sort of getting you getting to a place where that is becoming more relevant to sort of pick up now in a discussion with the board. So in the end, it's a board decision, but we will have a dialogue with them around that in the near term future.

Excellent. And Andreas, good luck with your new assignment. And from my perspective, downhill should be a very good interim solution as well. I know him from Ambea where he obviously was a very keen share buybacker. So hopefully that can get that started as well. Thank you very much and all the best out there. Thank you.

Thank you.

The next question comes from Raymond K. from Nordia. Please go ahead.

Good morning Ola and Andreas. Two questions from me. First regarding the the restructuring costing Q3 21 million. It's pretty much unchanged from Q2. How should we think about sort of extraordinary items and specifically restructuring costs going forward?

I think you should expect them to come down or decrease. We have a number of restructuring initiatives here, looking back a few quarters. The large one was related to the downsizing we did earlier this year. Then again, now in Q3, there are some management changes related to the changes in the Swedish organization that Ola commented on. But looking ahead, one should expect that to come down.

Great. And just looking at the IFM market more broadly, do you see an increased focus on price? Do you maybe see your strict margin discipline as a major reason or a strong reason for why maybe organic growth in Sweden and Denmark is where it's at?

I think... I think we've had, as you say, a lot of focus on margins in the last couple of years. And I think that that has on a kind of cultural and structural level, of course, changed that has dominated the focus of the business. So I think the I won't point to a particular deal perhaps that we lost due to that. But I think as a structural and cultural view of how we operate our business, we have been more cautious. We have been very disciplined on margin. We have been risk averse to take deals where there is a risk of diluting the margin. And perhaps, you know, that has gone a little bit as far as preventing us from growing in the way that we probably would have wanted. But it's always a balance. And in this type of business, getting the revenues is not particularly difficult. The difficult part is to maintain the margin. So it's always a balance that we struggle with. I think the losses in the Danish business have not very much to do with the margin focus, but rather on either internal operational challenges or very contract-specific events. But as a more general observation, I think you are right.

Okay, got it. That was helpful. Great, that's all from me. Thank you very much, Andrea. Thank you for a nice collaboration. Wish you good luck on your future endeavors.

Thank you, Raymond.

Good morning, guys. Hope you can hear me well. I have a few questions, mainly regarding the Norwegian market, and this has obviously been It's for you over the past few quarters. However, historically we've seen volumes from the oil and gas sector to be quite low in the fourth quarter. Should we expect the organic growth to normalize already from Q4?

Yeah, morning, Oliver. Yes, you should expect that. The maintenance period is coming to an end in Norway, as it often does here, as you say, in Q4. So that is correct.

Okay, great. And how do you think this will affect margins? Obviously, we'll see an uptick here over the past quarter. Do you think we'll be able to maintain the 4.5 level in the North? Norwegian market or are we to expect that well hit there?

I mean, the volumes has been a margin driver, but but obviously sort of reaching a new new level that there's an ambition to keep them but then one needs to keep in mind where we're also starting up a lot of new contracts here in the coming quarters. That sort of could could potentially also put some some short term pressure on margins. But I mean, overall, I don't expect any sort of major shifts in the margin profile in Norway.

Great. Thank you for the clarification. And then I have a more broad question as well. Previously, over the years, we've seen that economic downturn has been driven by the outsourcing of FM services. Over the past year, have you seen this?

uh pattern to to uh play out yet again or or do you see any shift i think um we touched upon that earlier but they can now know i think many of the large corporate corporate contracts that we have, I mean, they've been outsourced for quite some time. So I think when we look at the big corporate segment, it's not as clear that the trend that you indicate. But if we look at the public sector, for the first time talking about Norway again, I think we see some of the municipalities that are struggling financially and they are for the first time looking at outsourcing. So I think maybe not so much for the private segments as it is for the public, actually.

Yeah, OK, great. Thank you so much for your answers and best of luck going forward, perhaps especially to you, Andreas. Thank you so much for the past few years.

As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Thank you very much for listening in to our Q3 report.