Coor Service Management Holding AB (COOR) Earnings Call Transcript

Welcome to Coor's Q2 presentation for 2026. [Operator Instructions] Now I will hand the conference over to President and CEO, Ola Klingenborg; and CFO and IR Director, Patrik Sjolund. Please go ahead.

Hello, everyone. Good morning. Welcome to our Q2 report. The agenda for the day is, first, I'll make a short update of the current trading and current business. Then we'll go through the financial numbers with Patrik, and then we'll summarize with some key takeaways. And then we will open up for questions. We'll skip right into the CEO update here. We see a continued good market activities with a lot of things going on throughout our markets. And we have made some good extensions. We have a good retention work in our Swedish, but also in our other markets. Particularly in our Cleaning segment, we've signed a lot of medium and small-sized contracts in the Swedish market. In Norway, we've had quite a bit of success in the public space. And in Denmark, we prolonged our important and large IFM contract with DSB. And there is a lot of tenders where we are present and where we are working with some really large tenders that we're working on. The growth in Sweden and Finland continues to be strong, and we work at 3% to 4% growth there. While in Norway, we have a negative growth in the quarter, which we communicated earlier is due to fluctuations in the oil and gas business where we had a really, really strong quarter last year. Denmark continues to be a challenge, and we are decreasing versus last year. Our EBITA margins continues to develop towards our financial targets, and we hit 5.5% in Q2, and our cash conversion remains in line with our financial targets. The leverage is at 2.5, which is stable and which is very strong, I think, given that we have also made dividends during the period. We had a Capital Markets Day a couple of months ago, where we presented our strategy, and we are working now with all those initiatives outlined during that day, and they are progressing well. In Denmark, we do a lot of improvement activities to get the market back on track. And I think they're doing a good job there to handle the decreased volumes. We've also had some changes in the management where Patrik has joined us as CFO. We've had a new HR and Communications Director and in line with what we discussed at the Capital Markets Day, we have strengthened our leadership within our property technical maintenance business with a new manager for that area. With that, let's turn our eyes to Q2 numbers, and I hand over to Patrik.

Thank you, Ola. And we will start with an overview of the business KPIs. And in the quarter, the second quarter, organic growth is minus 3.3%. Sweden and Finland grow at 3% to 4% organically, but we are having a negative growth in -- of 15% in Denmark due to previous communicated contract losses. And in Norway, we see a negative growth of 10% due to, as also earlier indicated, high variable volumes starting in Q2 last year, which kind of affect that. Strong quarter. The EBITA margin of Q2 is 5.5%, which is an improvement comparing with last year that ended at 5.2%. Margins continue to improve with strong results in Sweden, driving margin improvements, combined with stable margins in Norway with lower revenues versus last year, which is a good indicator. In Finland, we see an improvement from 1.7% to 2.6%. Cash conversion continues to be solid at 90% on the last 12-month basis. And as Ola said, strong. And with that said, we also did the dividend lately. Leverage also an LTM number at 2.5 multiple continues to be stable. On the P&L, net sales ended at SEK 3.1 billion, -- that is 2.5% below last year. Organic growth was negative with 3.3% and FX positive with 0.8%. Adjusted EBITA amounted to SEK 170 million, which gives us an adjusted EBITA margin in the quarter of 5.5%. Both EBITA in absolute numbers and margin percent is an improvement compared to last year despite lower net sales. Items affecting comparability during the quarter amounted to SEK 30 million compared to SEK 22 million last year which mainly relates to restructuring costs in Denmark and to some extent, start-up costs in other contracts in the Nordic region. Net income is SEK 87 million and adjusted net income when adding back amortization amounts to SEK 95 million, both improving well versus last year. On the LTM numbers, we see that net sales is at SEK 12,361 million. Organic growth is 0.9% and FX negative with 1.1% in the total of net sales versus full year 2025. The LTM adjusted EBITA level is SEK 630 million, which gives us an LTM EBITA margin of 5.1% versus 4.8% for the full year 2025. Adjusted net income for the LTM is SEK 302 million versus SEK 274 million full year 2025. Looking at Q2 country by country, we start with Sweden. Organic growth of 3% in the quarter primarily relates to a favorable activity level and higher income in all 3 areas: EFM, Cleaning and Property services. Adjusted EBITA and margins are improving with strong performance across all businesses in Sweden. Coor signed extension contracts with Skanska and Borealis and Goteborgs Hamn and Stockholm Live. But also, we can see that a number of customers within the small and medium segment for cleaning was also signed. If we move on to Denmark. During the second quarter, sales in the Danish operations declined with 15% due to the negative organic growth of minus 14.5% and a negative Forex exchange effect of 0.7%. This negative organic growth was due to previously communicated ended contracts, which are estimated to also negatively impact coming quarters in the year. This also negative affected adjusted EBITDA for the quarter that amounted to SEK 16 million compared to last year, which was SEK 27 million, and adjusted EBITA margin of 2.7% versus last year, 4.0%. The work with decreasing the cost base is ongoing, but with still lack of revenues, the adjusted EBITA negative compared to last year. Activity in the market remained high, and Denmark are participating in a number of tenders and will be participating in future tenders, both in our own portfolio and in the market in general. In the second quarter, Coor signed an EFM agreement and extension with DSB for 3 years and for -- and also [indiscernible. Denmark continuously worked to adjust their business with the lower volumes with a balance to position themselves for future growth. On July 7 in this year, Coor received a final arbitral awards in a long-term running arbitration proceedings with the customer. That has been pending since 2022. Awards was in favor of the customer, which have a financial impact of SEK 20 million to SEK 25 million in the Danish company, which will be recognized in Q3. This will be treated as a nonrecurring item as it does not have anything to do with the present Danish performance and business. For Norway, during the second quarter, the organic growth was negative of 10% and foreign exchange effects of 4.7% positive. The negative organic growth was due to the variable costs from last year from Q2 and onwards. We are now during 2026 can see a normalization of the level of variable volumes. Operating profit adjusted EBITDA for the quarter amounted to SEK 35 million compared to SEK 37 million last year. The operating margin remained at 5.4%, which is in line with the last year. Hence, the contract portfolio develops well. The earlier won contracts with Jotun and Avenor is progressing successfully. In the second quarter, Norway also signed cleaning contracts with Gjettum and Drammen Kommune. Turning to Finland. During the second quarter, sales was 3% higher in Finland compared with the second quarter last year due to the contract started in Q1. Organic growth was positive and amounted to 4%, while foreign exchange effects were negative and amounted to 0.9%. Adjusted EBITDA amounted to SEK 4 million compared to SEK 3 million last year. The operating margin was positive with 2.6% compared to last year, 1.7%. The activity in the market is high, and there are several tenders in the market in the quarter and upcoming quarters, which Finland will participate in. If we go to cash flow and balance sheet, we can see that we have a continued solid cash conversion with 90%. Working capital is negative with minus 7.6%, which is in line with the seasonal pattern in prior years. The leverage continues to be stable and strong at 2.5x EBITDA. We are also considering that we have done a dividend, which kind of includes in the cash conversion of 90%. And with that, I hand it back to you, Ola, to summarize.

Thank you, Patrik. So in summary, it's another stable quarter, and we have some positive development, I think, in several areas. We see a lot of market activity going on and a lot of tenders in the market. We see organic growth in Sweden and Finland continuing to be good. I think the underlying business in Norway is also developing positively, although there was a fluctuation in variable volumes, particularly compared to Q2 last year. Denmark struggles with the lost contracts from last year, but they're doing a good job, I think, to try to manage that loss of volume. Continued improvements of the margins is really closing in on our financial targets, which is 5.5% LTM. We see a good cash conversion. Leverage is stable, particularly given that we already did the dividends decided on the AGM. Strategy implementation progresses as planned, a lot of activities going on to both strengthen our growth and also our margins. And 3 new EMT members coming in that I think will further strengthen our ability to deliver on our strategy. So a stable quarter and continued improvement work. So that concludes our presentation, and we'll head over into the Q&A and open up for questions.

[Operator Instructions] The next question comes from Simon Jonsson from ABG Sundal Collier.

If we first start with some of the positives here. I think the margin in Norway is holding up quite well despite the lower variable volumes. Do you expect that this will continue and you can sustain the current margins coming quarters as well, even though volumes -- variable volumes continues to decline? Or how should we think about Norway's margins here going forward?

First of all, I think it's a good observation that the drop in variable volumes would usually imply that we would see also a drop in margins. But that has not occurred in this case. And as you see, I think it's a sign of strength in the underlying Norwegian business. So we are definitely working towards improving the margins in the underlying business. And we see a positive trend there. So good observation.

All right. Makes sense. Sounds very good. And on growth in Norway, the drop here in organic sales versus last year is still, I mean, pretty good considering that you grew 20% last year. And if you take out the volatility in the variable volumes, you talk about portfolio expanding with new customers and so on. How is the underlying portfolio growing, you would say, currently?

It is growing, and we have won some really good contracts, Avenor contract, Jotun, as Patrik mentioned, some municipal contracts. So they are contributing definitely to volume. But usually, when we start up new contracts, there is a lower margin in the beginning and the last -- sorry, the first year or 2. So I think we see an increase in volume. We are, of course, working to make sure that, that produces our required and desired margins, but we see that it will take a couple of months or quarters before we see the same margins from those new contracts as we had with some of the old contract that was moved out of the portfolio last year. But we see a growth, and we are positive in transforming that into improved margins.

All right. So I mean, currently, you have both new contracts and the variable volumes potentially holding back the margins in Norway. Is that correct to view it?

Yes.

All right. And a follow-up on that, sort of what's your longer-term view on margins in Norway then? M it's a bit -- it's a stretch to assume it could reach Swedish levels. But compared to Norway's historical levels, it has been, I think, 6% to 7% some years, but where do you think it can grow in coming years?

No. I think it's a stretch to imagine Swedish levels, but it's definitely in our ambitions to improve the current margin levels. At the same time, we are quite dependent on some of the bigger oil and gas business where the margins are notoriously low, but volumes are very significant. So it's a bit of a mix question as well. But moving up from our current margin levels is definitely our ambition.

All right. Interesting. Then moving to Denmark. I think even though you have -- you are struggling with contract losses, it was still a bit of a negative surprise on the margin here in this quarter. And when you say that you are continuing to work on stabilizing margins in Denmark, taking out costs, et cetera, what does that mean for margins in the second half of this year, you think? Is it -- does it mean that you expect to stay around the 3% level or so? Or do you expect it to bounce back a bit here from this level?

We usually don't make forward-looking statements and forecasts. But to understand the current numbers, I think we see 2 effects simultaneously in the Danish business here. First of all, and most importantly, the contract losses from '25 where we're doing a lot of work to mitigate those revenue losses with more efficient operations. The other thing here in Q2 is some of our businesses where we have been challenged on the margin side, which is a little bit more of a temporary challenge. So we do think that we can work to improve the margins from Q2 into the second half of the year. But it is a lot of work that needs to be done. And we do not make forward-looking statements like that. But we think that there is room for improvement now as the situation stabilizes a little bit.

All right. And the second factor you mentioned there on the pressure you're seeing right now. What sort of time frame is that? Can you explain a bit more on those effects specifically? What are causing that? And how long could those temporary pressures persist?

I wouldn't call it pressures. It's more like temporary challenges in the operational delivery, which is things that happen in this business and that maybe wouldn't be as noticed if the business in itself was 100% stable. But it's something that in this time period where we see an underlying decrease of the revenue and the bottom line, it further affects the profitability. But I would -- as I said before, I think we see that the Danish team is doing a good job, I think, to manage the situation and ensure that we maintain the contracts that we have already in our portfolio, DSB contract being an important prolongation this quarter, for example. We have a number of different prolongations coming up as well during the coming year as well as participating in new tenders. So we need to make sure that we have resources for that as well while we are adjusting to a new top line level. So my impression is still that the Danish team is doing a good job in the circumstances that they're in.

All right. Then just a final one from me on the cash flow. And I know that the cash conversion you are communicating is looking solid, pretty much in line with what you're targeting. But if you look at the sort of free cash flow generation and conversion from the adjusted EBITDA, for example, it remains a bit below historical levels. There are some factors like restructuring costs and higher interest costs and so on. And maybe most importantly, the lack of organic growth that is holding back prepayments. If you look ahead here and see that you come back to organic growth in coming years, do you also expect that you would come back to that sort of tailwind from prepayments boosting the free cash flow? Or how should we view that in the coming years?

I think it's the same, as Ola said, we don't comment on the future. But of course, we constantly work on increasing our operating free cash flow as well as increasing the cash conversion. So of course, that has to do with the organic growth. And of course, as we have said earlier, we are working on increasing the organic growth, balancing the contract losses that we have had. And also the restructuring cost is -- they are decreasing and will continue decreasing as well, which will affect that free cash flow as well.

But we also see that in particularly, as you note, in the variable revenues where we have large volumes coming in, that's usually a more advantageous payment terms on those as they are kind of paid as they are being performed rather than the more running business where there are different payment terms. So it's a bit of a mix question as well. So that's another nuance to that, perhaps.

I see. So looking at last year, for example, the free cash flow was actually very strong, and you also had very strong verbal volumes, especially in Norway. So I'm guessing then it's fair to assume that there was a contributing factor last year that is now absent.

Yes. Correct.

The next question comes from Oliver Uusitalo from Aktiespararna.

I would like to start off with the organic growth outlook in the Swedish market. And you're stating that all segments are growing in this quarter. And I guess that provides you with some optimism that this 3% rate could be persistent over the -- well, second half of the year and perhaps into 2027 as well. And also if -- can you say anything about the variable volumes coming into the second half of the year here? -- do you see any activity regarding conferences and such in Sweden? Or is that still too early to say?

It's always a bit tricky to predict the variable volumes in the Swedish market, but we have had a good first half of the year, and there's not that much to indicate that, that would change dramatically in the second half of the year. And we are doing a lot of work to increase our ability to upsell to existing customers. this is one of our key components of the strategy that we discussed on the Capital Markets Day and our ability to do that, there is room for improvement and there is quite a bit of work going on there. Then predicting exactly how that will look and when it will come and so on. That is always a challenge, but we see positive signs. At the same time, we are participating in a quite significant number of larger tenders that we want to win and that we have the ambition of winning. And I think that's also necessary to sustain the organic growth from a longer time period perspective. So working on many fronts there. Patrik, I don't know if you have anything to add.

No.