Bravida Holding AB

STO:BRAV

Earnings Call Transcript 2023-Q1

[Mattias Johansson, executive]

Good morning, everyone, and welcome to Bravida's Q1 Presentation for 2023. And as always, it is Asa Neving and myself, who will take you through this presentation.So let's start. The agenda for today is the standard agenda, our position in the Nordic market, a deep dive into the numbers for Q1 then also I will take you through the different countries and then in the end, we will have a summary and a possibility for you to ask some questions.So Bravida and our market position in the Nordic market. We are continuing on our growth journey, and we are actually close to SEK28 billion company today, 13,000 employees is what it says on this slide, actually, we are close to 13,500 today, 91% of our customers is recurring, and we have 85% of all our orders below SEK50 million. And as you know, we want to be a partner throughout the whole life cycle on the property from the design phase, installation, service, maintenance, et cetera, and want to be a partner for all our customers for all our segments. So 325 branches are serving our customers in a fantastic way every day.This is our history, and I think this is a fantastic slide that shows the stability of the business model that we have in Bravida in our industry, but also our skilled people, how they are performing in different markets as well. You can see that we have 9% CAGR on the top line, and we have improved profitability even more, 10% on average since 2015 and in a period with quite difficult market situations. We have had a pandemic, inflation, some issues in logistic chains, et cetera. And over this time, we also have been able to deliver a cash flow above or around 100% on average. It is varying a bit from one year to another depending on finalizing -- how we're finalizing big projects and starting the same. So -- but overall, a fantastic journey that we, of course, think that we, in some way, want to continue and have a good chance to be able to deliver on that as well.We are the Nordic leader in sustainable technical solutions, as we said, being a partner to all our customers from early phases of when they are planning a new building, help them build a house with the right type of installation, energy-efficient systems. If they are not energy-efficient enough from the beginning, we can help them to increase the value of a property by maintaining, change some system, do adjustment and also lowering the energy consumption or maybe help them use another type of energy source as well. Every customer has access to our entire offering. We have the lifecycle perspective for every building, and we are and want to stay as the leader -- the industry leader in sustainability.For the moment, we are having a lot of employees who are doing a really great job by -- in a proactive way, changing the way of working and in a proactive way, help our customers to create value in their own business. It's really amazing to see that we are transforming as a company and are more proactive today than we were before, and we hope that we can continue that journey, of course.So let's go into the numbers for the first quarter then. And we start with the market and the market outlook. We see some increased demand for sustainable and energy-efficient solutions. It hasn't really accelerated yet but I think that the demand will increase going forward. It has started, but it hasn't ramped up yet. We still see an overall good demand for service and installation. And of course, we exclude the newbuild residentials in that statement. Said that, even if we see quite strong good demand in the market right now, of course, there is some uncertainties going ahead. Increasing interest rates and inflation may lead to delays in investment decisions, et cetera, when we're going forward. So let's see what the market will look like in the coming quarters. But for now, the demand is quite okay. It is varying a bit from different geographies, but that is the case all the time. That was the same situation last year as well when the demand were seen as really, really good.So the highlights for the quarter then, 20% organic growth, and we are growing in all countries. I think that is the highest organic growth number ever. And maybe you should see it like that as well. We are now entering into a new quarter, we had a growth -- organic growth in Q3, if I remember correctly, 13% -- no, Q2 -- Q3 last year, yes, with 13%; Q4, 16%. Now we are even higher at 20%. And I think it will be leveling out and maybe go down a bit because having this high organic growth is extreme for our type of business and our type of industry as well. And on top of that, as you know, we have had the strike in Norway, which is impacting us with approximately SEK40 million in sales. 7% comes from acquisitions, and we see increased sales in both service and installation. And this is the first quarter in quite a long time where we actually have higher growth in service and installation, which is a good thing, of course.Order intake is up 4%. It's improving in Sweden and Finland. EBITA margin at a stable level, 5%, slightly lower than last year, but having this stable margin in this market situation is fantastic and at the same time as we are investing a lot in our business and our IT platforms, which we'll come back to later on in this presentation. Earnings per share up 18%, 18% is up -- is earnings per share up, which is also a fantastic number, of course. Cash flow somewhat weaker at SEK60 million and the injuries is going up a bit at -- with 3%. Sales service, 28% growth, and the installation is growing with 27%. So high growth on both segments.If we take the same numbers in another perspective, you can see that we have close to SEK7.5 billion in sales in the quarter compared to SEK5.8 billion last year in Q1. We had said that the service is growing a lot, 28%. Organic growth at 20% and we're also specifying on this slide what kind of investments we are doing, how big they are, SEK34 million have we spent on new systems and business development in growth segments, and that should be compared to SEK17 million last year. Order intake up 4% and the backlog is down with 6%, but still on a very high level. We see that the order backlog goes down slightly more in Norway and Denmark. If that depends on the market, it's too early to say. But you know that we are growing extremely fast in those countries. So we are slightly more conservative when we try to bid on new projects. So let's see what the root cause is of that. But we are not stressed. We still have a really high order backlog which we have been stating for a number of quarters now. And I think that is what you're seeing in the organic growth today as well.And the net sales bridge, it goes from SEK5.8 billion, organic is adding SEK1.1 billion. We are growing with more than SEK1 billion in the quarter organically. And the acquisitions is adding us another SEK400 million. And then we have a small effect at 1% on the currency effect as well.Yes, if we look at the margin, EBITA 5% compared to 5.1%, and now we are specifying slightly more on what we are doing, what kind of investments we are doing. First, I should say that the margin is improved in Norway, unchanged in Sweden and Finland, and a bit lower in Denmark. And EBITA is also affected by nonrecurring costs for implementing new digital systems and digital solutions. And that is something we need to realize the business plan that we are working with. And that sums up to SEK24 million compared to SEK14 million last year. And the forecast for this year 2023 is around somewhere between SEK100 million and SEK125 million.And I think that is another way of [ show ] the strength of Bravida to be able to present high growth, stable margins at the same time as we are investing in our future to be able to continue to deliver top-quality service, helping the customers with their taxonomy issues, helping [ they ] save energies, et cetera, in a more digital way. So I think really interesting to see the outcome of these investments going ahead. We also have some effects on EBITA for development in new business, sustainability and modern IT platform according to our plan. And the new world also means that we need to invest in some new roles, competency system, et cetera, to be able to report what the market and our customers request for us.And driving the business plan forward increases, of course, as I just mentioned, the administrative expenses, but it will enable an improved margin long-term, both margin as well as growth. And the increased recurring costs is connected to the IT platform, as I said, but also digital development capabilities and new type of resources, increased sustainability focus and also in improved and strengthened HR support. We have some, to the right, initial costs for investments in the new businesses in Technical Facility Management, automation, energy management. We are investing in new systems, but also new people, new capabilities to be able to deliver new types of services to our 80,000-plus customers going ahead. And we hope or expect that these will add positively to the margin in the end of this year.The order intake and backlog. We have said that the order intake is up 4%, the backlog is down 6%. Still have an order backlog that is really healthy and on a high level. And you can see how the order intake developed. We have some seasonality as well in the order intake as well in the order backlog normally. But you can see the green line that is continuing upwards, which is quite natural. And let's see, we have quite strong order backlogs in many places. We are now soon entering in our quarterly reviews where we will -- we, Asa and myself, we'll have a discussion in -- on order backlogs on branch level to discuss what measures we need to do to continue to grow or to make sure that we defend the margin. And having all the acquired companies into the same platforms gives us the possibility to manage the company, to see the order backlog, to see the trend in margins, et cetera, and that is probably the most important task for us in the coming weeks. But still a healthy and strong order backlog, both regarding margin as well as size.Sustainability, the injuries, LTIFR is up 3%. It's quite sensitive KPI. So that means that we have had a few more accidents with sick leave this year compared to last year. It is increasing slightly in Sweden and Denmark. Norway is well below the target. And then it's -- I'm happy to say that 15% of our vehicle fleet is electric-powered today. We said last time that we ordered, I think it was 73% of all ordered cars last year were electrical and now we are using those cars when we need the new ones. So there are some timing issues when the cars will be delivered as well. But the work with our cars and our sustainability focus on our car fleet actually started already in 2019. So it's quite long cycles to change a KPI like this. And we were really early in starting discussing this, actually before it was possible to order electrical service cars, for example. So now we have a system in place, which will give us a good development on this KPI going forward. And I think we are well ahead of the competition in this perspective, which is really good. And you can also see that the change in CO2 emissions from vehicles related to sales is down 3.6% in the quarter. Last year, we lowered it with [ 13.6 or 13.8 ], I think. So, good to see the great development on this side as well.When it comes to acquisitions, we have done 5 in Q1, another 2 in the beginning of Q2. The 5 I mentioned in the quarter is adding SEK155 million in sales, strong pipeline, attractive multiples, and we now see a trend shift as well in the market of the M&A market because it's -- even if it's early in the new type of market, we already now see that there are more owners, et cetera, who is interesting to discuss and maybe sell the companies and having a strong balance sheet to try to use that situation as a market leader in the Nordic market is, of course, really good.So now I hand over to Asa, who will take you through the different countries.

[Åsa Neving, executive]

Thank you, Mattias. So as always, let's start with Sweden. And as in all our countries, Sweden had a high growth in the first quarter, growing with 21% leads to a top line of SEK3.6 billion, and the growth is coming both from installation and services, but mostly from services, which we are happy to notice. The organic growth is 16%, and the growth from acquisition is 5%. Sweden has an unchanged EBITA margin of 5.5% and a strong order intake of plus 25% and the order intake is also coming from both services and installation. Order backlog is strong, SEK9.1 billion, so almost on the same level as last year, minus 1%.Moving on to Norway. Norway also have a strong sales, so the growth is 25% and leads to SEK1.6 billion of sales. And the growth is coming from both installation and services. Here, Norway is growing more on installation. The organic growth is even higher than the total growth at 27%, and the growth from acquisition is 2%, and then that leads us to a negative effect on the FX with minus 4%. EBITA is SEK77 million compared to SEK60 million last quarter -- last year's first quarter and the EBITA margin improved to 4.8%. The order intake is minus 20%, less in local currency, so minus 7%. And the decrease in the order intake is coming from installation. And the high production that we've had during the quarter, together with the decrease in order intake then leads to an order backlog that is negative minus 27% year-on-year, a little bit less in local currency, minus 21%. We're actually -- both Norway and Denmark has been growing really fast, so we are actually a bit pleased that the installation growth is coming down a bit.So then Denmark, Denmark has had the highest growth of all our countries, so growing by 42% in the quarter, and that leads to top line of SEK1.7 billion. The organic growth in Denmark is 20% and from acquisition, it's 13% and then you can see that we had some positive effects from the currency as well here. The growth is coming both from service and installation. It's a bit higher on installation. The margin -- EBITA margin declined to 4% compared to 4.4%, leads to an EBITA of SEK68 million compared to SEK52 million, and the decline is explained by a bit lower project margins. And as I said and as we talked about before, both Denmark and Norway has been growing very fast in installation. And then we have -- it's a bit of a challenge to keep up with the EBITA margin. Order intake is minus 19%. And also here, there's a decrease in installation, so it's minus 23% in local currency. And this, also same as Norway, high activity and a lower order intake leads to a decrease in the order backlog of minus 10%. So order backlog is still high on SEK3 billion.And then we have Finland, and Finland has also grown a lot, 36%, leading to a top line of SEK554 million. Growth here is coming both from service and installation, but has been very high on service, which we are pleased to see. The organic growth was 21%, and the growth from acquisitions was 6%. EBITA margin -- the EBITA was SEK20 million compared to SEK15 million last year, and the EBITA margin was unchanged. Finland had a strong order intake and growing both on services, but also in installation. And we're happy to see that because Finland was -- has needed to fill up the order backlog a bit. So order intake, plus 51% and in local currency, plus 45%. And this also leads to a strong order backlog that is on SEK1.2 billion, and that is an increase of 58%. Finland is also the country where we have the least share of service. But in the first quarter, the service share was 31% compared to last year's first quarter, 27%. So that's also -- we're also pleased to see that.That was our countries. Then let's look at our net debt and cash situation. And I think we'll start with the middle there. If you look at the operating cash flow, you can see that it's a bit weaker this quarter than last year on SEK60 million compared to SEK341 million. And this is due to a decrease in working capital and the working capital decreased with minus SEK377 million. And the main reason for this is the strong growth that we have had. So we are tying up capital in receivables. And also the net [ WIP ] is not contributing mainly because we have had previously, like a year ago or a little bit more, we had a lot of large projects coming in with really good payments plans and prepayments. And they are now phasing out, and we are not getting any new large projects that can actually compensate for that right now. So it's a bit of a timing issue also.If you look at the left trends, and this also then leads to a lower cash conversion on 70% compared to 92% last year. If you look at the left-hand side, you can see the financial position. So we have a cash balance of SEK1.1 billion and then we have loans of SEK1.6 billion and that is a term loan -- long-term term loan of SEK500 million. We are drawing on the RCF, SEK200 million. And then we have commercial papers of SEK921 million. And then we had the leasing according to IFRS 16, so mostly our cars on SEK1 billion. That leads to a net debt of SEK1.6 billion and with a long-term rolling 12 EBITDA on SEK2.3 billion, we get to net debt/LTM EBITDA ratio of 0.7. Yes, and on the right hand, you can see our loan structure. And what's worth mentioning there is that we had the RCF of SEK2.5 billion, that is sustainable linked, that is maturing in October next year. So we are now -- have started the work to set up a new RCF. I think that's it on that page.So let's look at our financial targets then. We have -- as you know, we have an EBITA margin of 7% and the LTM is on 6.4%. Cash conversion now a bit lower than, as I said, on 70%. The net debt to EBITDA ratio is on 0.7, so a lot lower than our target. Sales growth, very much higher on 24% LTM compared to 5%, which is -- or more than 5%, which is our target. And we have paid out in dividend, 52%, which is above our target to assess more than 50%.And by that, Mattias, I will hand over to you again.

[Mattias Johansson, executive]

Thank you, Asa. And just a summary to repeat what we think is a good report. And I think it's fantastic to be able to present another -- yet another strong report, which we have been doing throughout the -- yes, many, many years now. And today, the summary goes like this. Increased sales 28%, we are increasing the sales in all countries. Organic growth at 20%, highest number ever, we are growing in all countries. Acquisition is adding another 7%, and we have a slightly lower but very stable EBITA margin at 5% and the EBITA margin is affected, which we have said a couple of times, by increased cost for develop the business according to plan and according to our strategy, which, of course, will lead to an even stronger and better company going ahead. Earnings per share, which is maybe the most important KPI, is up 18%, and we have some increased injuries, which is not good, and we are now addressing measures to be able to improve that again.So by that, I think we can open up for some questions. And thank you so much for now, and let's see what you are thinking about and want to know more about. So please.

[Operator]

[Operator Instructions] The first question comes from Carl Ragnerstam from Nordea.

[Carl Ragnerstam, analyst]

It's Carl here from Nordea. A few questions. Firstly, looking at the order intake in Norway and Denmark, down 7% and 23% organically. I know it's maybe hard to split out. But could you perhaps give us some more flavor on sort of what is actually, in the market, contracting? And how much is sort of you deliberately taking less projects in order to sort of manage your currently seemingly a bit high utilization rate in the countries?

[Mattias Johansson, executive]

Yes, I think it's a tough question to answer. But overall, we -- as we have said, we have had high growth in the countries you are mentioning and maybe to -- or maybe we have had too high growth, which have costed us on the margin side. So I think that is the base point or the starting point. Then we have a quite okay order backlog situation, which gives us the opportunity to be a bit cautious and a [ bit peek ] on what we try to selling and try to get into the order backlog. So overall, we still hear an okay demand. And I think what the root cause is, if that is a lower demand or that we are more conservative, it's too early to say. But the signals we hear and get is more of that we are growing too much and are a bit too busy. Do you want to add something, Asa?

[Åsa Neving, executive]

No, I think you're right. I think we are being more selective and not -- also when the competition is a bit higher on the price side, we are not getting into projects that are too low-priced as we see it. So it's -- I think it's -- yes, difficult to say, but it's definitely that we are more selective.

[Mattias Johansson, executive]

And more selective in combination, maybe that -- what I'm afraid of and I try to state it as often as I can, I think some players in the market underestimates the inflation, what impact the inflation will have on salaries, on the material because a normal situation in our industry is when and if the demand is going down, you can lower the price because you can speculate in buying material cheaper, get slightly cheaper labor, et cetera. But the inflation environment we're having today, I think this is why we probably see some increased price competition because some -- or not all players understands the impact of the inflation going on right now. So maybe that is part of the situation as well. But normally, when they have filled their order backlogs, then we can get and win some new healthy projects instead, that is normally the way it will be handled.

[Carl Ragnerstam, analyst]

Okay. And on the pricing situation, I mean, would you say that it has worsened now during the latter part of Q1 entering April as well? And do you see any difference in the pricing situation between the sizes of the projects, meaning that maybe it's more smaller players that maybe are more worried about the backlog, maybe less professional in their tendering?

[Mattias Johansson, executive]

What we hear when I speak to different persons in the industry and ask about if they can pay, for example, if the small players are still able to pay the invoices from some suppliers, I think the answers I get is that they're really small players, they are moving into solar panels, car chargers, et cetera. They have handled -- the one who is normally building residentials, they are doing something different instead. The one who is a bit stressed or struggling a bit is probably more the medium-sized players who have underestimated the wage inflation and the material price increases the last 18, 24 months. I think they are the one who is struggling. Some has already faced some issues and some other maybe haven't understood the impact the inflation will have going ahead. And we think they are pricing it slightly lower. So if it's increased, I think that would be to go too far to say that, but it's at least at the same level that -- sometimes we are a bit higher because as we see it, they haven't priced the cost they will have. But again, I will state that -- and underline that we have an order backlog that is good. And time will tell, and time will also give us opportunities to win new projects. That's for sure.

[Carl Ragnerstam, analyst]

Okay. Very clear. And also on the wage inflation, you were impacted by the strike in Norway for your fitters, primarily understood. Have you assessed the impact on sales and EBIT in Q2? And could you also perhaps remind us a bit on your percentage of sales in Norway, which is typically partnering or cost plus, meaning that you could easily push forward the wage inflation?

[Mattias Johansson, executive]

No, but the wage inflation, if we start with the first one, the impact of the strike, was it SEK40 million on the top line?

[Åsa Neving, executive]

It was SEK40 million, it ended pretty fast. So lucky for us.

[Mattias Johansson, executive]

Yes, so it's 4 days, so around SEK40 million, let's say, between SEK35 million and SEK50 million then. And Norway is 21% of our top line. When it comes to -- what was the question, actually? Sorry, Carl.

[Carl Ragnerstam, analyst]

What percentage of your sales in Norway that could be defined as partnering or cost plus, meaning that the wage inflation is easy to push forward?

[Mattias Johansson, executive]

No, no, but I want to answer the question like this instead. The lion part of all contracts on the project side are having index clauses or partnering projects, cost plus, et cetera. So we are well protected in that perspective. And we had a 5.2% increase on the salary in Norway, which is pretty much in line with what we expected for Norway. So that is also something we knew and have added into most of the tenders that we have submitted in the last 6 to 8 months. So I think we might see some impact on the margin going ahead from what you are asking about, but not a major thing. I think there are other things that are more important, how we are executing, what type of materials we're buying and how well we are managing the negotiations with customers contracts, et cetera, and make sure that we are working with customers who can pay going ahead. I think that will be more important than the increased wages in Norway.

[Operator]

The next question comes from Karl Noren from SEB.

[Karl Norén, analyst]

So maybe if we start off with a question on the order backlog in Sweden, I think it was quite strong, driven by strong order intake. Is there any project standing out in the quarter? Or what was driving the strong order intake in the Swedish business?

[Åsa Neving, executive]

No, it's not that we can say that we have gotten a couple of large projects. It's normal mid-sized, small-sized projects coming in. Good mix.

[Karl Norén, analyst]

Okay. And then also a question on the regions. Again, are you seeing like on Karl's question or the uncertainty in the market, are you seeing any country where you see a higher market uncertainty than others? Or is it relatively stable? Because as you said, maybe the order intake is -- or the order back -- the real demand, so to say, so it would be interesting to hear your view on the different markets and if you see anything standing out there.

[Mattias Johansson, executive]

No, not really. I think we -- maybe we have some [ situations] in Sweden maybe because of the residential market going down slightly more than in other countries. On the other hand, the industrial investments in Sweden are much, much higher than the other countries. So -- but I think it's quite flat if you compare the countries.

[Karl Norén, analyst]

Okay. And I guess the last one on -- I mean your initiatives to drive a more efficient organization with the investments in the IT platforms, et cetera, where you have been doing now for a year or so, could you maybe give some kind of update on -- you said that you will see some positive impact on the margin in the end of 2023, can you maybe quantify that and how -- give us some kind of information about how we should think about that?

[Mattias Johansson, executive]

Yes. I think if we take the personnel we are investing in, it's mainly addressing our ambitions in technical facility management, energy management and building automation, which is capabilities we are building up now, hiring new people that are working and are selling some services, but they are not selling enough yet. But we think that is a great space to be in, and we are investing and hiring because we know that, that will be a profitable business going ahead within Bravida. Then if we take the 3 big investments on the IT side, of course, we are working with IT security and better IT platform in general, which is needed, not maybe because we need it today, but if we are not investing in that [Technical Difficulty], so to be able to present the margins as we are doing at the same time as we are investing a lot. And I don't think anyone else in this sector is investing close [Technical Difficulty] building some capabilities for the future now. It's about how we can deliver the service better, work more proactively with the customers, but also make sure that we can visualize -- vision for customers so we can help them improve their energy efficiency and give us opportunity to make more money.And there are 3 different systems. We have a CRM system that, of course, addressing our -- give us better opportunities to cross-sell, 80% of our customer is only buying one discipline, for example. Then I think the 2 systems that are improving our delivery machine in Bravida is the purchasing system, a new system that gives us opportunity that we have launched now in Finland, mainly because it should be easier for us to make sure we are buying from the right suppliers in perspective of the sustainability perspective, but also make it easier for new suppliers, more international suppliers to -- which you are buying from already today to come into our one and only purchasing system, so we can do efficient purchasing from new, more better suppliers going ahead as well. But also in a couple of years, the data for the material we have installed in our customers' facilities, et cetera, both in the tender phase as well as in the selling phase and production phase to digitalize our reporting -- our footprint of CO2 emissions for the material we have installed. So do that in a digital way instead of using manuals or some kind of calculation is something we think will be a competitive edge for Bravida.Then we have a project management system that, of course, will improve our execution on projects and make sure that we improve the margin on the installation side, be more proactive, putting in, setting in action in projects early enough so we can lower the waste of money on our installation side. And that system will be starting to -- will be launched in the end of this year. So I think the new capabilities on the growth segments, we have said, will probably add positive in the end of '23. The procurement system will start to add positively maybe not very much the first couple of years, but in the long perspective, it will add lot of values for us. And then the management system will start adding value, the project management system will start adding value in '24, I would say. Did I miss anything, Asa, do you want to add something?

[Åsa Neving, executive]

Maybe that the project management system, it will start adding value, but we will not take the old project into the system. So it will be new projects that's starting up that goes into the system. So it will take some time before we see strong contribution here. And also, as you say, the procurement system is, first, we replace it one-to-one with the old system and then we're going into Phase 2 now end of next year or end of this year, sorry, and then starting Phase 2 where we are developing new functionalities, and then we develop it from there. So it takes some time, but it will be very good when we have it in place.

[Mattias Johansson, executive]

Yes. And just to elaborate a bit more, I think when we started to -- when we decided that we want to have a new project management system and a new purchasing system, we thought there would be some standard systems out in the market that we can use, but that was not the case. So that probably means that the investments have been slightly higher than we initially expected. On the other hand, that will give us an even better competitive edge because no one else have these systems. So having a procurement system that is unique and also having a project management system that we give our project leaders, our fitters and better positioned to work more efficient, help our customers more proactive, see some risks earlier will give us some competitive edges, but also, I think that will mean that we will be much more -- even more attractive employer than we are today because we will have the greater system in the industry, and that is quite good to know.

[Karl Norén, analyst]

Sounds like you have a lot going on. So that's good. Just on that topic, I guess, it sounds like you are investing quite a lot right now. So we should see this turning on the margin side from a headwind to a tailwind in [ 2024 ] -- a headwind this year, but maybe a tailwind in next year. Is that the right way to think about it?

[Mattias Johansson, executive]

I think that could be reasonable, yes. But let's come back to that. But I think that is, yes, quite reasonable, yes.

[Karl Norén, analyst]

Great. And just -- I just got one more question here. It's regarding the cash flow, which has been -- well, the cash conversion has been declining over the past years, I would say, and now it was a bit softer here in Q1 as well. So I was wondering if there's anything structural that has changed. Or should you come back to a cash conversion of closer to 100% again, do you think?

[Åsa Neving, executive]

That is our ambition, but it has been a bit more difficult to get good prepayments plans now because now money costs, you have to pay for money. So interest rates are higher, but that is absolutely our ambition. But it's very much of a timing issue also. If we get some larger projects in the portfolio, then we will have good prepayments or payments plan, then we will -- then it will go up again. So we are working on that. We have a very strong focus on cash flow. So we really want the cash conversion to go up.

[Operator]

The next question comes from KJ Bonnevier from DNB Markets.

[Karl-Johan Bonnevier, analyst]

Excellent growth report once again. I just want to come back to your demand comments or for elaborating on it. But when I read your statement, Mattias, in the quarterly report, you indicate, okay, the construction -- looking at the installation kind of demand going down for new construction in the residential sector now spreading into non-resi. I appreciate that these are general comments, but what do you see in the change in your order mix for the moment? Is that the kind of trends you see coming through? Or is it less pronounced for you? Or is this new kind of mix that you are suggesting may be better for you than the general market mix?

[Mattias Johansson, executive]

I think overall, it's always better to have a strong demand in the market in all segments. I think that -- but if we look at our business mix, we prefer to do anything else than residential, for example, because the price model is too transparent. We don't have a very high margin in that segment. But I think it's very difficult to say when people ask me about the market. When I'm sitting in my office or when I'm out walking and thinking about the market, it's very difficult for the moment. I hear some who's saying, yes, but we have high inflation, I start this project, no, because I don't think it will be cheaper. So you have everyone who's saying, it's too expensive, the interest rates are too high, and then you have some other who's thinks it won't be cheaper. So I prefer to build now instead because I have the balance sheet to do it, and let's make the inflation eat up some of the costs. So you have the whole spectrum. And then you have residential market is going down at the same time as we have seen some companies in the industry is reporting really strong numbers with high demand.So I think it's all over the place. I think it's impossible to actually guide you or ourselves. But what we see for the moment is a quite high demand. And then we know that we have some structural drivers in the market about the electrification, energy consumption, energy efficiency, you have the solar panel installations, car chargers, infrastructure changes. So there are a lot of positive things as well. So it is really -- I wouldn't say mess, but it's so many segments who are changing and transforming. So it is really interesting to go to the work every day, I would say.

[Karl-Johan Bonnevier, analyst]

I can imagine. I can imagine. But I guess when you do this kind of quarterly [ sum-outs ] with your branches, do you get a feeling that the number of projects that they are counting on has changed very much or anything like that or the mix in those contracts for you?

[Mattias Johansson, executive]

No, slightly high demand for prices still, but then it's another question if they will be finalized and contracted. I think that is another question. But the demand, again, it seems quite okay for the moment. There are some variations, yes, but it has always been. And I think also about statistics and the answers you get, it also depends on what kind of questions you're asking. I think we ask that question slightly more often today. So of course, we have some -- we get some answers quite more frequent that the market is tough today than 6 months ago. On the other hand, we didn't ask that question, maybe not at all. So being in many places, working to customers in many different type of end markets is, of course, the insurance portfolios also says. So I'm sorry, I can't answer your question better than that, but it's very -- it's okay for a moment. Let's see what happens, but that will -- it's still 90% of the market that we don't have today. So plenty of opportunities if we work close enough to our customers.

[Karl-Johan Bonnevier, analyst]

I appreciate the extra color. And thank you very much for the color also on the systems side and the IT investment. Just to make it clear, the SEK24 million that you described as a nonrecurring cost in the quarter, is that when you get to breaking points, so to say, where you start to use a new system and then you write off what is remaining on the old system? Or where does those SEK24 million comes from?

[Mattias Johansson, executive]

I think SEK24 million -- in total it's SEK34 million and SEK24 million is nonrecurring, and that is nonrecurring. Then to some extent, maybe there will be some new cost licenses that we don't see today. But this is as good as we can specify it today. But SEK24 million is nonrecurring today, and the other SEK10 million is recurring.

[Karl-Johan Bonnevier, analyst]

Okay. But all of them are cash elements, so to say, if I understand it right, so it's cash out.

[Mattias Johansson, executive]

Yes.

[Karl-Johan Bonnevier, analyst]

So it's not a question of writing off the old things in this number?

[Åsa Neving, executive]

No. No, no, no. It's cash out, so it's cost taken on the P&L.

[Karl-Johan Bonnevier, analyst]

Okay. So that number correlates with the [SEK100 million, SEK125 ] million that you specify for the outlook for this year?

[Åsa Neving, executive]

Exactly. Some of that...

[Karl-Johan Bonnevier, analyst]

It's the nonrecurring part of it I didn't really understand, so.

[Åsa Neving, executive]

No, it's -- the nonrecurring part is what Mattias said. It's what we are -- it's the investments that we do in the systems. So for these -- mainly these 3 systems and some other ones. And we take them in the P&L. There is a small part that we actually accrue on the balance sheet. So there will be -- some of this SEK100 million, SEK120 million will be accrued, but it's not the main part. So the main part is taken through the P&L. Just clarifying it.

[Mattias Johansson, executive]

Yes. And I think if -- I did some calculation this morning, if you should, we are not adjusting, but I think that it's equivalent to 0.3% units on the margin, the nonrecurring investments we did in Q1.

[Karl-Johan Bonnevier, analyst]

That's fine. That's fine. But nonrecurring for me, that means more that you would have [ thinking in ] just taking it over the cash flow rather than taking on the P&L, but it's still a real cost, that's what I was asking.

[Åsa Neving, executive]

It's a real cost, yes. So it's cash flow and P&L, yes.

[Karl-Johan Bonnevier, analyst]

And just also to come back to the cash flow. Have you seen any change yourself in payment patterns for clients? Or is the working capital buildup just really related to the exceptional growth you have for the moment?

[Åsa Neving, executive]

I think it's -- no, we hear that it is a bit more difficult. We haven't really seen it. It's more that we haven't gotten this any large projects in the portfolio for the last period. So it's more that. So I think it's a timing issue. And the main reason this quarter is the high receivables that we have from the growth.

[Karl-Johan Bonnevier, analyst]

And it's the same impact that you'll see coming through in the contract balance now that it's less negative than it used to be?

[Åsa Neving, executive]

Yes. Yes.

[Operator]

[Operator Instructions] Madam and gentleman, so further no more questions.

[Mattias Johansson, executive]

Okay. Thank you very much, everyone, and enjoy the day. And just to make sure that you will tune in and listen next time, we have our next report in July -- 14 July. So let's see what kind of settled numbers we can present then, but we have a lot of work to do before that. So thank you so much for listening, and see you soon.

[Åsa Neving, executive]

Thank you. Goodbye. Have a good day.