Welcome to the Instalco Q2 2022 report. For the first part of this call, all participants will be in listen-only mode, and afterwards there will be a question and answer session. Today, I'm pleased to present the CEO, Robin Boheman. Speaker, please begin.
Hi, everyone, and welcome to our Q2 report for 2022. My name is Robin Boheman. I'm the CEO of Instalco, and with me today I have my CFO, Christina Kassberg, and also Fredrik Trahn, Head of IR with me. Next slide, please. First of all, for those who don't know us very well, we are a leading installation company within the Nordics. We provide heating and plumbing, electrician, ventilation, cooling, industrial installation, which I will come back to a little bit more in detail later in the presentation, and also technical consultants. We are diverse, a decentralized structure, so we have about 120 subsidiaries located in the Nordics that are highly specialized local companies. Roughly 5,400 employees.
We are supporting them with a small central organization, and our motto is strong profitability with high margins over time. Next slide, please. This is, of course, a very nice slide to show. It's another milestone for us at Instalco, where we breached SEK 10 billion net sales in the last 12 months. It's been a target for us for a while now, and finally in Q2, we managed to reach it. It's an impressive job that has been done in our subsidiaries, so I'm very thankful for that. Next slide, please. Going into some of the numbers or looking into last 12 months of Instalco, as you see there, we reached SEK 10 billion net sales. We have order backlog of roughly SEK 8.1 billion.
We managed to turn over in EBITDA SEK 820 million, giving us an EBITDA margin of 7.9%. We have a high cash flow of SEK 907 million, and we have managed to acquire an annual sales of almost SEK 1.9 billion , which is a very high level for us. Overall, the numbers are looking very well, and we're very confident about the future. Let's go to next slide, please, and look at some of the highlights. Highlights for Q2. As you can see, we had a very high cash flow of SEK 163 million. We managed to grow 34%, which is almost on record high. Had a really good organic growth of 6.2%.
As I mentioned before, a very strong order backlog. We're also seeing increases here, all over, in all countries, which is very exciting. Margins are back to Instalco levels. Christina will come back to that a little bit later on, but we are above 8%, which we're very happy with. We are dealing a lot with the price increases on material, mainly, and raw materials specifically. We are seeing that in Q2. We have managed that very well. We are back, as I said, to Instalco levels of 8%. We are looking very thoroughly into our purchasing contracts and also how or which suppliers we are involved with, and very thoroughly looking into who is also increasing prices for what reasons.
Collaborations with our strong partners will continue, and we will end some partnerships with those that do not follow, so say the rules. We're very solid performance in Sweden. We're also seeing some strong growth acquisitions in Rest of Nordics, and some more back to normal situations also in Rest of Nordics. We're seeing that our target there is coming closer. Strong demand for projects and design, and we are also seeing increase in sustainable installations. I think that is mainly driven also by the high energy cost at the moment that we see in the Nordics. Overall, a very good quarter. Next slide, please.
Yes.
Here I will also hand over to Christina to continue.
Thank you, Robin. Yes, in this slide, we see the growth in net sales with a comparison of Q2 present and prior year. Net sales were high during the quarter. They increased by 34.2% and amounted to SEK 3.1 billion. We are delivering a good Q2 report where we see continued healthy demand from the market. We are also satisfied with the trend of a high organic growth rate, which was 6.2%. Acquired growth is also impressive and just over 25% thanks to a successful M&A efforts. Next slide, please. In this slide, we see the quarterly trend of EBITDA in both millions and margin. EBITDA increased by 25.5%, which corresponds to an EBITDA margin of 8.1%.
We are extremely proud of being able to maintain the margin at this strong level. Our companies have coped with the high inflation pressure in a very satisfying way, and we have been able to defend our margins. Despite the uncertain macro situation, willingness to invest among our customers remains high. This Q2, as in prior years, we were able to raise the margin from the historically somewhat lower level that we trend to see in Q1, beginning of the year. Next slide, please. This slide shows the quarterly progression of our order backlog. The growth was good during the quarter, and willingness to invest among our customers has been high. Our order backlog grew by 22.8% and is now at a record high level, in total SEK 8.1 billion, which corresponds to 79% of annual sales.
Organically, the order backlog grew by 3.7%, among other things, driven by our Finnish companies. The order backlog of acquired companies contributed with growth of 18%, which is a clear confirmation of our strong acquisition growth. Next slide. Over to a slide that summarizes segment Sweden in Q2. Sweden has managed the challenging market very successfully and performed well during the quarter. The market situation remained favorable, and the rate of new construction and renovation within both the private and the public sector is stable. Construction investment in industry are at a high level. Also, the fact of rising electricity prices increases the need for energy efficiency installations. Overall, net sales increased by 34.1% to SEK 2.4 billion. Organic growth amounted to 8.9% in Sweden, which is a very impressive performance.
Acquired growth amounted to 25.2%, which of course is a performance that we are proud of. The EBITA margin in Sweden landed at, as you can see here, 8.8%. Next slide, please. Now a summary of segment Rest of Nordic in Q2. Overall, there was a positive trend for the Nordic segment, even though it is still performing below the desired Instalco level. The market in Norway has stabilized as regards both new construction and renovation. The market is driven by major investments in the public sector, such as schools and hospitals, along with private initiative to develop industrial and residential properties. The market in Finland is primarily driven by the major metropolitan areas, but during the pandemic, the market has been sluggish. Overall, net sales increased by 34.8% to SEK 0.7 billion.
Organic growth fell a little bit, and this is primarily attributable to a couple of our Finnish companies. Acquired growth amounted to 25.5%. We are expanding our base of companies in Norway and Finland so that we can more easily create business synergies between our subsidiaries. The EBITDA margin in Rest of Nordic landed at 5.8%. Next slide, please. Finally, on the financial parts, we summarize here our performance in relation to our financial targets. For both growth and capital structure, we are performing well beyond our financial targets. Capital structure is at a higher level compared with historical numbers, but well in line with our acquisition strategy. The pace of acquisitions is strong, which is reflected in the growth that we are delivering.
Over the short term, the increasing pace of acquisition results in somewhat higher level of indebtedness together with the decision of not using equity as payment method for our recent acquisitions. We are comfortable with the rate, and we are maintaining both a sound level of indebtedness and a strong balance sheet. For cash conversion, we are a little bit below. Finally, happily, the EBITDA margin is above our target in Q2, yet somewhat lower year to date and on a 12-month rolling basis. By that, Robin, I hand it back over to you again.
Thank you. I will talk to you about a few projects that we've done. First of all, I want to start off with a quite specific project or projects to sort of say it's an order for cruise lines. I will come back to this. This is a part of our industrial segment. One of the projects here is an example is Mesab, which is one of our industrial company, which has been engaged by Royal Caribbean and also Carnival Corporation for comprehensive technical installations on a total of five cruise ships. Installation projects that have been put on hold during the pandemic and are now back and restarting, which is very exciting for us.
The work here involves installation of gas treatment plants, comprehensive technical upgrades that includes feasibility studies, design and installation, and also completion of the exhaust pipe systems. This is all done while the ship is remaining in operation, which requires a great deal of experience and also flexibility, which also Mesab is showing. It's very exciting to see that this is back on track after the pandemic. Next slide, please. Another good example of an Instalco project is our Gothenburg-based company, Elektro-Centralen, which has been contracted for the electrical installation in conjunction with the new construction of a building for the University of Gothenburg.
This is also an example of a partnering project, and this time together with Akademiska Hus and Serneke, also showing our experience when it comes to partnering. This is a phase I and also construction part that we have received. Very excited about this as well. This is also a proof of that we are continuously taking new orders, as Christina mentioned, that the order book is continuing to grow. Next slide, please. Looking into acquisitions so far in 2020, we have done seven acquisitions, contributing about SEK 730 million in sales so far. In the last quarter, we did four acquisitions. Highcon, as we mentioned before, were approved by the government in Sweden as well.
We have also done one more industrial acquisition. I also wanted to highlight the continued growth of doing acquisitions in Rest of Nordic. As you can see on the acquisitions so far, it's actually four in Rest of Nordic this year. This time we also established ourselves in Kuopio in mid-Finland with plumbing company, and we're also establishing new grounds in Norway with acquisitions of Christiania Rörleggerbedrift. Some really good acquisitions with high margins and good Instalco fit. We can also see that we have a continuously strong pipeline for the year. We're looking at a very good acquisition year this year as well. Next slide, please.
The theme of this call is the industry, which is a quite new segment for us, in some sense, but we have been working on it for quite some time now, but it's growing steadily, as you saw also on the previous slide. If you go to the next slide, please. The industrial discipline, just to give you a little bit of a background, actually one of the first acquisitions we did when we founded Instalco in 2014 was Orab, which is a plumbing company that is focused on the industry. For us saying industry, meaning that the customer is the industrial customer. We today have 15 companies, roughly 500 employees.
Main focus is in business area north, but they do work nationally in Sweden, and we also recently did acquisition in Finland. We have established ourselves in Norrbotten in the mining industry recently. As I said, we are also now in Finland with NCE, and one of our most recent acquisitions, Highcon, leasing and installation of scaffolding structures. It's somewhat broader perspective, but it's still installation business, but the customer is industrial. Next slide, please. Here an example of the companies that represent us in the industrial segment. Like I said, roughly 15 companies and some daughter companies.
To just give you a closer look at the type of operations, and our experience shows that it's primarily heavy electrical and piping installations. It's the same type of installation, but on a bigger scale in some sense. Also machine assembly for the industry. We work with design, project planning, energy, and safety. It's the same type of business, but in a larger scale. We work in all type of industry, but lately, we're working a lot with pharmaceuticals, food industry, but we're also represented in nuclear power plant area, where we have extensive experience of working with the pipeline installation for that type of environment. As you can see, we offer a broad spectrum of projects and competencies in this area.
Next slide, please. Why have we gone into this? There are a few reasons. A lot of it is very nearby the business that we are doing. There's strong growth. We see an increase in demand in this area. I think all of you that is located in the Nordics know that all the installations that needs to be done within these new factories with turning, so to say, the industry around to a more carbon neutral industry. We're also seeing that there is less competition both when it comes to projects, but also when it comes to M&A. We're also seeing that the collaboration works very, very well among industrial companies.
We haven't seen anything being done the way Instalco have done it so far. It's quite new ground and really excited to be working with this. Next slide, please. The outlook, I mean, we see a growing industrial market, especially in the northern parts of Sweden. You can almost not say how many billions are being invested in the northern part of Sweden, but we're talking about a lot of billions. There are a lot of opportunities for acquisitions. Like I said, there's no one out there competing with us in that same area as we are. We're also seeing a great move on that people want to join Instalco.
We're also seeing that the Instalco model with this decentralized structure really works, among these companies as well, and collaborations is on a very high level, even if a lot of these companies have just recently joined Instalco. There's a little bit of different setup on these type of companies, a little bit more capital heavy in that sense due to that the projects are demanding a little bit more capital than a normal installation. But we're also seeing that margins are a little bit better than the typical installation businesses as well. Next slide, please. Just to give a summary of the presentation today, I think we've given a strong statement today. We are back in business. We are back in Instalco levels in that sense.
There is a somewhat challenging macroeconomic situation, but I think we've proven today that we have been able to handle it, and also that the Instalco model works very well in challenging market with our decentralized structure. We have a record high order book giving us some breathing room for the future as well, and we are surpassing the SEK 10 billion limit for the last 12 months rolling, so that's also very exciting. I think with that, I will open up to questions.
Thank you. We're now ready to take questions. If you wish to ask a question, please press zero one on your telephone keypad. Our first question comes from the line of Carl Ragnerstam of Nordea. Please go ahead.
Hi, it's Carl here from Nordea. A few questions from my side. Firstly, it's very nice to see that the other Nordics are continuing to develop nicely with the year-over-year margin uplift, but is it possible to sort of quantify how much of that is driven by M&A margin accretive acquisitions, that is, and how much is driven by more organic initiatives?
I think we don't have the specific numbers with us or, but what we can say is some of the recent acquisitions we're very, so to say, optimistic about the recent acquisitions that we have done in the other Nordics. So far it has not contributed that much. Most of it is due to so to say older companies being a little bit more back on track. We do hope that the new acquisitions that we've done will increase collaboration and also help us to get a more, so to say, Instalco level margin in Rest of Nordics as well.
Mm-hmm. Oh, very good. I guess your technical consultants are a bit more early cyclical compared to your installers and service technicians as well. Have you seen any changes in the demand situation for your consultants so far? Or is it still a quite healthy market for them as well?
No, we still see a healthy market. They're still growing a bit, not at the same rate as we had last year, as we mentioned before, that was a tremendous high growth rate. We're seeing that they're consolidating themselves and also working on improving their margin. We have not gotten any signs in that sense of a somewhat slower market that we haven't seen from the consultants yet. No.
Okay. Very good. Also you've had raw material headwinds for some quarters now. Could you perhaps quantify the raw material headwind in the quarter and compare it to maybe the past few quarters? Also how we should see the second half, if you will still have some raw material headwinds entering Q3 or when do you expect to be the sort of a neutral raw material situation?
I think we cannot quantify exactly the impact it has because we have too many projects to kind of recalculate everything. What we can say is that as you see in Q2, we've been able to handle it quite well. We are back to somewhat more normal Instalco margins. I think we have proven that we have it more under control, and we are more prepared than we were before. Just to give an example, I think it was SCB giving out the report about construction index, and that showed that the price increases for the whole index was 8%-16% increases over the last 18 months.
Just to give an example, a typical year in the construction industry is 1%-2% increase. That just shows you how much it has increased over the past 18 months and how hard it was for the installation companies to kind of cope with this. We are still seeing price increases in some areas, but we are more prepared than we were before.
Mm-hmm. Okay. That was very good. The final one from my side, I guess it might be difficult question, but you mentioned that, of course, high energy prices, I guess it could be both positive and negative. Some customers might be hurt by it and lower their investments.
Mm-hmm
Some might protect themselves by buying new energy efficiency upgrades. What do you think is sort of the net for you in the short to mid-term here?
Just in that specific area, it's of course hard to give an estimate on that specific question. I mean, if it's any time, we as a country should start to invest in energy efficiency, it's now. I mean, energy prices has never been higher. We don't see any price decreases. Winter is coming in that sense, also. I think I hope that the government takes a little bit of responsibility and starts to kind of give incentives on also doing this, not just giving out money to people with high energy bills, but also giving incentives to actually solve the problem. That's my hopes.
Okay. Thank you very much.
Thank you. Goodbye.
Our next question comes from the line of Markus Almerud of Erik Penser Bank. Please go ahead.
Hi. Markus Almerud here. My first question is on demand. Just wanna check on. I think we talked in the last quarter about the price increases, and we had one price increase in April, and I think you talked about another price increase in August. I think you said, according to my note, that the acceptance for April's price increase was quite high, and then we would see what was gonna happen to demand. Just want to check with you if you've seen any impact on demand from the higher prices yet?
No. So far we haven't seen any impact in that sense. I think people are kind of coping with and understanding that there are price increases in all areas of society at the moment. It's fair to say that people are expecting price increases and are recalculating their projects in a larger extent. No, we haven't seen any big changes. Like I said before, like Christina said, I mean, we have a really strong order backlog at the moment.
If we talk about the August price increases, and you said there was a price increases here and there, what does it like?
Mm-hmm
What does it look like from your side? Are you having a broader price increase round, or do you also raise prices here and there? How does it work right now?
Now, basically, like I mentioned before, a lot of work is being done. We're trying to understand who is increasing prices for the right reasons in that sense, and trying to focus on the suppliers that are doing a good job and not just increasing prices because they can. I think the August price increases we have been fairly good at coping with, in the sense of changing out some suppliers and also changing out some material choices, in a lot of projects. I think we are, like I said, we are better prepared today than we were nine-10, nine-12 months ago, when this all started.
I want a couple of questions on the industrial side. I would assume that the market is very fragmented. You're the first one who's doing this.
Mm-hmm
The fragmentation rate should be very, very high. Could you help us to just estimate what kind of market size are we talking about for the industrial market versus the construction market? Is it possible to say?
Let's just say it. Like I said, nobody has really done what we're doing at the moment in this market. I don't want to give kind of an hour. Yeah. Basically, I don't want to disclose how big it is at the moment. I want to have the market for myself and Instalco for a while first.
Okay. Fair enough. Okay. Thank you very much.
Thank you, Markus. Take care.
Our next question comes from the line of Karl Bokvist of ABG Sundal Collier. Please go ahead.
Yes. Thank you, and good afternoon. My first one is just if we look at the companies that you have announced in terms of, you know, annual sales and things like that, it seems at least that the actual M&A contribution has been stronger and better than what's, you know, the sales growth was when you announced it. My question is really. Are you positively surprised yourselves by strong growth in the recently acquired units?
I mean, we are of course positive in all acquisitions that we do because otherwise we wouldn't have done them. I agree with you that we have, without mentioning any specific names because we're all happy with all our companies that we acquire, but we have had a few companies that really, so to say, bloomed out or accelerated within the Instalco family in that sense, which really are contributing to the collaboration and also really utilizing the possibilities that we have within the group. Yes, we have a few of those that recently. Yes.
All right. The recent acquisitions made in Norway, do you feel quite content that the current sort of density you have now in Norway is enough for you to continue on the sort of trajectory towards the same level of group margins as you have an ambition to reach?
I think we will definitely see continuing growth in Rest of Nordics through acquisitions, but we will not, so to say, let the foot off the brake fully for some of the companies that still need to focus on getting their margins back together, so to say. We're absolutely seeing some really interesting acquisition growth in Norway and Finland for coming year as well.
All right. Just the final one is on the technical consulting side and Intec. How is that rollout progressing? I believe you said you a quarter or so ago, you had something like 250-300 employees. Is the recruitment process continuing and you're building up the organization? How is it developing financially?
I mean, we are still building up the organization. We have taken a little bit of time to consolidate the organization. We have hired, so to say also some people in, say, head office positions within Intec. So a Vice President, for instance, and a few other to bulk up the organization a little bit, since the growth was, like I said before, very rapid, last year. The growth isn't continuing at the same rate, but it's still growing the business. We are still looking into new fields and also are hiring some new consultants and also filling up some white spots within Sweden. We've also quite recently started a company in Norway as well.
It's still growing but at a more steady pace than maybe the, so to say, very high pace that we had in last year.
All right. Just a quick follow-up on it. Is there anything you can say on the level of profitability within Intec now compared to previously?
No, not for the whole group, but we can say is that companies that have been within, so to say, Intec for about 12 months are starting to make profit. Yeah.
All right. That's all for me. Thank you.
Thank you very much.
Our next question comes from the line of Stefan Andersson of SEB. Please go ahead.
Okay, a couple of questions. Starting off, to other Nordic there, Finland, Norway. If you didn't touch on it already, the negative organic growth there, is it mainly to those problem companies you had where you were downsizing, or is there also a weaker Finnish market affecting you? Could you elaborate a little bit about where that negative is being generated from?
I mean, we're still seeing a not fully functioning Finland, but we're seeing some growth in the, like I think I mentioned before, the Finnish order book, which is giving us some positive indications that market is a little bit back on track. Christina, I don't know if you have the specific organic growth for the different countries, which one is most affecting us most, if you have that in your head.
We don't disclose the countries side.
No.
No, the specific countries.
But-
We don't do that. No.
No. I would say that Finland.
Put it this way.
Yeah, sure. Go ahead, Stefan.
I just put it this way. I mean, what I was aiming for was really, is it the market coming down or is it you doing, taking actions to restore margins? That's really what's-
No, I think it's not the market coming down in a larger extent. I think it's also maybe an issue about quarter to quarter discussion. Like I said, it's very hard to follow up on quarter on quarter as well. Market-wise, we are seeing that, like I said, we are rebuilding our order backlog in Finland. We are growing the order book in Norway as well. We're quite positive going forward. I think the rest is just a discussion of quarter to quarter.
Okay, good. A question on the earnouts there. I think you had a positive effect of SEK 6 million last quarter and SEK 8 million this quarter, if I'm correct. I could be wrong here now. I know you said you're very happy with all your companies, but is that an effect of some companies doing a little bit worse than you thought? Or is this the normal pattern that you want to rather be exaggerating than, you know, rather be higher than lower when it comes to estimating your earnout in your when you do the analysis of the acquisition?
Christina, maybe you can fill in here as well. I think for us, I mean, we want to make an as good of an estimate as possible. I think we have, what now, 40 or 45 companies that are in earnout period in that sense. It's
Yes.
quite hard to be at zero.
I can fill in that the net effect of acquisition-related item this quarter was SEK 4 million. To compare that, we have a basket of SEK 343 million-SEK 400 million. The net effect is very minor to the total basket of revaluation of contingent consideration. See them beside. It's small variances here in the total.
Yeah. Okay. Okay, when you say SEK 4 million, you take away the acquisition cost. Okay. Yeah. Yeah. It's SEK 8 million in revaluation. Yeah. Okay. Good. Yeah, I fully understand. That's fine. The question on something you said in the presentation, just want to double check with you. You said that you're not offering any equity any longer. You said you pay all in cash when you do acquisitions. I know you had the history of wanting your companies to be part owners, so does this mean that the structure now is what you had a few years back when you said, "Okay, we pay you all cash, and then you have to buy stocks in the market for a certain amount?
Correct.
Okay. What, how much? How does that work? Is that like 30% or should you give a range of how much?
It's typically the same 20% or between 15% and 20%.
20%, yeah.
Yeah.
15%, okay. For how long? Is there a certain period when they have to buy or when do they have the time to do-
Yeah, they typically, it depends a little bit on the size, but we are very certain that it won't affect, so to say, the volatility, or how to say, the free float or anything like that. Typically
That-
For a large acquisition, they will have about six months.
Okay. Good.
Uh, so they have a-
Um-
Very long window, so to say.
Very good. On tax, boring question, but it seemed to me to be a very low tax rate in the quarter. Is that just something I shouldn't be bothering about and thinking about the full year instead, or is there a new tax rate I should be considering for the full year?
Please focus here on the full year and not the quarterly effect here. The tax rate.
Yeah
rate is as it has been since about a year ago. We are on the same level as previous quarters.
Oh, in the quarter you're not, are you? I mean you're at 9% tax. That's not really a normal quarterly level. So, but what you're saying is that 22% is for the full year, so it was just an effect in the quarter that I don't have to look at. Is that correct?
Yes. That, that's correct.
Okay. Yep. Good. The last question is also small one. You talking about industry, I was just curious on the customer concentration there. Like, how does that look? I mean, is there a tendency that those companies you acquire have a higher customer concentration than the average of Instalco or isn't there any such difference at all?
I mean, it's a totally different customer in that sense, so that's diversifying on, so to say, the overall portfolio of Instalco. For the specific subsidiaries, yes, some might be somewhat more dependent on a specific industry. I mean, if you are in a smaller city in Sweden, for instance, and there is one large industry, then of course that is a large customer for you. So for some-
That-
subsidiaries, that might be the fact, but for the group as a whole, we don't see any risks in so to say having too m-
Good.
too much.
Good. That's all for me. Thank you so very much.
Thank you, Stefan.
Just a reminder to everyone, if you would like to ask a question, please press zero one on your telephone keypads. There are no further questions at this time. Please go ahead, speakers.
Yeah. It's Fredrik here. We have just one final question from the webcast, and it's for you, Robin. What are the main reasons for Instalco, how you can perform such a good way with the high inflation rate that we have at the moment?
I think a lot of the reason was that quite early on in August last year, we took quite a big measure of getting everyone in place and talking a lot about how to handle different types of situations that might come up. In December last year, we had a big workshop together with all our CEOs, for instance. We were quite rapid in understanding that this was gonna be an issue for the longer period of time. I think that has positively impacted our readiness in that sense. Also that we are able to so to say carry on the costs over to our customers well in a successful way.
Thank you. There's no further questions from the webcast. I guess we summarize and Robin, if you can conclude this call.
Yeah, I think I want to conclude a little bit like we began. I mean, we surpassed the milestone of SEK 10 billion in turnover for the last 12 months. We have a strong order backlog and a solid margin of above 8%. Overall, we're very happy with the Q2 report and we'll continue to work very hard and utilize the opportunities that we see out there in the market. Thank you all for listening in, and wish you a great day and speak to you later. Take care.