Ladies and gentlemen, welcome to the Instalco Q4 2017 report. Today, I'm pleased to present our host, Adrian Westman, Investor Relations, and our two main speakers who will be CEO, Per Sjöstrand, and CFO, Lotta Sjögren. For the first half of this call, all participants will be on listen-only mode. Afterwards, there'll be a question and answer session. Speakers, please begin.
Welcome to our presentation of Instalco's year-end report for 2017. Apart from myself, as you heard, I also have our CFO, Lotta Sjögren, with me. Starting with slide two, as you hopefully know by now, Instalco is a leading multidisciplinary technical installation company active in the Nordic region. We started the business in 2014 by merging five companies. Today, four years later, we are more than 40 companies working together in the group. 2017 was a successful year for us. As you can see in the numbers, we are well on the way towards our long-term targets. Net sales have surpassed the SEK 3 billion mark. Over the year, we have acquired more than SEK 1 billion in sales. Let's move to slide three to get some more flavor of the year.
We have had a high acquisition pace, both before and after the IPO, which took place in May. We use to say that we make three types of acquisitions: strategic acquisitions by targeting geographical growth areas, opportunistic ones by selecting well-managed companies in interesting regions, and also companies that are great add-on to our existing operations. During every year, we have focused on acquiring companies that are active in the electrical discipline, where we see a somewhat higher profitability right now. The EBITDA level for the full year exceeds our long-term targets of 8%, and the increase in the order backlog is something that I'm very happy with. Going to slide four and some highlights from the fourth quarter. During the period, we have focused on profitability over volume, as you can see.
We believe it's important to make all companies in the group part of the strive to increase margins, and we have also been successful in carrying out risk minimizing measures. We do this primarily by only accepting project types that we are familiar with well-known customers, and comprehensive follow-up activities. Our model and our focus on mid-size projects support us in this work. Lotta, shall you take over?
Moving to slide five, the group net sale and EBITDA development. As you can see in the right-hand chart, we are following the normal trend with the Q4, that is the strongest of the year, followed by the second quarter. However, we have improved the margin significantly. To understand the net sales development, let's move to slide six, where you can see an overview of the organic growth in different companies for the full year. When we measure the organic growth, the comparison suffers from the fact that we only include 16 of our 38 units in the basis of calculation. Now we are moving into 2018, the number of units will increase, thus provide more stability over time. The extraordinary project in` Q4 2016 was our assignment at the new headquarters of SCB outside of Stockholm.
If we exclude the organic growth, would have been 1.4% for the group as a whole for the full year. Back to Per.
Okay, moving to slide number seven, where you can see the development of the order backlog, which was very strong in the quarter. The growth indicates a favorable market environment and an increased internal efficiency at the units. At slide eight, you can see two examples of new projects won during the fourth quarter. The first one, well, I would say that both projects are good examples of the Instalco model, where several companies from the group can complement each other and work together to simplify for the customers. The first project is shown is ESS in Lund, which is a multidisciplinary research facility based on the world's most powerful pulsed neutron source.
Our companies, Rörläggaren and ULA, participated already in the first installation phase. They now have been entrusted to continue their works during the second phase, which is expected to be completed in 2020. The second project that I would like to highlight is the long-awaited police station in Rinkeby outside Stockholm, where Rörgruppen and Ohmegi will work together. This project is of high importance for the people and society in Rinkeby and adds to the already large number of projects where various Instalco companies participate to create value to the benefit of the general public. We are more and more involved in that type of projects, as also we say. Moving on to slide nine and the segment development in the quarter.
In Sweden, we can see how the organic growth is impacted by the quite low number of competitive units. This is, however, not a concern, and I'm very satisfied with the strong margin and order backlog development. As we mentioned already in the last report, Instalco has a limited exposure to the housing market. We have so far not seen any significant change in demand related to new construction in Stockholm or Oslo during the quarter. Slide 10, the same for the rest of the Nordics, with a low number of comparable units, but with a highly encouraging EBITDA margin. Markets remain stable, and we are happy with the order backlog increase, of course. Slide 11, you can see an overview of all acquisitions made during 2017, divided in before and after the IPO.
Here I will add that if there were any concerns, if it would be possible to continue our acquisition strategy in a public environment, I think the chart speaks for itself. Moving to slide 12, 2 examples of companies acquired during the quarter. First, we have Elkontakt, a highly successful company founded in 1999, and which operates, and with operations in three of our four business areas in Sweden. The acquisition follows the strategy to grow with highly specialized units, and I think that Elkontakt's expertise in logistics and this is very exciting. We have the Kannosto companies, which are two companies with operations in the surrounding area of Tampere in Finland, which is a new geography for Instalco. The company has been in business since 1954 and 1991.
These acquisitions are in line with our growth ambitions in Finland, as well as our strategy to buy companies with sound finances and strong local connections. As for all of our acquisitions, we look for companies with mature leadership and sellers that want to continue developing their business. Hence, the founders of both Elkontakt and Kannosto will remain in the companies. Lotta, you have a?
Moving to slide five, and the group's next phase.
I think it's.
Oh, slide 13, sorry. You can see the description of our financial targets and how we are progressing towards them. As you can see, despite this year's outcome of the organic growth of negative 1.7%, we have had an average annual organic growth of 16% since inception, which is above our long-term target of 5%. We have surpassed the margin target, and we have, despite our many acquisitions, a capital structure that is very satisfying. We are also happy with the cash conversion of 93% for 2017, which is close to the target of 100%. Our dividend policy is 30% of net profit, and the board has proposed a dividend in line with it. All in all, we are well on track towards targets, and the margin is particularly encouraging.
Per, you can give some more background on that.
Yes, thank you, Lotta. I often get the question, what the reason is behind Instalco's high profitability. I have tried to summarize it in slide 14. I think the unique with Instalco, and what makes us profitable above industry average is our business model. Apart from what you can see in the picture, we can also add a high degree of entrepreneurship and business understanding. We only acquire companies where the management members possess such qualities. Moving to slide 15, a market outlook, which is overall positive. In all three Nordic markets, we can note a high activity in the construction of hospitals, schools, public premises, there are also still many construction starts in housing. The industry is also investing at a high pace, as we can see in the pulp and paper industry and the car industry, for example.
Summarizing on slide 16, we are very happy with the EBITDA level, as well as the order backlog development. We have made several attractive acquisitions, and our pipeline remains strong, proven by the already numerous acquisitions made after year-end. Looking ahead, we also believe that the organic growth number will stabilize as more of the companies will be included in the comparison figures. All in all, a strong quarter and a good year. Now I think we can take some questions.
Thank you. Ladies and gentlemen, if you wish to ask a question, please dial zero one on your telephone keypads now to enter the queue. Once your name is announced, you can ask your question. If you find it's answered before it's your turn to speak, you can dial zero two to cancel. Once again, that's zero one to ask a question or zero two if you need to cancel. Our first question comes from Robin Nyberg of Carnegie. Please go ahead, your line is open.
Hello, guys. It's Robin here. I have three questions, starting from organic growth. organic growth was a bit weak in Q4. could you explain the reasons behind this development and why you expect improvement in 2018? Do you think the 5% organic growth target is achievable in 2018?
As you know, our target is 5% at the time. We have a negative growth of 1.7% in 2017. Given the positive market environment and our strong order backlog, we believe it should be back in positive territory in 2018. However, it will vary from quarter to quarter, and as you know, Q1 last year was very strong.
As Lotta said, that we have a strong order backlog, and so we think we'll be on track.
All right, thank you. The second question relates to the profitability, looking at the divisions, Norway and Finland improved quite a bit. Should we expect that the division, other Nordics, continues to perform better, and more in line with division Sweden, or was there something extraordinary in Q4 that supported margins?
We said it, and I can pronounce it again. We have focused on margin, we have focused on profitability during the quarter, during the last half year. I think you find the explanation there. I think we have also a good order backlog. We have orders, and we have tried to minimize risk, and we have, I think, the progress today, and that we have had the last couple of months is very good. With strong margins and low risk. We have no other idea than going forward with that type of projects. I think we still remain.
Okay, thanks. Last question regarding M&A. Could you just confirm that, I think you wrote in the report that you have a good M&A pipeline, and also comment on where the multiples are currently? Have they moved up or down?
We have a strong pipe. I think that the multiples will remain as they have. I think we can today see that they haven't gone up, they haven't gone down, either, since the IPO. I think we have the same type of environment that we had before. Between 4x and 5x the beat, I think, we'll see in the future as well.
Okay, thanks. That's all from me.
Thank you. Our next question comes from Stefan Andersson of SEB. Please go ahead, your line is open.
Hi, just one additional question on that. On the M&A side, you've been very active in the fourth quarter on the M&A side, at least compared to the full year. The companies that you have acquired, could you maybe elaborate on those? Are they in on par already on margin, or will they dilute, or would they even enhance margins? Where are they in relation to the operation you have already?
I think they similarly enhance the margins. They are as strong companies with some higher margins than average.
Okay. Also, where, since I have you, it's always hard to predict, I guess, but is the full year, did the activity over the full year of 2017, the normal level of activity for you on the M&A, or is the fourth quarter activity more in line with the normal situation? I think you did 11 acquisitions in Q4, you did 18 in the full year, and 50% of the revenues that came over the year comes in the fourth quarter, so that's why I'm wondering.
I understand. Maybe it was a little bit high during December and also what we have seen now in January than usual. We also had a slowdown after the IPO process, and on target or I think what we can achieve is, w ell, what I said before, also, 10 acquisitions a year, one a month. I think the figures will be at SEK 600 million-SEK 800 million in revenue yearly. I think we stick to that, what we have said before.
Yep. Okay, thank you.
Thank you. Once again, if there are any further questions on the line, please dial zero-one on your telephone keypads now. There are no further questions at this time. I'll hand back to our speakers for the closing comments.
Thank you. We've actually received one question from the webcast here also. That is: what areas are you looking for? Sorry, what areas are you looking at for acquisitions? I suppose that's from a geographic point of view or technical point of view.
Okay, I can take that one. I think we will continue to acquire good companies in attractive regions. We will also aim to broaden our offering. As you know, we acquired a sprinkler company in January. I think we can continue with that, and that is also a good example of new technical areas. That's the answer.
Perfect. Okay, I think we'll sum it up there. Thanks, everyone, for listening in, and speak to you soon again.