Hey, thank you very much, welcome to this presentation of our quarter two report for 2020. As you heard, my name is Per Sjöstrand, CEO at Instalco, and Fredrik Trahn is with me. Robin Boheman, our CFO, is also available. He became a father a couple of days ago, so I gave him a couple of days for free. He can join in if there is any tricky questions about the figures. We can start with slide number two in a short, brief presentation of Instalco. We call ourselves a leading installation group in the markets of Sweden, Norway, and Finland, a pan-Nordic group. Our main area of operation is installation and service of heating and plumbing, electrical ventilation, and cooling systems. It also includes consulting in these areas. We often work in partnering with our customers, sharing best practice and know-how.
The group now consists of 77 subsidiaries and just over 3,300 employees. We have a highly decentralized structure supported by a small central organization, and we also come back to that, but we have a strong profitability with high margins over time. If we go to slide number three. For the last 12 months rolling, our sales are nearly SEK 6.5 billion, with an adjusted EBITDA of SEK 565 million and adjusted EBITDA margin of 8.7%. We also have a strong order backlog. You can see SEK 6 billion. You can also see here that our pace when it comes to acquisitions is high. Moving to slide number four, some highlights from the quarter. Of course, I'm happy or glad to report that this quarter we had a stable growth in sales. We have a continued high profitability, and we have a strong quarter despite the ongoing pandemic.
We've been relatively unaffected by it, of course, we have made adjustments to sort of go around the business much the same as before. Very good net sales growth and very strong cash flow, as you can see. five acquisitions made, I will come back to that. Moving to slide number five. As I said, we had yet another strong quarter despite the difficult situation we face throughout the world from the COVID-19 pandemic. I think one reason is maybe that the corona crisis has still not hit the construction and installation sector quite as hard as other sectors. I think also another reason is that we have the skill and the ability and experience to change our focus and adapt to the new situation. Action has been taken. I will go back to that, and we're carefully monitoring the situation, of course.
After 14 days, the corona crisis and our adaptations to it have not resulted, as I said, in any significant disturbances at the group level. There have, however, been some minor disturbances in some projects and with service activities. Most projects have been able to continue essentially as usual, even with adaptations to the prevailing situation, and order intake has been robust. We have handled the situation by making certain adjustments in staffing. We also put much higher requirements on collaboration between our subsidiaries. Due to the ongoing pandemic, the future market outlook remains uncertain, however, and it's still difficult to assess the long-term effects, and we are actively monitoring developments. We are also monitoring operations in our business areas and subsidiaries so that we can take whatever measures necessary to limit any negative consequences. Again, I will point out it's very difficult to assess the future markets.
We can go to slide number six. Net sales increased by 22.7%, so we are now over SEK 1 billion. Organic growth was 2.3%. During the quarter, we made five acquisitions, where the combined annual sales is assessed at about SEK 336 million, corresponding to acquired growth of 22.6%. Slide number seven. Adjusted EBITDA for the group amounted to SEK 150 million for the quarter and a margin of 8.7%. That is on par with previous quarters, as you can see on the slide there. So go to slide number eight. For the first time, I would say, in our relatively short history, our backlog of orders exceed SEK 6 billion, which is nearly at the same level as our total annual sales. One of the reasons for the rise in order backlog is the hospital project in Södermalm, Sweden, which we announced in the first quarter.
Most of that project has now been included in the order backlog during the second quarter. With this, I think Instalco stands strong, thanks to the stability from our sizable order backlog and the diversification we have across different types of projects and markets. It also gives us a flexibility in the sector where we operate. If you could move to slide number nine, I will give you some examples from projects from the quarter, and I would like to highlight these as great examples of how we work. The first of all such is the RM Contracting, which won a contract for the heating and plumbing installation in 650 apartments that's under construction in the new city district of Upplands Bro near Stockholm. The assignment also includes system design and installation of a unique and customized geothermal heating system. The order value is approximately SEK 60 million.
Another thing that I want to point out, and underlying our healthy margins, is the large quantity of well-managed small and medium-sized projects. One example of such is a medium-sized project in Finland with a sustainability focus. There, LVI- Paavola, one of our companies, has been contracted for the heating and plumbing and ventilation systems at Gasum's biogas plant at Lohja, west of Helsinki. This plant will process a total of 60,000 tons of bio-waste annually. You might have heard it before, but creating synergies and cross-selling between our companies are fundamental cornerstones in our business model. We frequently have situations where two or more, two, three, four Instalco companies are working on the same project, which simplifies things for the customer and provides value added.
The third example here is Bida and Sprinklerbolaget, which have been contracted by Skanska for installation of the ventilation and sprinkler system for E.ON's new Nordic head office in Malmö. Shall we go to slide number 10 and look into our segments? As you can see on this slide, segment Sweden continues delivering high margins. Our Swedish operations have coped with the COVID pandemic very well. The year started out strong for Sweden, and our projects have continued to progress successfully, which is reflected in our results for the last two quarters. In this quarter, you can see there is net sales growth of 25.8%, organic growth 5.5%, and EBITDA margin 9.6%, which is very good.
If you then go to slide number 11 and look into the Rest of Nordics, I can say I'm rather disappointed that the Rest of Nordics business area has been weaker than we would have liked to have seen. It got off to a slow start in the new year, which has persisted in the second quarter. In Norway, there has been more of a lockdown during the pandemic compared to Sweden, for example. Accordingly, the rate of production has been lower, and we have struggled a bit with some projects where the contribution margin hasn't been high enough. 5.7% in margin is in line with our, or even higher than our main competitors like Bravida and Caverion, but still I'm not satisfied with it. We shall, we will, and we can do better than that. We can move then to slide number 12.
As I said before, the COVID-19 pandemic has not impacted our rate of acquisitions. Back to slide 11 first, because of course, we have launched an action plan for the Rest of Nordics, especially in Norway, to raise the margins of some specific companies there, especially in Norway. Finland is a little bit better. That means more focus on risk analysis, better planning, gives us better productivity, and so on. We will launch this during this fall. To slide 12. The COVID-19 pandemic has not impacted our rate of acquisitions, as you can see. During the second quarter, we acquired five high-quality companies, all of which have contributed to our strong results. Four of the acquisitions were in Sweden and one was in Finland.
We are a little bit more cautious in Norway. When we have a more robust situation there, we will also continue to acquire companies in Norway, of course. We are continuing to pursue our acquisitions plan and have an exciting pipeline and dialogue with many interesting acquisitions candidates as we always have, I would say. Last but least on that slide, we have noticed that interest in becoming part of the Instalco Group has increased, in fact. If you now move to slide number 13, I'd like to highlight two examples of companies that we have acquired during the quarter. The first one is Avent Group located in Kalmar, Sweden. They specialize in ventilation system and the acquisition of Avent strengthens our position and brings us a step closer to becoming multidisciplinary in the Kalmar and coastal Småland area.
Second example is Miljöventilation i Mellannorrland AB, also in Sweden. This acquisition gave us a wider geographic coverage, which with Instalco now represented for the first time along the northernmost coast of Sweden. The acquisition of this company gives us a foothold in this exciting market and geographically important area. Here there is a lot of larger industrial companies, like pulp and paper, and others, and we want to be there. Other companies that we acquired during the second quarter are Norrtech VVS och Industri AB in Umeå, TeamPipe Sweden AB in Uppsala, both in Sweden, and Sähkö-Arktia Oy in Helsinki. Go on to slide number 14 after that. We can conclude that our performance is in line with or exceeding all our financial targets.
It's also worth mentioning that we have set targets that we can maintain over time and which enable us to cope with any fluctuations in the market. To summarize that, we want to keep our promises. Okay. Slide number 15 after that, the summary. To summarize, we have a strong performance yet again in the second quarter, even though society at large and the entire world economy has been struggling with the effect of the COVID-19 pandemic. The overall impact of the pandemic, as at several times in our operation, has thus far, I would say, been surprisingly low. We can also see that the demand for technical installation has remained strong and stable. We've also been able to pursue a high rate of acquisition, as I said, having added those five new companies to the group during the second quarter. To our last slide number 16.
As you well know by now, I like to wrap up these meetings with reference to a song title. This time it's the Phil Collins song, "Against All Odds." Besides being a classic favorite, it's also a title that actually describes Instalco and what we have been able to achieve, I think. At the start of our journey, there were some doubts, of course, some doubts given the market outlook about our ability to deliver and achieve our goals. Nevertheless, three years after becoming listed, we have reported strong results in each of the 14 quarters since then, with good profitability and strong margins. Now I will say for the first time, we have now been tested in tough times and have proved to perform, also there.
With that, I'd like to thank you all for joining in on this call, and I'd like to take your questions. Please go ahead.
Our first question comes from Stefan Andersson from SEB. Please go ahead. Apologies. It seems that Stefan has disconnected. There appears to be a question from Robin Nyberg from Carnegie. Please go ahead.
Hello. It's Robin from Carnegie.
Hello, Robin.
Hello, hello. Congrats to Robin Boheman. A few questions. Yeah, a few questions from me first related to margins. Do you now see a larger variation in the performance of individual companies than normal? You mentioned that the margins in Norway were somewhat lower than you expected. Could you still give some details why those margins were lower? Thanks.
First of all, I think that strong companies still perform strong figures and strong margins. That's something that we have learned. They do. The competence in Sweden has performed very well. In Norway, I would say that it's about two companies that have been a little bit too large. They have a lot of larger projects that I don't think they have maybe the right project leaders or skills to manage such amounts of larger projects. What we do is try to slow down and in the action plan, we will include more planning, as I said, more risk-analyzed for each project and so on. I think we know what to do, and we can handle it. It's not like red figures, they don't leave so much margins that we want them to do. That's the problem. They should get weight there. We will cope with that.
Okay.
I don't see I have any difference from now, during this quarter and this pandemic situation from before. I think it's the same type of challenges, and the margins is almost the same.
Okay, thanks. Second question, related to acquisitions. You have already achieved your target for this year. Do you expect to close even more acquisitions this year?
Absolutely. We will close more acquisitions this year. We will close a lot of acquisitions next year and the year. Our strategy is still to be our buy and build case, not only a buy and build case, but also have startups and other. We will acquire companies all the time and all the way, and we will not slow down our pace from that. Definitely we will acquire companies during this storm as well.
All right. That's all from me. Thank you, and have a nice rest of the week.
Thank you very much.
Thank you. Our next question comes from Stefan Andersson from SEB. Please go ahead.
Thank you. Can you hear me now?
Yeah, hello, Stefan.
Good. There was something wrong with the connection. I had four questions. Maybe one of them was answered. I'll treat it a little bit. The first question is really on the very dramatic drop in organic growth. You see it's been very volatile over the quarter, 6% and 11% last quarter, and then down to 2% now, especially in the other Nordic corporations. Maybe if you could, I hear you saying some of the impact is COVID-19, some of the impact is projects going poorly, but in my world, that would be more of a cost issue and more of a margin issue. If you just look at the growth and disregard the margin question, would that be primarily COVID-19 affected, or is there something else affecting the minus 7% organic growth in other Nordics?
I think it's mainly due to the pandemic. I will also say that when you have margins, when you're not satisfied with the margins, then you get a little bit cautious taking on projects. I think still we have a healthy project intake into our order backlog. We will not try to increase that just because there is more, how to say, risks today than a year ago or half a year ago. I'm not worried about the organic growth. Overall, we had 2.3% during the pandemic going on, and I think that's good enough. Of course, you can look into the segments and say that there is a poor or weaker intake in Norway and in Finland, but still, I'm not concerned about that. We will come back.
The pace is lower, and the activity is a little bit lower, and the price maybe go down a little, and we will not go into a difficult situation where we take on projects with no profitability.
That's good of you. I guess we're nothing used to you guys outperforming very down on organic growth, and in this quarter, you were in line, so that was a little bit unusual. Going to, you have reversed some earnouts. I don't know if the reversal is SEK 4 million or if that's the net figure on your one-offs in the quarter. If you could maybe give us the gross reversed earnouts and also maybe a short comment on what's happening with that acquisition. Is that an acquisition going sour, and how bad is it?
Stefan, you are hopeless with your tricky questions. Just wait a second, and I will bring in Robin here. He will explain it to you or to all of us, because I have not that type of detailed figures in my head. Just take a second, and he will be here. Then maybe you can repeat your question.
Should I take another question while we wait or?
Yeah. If you have some that I can answer, yes, please.
Yeah, I think so. Going to the M&A, I actually was a bit curious on the M&A side. You already acquired revenues for SEK 871 million this year. You have a couple of years behind you where you have been significantly above the target of SEK 600 million-SEK 800 million. I also said to you. Why don't you raise the target? You mentioned that you don't want to be too aggressive. You don't want to be pushed into doing acquisitions. I also just heard you say that you will do more acquisitions this year. You will definitely not take down the pace. I lost again. Why the SEK 600-SEK 800? You're clearly saying that you will be above SEK 1 billion every year going forward.
That's right, Stefan. Absolutely. Also said that we want to keep our promises. Something between. I think that we could maybe, when we put our goals or targets one year ago, one, maybe two years ago, we almost couldn't imagine that we would maybe come out two years in a row with almost maybe above SEK 1 billion in acquired sales. Maybe we take what you say, and we will try to discuss with the board how to express that the next time we're doing a business plan. Robin is here now. He can answer your other question.
Hi, Stefan. You asked about earnouts, right?
Yes, the reversal in the quarter, the gross figure and congratulations, by the way. The gross figure, a lso maybe some words on the reason, because I guess the reason would be some underperformance versus what you thought when you did the acquisition that booked the earnouts.
Yeah, that is correct. Overall, you could say there is a mix, but this quarter it was a little larger than usual due to a few older companies kind of closing the book on them and paying the last earnouts to them. There was more of those in Q2 than usual. On that side, we had, let's say, a positive effect of SEK 13 million, but a negative effect of roughly SEK 6 million. In net, it was roughly like SEK 6.5 million, somewhere around there. Those SEK 13 million that came in positive on our side, let's say, but actually negative due to the fact that they didn't reach the target. Those were a bit also older companies. We closed the books on them, so we don't have to save anything for coming years or anything like that.
I don't think there was any dramatic things happening that we needed to take this down and that anyone is underperforming especially. I mentioned it to you earlier in the call that we might not think that Norway has performed accordingly fully. There was a little bit of that in these earnouts as well.
I guess what you're saying, if I can interpret you, is also that if you have a little bit of a deviation on the company, you wouldn't immediately do the adjustment. You would save a little bit, as you've done now, and then when you close the company's last date, then you do the final calculations. You're not in every quarter doing small changes.
We don't do the small changes every quarter. That's correct. We do the larger, because as you understand, a typical deal for us is a two to three year earnout, and then doing like 10, 20 acquisitions. We have 30, 40 companies every quarter that we have to reevaluate them. It's no use of writing up and down too much.
Yep. Good. Thank you. The last question, it's just the comment made there on efficiency measures that you, I think you talked about Norway and maybe Finland as well. To improve efficiency, you were taking actions. Could you maybe elaborate a little bit about the potential cost for such activities?
I don't think that there will be any higher costs. It has to be more close to management. I would say also we have switched management in those two companies, or we have switched the CEO. I think we have to be closer. Manager there has to be closer to those companies. I don't think that we'll have any extra costs for it. We have to have a strategic plan for them, and we have to risk minimize. We have to follow up closer from productivity, and we have maybe to do some more management changes, but we have done it now. I don't think there is no more costs involved, just because we are trying to launch this action.
Okay, perfect. Thank you. That's all from me.
Thank you. One moment please, as I capture the next question, full name and details.
We have two questions from the webcast. The first one is that Instalco now consists of 77 entities. How scalable is your business model structure? How many entities can you grow to, and how are you adapting the structure if you grow even more than 100 companies?
Yeah, we have a structure that means that we have business areas, and I think a business area consists between Well, I think I know, of course, that it consists between 15 and 20 companies, and I think that's a suitable size of companies and also that we can scale up that, just to start anew or divide some area that has been too large. We can also start up new business areas all over, both in Sweden, Finland, and Norway. In Finland and Norway, in fact, we have just one business area, one for Norway and one for Finland. We have four in Sweden. It's scalable, definitely. I don't see any limit there.
Thank you. The second question, I think it's partly answered already, but it goes like this. In Q1, you mentioned that profitability for Finland and Norway was affected by finishing contracts, and that should rebound in Q2. The question is, what has impacted EBIT margins for Finland and Norway in Q2?
I can take. We don't divide the other Nordics in Finland and Norway. We talk about other Nordics. If I understand the question right, we had some projects that didn't turn out so well in quarter one, and now, as I think I mentioned, we have some dead weight, meaning that projects are still there, we're not losing money on them, but they don't contribute so much to our margins. We have to be rid of those projects, and we are almost rid of them, but they are affecting our margins in quarter two. Of course, I can add that, of course, the COVID-19 situation was also tricky because we have sickness up to 20%, 25% at the beginning of the pandemic in March and April, and of course, that slows down the productivity, and so on.
Yes. That's it, I think. Any more questions?
Yeah. We have our next question from Nathan, who is a private investor. Please go ahead.
Hi, everyone. Just a few questions on the M&A. Apologize if I missed it earlier. The first one is on the pipeline. Could you share how many companies do you typically track on your pipeline, and how does it compare to maybe a year ago?
Hi, Nathan. Sorry, but we can't say how many, but we have several. We start with a long list cutting down to a short list. We have four types of doing this, strategic acquisitions that we point out. We want to be in Helsinki, we want to be in Tampere, we want to be in Bergen or whatever. We have opportunistic ones. There is one company coming and knocking on our door. We like the company, and we do the acquisition. We also have startups, and we had add-ons. We still have a dialogue with several companies. As you can understand, we can't say exactly how many, because they're also different stages. We are talking with some, we have LOIs with others and so on.
We will say just that we have a long list and we have a short list, and we have interesting dialogues with a couple of companies right now.
Sure thing. Maybe I move on to valuation. Could you just share, based on what you are seeing in the current challenging market environment, have you seen seller expectations change, and how does it compare to some of the acquisitions that you have done in the past?
Hi there, Robin here. I can jump in. I think we've discussed this before. We don't see any valuation changes because the type of companies we are buying are entrepreneurial companies, and the entrepreneur is usually the one running the company and founded the company as well. They have a certain expectation and belief of what their company is worth. I wouldn't say that has changed due to the, so to say, pandemic or the situation we are in now. However, there are more possibilities to negotiate a different setup. The overall price will be roughly the same, but you can share the risks. People are more willing to share the risks. You can use more part of earnouts.
Okay. In terms of integration process for an average acquisition, could you share how long does it take to bring in a target company and improve the level of operating performance to the rest of the group, given that you guys have probably the highest margins in the industry?
I would say that the integration is very light in Instalco. When it comes to financial side, we do an immediate integration and take control over the books, and that is done the next day, and we start taking control of the books and the financial situation. The integration, otherwise, I would say, takes a year. You need to go through a certain amount of meetings, get connected, and also the projects that you are in, you have to finish those before you can start new projects together with our other subsidiaries.
It's a year process, I would think, until you are fully integrated, absolutely. On certain steps, you will be integrated day one, like on purchasing side, you will be able to use our purchasing agreements fairly quickly and so on. Of course, what I mentioned is that you are already, when we acquire you, typically a good company, so you might even already have a full order book when we acquire you. You have to first work that order book off, and then to start new projects with other subsidiaries in the group.
Right. That's great. That's very helpful. Maybe just one last question from me, if I may. If you look longer term out, maybe 5- 10 years out, what are your key bottlenecks to growth? If you could comment maybe on labor issues or on acquisition in terms of capacity to do more.
You can go in many ways. You can broaden your offering. You can go into new business areas. You can go into new geographic areas. I think it depends on new countries, of course. I think it also depends on which situation you are right there and what type of companies or the strategic decisions that you make during the way. We are not locked up in just one way to do business, and I think we will develop the way we do business in the future as well with new management when it comes to new companies, new management, and others. I think we can hardly answer that question, that we want to do this way or that way. It's depending on the situation and the market outlook and other things.
Okay, thanks so much.
We have two more web questions. The first one relates to the last question. Could you see any other areas if you exemplify any? What could it be?
Geographically, of course, there is a lot of areas that we can enter into, but also technical skills. We can also enter into consulting, more of consulting to help our customers. We can also broaden our offering by going into more security or other things, surveillance and more technical skill. Mainly geographically, more of consulting or integrated projects and more partnering. We have a lot of opportunities, and I think that sooner or later, we will enter some of those areas that I mentioned now, both geographically and technical.
The second question there relates to the M&A situation. How do you plan to organize the M&A in the future compared to today?
I think going ahead, as Per mentioned, they almost guarantee that we do acquisition SEK 600 million-SEK 800 million. As Stefan mentioned earlier, we have exceeded those targets last year and the year before. We have already exceeded now. Of course, we will continue to do M&A. I don't see any changes here. Like Per mentioned, we can open up new areas and also open up new geographical areas and new business areas as well. I think that we'll have a tremendous opportunity to continue to do M&A for a long time.
Organize them. I think it needs more of how we organize.
Yeah. Organization-wise, as mentioned, I think on last calls as well, we also see that the pipeline is growing mainly through that our area managers are also doing more of acquisition in terms of finding these companies and talking to a lot of entrepreneurs. A lot of the acquisitions come from these channels, I would say, and those channels we didn't have when we started Instalco, then it was more or less me and Per chasing these M&A and entrepreneurs. In that sense. Organization-wide, they're taking more and more responsibility on, and we here at the head office is supporting and also teaching them the kind of skill and things you need to do M&A.
Okay, thank you. One last question to Per. During these years in the construction and installation business, can you elaborate a bit on price competition? How does it work? What is your view on it?
I think that our customers, especially those in larger projects like hospitals and others, we are talking more and more. We are collaborating early on in the early stage of the project. We are talking a lot about partnering. The price, of course, is always important, but I think what we call soft parameters become more and more important, and I think that Instalco is well suited to handle this. It also appears that will come to more and more in Norway and also in Finland, and I'm looking forward to that because I think that's a form with partnering and that it's a win-win situation.
I think that closer and closer to our customers, and then also adding, as I mentioned before, adding this consulting part to guide them for best solutions, cost-effective projects and solutions of course, and also environmental considerations is very important in the future. We are launching, as I mentioned, I think before, a very strong environmental program.
Yeah, I think we round up there. Thank you for joining in.
Thank you. Thank you, everyone. Thank you very much.