Earnings Call: Q4 2020

Feb 18, 2021

Okay. Thank you very much. And first of all, welcome to this presentation of our Q4 report for 2020. My name is Sergio Hird Persjostrand, and I'm CEO. And with me today is Robin Berman, our CFO. If we go to Slide number 2, I will give you first a short update on us. We are one of the leading Installation groups in the markets of Sweden, Norway and Finland, a pan Nordic company. Our main area of operations is installation and service of heating and plumbing, electrical, ventilation, industry, Cooling system and then from last quarter also, the area of technical consulting, I will come back to that. Then the group now consists of some 85 subsidiaries, We are nearly 3,900 employees. We have a highly decentralized Structure, we are supported by a small center organization. And as you will see, we have a strong profitability And we have delivered high margins over time. So we can go to Slide number 3, some Key financials. So as you can see there, we have surpassed sales of SEK 7,000,000,000 on a 12 month rolling basis, along with adjusted EBITDA of almost SEK 625,000,000, and that gives us an adjusted EBITDA margin of 8.5%. We also have a solid order backlog. We will come back to that also at just over SEK 6 point SEK 6,000,000,000. Going to Slide number 4, some highlights from the quarter. So looking at the Q4, we can see that there have been a continued high rate of growth. And you can also see we have a good profitability. Adjusted PE tougher the quarter was Approximately SEK 193,000,000 gives us an adjusted EBITDA margin of 9.3%. Organic growth was high, 8.1 percent, and cash flow was very high, I would say, SEK 227,000,000. I'm very pleased, obviously, per se, with the results for segment Sweden. And I will say also that we have proven that 10% is really achievable. I will Also say that the rest of Munich is still performing somewhat below the desired level. But despite the ongoing pandemic, we are able to conclude that we have done very well in the quarter. And I will give thanks to the patience we made to the business for that. The Q4 was particularly exciting for us. We launched our new discipline and business area, technical consulting. We also expanded our industrial business area, and we will come back to both of those. So in summing up the year, We are proud to report that we have had a total of 27 sustainable nustalco projects, most of which were added in the 4th quarter. And my CFO, Robin, will come back to that later on. So moving to Slide number 5, We net sales increased by slightly more than 26% to SEK 2,100,000,000. And during the quarter, we made 4 acquisitions where the combined annual sales is assessed about €450,000,000 Organic growth was high at 8.1%. But as I always say, you should not look into quarter by quarter regarding organic crude. We should look at least on a yearly base. And I have said it before, and I will say it again. We can move to Slide 6. And as I mentioned earlier, our order backlog is very solid, just over SEK 6 point SEK 6,000,000,000 and that corresponds to 93% of our annual sales. So I'm very satisfied with that. And I also have to say that despite the pandemic, we are taking many new orders and signing new contracts, most of which are medium sized projects in the range of from 0 up to 75,000,000 and that's within our strategy. During the quarter, as I said, we acquired 4 new Companies, which of course have an exciting dimension and contribution to our order backlog as well. And we will as I said, we will come back to that. Slide 7, if we change that, thank you. There, I will give you some examples New projects from the quarter that I'd like to highlight is great examples of how we work. The first is our Norwegian company, Ronnolitelekte in Oslo and their ongoing long term collaboration with The construction company, Baibikje, they have signed a contract with order value over 40,000,000 And it pertains to electrical installation at the new apartment complex, Leur and Utamska in Musso. That project has a very high environmental profile, and I'm very proud that we could We'll take that project on. The other is our Swedish company, Equoteco, which has received an order for project planning, delivery and installation of the electrical power system in conjunction with the expansion of Muna Hospital. The assignment will be carried out as a collaboration project together with construction company, Big Yellow and we're giving first of the Alana. And I'm particularly delighted with the third example, as you see here, which comes from Finland. Not only is it a confirmation that the market from new investments in Helsinki is strong, It's also a good example of how well the collaboration between Art Finich and Stelco Companies is working. Our companies and with Paula and Tim Cook in Finland are on a contract to collaborate on the heating and plumbing of sprinkler system in conjunction with the expansion of the Zitbellivak shopping center near Helsinki. And with that, I think we can go to Slide number 8, talk a little bit about the technical discipline, technical consulting and also expansion of our industry discipline. So during the Q4, We started up a new discipline and business area, technical consulting, where we offer project planning. And here we see a great potential to develop the installation and construction sector by integrating project planning with technical execution and service. And with our own technical consultants, we will be able to get involved At an even earlier stage, which is important, with a wider offering to even more customers. It's a move that brings project planning into the realm of the installation sectors, which is where I feel it belongs. And our technical consulting team consists of engineers with expertise in electricity, Station, heating and plumbing, industry and fire protection, as an example. Also, the core business here is Project Planning and Design, we offer a range of other services, including inspection, coordination of installation work, environmental coordination, risk management, cost estimate this and surveys. So our subsidiary, LinTech, is a key part of all this, It currently has around 100, I think more today, 120 technical consultants working throughout most of Sweden. We also anticipate that our technical consulting area will make a significant contribution to raising our margins. And with that, I will leave over to Robin, Yes. Thank you, Per. And just like you mentioned, I think this is our Some focus areas for us at the moment. And as you can see in the Q4, we have done some efforts to expanding our industrial business areas and as you will see on the following slide as well. But just going into this briefly is that We now have 7 companies in total within the industry contributing some SEK 700,000,000 on a yearly basis in turnover. And we also see very good growth potentials in these companies and also the possibility of expanding. So we see that these companies are more focused on the what more heavier and also technical industrial installations, both on land and also on water with our subsidiary, Mia Sub, for instance, being more based on the marine side. And if we look at the next slide please, Slide 9, we also have 2 good examples here as SILIC in Alvesta, Sweden, which are specialized in installations of electrical power and electrical instruments in the industrial environment with large customers such as, for instance, then Kors, Duran, so Bullied and Northvolt as some examples with an annual turnover of around SEK 130,000,000. We also acquired in Q4 HOPE Welding in Sundsvall, which is, as the name says, a welding company, which does mainly manufacturing, welding and assembling of boilers and pipelines, Large customers as Boliden, Essia, Valmet as a few examples, with a turnover of roughly SEK 90,000,000. And like I mentioned before, we now have 7 companies within the industry, and we already now see Some synergies being done between these companies. So we are really looking forward to see where this will take us. If we move into next slide, Slide 10 then, please. As you can see here, the corona pandemic hasn't really impacted the rate of acquisition for us. So we made 4 acquisitions, as Per mentioned before, in Q4. 3 out of the 4 were in the industry sector and also 1 acquisition in Norway on the Plumbing side. Total for the year, we sum up 2020 as a really good M and A year with 18 acquisitions. So we totally acquired an annual sales of SEK 1,400,000,000, which is a very strong year for us. We can also conclude that our pipeline is still strong. There are lots of possibilities here. There is still a high growth potential through acquisition both in Sweden and the rest of Nordics. And now also with opening up these 2 new areas, We also see new opportunities here. And we can also conclude that we still have some right spots within the areas that we are to become a multidisciplinary, which is always a target for us. So if we move into next slide, please, Slide 11, and talk a little about the segments that we have. So we have segment Sweden, which is, as Per mentioned, doing tremendously well, also proving that there is a possibility here to make the 10% EBITA margin. There is a sustainable demand for technical installations within Sweden, we can also see here that the organic growth is very strong. What we are especially, how should I say, proud of is the growth in the order backlog, which is this 44%, 20% is acquired and 20% is by ourselves, which is also giving us the opportunity here to continued growth within Sweden even next year. So really good strong solid performance in Sweden. Moving to next slide, please. So Slide 12. We see here, as Per mentioned, Other Nordics are performing okay, but not according to kind of the Instalco standard. So we're a little bit disappointed here. We have a growth in the order backlog, which is very positive, but We see that closing down of especially Norway, but also Finland due to the pandemic has affected us, especially a few of our companies. But we also have some internal work to do here, as we talked about on the last call for Q3. And we are, I would say on track of the action plans that we set off in Q3. It will take Some time, as we mentioned in Q3 as well, we need to finalize the projects that we have in the order book and kind of start on new. But we see that we are progressing well in Norway and according to our plan. So if I could change to next slide, please. I would like to just talk to you briefly about our sustainable installed projects. And as Per mentioned earlier, we did 27 sustainable installed projects last year, which is higher than what we expected. Most of them came in quarter 4. I would say that The launch of this has been very well received by our subsidiaries, but also of their customers and the end customer as well. So we're very pleased with how this has rolled out. And just to give a brief summary of what it is about is that The sustainable Instalco project consists of that you have to meet 6 specific sustainability indicators, For example, that we must meet the requirements on healthy and safety and safe employee. All our Suppliers need to sign the Instalco Cold of Combat, and you also kind of have to demonstrate that this is a climate smart project as a few examples. And this certificate is then, so say, a quality stamp for both the project, the customer and in Stalco that we can deliver sustainable projects as well. So if we change to next slide, please, Slide 14. We're always striving to help the customer to lower the environment impact via water savings, energy consumptions along with high environment awareness. And here, you see a few example of projects that we do to help the clients and be able to achieve a more sustainable future as well. And we strive to kind of give our customers the knowledge that we have internally here. And then some examples here like LED lights, charging stations, heat pumps installations, solar panels, for instance, to name a few. And this is, of course, ongoing and always on top of mind when we do projects as well. So if we change to next slide, I would just like to summarize a little bit of the financial target and the dividend policy. You've seen this slide before. This year this time, we sum up the year as well. And as you can see, growth wise, we are well above the 10% that we have as an internal target over business cycle. This year, we came up to 25.1%. We have the margin adjusted EBITA margin of 8%. We were able this year to come to 8.8%, same as last year. Where the capital structure over the adjusted EBITDA shall not exceed 2.5x net debt. We are at 1.2. So we are well equipped financially to continue our M and A journey as well. Cash conversion, we were able to reach 109%, which is one of Hawa's highest rates so far. And dividend wise, we are giving out roughly 30% of our net profits, and that will calculate to EUR 2.70 per share this year. So it's also a good increase from last year. And with that, I would like to leave over to Pared to summarize. Thank you, Robin. You can hear here, Robin is all over the table. He's talking about the Industrial segment, he's talking about M and A, Talking about sustainability and our numbers, thank you very much. Thank you very much, Robin. You have done an extremely good job. So Slide 16, summing it all up, it has been an excellent year overall, I would say, and a great Q4, as you have seen, with stability, high profitability and a very high cash flow. And despite this pandemic, we have been able to successfully adapt implementing our projects and assignments with the same quality, I would say, And temp was before and thanks to our structure, we have enormous flexibility And the ability to adapt the changes in the market situation did a very good job in that. We had an exciting Q4, expanding our industrial business area, as you heard, and also establishing our new business area, technical consulting. So I would also say add to that, of course, that it is still difficult to assess the future market with that. But you have to say that because, of course, we don't know exactly how much to come. But As you know, I'd like to wrap up these meetings with reference to a song title. Yes, next slide is Slide 17. And this time, I've chosen Tina Turner's hits on What You Get is What You See from 1986. And that title corresponds very well to Instalco, what I usually say. You get exactly what you see from Instalco. And what I mean by that is that we constantly have been delivering our promises to the financial market. We apply a long term approach to run the business, one that is sustainable over business cycles and resilient not only when times are good, but also when the market conditions become more challenging. So and with that, I'd like to thank you all for joining in on this call. And I'd now like to take your questions, please. Thank you. And we have a question from the line of Stefan Anderson from SEB. Please go ahead. Your line is now open. Hello, Stefan, your line is now open. Stefan, put on mute on your device. Hello, Stefan. Do you have your line on mute? Hello. Can you hear me now? Yes, we can hear you now. Thank you. Good. Okay. Hello. Thank you for taking my questions. A couple of questions on the market there. First, What's your experience? I mean, it was a fantastic quarter, so we don't see anything of that now. But Talking to Francis Brasuda, they've been complaining a little bit about Price pressure in the market that there seems to be some players out there hunting for volumes. We heard that in Q3 and they talked about it in Q4 as well. What's your experience there? Do you see anything of that at all? I mean, there's always, what you call, high pressure on the price level on the market, but Maybe you can see that more in Stockholm than other places in Sweden and Norway and Finland, Stockholm has been a little bit tougher situation the last quarter or maybe last half year here. But there is always pressure on price, I would say. And we have a lot of I mean, 50% of our Total revenue comes from partnering or services. And in that field, both partnering, of course, We can't see any changes. So yes, it's both ways. And maybe in Stockholm, you can feel a little bit higher pressure on the price. But I think in general, we will not complain. Then on with regard to segments here. I don't have don't remember the full split On these segments, I would guess that some of the delivery of a slowdown on the commercial side when it comes to building office space here ahead. But Very hot area nowadays, not in 2017, but nowadays in part, the rest of the side, the residential side, where rentals have picked up Considerably this year in starts. And now we're seeing also the co ops picking up. And JM, which is one of your partners, they have Extremely high ambitions for 2021, moving from 3,000 in production to 3,800. So that's quite a big movement. I mean, I guess you should benefit from this, but is that something you're also seeing? Or am I exaggerating the positive here? It's a long question, but I think that I think there's a lot of activity out there. There's a lot of plants, renovation sites, there's a lot of activities during in offices. And Also, as we used to say in areas like hospitals and new apartments. So the activity is high. That's different from what we talk about Price pressure, because activity means that there's a lot of plans that can be Right around the quarter, but that can also be for longer terms, new areas, new I mean, also making I mean, the architects we can see now is having more and more work to do. And We can see that our consultant part also that they are increasing the activity there. So It will come to an increased market. But the question is when, when it comes. And My gut feeling is that in maybe it's a little bit tougher now in quarter 1 and quarter 2, but We will that market will come up and we will see a very growing market in all three countries at in meaningful, I think. So yes, and you saw also that our order back Job situation is very good. So we can live on that, so to say, We're almost 1 year ahead. And also, we have a good pipe. Robin, we can give you more details about that. But the pipe which consists, of course, all the backlogs. But I don't know if that was an answer to your question. No, I think it was actually it was more than I asked for. So that was good. I am in my interpretation is that you're saying it's a little bit challenging in Q1 and Q2 and Then it's easier towards the end of the year. So that's perfect. Then on shorter question then, what is the number of outstanding shares by the year end? Sorry, once again, the number of outstanding shares. You mean the dilution or what was No, no, no. We can take that. You can e mail it. But in the report, you have the average number of shares During the quarter. And of course, with especially in the year end, I'm interested in the number of outstanding shares as of Yes. Okay. It's just because you do quite a lot of acquisitions where you hand over and give out shares. It's just for my model. Yes. But you can see the delay We will absolutely, absolutely. Yes. Because I have the average of 51.9, and I think it's very close to that number, but Just wondering. It is very open. And we just do for the rest of the people listening, it's a very little dilution in Q4 due to the fact that it's actually a few of the companies that we bought have bought shares over the market instead of getting them from us. Good. Perfect. And then on that topic, with the acquisitions you've done, your Earnouts are, of course, coming up as well, and you're showing that clearly. So just a question there. In the earnout, is that all cash? Could there be a share confidence in the earnout results? No. Earnout is all cash. Thank you. There appear to be no further questions. I return the conference to speakers for any closing remarks. Yes. We have 2 questions from the web. The first one is How our subsidiaries is handling the price pressure and try to stay away from The price competition? Okay. I mean, we are on the local we are one of Almost, I think we are 1 of 3 largest companies in every local market, and we participate in almost every tendering that is. And I think that So specialized that we are in different fields, I think we can avoid a lot of Those general price pressures that is on the market and we are specialized, we are there out in every corner of Sweden, Norway and Finland today. So we don't have to compete with everyone else in projects. And I think that's one of our strategies as well to avoid price pressure. And the other question is about the installation business in the future and what you think there. And more concrete, if you think that the construction companies will take on the installation Or if it will be separated? I think if they want to take over. On the contrary, I think we will take more heavier and heavier or larger and larger part of the total cake there. I think that In the future, our end customer will have separately What you call it? They will send out tenders separately, 1 for construction and one for installation. Exactly. And we can see that, that tendency on the market. We are doing it today, and I think that we screw that part. And also partnering, what you Talk a lot about partnering and that's also an angle of that. We are having, I think, 30%, 35% of Total revenue or the backlog is in what we call partnering. And partnering is we can also call it early involvement. And then we sit side by side on the same side of the table as our end customer. And we are sitting alongside with the construction companies. So I think that that's the future. Maybe you can also add that a lot of the construction companies have tried to business within their company and all have, so to say, basically failed and sold off their business. I don't even think there are any larger ones left. And they've also sold it off. Yes. They were carved out a couple of years ago. Okay. Okay. Thank you very much for joining in and Looking forward to the next quarter here. Thank you very much. Thank you. Bye bye.