Ladies and gentlemen, welcome to the Instalco Q3 2018 report. Today, I am pleased to present CEO, Per Sjöstrand, and CFO, Lotta Sjögren. For the first part of the call, all participants will be in listen-only mode, and afterwards, there'll be a question and answer session. Speakers, please begin your meeting.
Thank you very much. Of course, I first welcome you to this presentation of Instalco's Q3 report for 2018. My name is Per Sjöstrand, CEO of Instalco. During this presentation, I will be assisted by our CFO, Lotta Sjögren. Start with slide number two, over to slide number two, which shows an overview of Instalco. Just a short update, Instalco is one of the leading Nordic companies for heating, plumbing, electricity, ventilation, cooling, and industrial solution. Our main business is installation, service, and maintenance of buildings and facilities in Sweden, Norway, and Finland, so we are a Pan-Nordic company. We operate with the Instalco model, which is a very decentralized organization, where our subsidiaries have strong local ties and specialist expertise. We collaborate to provide attractive solutions that cover all our customers' needs.
If you look at slide number two, I'm pleased to report that we have now surpassed sales of SEK 4 billion on a 12-month rolling basis, and we assume that more than 50 companies, and in total, more than 2,000 employees. We can go to slide three. That means next slide. For the third quarter, we have both high growth and profitability, with an increase in net sales of 40.8% to SEK 998 million. Organic growth was 8.6%. Adjusted EBITA, that was SEK 74 million, and that gives us a margin of 7.5%. On the whole, we see a continued stability in the Instalco installation sector. We also noticed a higher demand for energy-efficient solution and higher demands on sustainability.
Our sector is still growing steadily, even though housing construction has slowed down, as you probably are well aware of. In the public sector, particularly, the rate of construction for school, preschools, and hospitals remains high. Next slide, please. That means slide number four. Here you can see two diagrams. The first diagram shows a bridge of net sales growth from quarter three 2017 to quarter three 2018. Here you can see the 8.6% organic growth, by the way. The second diagram shows the quarterly variation of Adjusted EBITA for 2017 and 2018. Seasonal variations and summer vacation always impact the third quarter, as you can see. Slide five. Next slide, please.
When we started Instalco in 2014, that means almost five years ago, we put a very high target for 2019 and onwards, as the figures shows, we are on track for achieving that. That's what that slide says. Over to slide six. Next slide. This slide gives an overview of our backlog. Historically, order backlog has been lower than it is at present, and right now, we're just under 100% of yearly net sales. We won several significant orders during the quarter. For example, Ohmegi was contracted for electrical installations at Lars' property at Slussen in Stockholm. Rörläggaren, again, comprehensive pipe installation work at the new hospital area in Malmö. El-Pågarna is continuing its electrical installation work at the major housing construction sites at Liljeholmen and Kvarnholmen in Stockholm.
Okay, slide seven. Next slide, please. Here we have a few other examples of projects we were involved in during the quarter, and that I would like to highlight. We have several projects, where focus has been on energy efficiency improvements and a higher level of sustainability. One is the Scaniarinken in Södertälje. JN El and OTK won a contract for comprehensive ventilation and electricity installation that will conserve energy at the facility. Another energy-saving project is ORAB's pipe installation work that is part of the conversion project at Stora Enso's paper print mill in Piteå. The installation of new, condensing steam turbine increases the mill's level of self-sufficiency and lowers its electricity consumption. When we change to slide eight, that is next slide, please.
We are also proud of the positive contribution we are making to public health in many of our projects. Look at that nice picture to the left. For example, Tofta Plåt & Ventilation is involved in project planning efforts and development of Vasaloppscentret, which is the central meeting point for building and recreation areas in Sweden. I'm also very proud that we are participating in the major renovation and modernization of the blocks surrounding Sergels Torg, which is the most central public square in Stockholm. Ohmegi and Rörgruppen have been contracted by NCC for electrical installation and plumbing works at Sergelhuset . We move to slide nine. Next slide, please. Going to Sweden, our segment Sweden. If you look more closely at operations in Sweden, we see continued trend of high demand for installation services in all our areas.
I will say the most important disciplines are electricity and heating and plumbing. Here, our EBITA margin for the quarter was 10%, organic growth was 6%, and net sales increased by 35.7%. The latest economic outlook issued by Installatörsföretagen, which is our trade organization, confirms that the industry is growing, that the rate of construction for schools and hospitals remains high, and that the demand for energy efficient solutions is rising. On the whole, the report shows that we know are at the mature stage of the business cycle, that there has been a dip in housing construction, as we talked earlier, and that difficulties persist in recruiting the right expertise for the installation sector. That was, the report shows.
Going to slide 10, means, Rest of Nordic. For our segment, Rest of Nordic, we think the Norwegian and Finnish markets are rather stable. For the first time in quite a while, investments are increasing in the construction market in Southwestern Norway. That's very dependent on the, of course, on the oil price. Net sales increased by 55.9% in this segment to SEK 279 million, with organic growth of 6.1%. However, the EBITA margin is still low for the Rest of Nordic segment, especially in comparison with Instalco standard. Going to slide 11. Next slide, please. During the quarter, we pursued acquisition discussions with several skilled entrepreneurs in the installation sector.
The acquisition climate is favorable, and there are many attractive, well-run companies that we are in contact with and interested in acquiring. However, we are only interested in profitable companies that fit the group's strategy and can contribute to our growth. Subsequent to the end of the reporting period, we acquired Rörman. Rörman has an estimated annual sales of SEK 33 million, and MSI, with an estimated annual sales of SEK 100 million. With that, we have already achieved our target of SEK 600-800 million in acquired sales this year, and several interesting company acquisitions are in the works for the fourth quarter. Going to slide 12. Next slide. As you can see, we are exceeding or on track with all our financial goals. Growth and profitability are both at high levels.
We will continue guiding the company towards our stated goals. We are definitely on the right track. We still see on slide 13. Looking ahead, as we mentioned previously, the demands from clients on sustainability are increasing, and for heating and plumbing installations, energy efficiency is an area with significant market opportunities. It's become an even more pressing issue, given the abnormally warm summer we had in the Nordic countries this summer, which has caused higher environmental awareness and a rise in energy prices. Another interesting area is the growing demand for solar energy. Product availability, simplification of regulation, and more customized products are factors that are fueling the interest from commercial property owners. Next slide 14. In the summary, I can proudly conclude that Instalco has another strong quarter with high growth, high profitability, and a very strong order backlog.
We can see higher demand for energy efficient solutions, we are definitely prepared for future acquisitions. As I used to do, last but not least, next slide, please. Slide 15. In the last quarterly report, I referenced the classic The Rolling Stones, Time Is on My Side, and now I like to add another one, I Can't Get No Satisfaction, because that's how it is. We won't be satisfied until we reach our goal of a run rate EBITDA target of SEK 450 million by 2019. With that, I'd like to thank you all for joining in on this call, and now I'd like to take your questions.
Ladies and gentlemen, if you do have a question, please press zero one on your telephone keypad now. First question is from the line of Stefan Andersson from SEB. Please go ahead, your line is open.
Thank you. A few questions. First, looking at Q4 in 2017, could you possibly maybe remind us if there were any exceptional items in that quarter? I mean, the margin was rather high, and it could always be some good ending of some projects and so on that helped, so to speak. Just wondering how we should view that margin in perspective to what's upcoming in 2018.
Do you mean a comparison between quarter four 2017 and now?
Yeah, exactly. If quarter four 2017 was a normal Q4, you showed the seasonality pattern there before.
Yeah.
We know Q4 was very strong. Just curious if Q4 2017 had some excellent projects where you took some profits, that might not be repeated every quarter, so to speak, or if you could see that as a normal quarter?
quarter four is normally the best quarter, when it comes to revenue and profit and margin. I think it is rather normal, that quarter four has the highest figures.
Okay. Then when it comes to this project in Rest of Nordic, or in Norway, I guess it was, which is loss-making. It's supposed to end in 2018. What do you mean by that? Do you mean, has it already ended, or is it ending by the 31st of December?
I can take that question. If we speak about the Rest of Nordic segment, we are not satisfied with margin, as you know. The reason was this project that you're talking about. The project is still going, there are dead margin for the rest of the year. We don't have any margin left, we're still going, it will end soon. We signed those this project when we acquired the company, we have not performed as we expected. We have a grip on it now, it will not affect us after 2018.
Okay.
By the way, we didn't have those projects in this company in Norway. The margin for the Rest of Nordic would have been 7.9% for the whole year.
Perfect. That was my next question. Perfect, thanks. Tax rate, maybe, you already written this in the report. I'm just curious, the tax rate is very low in the quarter, I think. What is the reason for that? Maybe it's already written somewhere, but.
Yeah, it's. We have written about it. It's a deferred tax for earlier years that we have taking up in the books now.
Uh-huh.
It was for SEK 11 million.
Yeah. Do you still have anything outside of the balance sheet after booking that one?
No, we don't.
Okay, good. What else? I think that was it, I mean, unless you want to maybe elaborate a little bit more on the M&A prognosis. I mean, it was very quiet in Q3, as it normally is, and you started Q4 in a normal way, I guess. Is there hope for more deals to be closed before the year end, or, well, are you happy that you're-
Yeah.
Yeah, okay.
Yes, there is. The situation is good, we think, and we have several interesting discussions going on. Definitely you will see more of those acquisitions in more normal way that we have in the future.
I had expected some more coming in Norway and Finland, given that you might need some more scale in those countries. I mean, this year it's been less non-Swedish than I thought in the mix, so to speak. What do you think about that? Is it easier to find deals in Sweden, or are you already happy with the scale you have in the other regions?
I mean, we have been cautious in Norway, as you understand, and we always look into how to spend our money on the best way. It depends, I would say. We have no certain strategy for Finland, Norway, Sweden, and say that 50% in Sweden or something like that. We just see it for each company and each, a little bit about which region we should be in, but how to spend the money best.
There is a good opportunities in Norway and Finland as well, absolutely. Some take some longer discussions and sometimes it goes quicker.
Okay. Thank you. That's all for me. Thank you very much.
As a reminder, if you have any questions for the speakers, please press zero one on your telephone keypad now. There are currently no further questions registered, so I'll hand the call back to the speakers. Please go ahead.
We have received just some questions from the webcast. The first one is about the order backlog. We can see that it has gone down for the first time in eight quarters. Is this a new trend or not?
We have had a strong backlog at just under 100% of the group's annual sale for quite some time now. There are some seasonal variations, and during the summer vacation, as in the July and beginning of August, we don't sell many projects. It's quite normal for our business that it looks like this, and we are not worried about it.
The other question was, we've seen that for six quarters, Instalco has increased its net sales and EBITDA. What is the prognosis for future quarters?
Well, as you have seen in one of the slides that Per presented, we are right on track towards our run-rate EBITDA target of SEK 415 million by 2019. With the current pace, I believe we are in good shape to reach that target. As Per also mentioned, we already achieved our target of SEK 600 million - SEK 800 million in acquired sales this year, still we have one quarter of the year remaining. We also have some interesting acquires in the pipe this year, as we also talked about.
Okay, that's all for us. Operator, do you have any other questions coming in?
No questions registered on the telephone lines.
Okay. Thank you very much, and see you next quarter. Thank you very much.
This now concludes the conference call. Thank you all for attending.