Ladies and gentlemen, welcome to the Instalco Q2 2018 report. Today, I am pleased to present CEO, Per Sjöstrand. For the first part of this call, all participants will be in a listen-only mode. Afterwards, there will be a question- and- answer session. Speakers, please begin.
Hi, everyone, and welcome to the presentation of Instalco's report for the second quarter of 2018. I'm Per Sjöstrand, CEO of Instalco, and with me, as usual, to present the results, I have our CFO, Lotta Sjögren. Yes, starting with Slide 2, it shows an overview over Instalco. I hope, of course, you all know us by now. Anyway, we are a leading installation company with operations in Sweden, Norway, and Finland, and we operate through the Instalco model, which means that the companies we acquire will sometimes start organically, so-called startups, and we have several of those. They conduct business under their own brands and with their own P&L responsibility, but with the opportunities to collaborate with each other and also get some admin support from our small central management team.
Starting with, I'm pleased to see that we are soon at the sales level of SEK 4 billion, and that we almost have today, 50 companies in the group, all with strong local profile and brand in their respective regions. We can go to Slide 3. Next slide. If we take a look at the second quarter result, which shows high growth and strong profit, sales, as you can see, increased by 50% to almost SEK 1.2 billion, with an organic growth of 14.4%. Adjusted EBITA was SEK 107 million, which gives us a margin of 9.1%. The operational cash flow was also very strong, SEK 125 million.
I would say with the current pace, I believe we are in good shape to reach our pro forma EBITA targets of SEK 450 million in 2019. I will mention something. During the quarter, we have continued to deliver environmentally friendly projects that create benefits for society. As an example, we have completed installation works at several schools and preschools with high environmental classifications. We can go to the next slide, and the charts show the development of net sales and adjusted EBITA. The explanation behind the organic growth is very simple. For several quarters, we have had an order backlog, which is higher than sales of the last 12 months, and that's now reflected in the current sales. Organic growth will continue to vary from quarter to quarter.
We have a long-term perspective, but the quarter, it was very strong, which, of course, is very satisfying. From the start of Instalco, though, we have an average organic growth of 14% as well. The strong numbers are also a result of our strategy of working with several small and mid-sized projects, which provide low risk and overall high profitability. As you might know by now, the easiest way to make a good profit is to avoid a complicated, large projects with these prices. It's a lesson I learned during my 35 years in this industry. There are also only a small portion, about 10% of our sales, exposed to new construction of residentials. Our biggest niche is installation in public buildings, such as schools and hospitals, followed by office buildings and commercial premises.
With that, we can move to the next Slide 5. Here you can see the increase in the order backlog. Historically, the backlog has been around 75% of the annual sales, but we have for some quarters, been above 100%. Some new contracts that I want to highlight, Ohmegas has new construction work of a large dealership, car dealership, out of Stockholm. Also, we got El-Ex's assignment to switch lighting at 20 XXL warehouse in Sweden and Finland. We have Meteolus contract to make heating and pumping installation at the new fly terminal at Bromma Airport in Stockholm. We have also two projects on Slide 6 that I want to mention.
The first one is a cross-border collaboration between our companies, Elkontakt in Sweden, and Vito in Norway, in connection with the installation works at Vestby Logistics Center outside Oslo. It's a great proof, I think, of the strength of the Instalco model, where our specialized companies can collaborate and create more value for the customer. Another project, we focus on sustainability, is Vallacom's installation of solar cells in an onward multifamily residential in the city of Linköping. With that, I will hand over to Lotta. We can go through the segments. We can also switch, slide, please. Next.
Thank you, Per. Starting with Sweden, we see a continued high demand for installation services in all our statistical areas. The margin of 11.6% in the quarter is record high. Organic growth was also very healthy at 14%. Next slide, please. Rest of Nordics, both the Norwegian and Finnish markets are stable, with the metropolitan areas being the main drivers. This is where our companies are active. Sales increased by a little more than 80% to SEK 273 million, and EBITA of SEK 11 million. Of course, I'm not satisfied with the margin in the segment. The reason is that we have been burned by one loss-making project in Norway. These projects, which were already signed but not started when we acquired the company, have not performed as expected.
On the bright side, they are only impacting the results this year. We have no projects similar to this in the current backlog. Turning over to Per and some comments on the acquisitions in the quarter. Next slide, please.
Thank you, Lotta Sjögren. Yes, we continue to work according to our ambitious acquisition agenda, and as always, we only buy quality companies with a track record of good profit and mature leadership. We are not at all interested in turnaround cases, as you might know by now. During the quarter, we have acquired four new companies that will contribute to our continued progress. In Sweden, we have acquired Dala Kylmecano up in Borlänge, and ABC Elinstallatörer in Linköping. In Finland, we have acquired A-Vola in Helsinki, and in Norway, we have acquired Teknisk Ventilasjon, which represents our first establishment in the city of Trondheim, and I'm very pleased with that. Next slide, please. We come to a list of all acquisitions this year.
Our ambition is to acquire between SEK 600 million-SEK 800 million in sales each year, we are now already close to reaching the range for this year. Over the last 12 months, we have acquired sales for SEK 1 billion. Lotta, shall you comment the targets, and we can also switch the slide?
Thank you. As you can see, we are above or in line with all our targets currently. Growth and profitability are both at high levels. At the same time, our leverage is good and provides room for additional acquisitions. As Per mentioned in the beginning, cash flow was also very strong in the quarter, and cash conversion consequently is above the target this year. We will continue to manage the company towards targets, and looking at the current performance, we are on the right track. Back to you, Per. Next slide, please.
Thank you, Lotta Sjögren. Well, looking ahead, we continue to see favorable demand for installation service. The pace on new construction of apartments in the bigger cities is showing a slowdown, as everyone knows. This is not a great concern for us. We are focusing on other segments where we see a strong demand. One slight concern, however, is the increase in raw material prices, which have resulted in price increases for material. This is something all installation providers must deal with. As Instalco is one of the largest companies in our sector, I think we have quite negotiation power, which limits the effect. Our larger projects are invoiced with a cost-plus method.
This means that we have that we invoice the cost-plus a margin, and the customer reimburses us for all costs incurred during the project, including any price increases for material. Okay, that's a little bit about that, and now we can go to Slide 13. To summarize, the quarter is definitely a strong one on every parameter. We continue to execute our acquisition strategy and are in many interesting discussions with new targets. Demand looks overall good, and the order backlog is on historically high levels. The last slide, I think. Looking at the current performance, I would say that we are well on the way towards the group pro forma EBITA targets of SEK 450 million in 2019.
Last but not least, growing up in the sixties, a classic The Rolling Stones song came to my mind when I reflected on the quarter. The song is called Time Is On My Side, but I would say maybe in this case, time is on our side. With this, I would like to conclude the presentation and open up to questions. Thank you.
Thank you. Ladies and gentlemen, we are now ready to take your questions. If you are to ask a question, please press zero-one on your telephone keypad. There will be a brief pause while questions are being registered. We have our first question, which comes from the line of Robert Nyberg from Carnegie. Please go ahead. Your line is now open.
Hello, and congrats for the very strong results. I have a couple of questions. First of all, looking at the organic growth, it was very strong. Could you give us some explanations for the reasons behind this very strong organic growth? Also, do you think that organic growth should be positive in the second half because you have a quite strong backlog? That's the first one.
Yes, I mentioned that the organic growth depends a lot on how the project starts up, also with our order backlog, which has been very good for the last year. Nothing is said that it won't, it wouldn't be so in the future as well. We have a good back order backlog, and I think we will see a rather good organic growth, or at least in level with our goals.
Okay. Then regarding the margin level, because last year you were above the financial target, and this year has started extremely well. Should we assume that this is more of an extraordinary high profitability? Could you give us some reasons behind the sort of super strong margins in the second quarter?
We can say that we always acquire or only acquire companies with very high margins. As long as we can do that, then nothing also there tells us that's not that possibility in the future as well. I think we can keep a high margin. We have also had some projects, as we mentioned, in Norway. One project in special that didn't go so well. I think our target of 8% over time should be absolutely reasonable for the future.
Okay. Then you talked about increased raw material costs. Could you remind us what the share of cost-plus projects are, roughly?
Well, very roughly, about 30%-35% of our turnover.
Okay, thank you. That's all from me.
Thank you. Our next question comes from the line of Stefan from SEB. Please go ahead, your line is now open. Just give us a moment while we just getting Stefan's full name. Okay, our next question comes from the line of Stefan Andersson from SEB. Please go ahead, your line is now open.
Thank you. Yeah, sorry, I was a little bit late into the call, so maybe you already went through this, but I was a little bit curious. You had a fantastic activity pace on acquisitions in the up until June, at least. It's been a little bit slower during the summer, which I fully understand, of course. If you could possibly elaborate a little bit on the pipeline, both how it looks and the potential of keeping the pace up, so to speak, and also how the strong stock market and the strong economy as a whole is impacting the price expectations in your discussions.
Yeah, we can't see any slowdown. We have a lot of targets, as I mentioned, when it comes to the pipeline. We are in discussions with a lot of companies all around in Sweden, Finland, and Norway, of course. We are trying to fill in our white spots on the map. I will say that this, the acquiring thing we do, is like before. I think the pipe is like before, even stronger, and I see no slowdown in that. The strong market, as you ask, yes, but, you know, there is a, we have an, on average, we have paid about four times EBITA, and that is also what you do in the industry.
Our competitors in this, they don't pay any more. If you want to sell your company, you get three-five times EBITA. That's normal, and that's what's the industry pays.
Okay, thank you.
Thank you. Ladies and gentlemen, I just remind you, if you wish to ask a question, please press zer one on your telephone keypad. There will be a further pause while questions are being registered. As there seem to be no more questions registered, I will hand the call back to you speakers. Please go ahead.
Okay, thank you, everyone, and talk to you next quarter. Thank you.
Thank you, ladies and gentlemen. This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.