Instalco AB (publ)

Hello everyone and welcome to this presentation of Instalco's report for the second quarter of 2024. My name is Robin Boman, CEO of Instalco and with me today I have our CFO Kristina Casperi. I think you all know this slide by now but to give a quick recap, Instalco is one of the leading installation groups in the market of Sweden, Norway and Finland. As you all know we operate in a very decentralized module but with strict control mechanisms. In total we have over 6200 employees working every day to help facilitate the green transformation. Demand for our services that we offer is supported by several strong underlying market drivers and obviously green transformation being one of them. When looking at these figures for a rolling 12 months we clearly report a stable development. We have sales of above 14 billion SEK and order backlog reaching above 9 billion. We have an EBITDA of 1 billion 51 million and contributing to an EBITDA margin of 7.4 percent. Solid cash flow of 907 million SEK and the number of companies is now 160 companies within the group. Some quarter highlights from the second quarter. First of all in our numbers we are seeing the results of how the market gradually worsened during 2023. The projects that we are now delivering on were for the most part taken during the second half of last year. But I'm very happy to see that despite the market driven challenges we have faced during this period we remain by far best in class when it comes to our EBITDA margin which in the quarter ended up at 7.2 percent and 265 million. We are now starting to see positive signs in the market but it will take time before it materializes in our books. Some examples of this includes for instance record high order books when it comes to large construction companies. We see a high demand for our technical consultants and we are also seeing a lower interest rate environment. But exactly when it's hard to pinpoint that we'll see this shift but we are expecting a slow gradual improvement as the market continues to turn. And last but definitely not least during Q2 we launched a very exciting new business area and on basically the back of our success when with intake and I will come back to this a little bit more in depth in the presentation. But for now I will hand over to you Kristina to take us through the financial development in more detail.

Thanks Robin. I will start with a slide here where we can see the increase in the net sales with comparison of Q2 present and prior year as well as the development of the order backlog. Acquired growth represented 2.1 percent with the biggest percentage increase within rest of Nordics. Organically the top line was down 6.4 percent reflecting our focus on margins over volumes in the current market environment. In total net sales declined by 4.6 percent and amounted to slightly about 3.6 billion. During the quarter the backlog remained essentially flat both compared to the same period last year as well as sequentially. By the end of the quarter the backlog amounted a bit over 9 billion. We have maintained our cautious approach to order taking prioritizing the right project for the right customers. We have for adapted to the lower number of good projects in the market by instead focusing more on service. This revenue from service which is not included in the backlog remained at a high level of 33 percent in Q2 which also reflects growth in absolute numbers. This slide shows the quarterly trend of EBITDA in both millions and margin. In Q2 our EBITDA amounted to 265 million corresponding to a margin of 7.2 percent. While this is lower than the 7.7 percent last year and we are far from satisfied it is still a proof of strength given the market environment. The absolute majority of installations are late cyclical and the projects delivered during Q2 were to a large extent taken during the second half or late 2023 when we saw market conditions worsening. We have talked a lot about our careful project selection given the circumstances but we are not completely immune. Also today we maintain our focus on profitability over volume and remain selective and balanced regarding which order we take. As mentioned last quarter we are taking measures where needed to protect our margins implementing efficiency programs in some of our companies where that is necessary. We are proud to remain best in class among the larger players in our market also in Q2. Over to a slide that summarizes segment Sweden in Q2. Geographical differences in demand and pricing remain. The market is still strongest in the northern parts of the country and somewhat weaker in Stockholm and southern Sweden. But for our technical consulting services demand is improving and this is a good indication since they are early in the same cycle as our installation offering. For Sweden overall we also notice the positive signs Robin just talked about such as high order backlog for large construction companies, an increased interest in energy efficiency investments and a lowered interest rate which will stimulate demand. Overall net sales were down to 2.55 billion while organic growth was down by 7.1 percent which is less than in Q1. Acquisitions contributed with a growth of 1.4 percent. Profitability was also affected by the projects delivered in the quarter which I talked about in the previous slide and EBITDA amounted to 182 million corresponding to a margin of 7.1 percent. Meanwhile the order backlog remained roughly flat and increased somewhat in relation to net sales over the last 12 months. And a summary for rest of Nordics segment. The development of the market in Finland has been stable in recent quarters though at a relatively low level. The interest rate situation makes the construction industry cautious while other areas such as service, industrial operations and for example data cable projects are running according to plan. Increased defense costs have been reduced and defense investments are expected in construction and infrastructure. In comparison the market in Norway remains at a relatively high level with some caution being exhibited when it comes to decisions about project starts without much change from previous quarters though we can notice more positive signs for the future. For Instalko this translated to an essential flat net sales development in Q2. Organically net sales were down by 5 percent while acquisitions contributed to positive 3.7 percent. EBITDA grew to 85 million corresponding to a margin of 7.7 percent. The improvement is driven by operational performance combined with quarterly fluctuations. Okay, onto the cash generation in the quarter. In Q2 cash flow from operations amounted to 158 million compared to 225 million same quarter last year. The change is partly explained by somewhat lower EBITDA combined with an increased change in networking capital. In the end of the quarter the billing increased and we tied up some cash in accounts receivables. As a result of our lower acquisition pace over the last few quarters we have lower outflow from those activities but only two days ago we were happy to welcome a new member in the Instalko team. IT Line Service which strengthens our industrial offering in Finland. The company based in Salo primarily service customers in the mechanical industry. As usual Q2 marks our yearly dividend payment which this year added up to 179 million. The quarter also saw some outflow from earnouts and acquisition of non-controlling items all in all according to plan. In operation performance I'm pleased to say that we improved the cash conversion to 89% from 81% which is the result of diligent focus on working capital and cash flow in our subsidiaries. To then look at our performance in relation to our financial targets. For the duration of the 10 years Instalko has existed we have constantly performed well beyond our growth target which is set over a business cycle. This quarter the growth is not at 10% and this is no surprising given the market climate and our cautious acquisition pace during the latest months. But we are well positioned to capture opportunities for profitable growth when the market turns. Our EBITDA come in to .2% or .4% for the last 12 months. Still a strong performance given the current market. Cash conversion improved to 89% due to high focus on working capital. During the quarter we paid out the dividend approved at our AGM in line with the 30% policy. After the second quarter our leverage temporarily came in just slightly above our target. At 2.6 times EBITDA and this was the result of slightly lower earnings and largest outflow of money as expected in the second quarter. All in all a stable earnings development given the market situation and we remain secure with our balance sheet and operational priorities. By that over to you again Robin.

Thank you very much. And now to the project highlight of the quarter. Over the past years everyone has been talking about the sharp decline in new build residential projects and while that is certainly true and definitely noticeable. This order highlights that the market is not completely dead. Foreign Stalko companies have been awarded the contract for installations at the new landmark project in Malmö which is a new build of 160 apartments. The installation for in Stalko are multidisciplinary and includes electrical, heating and plumbing, ventilation and sprinkler. The following in Stalko companies will be involved. Elpågarna, rörläggaren, bivänten, sprinklerbolaget. In total this adds up to combined order volume or value for in Stalko of around 100 million. Something I'm very happy to see and especially in the southern parts of Sweden so well done team. Going into the theme of this quarter and this quarter's theme will be a small deep dive into something very excited that we announced during Q2. The launch of our new brand and also business area Inmatik. So I'll talk a little bit regarding what it is, how it fits into the rest of Instalko and how we will do it. Inmatik is something new. A fast moving company that is not stuck in any old systems. Their offering includes both property and process automation. Utilizing the local market products and thereby selling both consultancies as well as hands-on installations and end market support after market support as well. Organizational wise we are broadening our division technical consultants to now include two business areas and to make things easier we have named these two business areas after the main brands that they will use. So it's Intech and also Inmatik. But let's get back to basics. Inmatik offers automation and what do we include in automation definition. Automation in this context of buildings and installation services refers to the use of technology to control and monitor systems such as lightning, heating, ventilation, security, water management for some examples. It involves integrating sensors, control and software to automatically adjust operations based on preset parameters, real-time data and use of preferences. This enhances and makes it easier to do energy efficiency but also comfort, safety and overall system performance and it also reduces the need for manual intervention. Common examples of this is smart thermostats, automated lighting and building management systems that centralize control of multiple systems for example. We believe that automation fits very well into overall portfolio of services that we offer to our customers for several reasons. By adding automation to our more traditional installation services we can help clients to save energy, reduce cost and improve overall efficiency and safety of their buildings. Inmatik will focus on energy efficiency and automations in facility and process areas. For these customers automation is a prerequisite for efficiency and sustainable operations delivering advanced future-proof solutions in line with increased demand for digitalization and resource savings measures from buildings, industries and facilities. Furthermore it also gives us an even better insight into the real needs of our customers and also enables us to act more proactively and customer relationships throughout the life plan of a facility or a property and not just in a few touch points such as when you build or refurbish or sometimes service them. And how will we do this then? Our venture within Intek where we now today have over 400 consultants in three countries has been very successful. Already last quarter we mentioned and that they reported margins over the group average and that is also true for Q2. Intek was built mainly organically through Instalko's startup model and this enterprise is also how we will do it with when it comes to Inmatik so it's been done the same way and also obviously with all the learnings that we took with from Intek. Our first Inmatik establishment was in Sundsvall but we have now expanded rapidly just over the past couple of months and we have far more to do. On this map you see that Stockholm is red since that will be launched in September. The map also includes a location where Instalko already had company doing a lot of automation services before that is now part of the business area. So in total we are now around 60 people and that is from zero just in a few months. This sums up the start of Inmatik and I'm really looking forward to touching upon this subject again in the future. But let's get back to the Q2 report and sum up with some key takeaways from the quarter. There's no surprise that we are facing a challenging market as you heard today and before also. We are delivering on the projects taken during more pressured circumstances. I'm not satisfied but I'm proud to say that we are doing what we can. We are carefully selecting the projects. We maintain focus on margins over volume and that has paid off with relatively stable development and we continue to be best in class when it comes to margins. Operationally we have kept very busy. Inmatik has been along in the works and automation is a new exciting addition to our expanding service offers as you heard before now. There is many different ways to grow and we have successful track record in showcasing that our startup concept really works. And finally we are now starting to see some positive signs in the market. One that I mentioned before in this call and Kristina as well is the demand for technical consultants but while technical consultants are positioned early in the cycle the majority of our installation services are late cyclical so this means it will take some time until you might see the changes in our numbers but we are more than ready to grab the opportunity we see once the market turns. And I also like to conclude with that every day we're a little bit nosy today. And with that I will thank you for joining this call and we will open up for some questions.

If you wish to ask a question please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question please dial pound key six on your telephone keypad. The next question comes from Carl Bockvist from ABG Sundal Kalia. Please go ahead.

Thank you good morning. My first one is on other Nordics strong profitability here. Was just curious to hear about the drivers here if there is any particular region behind it or a combination of the two.

I mean we have talked about other Nordics for quite some time and we have said that we are trying to improve profitability in other Nordics. We have over the year downsized it a bit and worked with profitability. That work continues and we are seeing some positive signs and we're also seeing good trends. However the margin that was in this quarter I would not focus too much on the specific margin this quarter. I mean we are a project based company so unfortunately we cannot expect that kind of margin always going forward but we see some positive trends and good work has been done in these regions over the last couple of years. But it was a really really good quarter for them and that happens from some time to time when it comes to projects and quarters.

Understood and on that topic but on the opposite side perhaps if we put it that way in Sweden where the margins is down and adjusting for the credit provision last year it's down from well almost nine. So any particular effects in Sweden that weighs on the margin?

It is a little bit the same answer as before but the opposite basically when it comes. I mean it is one quarter. I wouldn't put too much emphasis on neither of the Nordics or the Swedish marginal for one quarter. Obviously this quarter for Sweden they have also taken the cost for this enigmatic investment that would be one of the things specifically. I mean hiring 60 FDs and so I wouldn't put too much emphasis on the difference in these segments in one quarter.

Understood and my final one is just usually when we look at seasonality in your business we tend to see a lower margin in Q3 compared to Q2 and then a better margin in Q4 again. Any reason why this shouldn't be the case this year?

I think seasonality like you said historically it's been that type of seasonality and yeah I see no big difference. I mean the years look the same the dates are the same so I would say that that's a good assumption but it comes down like I said once again we are a project driven business so it comes down a lot to when projects are finalized started and which project we work on during the quarter but obviously looking at the history will give you some indications of where we're

going. Understood thank you.

The next question comes from Johan Dahl from Danske Bank. Please go ahead.

Yes good morning everyone just a few questions firstly on Robin you talked about invoicing reflecting orders taken in H2. Would you say that the current invoicing and current profitability fully sort of reflects the weakening market conditions or are you still anticipating you know certain contracts taken prior to that period which will impact profitability negatively?

I mean like I said we will be living with the projects that we have taken in H2 last year and also obviously in the beginning of last year as well and we have to finalize those and that's what I also mean that we are late cyclical. They were taken at a tougher sort of say price point than maybe those projects that were taken in 2021-22. So we have to live with that. That's also why we launched last quarter this so to say savings program which are also to make sure that we sort of say downsize in some areas and in some daughter companies as well to fit the market situation we are in today. So we will obviously be affected going forward as well but we try to do everything we can to protect the margin. We have shifted our focus into like Christina mentioned earlier more service shorter projects. We tend to steer away from these really large projects and we don't want to be stuck for too long time going forward in projects taken now.

All right also there seems to be a fairly big shift from sort of sub consultants to your own sort of staff own employees

compared

to last year. Does that sort of impact the reported numbers in any particular way that we should be aware of sort of in understanding the numbers that you deliver?

So if I understand the question it is correctly that we tend to not use so much subcontractors anymore due to that and that has to do with that volumes are down overall so we don't need them in these subcontractors that we use are taken to be able to sort of say work in the peaks and obviously now we're not in a peak so we will tend to not rent so many people in. The reason for that and how it affects is basically we tend to be more profitable on our staff but on the other hand renting and so to say obviously helps dividing the overhead costs on more FTs or more employees in that sense so yes it affects our profitability a bit but tendency is that own staff are more profitable.

Got you final one just on the contracting order book you talked about you know big chunks being allocated to large construction companies does that mean that the duration of the order book is sort of longer or more extended in time or is it you know similar to what it's been previously?

For I think for the order backlog of our construction companies it's best to talk with them what we can see from the outside is that they are they have taken a lot of orders some were focused on the infrastructure but also infrastructure projects tend to lead to normal installation projects as well so I'm guessing they will try to keep a healthy mix on their side as well so it's hard to talk about duration of their projects.

Good good thank you.

The next question comes from Johan Lanslis Sunden from Carnegie please go ahead.

Good morning and thank you for taking my questions a couple from my side the first one is on details cash flow and related to minority buyouts is it possible to give some comment how that kind of profile looks ahead of us do we have more minority interest to be without in the coming quarters or how should we think about that?

I mean the way it is done is that we have with this startup model and a few of the companies that we have acquired we try to limit risk a bit and maybe not buy the whole company day one so where we go into sort of say joint venture we buy maybe 70 percent and the additional 30 percent is bought at a later time and these are options that we have and these options are executed during certain time periods and in Q2 it was such a time period where we saw a good possibility to utilize those options and be able to buy these minorities at a sort of a better price than we could buy new companies for so then that's why we executed these options as well so it's hard to say exactly because different companies have different time slots of the of the options where we can execute but I think on top of my head Q2 is a typical one because you have finalized the annual report in Q1 for most companies and then there is a discussion on whether we want to execute the option or not

so basically no more this fall at least

So on top of my head we don't have any big ones in the fall but like I said these options are run typically in a six month period where we can execute the options or not and on top of my head we don't have any big ones at least in Q3

Excellent and then two questions on kind of the the top line trends and in the Q1 report you give some color on how you have made layoffs and cut down on subcontractors etc is it possible to give some comments how that has developed during the summer and where the kind of changes are going to go?

Yes absolutely I mean this is an ongoing project as you all know it takes a little bit of time to execute but we have executed a lot of the points we are I would say on target we continuously adapt the cost structure of subsidiaries where we see it necessary based like market outlooks as I explained before but we also have areas where we are actually increasing the number of FTs for instance in Matic intake but we're also looking over our all cost base in some subsidiaries so it's a lot of market driven like I said we are decentralized companies we look at the local market outlook and take decisions accordingly

Great and then on the kind of comment you had on the kind of potential and gradual recovery that is anticipated and that it's hard to predict when it will happen is it fair to assume given the comment that it shouldn't materialize during the fall at least because now we're quite far into Q3?

That is a good assumption

And discussions with clients are it more like before summer or is it even after the summer of 25 for the volume pickup to really materialize for your site?

It's very hard to say like the question beforehand here regarding the order backlog of our customers it obviously depends on which of these orders we are able to win which we want to win which we win so to say so it's very hard to say when this happens the only thing that we can see is that the order backlog is increasing on our customers which if everything stays normal would generate more projects for us we're also seeing a so to say a better interest rate environment going forward which is positive for the construction industry overall we are also seeing the technical consultants have more to draw and more to calculate which tends to lead or mean it's at least an indicator that projects are coming but then it's also up to which one do we win and which one do we want to win

and

we also have to see that the price is correct as well on these projects

Just one final if I may on the M&A market how would you describe the competitive environment notice that there's quite some financially sponsored competitors to you out there making quite a lot of acquisitions yeah

my guess is that those editors are also on the way to list so I leave it at that so I think that there are some aggressive companies out there doing a lot of acquisitions in a market like this and my guess is also that they are on the way to selling their business or listing their business

would you say that given your your focus on by investing class businesses is it tough I guess it should be a bit tougher when the kind of competition is higher or

yeah but we saw a similar thing happening a few years ago also if you remember the cause as well we had some competitors that were just listed and they were quite aggressive and we all know how that turned out so I mean we focus on our view we focus on the companies that we want to take into the business that we believe has the capacity of delivering in an environment like in spalco where we think that the culture is fitting we see that the price is correct and then we will be doing those acquisitions and we're very open to do acquisitions but we have basically not seen these companies the last couple of months instead we are focused on growing in other areas like in matic intake intake has started a new company in Finland a new company in Norway I think it is two companies now in Sweden so we have focused on on other areas and like you saw in the presentation today I think we have six subsidiaries now in in matic as well and more coming as well so I think there are different ways of growing and in this market environment we more focus on these startups and then acquiring companies

and then we will be doing the same thing in the next couple of months so we are focused on the companies that we believe have the capacity to deliver in an environment like in spalco where we think that the culture is fitting we focus on the companies that we believe have the capacity to deliver in an environment like in matic as well so I think we have focused drop in Sweden compared to last quarter just wondering if there was something specific indeed the year of year says I think service was down six percent while I if I remember correctly it grew in Sweden in the first quarter

like it's a little bit the same when it comes to projects that the to look at one quarter is a very short period of time in a market or like in a company like ours I don't know if you have anything you want to

minor quarter defective I would say

okay so it's nothing that we should

it's nothing that we have title

yeah

it's nothing that we have seen or anything that we can basically comment on regarding that we see a trend or anything like that

yeah okay okay and then I just have one question here on the on the order or the orders you've taken now basically would you say that the margins in the orders you're taking right now are at similar levels as the ones that you're now producing on taking in h2 last year

I would say we have a similar price indications as last year and as we have said before it's one thing with the price now it now it's all about being efficient in the projects as well to sort of get the the the payment that we anticipate when we take the projects as well the price levels I would say are similar

okay that's all for me thank you and have a good day thank you very much

the next question comes from Carl Bockvist from ABG Sundal Collier please go ahead

thank you just two follow-ups here on on first on the in tech and in matic one one being now up and running and one being the next project to start up so to say just curious how how many people roughly are you now in in tech and do you have any kind of goal how big in matic should be in say three years

so in first of all in tech is roughly 400 technical consultants in three countries and in matic is now 60 ft in sweden at the moment and we will do the same since it was quite successful in in in tech case that we will not reveal exactly our plans for in matic and how we will grow but this is obviously something that we put a lot of emphasis on and put a lot of time on and we worked hard to to make this happen and so obviously this is when it's talco does something we do it for real so we will continue to grow the business but we don't give out exact numbers of what our goal is at this time

understood then question for christina one first on on capital uh do you foresee a need or ambition to continue to step up the intangible capex as well as the tangible capex if we look at it on a kind of annual basis

the tangible assets in stalko as you already are aware of is most connected to our acquisitions and the tangible more connected with our industrial business and industrial installation business so when it comes to uh uh this follows of course our our our operational performance and our priorities when it comes to investments in in these in these two different areas because they are very different actually

understood and then on working capital and payment conditions and so on has that aspect also become more difficult in this market if we look ahead in terms of you know working capital build up or releases

i think we have been on this topic earlier working capital is it's hard work and we have and continue to have a diligent focus on it we had a strong cash stronger cash conversion this quarter but nevertheless in the working cap if we had the dip but it's deep from from the invoice when it comes to tying up some money in accounts receivables at the end of the quarter so we are not worried about it but it's hard work and we will continue with it and of course it shifts a little bit quarter to quarter and month to month

understood that's all from my side thank you

so as a reminder if you wish to ask a question please dial pound key five on your telephone keypad the next question comes from johan longfist sundan from carnegie please go ahead

just one follow-up from my side on intake we you mentioned that there was a strong quarter for that part of your business is it possible to give some color on the kind of comparison during the fall for intake because you you said if i remember correctly that you have seen a gradual improvement that business in restricted q1 numbers just curious to see if there's a tough or easy comparison for that business in the fall

so compare just so i understand so you mean comparison numbers from 23 so yeah they have they have some easy yeah easy easy but they have some and not too tough numbers let's say it like that not too tough numbers to beat in the fall to be better than last year let's say it like that

but we're in tech pro break even in h2 last year already

now you're into a little maybe break even or slightly below fortunately a little bit too much detail to to have in top of my head on all the business areas but i would say that they they broke even and started making money mainly in q1 last year but they were not too bad in the end of the fall either so that's on top of my head

yeah excellent that was all for me thanks a lot

there are no more questions at this time so i hand the conference back to the speakers for any written questions and closing comments

we do have some written questions to start with when will the abita margins in the swedish market recover and what actions are needed to reach 8 percent the beta margin

i would say that the actions to reach the eight percent are the actions that we're taking like i said before we are proud of the work that we've done and the work that are done by our 6200 employees obviously we need some help and and getting market back on track basically and we will be definitely back on on our target when it comes to sweden i mean one quarter is too short of a time period to talk about in this type of business where we deliver projects we are running 6000 projects at the moment so i think that it is a little bit too short time period to talk about that something has happened in in sweden

and the final written question any forecast when you will start to see organic growth again

no as mentioned before we're seeing some positive trends we are late in the cycle and i think that we'll leave it at that and and like i said every day that every new day a little bit closer to a good and better market so i think we will sum it all up there and thank you all for the good questions and thank you for listening in and have a nice day everyone