Instalco AB (publ)

Hello everyone and welcome to this presentation of Instalco's report for the second quarter of 2024. My name is Robin Bohman, CEO of Instalco and with me today I have our CFO Kristina Casper. 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 6,200 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 SEC 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%. Solid cash flow of 907 million SEC. 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 products that we are now delivering on were for most part, I would say, 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% 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 with Intec. 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, Christina, 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 net sales with comparison of Q2 present and prior year, as well as the development of the order backlog. Acquired growth represented 2.1%, with the biggest percentage increase within rest of Nordics. Organically, the top line was down 6.4%, reflecting our focus on margins over volumes. in the current market environment. In total, net sales declined by 4.6% and amounted to slightly above 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 several quarters now highlighted how well our subsidiaries have 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% 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%. While this is lower than the 7.7% last year and we are far from satisfied, it is still a proof of strength given the market environment. The absolute majority of our 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%, which is less than in Q1. Acquisitions contributed with a growth of 1.4%. 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%. Meanwhile, the order backlog remained roughly flat and increased somewhat in relation to net sales over the last 12 months. And a summary for the rest of the 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 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 Instalco, this translated to an essential flat net sales development in Q2. Organically, net sales were down by 5%, while acquisitions contributed a positive 3.7%. EBITDA grew to 85 million, corresponding to a margin of 7.7%. The improvement is driven by operational performance combined with quarterly fluctuations. On to 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 net working 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 Instalco team. IT line service, which strengthens our industrial offering in Finland. The company, based in Salo near Turku, 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 plans. 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 Instalco 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 7.2% or 7.4% 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. 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. That is certainly true and definitely noticeable. This order highlights that the market is not completely dead. Four Instalco companies have been awarded the contract for installations at the new landmark project Docks in Malmö, which is a new build of 160 apartments. The installation for Instalco are multidisciplinary and includes electrical, heating and plumbing, ventilation and sprinkler. The following Instalco companies will be involved, Elpågarna, Rörläggaren, Bivänt and Sprinklerbolaget. In total, this adds up to a combined order of volume or value for Instalk 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. 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 in Matic. So I will talk a little bit regarding what it is, how it fits into the rest of Instalco and how we will do it. In Matic 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 aftermarket 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 InMatic. But let's get back to basics. InMatic 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 the automation fits very well into Instalco's 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. Enmotic 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 strengthen 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 Intech, where we now today have over 400 consultants in three countries, has been very successful. Already last quarter, we mentioned that they reported margins over the group average, and that is also true for Q2. Intech was built mainly organically through Instalco's startup model, and this enterprise It's also how we will do it 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 Instalk already had a 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've 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. In Mautic has been long in the works and automation is a new exciting addition to our expanding service offers as you heard before now and 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 we 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 closer to that today. And with that, I will thank you for joining this call and we will open up for some questions.