Instalco AB (publ)

Welcome to this presentation of Instalco's fourth quarter and the full year 24 report. My name is Robin Bowman, CEO of Instalco and with me today I have our CFO Kristina Kasperi. Let's kick off as usual with a short summary of the company today. Instalco is one of the leading installation groups in the market, Sweden, Norway and Finland. And since very recently, we also have a presence in Germany. As you know, we operate in a very decentralized model, but with strict control mechanisms in place. In total, we have over 6000 employees working every day to help facilitate the green transformation. Demand for services we offer is supported by several strong underlying market drivers. As we now move into Q4, the LTM numbers also reflect the full year 24. Net sales amounted to 13.7 billion and we ended the year with an order backlog of 9 billion, which represents a book to build of 66%. When adjusting for run-off costs taken in Q4, our EBITDA amounted to 944 million, corresponding to a margin of 6.9% compared to 7.6% in 2023. This is still a bit low, but does show our strong resilience in a very challenging market over the last year. Part of the resilience can be explained by a quick adaptation by our subsidies to service, which has covered some of the shortfalls on the project side. So for the full year, service represents 35% of our revenue compared to 30% for full year 23. And I'm also pleased to see that our cash flow from operations has held up and is down by less than our earnings, showcasing our strong focus on improving working capital. Let's go in and move into a few of the highlights from the quarter. We've been facing, as I said before, a very challenging market all through 2024. We have during the year taken measures in various subsidiaries and adapting operations with efficiency improvements and cost savings. We intensified those efforts in Q4 to strengthen our long-term competitiveness. This includes both further layoffs as well as starting to merge and closing down eight loss-making subsidiaries. This initiative will gradually take effect during the coming year and result in a one-off cost in the fourth quarter. In parallel with this work, we have also taken several major offensive steps in Instalco's development during the year. And I must say the most significant one came in November in 24, when we took the first step into Germany by signing an agreement for a minority investment in Fabri Group. Fabri is a decentralized, acquisition-driven installation group, and we have a long-term plan of achieving majority ownership. Further, our technical consultants at Intech continue to deliver margins above the group, And last year, we also added automation and taking important steps there as well. We recently announced that Enmatic, which is our automation business, is the first in Sweden to enter into the highest level of partnership with Siemens Smart Infrastructure Business Area at the national level. This is a strategic step for us, as well as confirming that our build-up of Inmatik is showcasing good, strong, long-term work. Energy efficiency and lower consumption of resources provided the foundation of our services that Instalco offers today. We have also noticed a growing interest from our investors but also from customers regarding measurement and reporting of greenhouse gas emissions. This has been a priority during the year and we were also now prepared for the CSRD reporting. We announced our climate targets in December which Kristina will go through in more detail shortly. So it sums up and will make our customer offer even more attractive, I would say. But now I would like to hand over to you, Kristina, to take us through the financials development in more detail.

Thank you, Robin. Let's start off with looking at how our net sales and order backlog has developed during Q4. Net sales was down by 6.8% to 3.6 billion with an organic development of minus 7.4%. The organic growth was down in both segments, but more in Sweden. For the group, this is a reflection of our prudent order taking over the last year given the price situation in the market. Our order backlog, however, grew by 6.7% in the quarter, all organically. The improvement is driven by segment Sweden, while rest of Nordics was down somewhat. We have maintained our cautious approach to order taking, prioritizing the right projects at the right price for the right customers. There are more projects available in the market, which may be an indication that the market is showing signs of turning. But the importance to be prudent on calculations remains. Our subsidiaries have continued to impress when it comes to shifting staff to service when there is not enough attractive project business to go for. And service remains an important stabilizing factor. For the full year, the service business grew over 10% in absolute numbers, In the quarter, service made up at record high 41% of sales, and as Robin mentioned earlier, it grew from 30 to 35% of sales for the full year 2024. Then on to looking at our earnings, EBITDA in both millions and margin. To meet the challenges posed by the market, we have taken action continuously throughout the year. Our efforts were intensified in December, when we announced an action program including further layoffs, some project write-downs and initiation of mergers and closures of eight loss-making subsidiaries. This resulted in one of costs of 65 million, which were charged to EBITDA in the fourth quarter. EBIT was also affected by additional one-off costs, impairment of goodwill and other intangible assets of 29 million due to closure of subsidiaries. So total one-offs impacting EBIT was 94 million SEK. The fourth quarter tends to be seasonally strong in the installation business. In the quarter, the EBITDA margin amounted to 5.4% compared to 8% last year. The lower margins is a result of one-off costs and the current market situation. Adjusted for the one-off costs, the EBITDA margin amounted to 7.2%. This is a step up from Q3. The adjusted numbers this quarter represent a 0.8% point margin drop year-over-year compared to a 1.4% point margin drop in Q3. To break it down into more detail, over to a slide that summarizes Segment Sweden in Q4. Overall, net sales were down to 2.5 billion, while organic growth was down by 9%. The one-off costs relating to Sweden amounted to 54 million. Adjusting for this, the EBITDA margin amounted to 7.7% compared to 9.1% last year. Without adjustments, the margin came in at 5.5%. For the full year, Intex Technical Consultants was the only business area that reported a stronger margin. The development in other business areas in Sweden varied quite a bit between regions. The order backlog grew organically by almost 10% to roughly 7 billion. We have noticed the market is starting to move a bit. There are more projects to calculate on. Even so, we are still following our current strategy of choosing the right customer and the right assignment at the right price. We have not dropped that principle. And now for a summary of the rest of Nordic's segment. Overall, net sales were down to 1.15 billion, while organic growth was down by 3%, in line with the year-over-year decline we saw in Q3. Acquisitions contributed with a growth of around 1%. The one of costs relating to Resto Nordics amounted to 11 million. Adjusting for this, the EBITDA margin amounted to 6.0% compared to 5.3% last year. Without adjustments, the margin came in at 5%. Both Norway and Finland improved the full year margins compared to 2023. The order backlog decreased organically by 1.6% to 2.18 billion. And here we see the backlog growing for Finland while Norway decreased slightly. Then on to the cash generation in the quarter. In Q4, cash flow from operations amounted to 471 million, an increase compared to last year despite the lower earnings. The positive development is mainly due to improved working capital related to accounts receivables. Adjustments for non-cash items was notably higher due to the depreciation and amortization including parts of the one-off costs. This affected earnings but does not impact the cash flow. Cash flow from investment activities is mainly impacted by normal capex investments. No acquisitions have been finalized in the quarter as the minority investment in Fabri is yet to close and the majority of the purchase price will be paid in newly issued Instalco shares. The cash flow from the period looks low due to a larger repayment of debt. The operational performance is reassuring to see that despite the challenging market, we are reporting stable cash conversion at 89%. Finally, we look at our performance during the full year 2024 in relation to our financial targets. For those of you who have listened in on all calls during the year, you are familiar with the challenging installation market that has signified 2024. We have intentionally been very selective when taking on projects to protect our margins as much as possible and we have remained cautious on acquisitions. This has led to an organic development of net sales of minus 6.5% for the full year, which is below the 10% target, the target which is set over a business cycle. So looking over the past five years, we report a compounded annual growth rate of close to 14%. Our adjusted EBITDA margin came in at 6.9%. We are not satisfied and we have increased our mitigation efforts in Q4 as previously touched upon. The measures will gradually take effect during the coming year. Cash conversion remained stable at 89% due to the high focus on working capital. At year-end, our leverage came in somewhat above our target at 2.7 times EBITDA. This is primarily attributable to the decrease in earnings. And as this is a year-end report, the board proposes a dividend of 0.68 SEC, maintaining the level of last year. This is above the 30% policy due to the strong cash flow and forward-looking optimism. Finally, we have a new target on this slide. In December, we announced our climate target, which we will follow up on annually. Long term, our goal is net zero in the entire value chain by 2045. And in the medium term, our goal is to decrease the emission intensity of greenhouse gas emissions in scope one and scope two by 50% by 2030, with 2020 as the base year for comparison. We will publish more information of this and our progress, of course, in the annual report for 2024. So, by that, over to you, Robin.

Thank you very much, Kristina. Going into the project highlight of the quarter, this one from Finland. Two Instalco subsidiaries, Kopio Elvitalo and Twin Putki Oy, were contracted on a joint assignment for installation at a major grocery store project in Kopio, a city situated south central in Finland. The project involves two companies. It's a new construction of approximately 12 000 square meters and that is part of the end customers expansion to open several new stores in rapid growth areas. Instalkos subsidiaries have been contracted for the heating and plumbing, ventilation and sprinkler installations with the project value of approximately 4 million euros. In 2024 we have spent a lot of time on preparing for what I call the next big step for Instalco. So this quarter's theme is a no-brainer. Given that we have explained and expanded outside of our three markets and gone into a new country, this is obviously the theme for the quarter. I will keep this deep dive relatively short as there is a full telco available on our website from the announcement in November 13. But I will comment and cover some small updates. First of all, Fabri is a fast-growing group founded in 2020 with a presence in several locations in the fragmented German market. The company is acquisition-driven with a decentralized model and has subsidiaries with specialist experience in areas such as electrical, heating and plumbing, ventilation and related disciplines. Germany is one of Europe's largest installation markets with the size of around five times the Nordic market where we are present at the moment. We have long said that we believe in the decentralized Instalco model and that it can work outside of the Nordics and we think that remains true. We found out very early on in our research about Germany and the German market, that it's important to local connections. So the key has to be, has been actually to find the right local partner and entrepreneur. With Fabri, I'm happy to say that we've done so. short around deal structure. Deal structure is set in four stages. The first step includes a capital increase whereby Instalco gets a minority stake of 24%. Due to administration timeline and some German bureaucracy it has not yet been finalized but we expect to close during Q1 this year. Step two will be acquiring a further 27% of the shares in Fabri, which will result in a majority shareholder of Fabri. And we will also include Fabri in Instalco consolidated financial statements. Based on the current estimates that we have, this is expected to occur no earlier than the first quarter in 26 and no later in the, and latest, so to say, in the second quarter of 27. The fourth and final step during the period is an option and it is running through 2030 to 2033. And this is also the first time that management can sell their shares, which means that they have remained a very loyal investor for over 10 years in Falby. This step-by-step approach ensures a successful establishment in Germany, wherein Stalco partners up with the founder and entrepreneurs to share the upside, but also the risk. Fabri is based in Nuremberg. I showed this slide in November, showcasing that the group employed 400 people and 12 subsidiaries across Germany, with an annual turnover of approximately 70 million. And as said before, Fabri is a fast growing and acquisition driven. Since November, they have added two more companies to the group, which now consists of 14 subsidiaries, 500 people and 80 million in turnover. And as I've said before, in November Fabri is the natural fit for us and our strategic vision. We operate on the same model to acquire and strengthen best-in-class installation companies. The company's culture is very similar. I'd even say that they're modeled on the Instalco way and we see great opportunities for collaboration. We can provide the best practice and knowledge-based and knowledge sharing from our 10-year history of M&A strategy and business development within the installation industry. Through Fabri, we get a unique opportunity and a platform to continue the expansion and growth in Germany. With local knowledge of the market, it is a value-creating expansion with greater risk minimization. Finally, I like to return to Q4 and also take the opportunity to go through some key takeaways from the quarter, but also the full year. To sum up, we are now closing the books on what was a very challenging year. Price pressure, weak demands due to high interest rates and macro factors, delayed project starts in large projects, customer bankruptcies and reduced change orders are a few of the obstacles we have met along the way. I'm proud of the quick adaptation of subsidiaries shown by the growth of the service business, both as share of net sales, but also in absolute numbers. Our decentralized model has been key in this, as well as the implementation and increased mitigation efforts that were taken during the year, but also increased in Q4. and the measures will gradually take effect during 2025. We now see that more projects are available in the market, as Kristina said, also showcasing by our growing order backlog, which may be an indicator that the market is slowly showing some signs of turning. But it's important to state that we are still selective on taking projects and you need to remember that the installation business is late cyclical. But I now say that we are cautiously optimistic for a better future. And we are also positioned to capture the profitable growth when the market improves. We have invested in our offers, both on the technical consultancy side that are reporting very strong numbers. Our automation business is showing proof of concept and our investment into Fabri ensures further M&A runway for at least 10 years to come. Also our climate targets that are part of our work and our more sustainable offer and will be another tool to strengthen the relationship with our customers. On the social side our staff remains our most important asset and during the quarter we conducted an annual employee survey and I'm very happy to say that the report we also improved our employee net promoter score to 31 from last year of already a very strong 30. This is quite a bit higher than the rest of the industry that we're active in. So we're very proud of that. To round off, I would also like to take the opportunity to thank customers and shareholders for their trust, and most importantly, our employees for their efforts and engagement during the year. And with that, I would like to thank you for joining this call and I now open up for your questions.