Instalco AB (publ)

Welcome everyone to this presentation of Instalco's report for the second quarter of 2025. My name is Robert Bohman, the CEO of Instalco. With me today, I have our CFO, Kristina Kasberg, and Per Sjöström, current chairman and soon to be interim CEO. As usual, let's start with a brief overview of Instalco today. Instalco is one of the leading installation groups in Sweden, Norway and Finland, and also with a presence in Germany. Our decentralized model is a core strength, empowering our more than 150 local companies to act independently while benefiting from strong governance and shared tools. With more than 6,000 employees across the group, we support the green transformation every day. And the demand for our services continue to be underpinned by powerful long-term market trends. First, a quick glance at our last 12 months' numbers. Net sales amounted to 13.6 billion, and we ended the quarter with an order backlog of 9.3 billion, which represents a steady book to build of close to 70%. When adjusting for one-off costs taken in the past three quarters, our EBITDA amounted to 871 million, corresponding to a margin of 6.4%. We're not satisfied with the margin, even if it's an improvement sequentially, We continue to take firm actions and strengthen it. In a market where many small and mid-sized companies and competitors are going out of business, our stability is a clear sign of our resilience. A key part of this resilience is how quickly our subsidiaries have shifted focus towards service. This has helped offset weaker demands in projects over the past years. In Q2, service remained strong and accounted for 36% of our net sales. We also had a very strong cash flow in Q2, which brought our last 12 months cash flow from operations to above a billion SEK, even despite our decrease in earnings, showcasing our strong focus on improving our working capital. so summarizing a bit of the quarter and showing some some of the highlights we're seeing sequential improvements in our business however it is on an overall market remains weaker cash flow was strong again in the quarter supported by our financial stability and ability to invest where it counts we also signed a new bank facility which gives us additional flexibility going forward Another interesting topic is our technical consultants Intech continue to deliver margins above the group and as you heard me say many times before they are earlier in the cycle than our installation company which is a positive sign looking ahead. And on that note I've always said that we will deliver this investment in a solid way and looking at what we have built in Intec over the past five years through our proven startup concept, the return on investment is very clear. If you compare our cumulative losses before breakeven to today's rolling 12 months earnings, the implied multiple of this investment is 0.5 times. So a significant and a sign of how quickly we turned the business profitable. You could also calculate instead of all our shareholder contributions in relation to EBITDA, then the multiple will be around 1.5. Still well below the multiple around five to six, we typically pay for an installation company. Or the double digit multiples recently seen in the transaction involving technical consultancy firms. So it showcases that our long-term investment in structure, recruiting, and quality has paid off, built a profitable consultancy business with 500 employees, now standing firmly on its own. And as you all know, a year ago, we started an automation business built on the same foundation. But I would like to hand over to Kristina, who will now take you through our financial development in more detail.

Thanks, Robin. Let's start off with looking at how our net sales and order backlog has developed during the quarter. Net sales was down by 3.9% to 3.5 billion with an organic decline of 2.8%, whereas acquisitions contributed positively with 0.3%. Organic growth was down in both reporting segments, but more in the rest of Nordics. Currency had a negative impact of 1.4%, primarily due to the weakening of the Norwegian krona and the euro. On the other hand, our order backlog grew by 4.6% organically, with the biggest contribution coming from the rest of Nordics segment. We have maintained our cautious approach to order taking, prioritizing the right project for the right customers. While the market is slowly recovering from low levels, we see even greater local variations in demand than usual. Metropolitan areas are starting to regain momentum. Price pressure remains, but there are more and more projects on the market which enables better selection in the tendering process. In addition to the backlog, we have our service business, which remains an important stabilizing factor. In our service business, we saw growth of 6% in absolute numbers in the quarter. This resulted in service making up 36% of sales. Then on to our earnings, EBITDA in both millions and margin. Q2 tends to be seasonally better than Q1, so also this year. In total, EBITDA excluding items affecting comparability amounted to 236 million, corresponding to a margin of 6.7%. The lower earnings are primarily due to the performance in the other Nordics segment and certain subsidiaries in Northern Sweden, which have seen a decline in both revenue and earnings, although they are showing strong development in the order backlog. These are the same companies that experienced temporarily lower capacity utilization in Q1, which continued during the quarter. The action program we announced in December is progressing, though implementation takes time. We continue to follow up closely and are taking additional steps where needed, particularly in subsidiaries facing tougher conditions, also for companies other than the eight communicated in December. To break it down in more detail, over to a slide that summarizes segment Sweden in Q2. Overall, net sales were essentially flat at 2.5 billion with an organic development of minus 0.8%. The order backlog grew organically by 0.4% to 6.6 billion. The EBITDA margin amounted to 6.7% compared to 7.1% last year. The Swedish market shows early signs of cautious recovery, particularly in the largest cities where several major projects have started or are being prepared for tender. However, conditions remain weak in parts of central and northern Sweden, with signs of overcapacity and continued price pressure. Regional differences involved are larger than normal. And also a summary of the rest of Nordics segment. Overall, net sales were down to 980 million with an organic decrease of 7.3%. Acquisitions contributed with a growth of 0.6%. EBITDA margin amounted to 6.6% compared to the very strong 7.7% last year. Finland was flat on sales despite the challenging market environment. The Norwegian business decreased year over year but showed positive development compared to the first quarter. The business is to some extent continues to be affected by temporarily lower staff utilization in certain subsidiaries. This is still linked to the timing gap between completed projects and new ones starting up. Both countries report lower earnings compared to a year ago but significant sequential improvement from the first quarter. The order backlog for the segment increased organically by 15.9% to 2.7 billion and also represent the sequential growth from 2.4 billion in Q1. Then on to the cash generation in the quarter. In Q2, cash flow from operations amounted to 202 million, an increase of 28% compared to last year, despite the lower earnings. Almost all components of working capital improved in Q2 compared to the same quarter last year, primarily driven by accounts receivables and contract assets. Further down in the cash flow analysis, we find the expected outflows during the quarter. 182 million in dividends as approved by the AGM in May and 38 million in earnouts paid to acquired companies. In the coming quarter Q3, we expect to make some payments related to earnouts and the buyback of minority shares in a few subsidiaries in line with previously agreed option structures. The strong cash flow in the quarter once again highlights the underlying discipline in our operations, a key strength, as we navigate a demanding market environment. During the quarter we have entered into a new 3.4 billion credit facility with our existing banking consortium. The facility is a two-year term and an option to extend by another two years. This strengthens our long-term liquidity and provides greater operational flexibility through continued collaboration with our established banking partners. Finally, I will look at our performance on a rolling 12-month basis in relation to our financial targets. Our targets are set over a business cycle and in the current market we continue to prioritize protecting our margins and thereby selective order taking over volume. The adjusted EBITDA margin came in at 6.4%. While still not at a satisfactory level, it is improving. And we continue to take targeted actions in subsidiaries where needed. Cash flow was very strong in the quarter with a cash conversion of 107% driven by continued focus on working cap. Our leverage remains above our own long-term target of 2.5 times net depth to EBITDA as expected following the payments in the quarter. We have strengthened our financial flexibility through a new bank agreement signed during the quarter. And we also remain committed to delivering on our climate targets. So by that, over to you again, Robin.

Thank you very much, Kristina. And I will continue to talk about our German investment in Fabri. So Germany continues to grow market for a growing market for us. And our platform Fabri is progressing well. Since our initial investment in November, the group has since then grown from 12 companies to 17 companies. as you can see on the map here, spread around Germany. Fabri is acquiring the same type of high-performing, entrepreneur-led installation companies as we have done in the Nordics. Simply put, we allocate capital where it delivers the best result, and right now that is in Germany. And on the right-hand side here, you can also see the different steps in the acquisition. We initially invested, so we became shareholder of 24% in Fabri in Q4 24. Next step, step two, will be an initial investment of buying 27%. of the shares in Fabri that will most likely, if prognosis keeps going the way it has done for Fabri, be somewhere in the mid 26. And then you have step three and four you can read yourself. If we look into the kind of acquisitions they have done recently. So you can see here on the slide, so they've done three recent additional contributions of three companies. contributing to 14 million euros in annual sales and further strengthening Fabri's technical scope and also geographical reach. These are acquisitions that closed actually after the end of Q2, so they're not included in the numbers yet. All companies remain local, managed and fully aligned with both Instalco and Fabri's decentralized model. This continued momentum confirms our strength in our platform approach and the significant opportunities that we see in Germany and in the German installation market. Then I would like to move on to the quarters theme. It will be a shared segment here between myself and Per as a sort of a handoff, since this will be the last quarterly report for me at Instalco. So quite fittingly, the theme for this quarter is called The Road Forward. maybe let's start a bit with how it all started. I've had the privilege of being part of this journey essentially since day one back in 2014 when Instalco was founded and the initial five companies sort of say started Instalco and from there on we have grown the market and also grown our company by consolidating the installation market, also looking into adjacent markets such as the industry, technical consultants, and also we IPO the company in 2017. So it's been a fantastic journey so far. Of course, these last years have been somewhat tougher for the installation business with COVID, material shortage, inflation, increased interest rates, and an overall downturn in the construction industry. But with that said, we know what we are capable of. Despite the headwinds, we have achieved incredible things together. We have built a well-functioning service business that started from around 17% of sales that are in this quarter up to 36%. We have a strong offer for the industry. Today that stands for about 25% of our sales with a new customer base. We built a profitable growing technical consultancy business that today stands for around 500 employees and we started that from scratch. We launched an automation business on the same platform as our technical consultants and today they roughly have 80 employees. And as I just mentioned, we also in 2024 entered into a new market together with Fabri in Germany. So I'm very proud of what we together have achieved during these last years, despite the market situation. And I feel confident that Instalco has a solid base to continue from. Per and I have discussed, of course, about what is the next step for Instalco. But I would like to hand that part of the presentation over to you, Per. to maybe explain a little bit on the future for Instalco.

Thank you, Robin. And I will give you some flavor on what now is going to happen in Instalco. But first of all, a few words to and about you, Robin. A more loyal member of a group management team, I think it's impossible to find. You started up as head of M&A, after that CFO. You were also at the same time, I will say, CEO of Finland. And I also can mention that during a couple of years, I think you had all these at the same time and all these roles at the same time. Always alert, forward leaning, quick, positive and loyal. And you have contributed to a really change in the installation industry in the Nordics. As you mentioned, you have also built up a fantastic group of consultants at the same time, of course, and the entry into Germany is another fantastic story. A lot has been done by you, and I will here and now thank you for the fantastic work that you have done. And I can also say that Instalco will never forget what you have accomplished and done for Instalco. Thank you very much, Robin. Okay, what's going to happen now in our company, our fantastic company? We will now intensify our go-great efforts by launching an operational efficiency program. You can also call it operational excellence. And that means a more hands-on approach than earlier. We are moving a bit from the hands-off approach, but we will still, of course, have our outstanding business model intact. That means that a decentralized model that we have almost invented a couple of years ago will remain. and the PLL and all the responsibilities will still be out there. Pull, not push, is the key to this. You can see at the slide here. Clear expectations and accountability is very, very crucial. We will start up, as I mentioned, a program with policy deployment inside the organization. We have, I mean, we have been more like a help desk. Google has been more like a help desk. Now we will put it inside the organization with full, as I mentioned, clear expectations and accountability for the management team. Best practice. We have done this for many years, but we will intensify that also. Organizational capabilities will be reviewed and maybe there will be some changes. I don't know, but that's something we have to look into. And you can see for yourself that we have a clear view of what we have to do now. And I myself have done this before in Skanska, Peab, Midrock Assembly and so on and I know very well how to do it. And the goal is of course to be back to the margins that I know can be reachable and as you saw Robin mentioned before as a target on eight percent. I will always say again that we will not abandon our decentralized model. That's very, very important that you know that. Yes, that was what I wanted to say. And with that, I want to hand back over to Robin to summarize the quarter.

Thank you, Per. First of all, thank you, Per, for the kind words. Very appreciated. And let's move back into the summary of the quarter. The market remains challenging, as we said before, especially for new construction. But we are seeing that things are moving in the right direction, which is very positive. We continue to grow our order backlog for the third quarter in a row and service business also continues to showcase growth in both absolute and relative numbers. That gives us some resilience in the current environment. Margin improved sequentially, which is encouraging, but still we see some pressure in parts of the business. Our focus is firmly on operational improvements, as you also heard from Per going forward. The action program is progressing well. We are seeing impacts and we are also taking further steps where needed and always adapting to the local conditions. Cash flow was again very strong and we maintain a high cash conversion. This underpins our financial flexibility and ability to continue to deliver on our strategy. During the quarter, we also signed a new credit agreement furthering strengthening our financial position and finally fabri is showcasing good pro good progression and now includes 17 local german companies and with that i would like to thank you all for joining on this call and i will now open up for any questions from the audience

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Johan Lankvist Sundian from DNB Carnegie. Please go ahead.

Good morning, Robin, Christine, and Per. Thanks for taking my questions. um the first one is uh on pairs priorities going forward and just curious to hear a little bit of how kind of growth focus you will be uh i hear that margins will be prioritized but how will you be very how selective will you be in your in your kind of project what project your tender and Should we expect organic growth to be muted for some time when you work with the margin?

Robin, is it okay if I answer the question? Of course, of course. Thank you, Robin. Yes, it's a good question. But I think also that you have to say that with margins, with higher margin comes also more opportunities and the cash flow, everything will come with that. So we will be selective, yes, but still we like to do business and there's a lot of opportunities out there and we will, sort of regain focus on buy and build, of course. We have a new country now to enter into, and we have also other segments as well that we have looked into. Right now, and maybe six months ahead, we will focus a lot on what I talked about, operational excellence and implement a new, not a new culture, but the culture that we have, but we have to release more of our strengths in this. But at the same time, we have a close eye on acquisitions and entering into new segments. As we also have said, we have a lot of startups in the consulting part of our industry, and I think that's also a way going forward. So we have several cards to play, I would say, and we will not slow down the pace but still we have to focus now for the next couple of months at least on margin improvements.

Given your answer on this question Per, should we view that you and the board are similarly committed to the building automation push and the German pushes the management, the previous management team has been?

Absolutely. Absolutely. Full speed ahead. But as I mentioned, more focus and implement the go great into the organization. So we will not abandon no, no strategies that we have already decide on. So We will start and we will continue, I will say, what we have to increase our margins a bit.

Stopping at the kind of new initiatives and the building automation business, can you please give some kind of guidance on what kind of dilution that brought to the Swedish business in Q2?

As we've said before, we don't give out exact numbers on the dilution at the moment, just as we did with Intech. To give you some flavor at least, you could maybe do some calculations yourself. We have around 80 FTEs. Let's say a reasonable salary level is around 55-ish on an average, maybe. and then you have to take that what 1.75 times to pay for taxes and so forth and pensions then you will come to roughly the the amount of cost for for salary and then you have to add some cars and computers etc and some offices etc and they are not fully utilized at the moment so there are definitely some some say costs related to this initial investment However, we can see that our first company started around a year ago. They are on a monthly basis profitable at the moment. And as I explained earlier in the call regarding our technical consultants, depending a bit on which methodology you use, so to say for calculating this investment, but that investment, depending, like I said, how you use it is between 0.5 times the initial investment or around roughly maybe just around two times the initial investment on the rolling 12 months base and profitability is continuing to grow growth in absolute numbers and percentages.

Excellent. Thanks for that answer, Robin. Two more questions on my side. First is on Norway as well, where we saw a sequential improvement on profitability. When should we expect the Norwegian business to be in more balance with regards to utilization? Is it already during the fall?

Yeah. Yeah I can start on that and maybe then Per you can add some comments if you want also on top of that so as we've said many many quarters and I think even before so to say I stepped in at CEO we have had some so to say headwinds in Norway from time to time and we saw that in Q1 also where we saw some larger sort of say projects ending, which we couldn't really offset with new orders. We have seen utilization in Norway go up in Q2, which is very positive. And that's also why the rest of Nordic is delivering a better result in Q2 than Q1, due to that we were able to offset a few, but we're not fully offset yet in Q2. Regarding like the long-term profitability in Norway and Finland for that matter, That maybe is something that me and Per have struggled with for quite some time to get that up to the rest of, to get up to the Swedish level. However, they were able to do that in some recent quarters. I don't know if you want to add something there, Per, but I guess it's the same here with continuous improvements there as well.

Exactly, exactly. And what we have agreed upon, Robin and I, is to strengthen up the teams there with the go great and more go great team. Just as I mentioned before, to implement a more structured way of working with business improvements, selling, for example, but also, you know, operational excellence. And that, I think, will the outcome of it will be more stable margins, I would say. So that's a very, very important thing that we are now launching both in Norway and Finland.

No comment on when you think the kind of utilization drop from Q1 will be bridged back with the orders taken?

It's hard to give an exact date on that. Like I said, we see improvements in Q2. We took a really big order in the end of Q2 or beginning now Q3 that starts at the end of the year, beginning of next year. which is a quite big order. So there are some positive signs. But when the exact date, this is very hard to say. I mean, you have to go through project by project, company by company for all our subsidiaries in Norway to try to give that. And still, it's going to be hard to give an exact date. But like I said, positive trend in Norway, which is very good to see in Q2.

Fair enough. And just a final question from my side. pricing level in the order backlog I think it's a little bit more positive comment when I read report regarding regarding the kind of number project open for tenders can you give some comment on how the pricing level in the order backlog has developed maybe not comment on exact the pricing level but what I can comment around is

the whole strategy of being selective and as you heard pair as well i mean the continued focus on being selective on which project to take but it's very hard to be selective if there are too few projects so it's very positive for us that we see some increase in the number of projects in the market because then you can start being real selective on which projects to take and of course when number of projects go up pricing eventually goes up as well when your competitor starts to fill their order backlog then you can start increase your price as well so this goes a bit hand in hand and we have seen a growth in our order backlog even if on smaller levels uh but we have not changed our strategy we have continued with our strategy of being selective uh focusing on margins over growth as you can see in the quarter as well organic growth is down but margin is slightly up quarter to quarter so that is uh our continued focus and

To that, Robin, I think you agree with me that we have increased our selling capacity and also we are picky, but we have increased the selling capacity and we have a never starve philosophy also. So I think that has been not even a success yet, but I think we are on the on the move, so to speak, here.

Perfect. Thanks for the answers. I think I get back and I can come back if I have more. Thanks. Thank you.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad.

Okay, we have one written question coming in here and it sounds like this. Do you see organic net recruitment going forward?

Organic net recruitment going forward? I think you need to look at, as we've mentioned so many times, we are a decentralized company, meaning that our 150 subsidiaries have to, together with us, of course, decide on, so to say, the number of FTEs that we have. So on that topic, I think you need to look company by company. And I think, Per, you're agreeing with me. We have some companies where we definitely want to invest and continue to grow and continue to sort of say, continue to staff these companies. Those are the high performers, high profitable companies, and also our automation business, our technical service business, but also some of our installation business. And then we will have also, um, companies where we are not so to say interesting continue to investing where we also see both in the december that we had last december the sort of say uh cost reduction actions we took there, but also the cost reductions that we have taken in Q1 and Q2, where we have companies that are decreasing the number of staff. So it's hard to say, are we net recruiting or not? I would say overall, I would not think that we are increasing the number of FTEs at the moment, but we definitely have some companies that will increase their number of employees, and we'll have some that will decrease.

I mean, if we can be more effective, of course, we will use our sources or resources, I would say, better. And that means also we want to grow. We want to grow organically. We want to grow by acquisitions. But we will do it in the right way. And that means that we will be more efficient and have, as I mentioned several times now, the operational excellence. So the whole team wants to grow. That's definitely so. But in the right way, of course.

The next question comes from Carl Boakvist from ABG Sundahl Collier. Please go ahead.

Thank you. Good morning. I was a bit late into the call, so I'm very sorry now if all of these questions have already been answered. But the first one is more technical. Are there any extra costs in the margins in Sweden that are worth knowing about?

Kristina, is there something you want to add?

In the segment Sweden, I wouldn't say that. We are on the same level as we have discussed and gone through here in the call. We had one extra cost in the group-wide other segment, and that has also been adjusted for... So, no other... No extra costs in Sweden to mention this quarter.

Understood okay thank you and then on your comments now regarding a bit of improving market activity and we see that the backlog is up so this question has been asked before but when you look at the orders that you receive in the backlog now what kind of lead times are we talking about in general I understand it's difficult to put an exact duration on it

I mean, we are, as you know, it's like you said, also, it's very hard to put an exact number. What we typically say is that it's six to 12 months from taking the order to execution and delivering. So that is roughly maybe six months ahead. And then a project is roughly three to nine months. But we also have projects that are, so to say, longer, but we also have quicker projects that starts earlier. But roughly, I would say that.

Understood and my final one regarding rest of Nordic here. In Q1 we talked a bit of like a bit of lower utilization or completion of larger projects in the quarters prior to that but now you we're back to 6.6 so yeah sorry you might have talked about it during the call but I was just curious to hear if that kind of imbalance in utilization and project activity has already been addressed now in Q2.

As I said a bit earlier on the Q&A here, we see some offset in Norway, which is nice, where we have taken some projects to sort of say, make sure that we keep the utilization at the reasonable level. We are still not maybe 100% at the level uh in uh in finland but we are at least looking at some positive signs there as well but not fully back for rest of nordics yet okay understood that's all from me thank you thank you there are no more questions at this time so i hand the conference back to the speakers for any closing comments Okay, then I actually would like to take the time to thank Instalco and all our co-workers, customers and suppliers for these fantastic 11 years. It has truly been a remarkable journey from a white piece of paper when I signed up for Instalco to where we are today. The last couple of years have been tough on the whole construction industry, but as I said earlier, we have also built a more stable and resilient company during these years. So from the bottom of my heart, I thank you all for these amazing years and I'm looking forward to continuing to follow the Instalco journey. And with that, I now wish you all a great summer and best of luck going forward to the Instalco team. So thank you very much from me and have a great summer, everyone.