Instalco AB (publ) (INSTAL) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Instalco Q4 reports 2020. [Operator Instructions] Today, I am pleased to present CEO, Per Sjostrand; and CFO, Robin Boheman. Please begin your meeting.

Okay. Thank you very much. And first of all, welcome to this presentation of our Q4 report for 2020. My name is, as you heard, Per Sjostrand, and I'm CEO. And with me today is Robin Boheman, our CFO. If we go to slide #2, I will give you first a short update on us. We are one of the leading installation groups in the markets of Sweden, Norway, and Finland, a Nordic company. Our main area of operations is installation and service of heating and plumbing, electrical, ventilation, industry, cooling system. And then from last quarter also, the area of technical consulting. I will come back to that. Then the group now consists of some -- over 85 subsidiaries, and we are nearly 3,900 employees. We have a highly decentralized structure. We are supported by a small central organization. And as you will see, we have a strong profitability, and we have delivered high margins over time. So we can go to slide #3, some key financials. As you also can see there, we have surpassed sales of SEK 7 billion on a 12-month rolling basis. Along with adjusted EBITA of almost SEK 625 million, and that gives us an adjusted EBITA margin of 8.5%. We also have a solid order backlog -- we will come back to that also -- at just over SEK 6.6 billion. Going to slide #4, some highlights from the quarter. So looking at the fourth quarter, we can see that there have been a continued high rate of growth. And you can also see we have a good profitability. Adjusted EBITA for the quarter was approximately SEK 193 million, gives us an adjusted EBITD=A margin of 9.3%. Organic growth was high, 8.1%, and cash flow was very high, I would say, 220 -- SEK 277 million. I'm very pleased per se with the result for segment Sweden. And I will say also that we have proven that that 10% is reachable. I will also say that the rest of Nordic is still performing somewhat below the desired level. But despite the ongoing pandemic, we are able to conclude that we have done very well in the quarter. And I will give thanks to the adaptations we made to the business for that. The fourth quarter was particularly exciting for us. We launched our new discipline and business area, technical consulting. We also expanded our industrial business area, and we will come back to [indiscernible]. So then summing up the year, we are proud to report that we have had a total of 27 sustainable Instalco projects, most of which were added in the fourth quarter. And my CFO, Robin, will come back to that later on. So moving to slide #5, we -- net sales increased by slightly more than 26% to SEK 2.1 billion. And during the quarter, we made 4 acquisitions, while the combined annual sales is assessed about SEK 450 million. Organic growth was high at 8.1%. But as I always say, you should not look into quarter-by-quarter regarding organic growth, we should look at least on a yearly base. And I have said it before, and I will say it again. We can move to slide #6. And as I mentioned earlier, our order backlog is very solid, just over SEK 6.6 billion. And that corresponds to 93% of our annual sales. So I'm very satisfied with that. And I will also say that despite the pandemic, we are taking many new orders and signing new contracts, most of which are medium-sized projects in the range from 0 up to SEK 75 million, and that's within our strategy. During the quarter, as I said, we acquired 4 new companies, which, of course, add an exciting dimension and contribution to our order backlog as well. And we will, as I said, we will come back to that. Slide #7, if we change that. Thank you. I will give you some examples of new projects from the quarter that I'd like to highlight as great examples of how we work. The first is our Norwegian company, Romerike Elektro in Oslo and our ongoing long-term collaboration with the construction company, Veidekke. They have signed a contract with order value of over SEK 40 million. And it turns to electrical installation at the new apartment complex Loren Botaniska that probably has a very high environmental profile. And I'm very proud that it could take that project on. The other is our Swedish company, EKTK, which has received an order for project planning, delivery, and installation of the electrical power system in conjunction with expansion of Mora Hospital. The assignment will be carried out as a collaboration project together with construction companies ByggDialog and Regionfastigheter Dalarna. And I'm particularly delighted with the third example, as you see there, which comes from Finland. Not only is it a confirmation that the market for new investments, it helps it be strong, but also a good example of how well the collaboration between our Finnish [indiscernible]. Our companies LVI-Paavola and Twinputki have a contract to collaborate on the city and planning and sprinkler system in conjunction with the expansion of the Lippulaiva shopping center near Helsinki. And with that, I think we can go to slide #8, to talk a little bit about the technical --our new discipline, technical consulting and also expansion of our industry disciple. So during the fourth quarter, we started up a new discipline and business area, technical consulting, where we offer project planning. And here, we see a great potential to develop the installation and construction sector by integrating project planning with technical execution and service. And with our own technical consultants, we will be able to get involved at an even earlier stage, which is important, with a wider offering to even more customers. It's a move that brings project planning into the realm of the installation sector, which is where I feel it belongs. And our technical consulting team posits of engineers with expertise in electricity, ventilation, in planning, industry and fire protection, as an example. Also, the core business here is project planning and design. We offer a range of other services, including inspection for the nation of installation work, environmental origination, risk management, cost estimates, and surveys. So our subsidiary, intake is a key part of all this, and it currently has around 100, I think more today, 120 technical consultants working throughout most of Sweden. We also anticipate that our technical consulting area will make a significant contribution to raising our margins. And with that, I will leave over to Robin [indiscernible] to about that a little bit.

Yes. Thank you, Per. And just like you mentioned, I think this is our -- some focus areas for us at the moment. And as you can see in the fourth quarter, we have done some efforts to expanding our industrial business areas. And as you will see on the following slide as well. But just going into this briefly is that we now have 7 companies in total within the industry, contributing some SEK 700 million on a yearly basis in turnover. And we also see very good growth potentials in these companies and also the possibility of expanding. So we see that these companies are more focused on the -- what more heavier and also technical industrial installations, both on land and also on water with our subsidiary, MESAB, for instance, being more based on the marine side. And if we look at next slide, please, slide 9, we also have 2 good examples here as Selek in Avesta, Sweden, which are specialized in installations of electrical power and electrical instruments in the industrial environment with large customers, such as, for instance, Coor, Stora Enso, Boliden, and Northvolt as some examples with an annual turnover of around SEK 130 million. We also acquired in Q4 HP Welding in Sundsvall, which is, as the name says, a welding company, which starts mainly manufacturing welding and assembling of boilers and pipelines, large customers as Boliden, SCA, Valmet as a few examples, with a turnover of roughly SEK 90 million. And like I mentioned before, we now have 7 companies within the industry, and we already now see some synergies being done between these companies. So we are really looking forward to see where this will take us. If we move into next slide, slide 10, then, please. As you can see here, the corona pandemic hasn't really impacted the rate of acquisition for us. So we made 4 acquisitions, as Per mentioned before, in Q4. 3 out of the 4 were in the industry sector and also one acquisition in Norway on the plumbing side. Total for the year, we sum up 2020 as a really good M&A year with 18 acquisitions. We totally acquired an annual sales of SEK 1.4 billion, which is a very strong year for us. We can also conclude that our pipeline is still strong. There are a lot of possibilities here. There is still a high-growth potential through acquisition, both in Sweden and rest of Nordics. And now also with opening up these 2 new areas, we also see new opportunities here. And we can also conclude that we still have some wide spots within the areas that we are to become a multi-discipline, which is always a target for us. So if we move into next slide, please, slide 11, and talk a little bit about the segments that we have. So we have segment Sweden, which is, as Per mentioned, doing tremendously well, also proving that there is a possibility here to make the 10% EBITA margin. There is a sustainable demand for technical installations within Sweden. We can also see here that the organic growth is very strong. What we are especially, how I should say, proud of is the growth in the order backlog, which is 44%. 20% is acquired and 20% by ourselves, which is also giving us the opportunity here to continue the growth within Sweden even next year. So really good, strong, solid performance from Sweden. If we move to the next slide, please. So slide 12. We see here, as Per mentioned, other Nordics are performing okay, but not according to kind of the Instalco standard. So we're a little bit disappointed here. We have a growth in the order backlog, which is very positive. But we see that closing down, especially in Norway, but also Finland due to the pandemic has affected us, especially a few of our companies. But we also have some internal work to do here, as we talked about on the last call for Q3. And we are, I would say, on track of the action plans that we set off in Q3. It will take some time, as we mentioned in Q3 as well. We need to finalize the projects that we have in the order book and kind of start on new. But we see that we are progressing well in Norway and according to our plan. So if I could change to next slide, please. I would like to just talk to you briefly about our sustainable Instalco project. And as Per mentioned earlier, we did 27 sustainable Instalco projects last year, which is higher than what we expected. Most of them came in quarter 4. I would say that the launch of this has been very well received by our subsidiaries, but also of their customers and the end customer as well. So we're very pleased with how this has rolled out. And just to give a brief summary of what it is about is that the sustainable Instalco project consists of -- you have to meet 6 specific sustainabilities indicators. For example, that we must meet the requirements on health and safety and safe employee. All our suppliers need to sign Instalco code and conduct. And you also kind of have to demonstrate that this is a climate smart project as a few examples. And this certificate is then, so say, a quality stand for both the project, the customer, and Instalco that we can deliver sustainable projects as well. So if we change the next slide, please, slide 14. We're always striving to help the customer to lower the environment impact via water savings, energy consumptions, along with high environment awareness. And here, we see a few examples of projects that we do to help the clients and be able to achieve a more sustainable future as well. And we strive to kind of give our customers the knowledge that we have internally here. And then some examples here like LED light, charging stations, heat pumps installations, solar panels, for instance, to name a few. And this is, of course, ongoing, and always on top of mind when we do projects as well. So if we change the next slide, I would just like to summarize a little bit of the financial target and the dividend policy. You've seen this slide before. This year -- this time, we sum up the year as well. And as you can see, growth-wise, we are well above the 10% that we have as an internal target over busy cycle. This year, we came up to 25.1%. We have the margin, adjusted EBITA margin of 8%. We were able this year to come to 8.8%, same as last year. We have a capital structure over the adjusted EBITA shall not exceed 2.5x net debt. We are at 1.2%. So we are well equipped financially to continue our M&A journey as well. Cash conversion, we were able to reach 109%, which is one of our highest rates so far. And dividend-wise, we are giving out roughly 30% of our net profits, and that will calculate to 2.7 cents per share this year. So it's also a good increase from last year. And with that, I would like to leave over to Per to summarize.

Thank you, Robin. As you can hear here, Robin, is all over the table. He's talking about the industrial segment, he's talking out M&A, talking about sustainability and our numbers. Thank you very much. Thank you very much, Robin. You have done an extremely good job. So slide #16, summing it all up. It has been an excellent year overall, I would say, and a great fourth quarter, as you have seen, with stability, high profitability and a very high cash flow. And despite this pandemic, we have been able to successfully adapt implementing our projects in assignments with the same quality, I would say, an [indiscernible] before. And thanks to our structure, we have enormous flexibility and the ability to adapt the changes in the market situation could -- did a very good job on that. We had an exciting fourth quarter, expanding our industrial business area, as you heard, and also establishing our new business area, technical consulting. So I would also say -- add to that, of course, that it's still difficult to assess the future market with that, but you have to say that because of course, we don't know exactly what to come. But as you know, I'd like to wrap up these meetings with reference to some title. Yes, next slide, slide 17. And this time, I've chosen Tina Turner's hit song, what you get is what you see from 1986. And that type corresponds very well to Instalco and what I usually say, you get exactly what you see from Instalco. And what I mean by that is that we constantly have been delivering our promises to the financial market. We apply a long-term approach to run the business, one that is sustainable over business cycles, and resilient not only when times are good, but also when the market conditions become more challenging. And with that, I'd like to thank you all for joining in on this call. And I now like to take your questions, please.

[Operator Instructions] And we have a question from the line of Stefan Andersson from SEB.

Stefan, put unmute on your device.

Hello, Stefan. Do you have your line on mute?

Hello, can you hear me now?

Yes, we can hear you now.

Good. A couple of questions on the market there. First, what's your experience? I mean, it's a fantastic quarter, so we don't see anything of that now. But talking to [indiscernible], they've been complaining a little bit about price pressure in the market, that there seems to be some players out there hunting for volumes. We heard that in Q3, and they talked about a little bit in Q4 as well. I mean what's your experience there? Do you see anything of that at all? Or…

I mean there's always, what I call, a high-pressure on the price level on the market. But maybe you can see that more in Stockholm than other places in Sweden and Norway and Finland. Stockholm has been a little bit -- it's a bit tougher situation in the last quarter or maybe the last half year here. But there's always pressure on price, I would say. And we have a lot of -- I mean, 50% of our total revenue comes from partnering with services. And on that field, both partnering, of course, on service, we don't see any changes. So yes, it's both ways. And maybe in Stockholm, you can feel a little bit higher pressure on the price. But I think in general, we will not complain.

Then on -- with the segments here. I don't have -- don't remember the full split on these segments. But I would guess that some of the -- is a little bit of a slowdown on the commercial side when it comes to building office space here ahead. But a very hot area nowadays, not in 2017, but nowadays, it's hot. The [indiscernible] side where rentals have picked up considerably this year in starts. And now we're seeing also the co-ops picking up and JM, which is one of your partners, they have extremely high ambitions for 2021, moving to 3,000 -- production to 3,800. So that's quite a big movement. I mean I guess, you should benefit from this, but is that something you're also seeing? Or am I exaggerating the positive there?

It's also a long question, but I think that -- I think there's a lot of activity out there. There's a lot of plans, renovation sites. There's a lot of activities during the offices. And also, as we used to say, in areas like hospitals and new apartments. So the activity is high. That's different from what we have talked about price pressure because activity means that there's a lot of plans that can be right around the corner, but that can also be for a long, longer terms, new areas, new -- I mean, making -- I mean, the architects we can see now is having more and more work to do. And we can see that our consultant part also, they are increasing the activity there. So it will come to an increased market. But the specific question is when it comes. And my gut feeling is that in -- maybe it's a little bit tougher now in quarter 1 and quarter 2, but we still will -- we will -- the market will come up, and we will see a very growing market in all 3 countries in fall, I think. So yes. And you saw also that our order backlog situation is very good. So we can live on that, so to say, for almost 1 year ahead. And also, we have a good part -- Robin can give you more details about that. But the pipes also consists across order backlogs. But I don't know if that was an answer to the question.

No, I think it was actually -- it was more than I asked for. So that was good. I mean, my interpretation is that you're saying it's a little bit challenging in Q1 and Q2 and then it's easier towards the end of the year. So that's perfect. Then on -- a shorter question then, what is the number of outstanding shares by the yearend?

Sorry, once again, the number of outstanding…

Shares.

You mean the dilution or what?

No. We can take that -- you can e-mail this. But in the report, you have the average number of shares during the quarter. And of course, with -- especially in the yearend, I'm interested in the number of outstanding shares as of the quarter.

Oh, okay.