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

Okay. Welcome to this presentation of Instalco's report for the second quarter of 2026, and my name is Per Sjostrand. I'm CEO of Instalco. And with me today is our CFO, Christina Kassberg. And for the Q&A part, our Head of IR, Mathilda Eriksson. In short, I will say that we see the effect from the changes we have implemented and that Q2 is an important step for Instalco in the right direction. So as always, I will start with a short snapshot of Instalco today. We are the leading installation group across the Nordics with an established platform also in Germany which I will get back to in this presentation. Our strength is our decentralized, decentralization local companies close to customers, combined with common standards, tools and governance. And with over 6,000 employees, we are exposed to market segments driven by long-term needs such as energy efficiency and electrification. Slide 3. First, for a quick glance at our LTM numbers, where the majority are taking important steps in the right direction. Net sales amount to SEK 14 billion, as you can see, and we ended the quarter with a backlog of almost SEK 11 billion. This represents a steady book-to-bill of around 77%. And on top of that, we have our service businesses, which made up 35% of sales in the quarter. Our EBITA for rolling 12 months amounted to SEK 927 million, corresponding to a margin of 6.6%, a continued step up compared to Q1. And despite the somewhat weaker cash flow from operations in Q2 we maintained a high cash conversion at 90%. So let me start with a brief summary of the quarter. First, we delivered strong organic growth across all the segments. That reflects a market that is gradually improving, but also that we are executing better across the group. Profitability also improved compared with last year. We are seeing the benefits of better project selection, stronger execution and increased operational discipline. Our order backlog strengthened further during the quarter, giving us a solid foundation for the coming quarters. The market picture is still mixed, but activity continues to develop in the right direction. And finally, Instalco 2.0 continues to gain traction. The work we started last year is becoming part of how we operate every day, and we are seeing the effects in more parts of the business. And I think that was the big picture, Christina. Let's dive into the numbers.

Thank you, Per. I will start with looking at net sales and order backlog development during Q2 Net sales grew by 10.3% to almost SEK 3.9 billion. Currency had a slight positive impact on the outcome. Organic growth, on the other hand, remained positive and strong at 8.4%, and we saw growth in all 3 countries. When looking at where the most growth came from, we can see a strong increase from companies working with industrial clients. Geographically, the biggest sales growth came from West and South of Sweden as well as Norway. Our order backlog also reported even more growth of 17% or 14.8% organically. The backlog increase was primarily driven by Norway but also came from Sweden. In addition to the backlog service continues to provide a solid foundation for the business. In the quarter, it amounted to 35% of sales, and we delivered growth in absolute numbers of 9% in our service business, driven by Sweden and Norway. Then moving on to earnings, EBITA grew by 22% to SEK 274 million, corresponding to a margin of 7.1% compared to 6.4% a year ago. Last year, Q2 had a one-off cost of SEK 11 million. Adjusting for these, the comparison margin amounted to 6.7% and still this year is still better. The year-on-year development reflects both improved operational performance and the higher volumes in the quarter. Margins improved in most of our business areas. The biggest improvement year-on-year came from industrial-facing companies as well as the North of Sweden and our technical consultants at Intec. We are not yet where we want to be, but the quarter marked an important step in the right direction. Next, I will look into each country in more detail. First up, we have a look at Sweden in Q2. Overall, net sales grew by 10% to SEK 2.8 billion with an accelerated organic growth of 9%. The order backlog increased even more by 13.1% compared to a year ago to SEK 7.5 billion. The EBITA increased to SEK 197 million, corresponding to a margin of 7% compared to 6.6% last year. The stronger margin and improved earnings reflects higher volumes and operational improvements supported by a gradually improving market. The Swedish market continued to improve during the quarter, and the signs of recovery are becoming clearer. Activity is increasing, especially in the larger cities where more projects are now moving into the execution phase. In Stockholm, this is especially true for somewhat larger projects. We are also seeing early signs of a recovery in the residential market, although from low levels. At the same time, development remains uneven across regions and customer groups. And now for a summary of Norway. Overall, net sales were up to SEK 625 million and organic growth amounted to 4.9% FX effects impacted positively. EBITA amounted to SEK 42 million compared to SEK 36 million last year. This corresponds to a margin improvement from 6.5% to 6.8%. We are proud that Norway managed to showcase both growth and improved earnings despite experiencing delayed start dates in several projects. This due to permitting and decision processes. This is a timing issue rather than lost demand. And our subsidiaries have managed to navigate these new projects to cover the otherwise lower utilization. Norway showed a continued very strong development of the order backlog, which increased by over 40% compared to a year ago or 35% organically. The Norwegian market remains challenging, but we continue to see signs of a gradual recovery. Activity is strongest in Oslo and the southern part of the country. supported by public investments in hospitals, defense, infrastructure and data centers. The residential market remains weak, while commercial projects are developing more steadily. Competition is still high, but pricing has become more rational than before. And last but not least, a summary of Finland. Net sales grew by 8.6% to SEK 432 million, organically by 9.3% with a negative impact from FX. The order backlog decreased slightly by 3.8% compared to a year ago or minus 3.3% organically. EBITA amounted to SEK 35 million compared to SEK 30 million last year. This corresponds to a margin improvement from 7.3% to 8.1%. The improvement was primarily driven by a continued fairly strong contribution from companies delivering projects for the industrial customers, while performance in the Finnish installation operations was more subdued. The Finnish market remains weak, but we believe it has reached the bottom. Residential construction and larger private investments are still at low levels, while industrial projects and renovation continue to drive activity. We do not expect a broader market recovery in the near term, although market sentiment has improved somewhat. At the same time, investments in the energy transition, defense and digital infrastructure continue to support demand. Data centers are also becoming an increasingly important growth area in the Finnish market. Before I hand over to you, Per, let me briefly touch on our cash flow. In Q2, cash flow from operations amounted to SEK 104 million, which was weaker than the same period last year. The main reason is that more capital was tied up in accounts receivable, following the strong growth and high level of invoicing towards the end of the quarter. Importantly, we have not seen a corresponding increase in overdue receivables which gives us confidence in the underlying quality of the receivables book. Strong cash flow and healthy balance sheet remain key priorities for Instalco, and we continue to maintain a disciplined approach to working capital allocation and selective investments. Yes, that concludes the financial review from my side. So Per, over to you.

Thank you, Christina. And let me put the rolling 12-month performance into the context of our long-term targets. Our financial targets are measured over a business cycle, and we continue to make steady progress. The combination of stronger organic growth and improved profitability is encouraging and reflects that both the market and our own execution are moving in the right direction. As you saw, our EBITA margin improved further to 6.6%. While we are not where we ultimately want to be, the direction is clear. And we continue to see benefits from our better project selection, stronger execution and the work under Instalco 2.0. We know that we can do better, of course. Cash flow was weaker during the quarter, mainly because more capital was tied up in receivables following our strong growth towards the end of the period. We remain focused on working capital discipline and continue to target 100% cash conversion over time. Our leverage remains somewhat over our own long-term target of 2.5x net debt to EBITDA. At the end of the Q2, it sits at 2.6x. The same as in Q1 despite us paying the dividend in May and the acquisition of TSM in April. And finally, our climate ambitions remain unchanged. Sustainability continues to be integrated into -- in how we develop the business over the long term. Before we move to this quarter theme. I would like to spend a few minutes on the transaction we announced after the end of the quarter. As you might have seen, Instalco has increased its ownership in the German installation group Fabri from 24% to 51%. This makes Germany our fourth operating country and giving us a majority control of the business. This is not a new strategic direction, it is the next planned step in the partnership that we announced in late 2024. Our ambition from the beginning has been to build a long-term platform in Germany together with Fabri founders and management team. And this transaction is an important milestone in that journey. So with that, to give you a bit of flavor. Here, we have 2 screenshots of Fabri's website, one from 2024 and one from yesterday indeed. Since we first invested, Fabri has doubled its size the development has been driven by continued acquisitions and strong entrepreneurship within the group. More importantly, it reinforced our conviction that the decentralized model works well beyond the Nordic countries. And you know, Germany is Europe's largest installation market. Fabri has established a strong regional platform with attractive local companies and an experienced management team. The transaction itself is straightforward. We have acquired an additional 27% of the shares, increasing our ownership from 24% to 51%. The acquisition has been financed within our existing credit facilities and therefore, fits well within our disciplined capital allocation framework. The ownership structure that has -- that was agreed from the beginning remains unchanged going forward, meaning the founders continue to have a meaningful ownership stake alongside in Instalco, and I think that is very important. What is -- let's move to the next slide, there. What is perhaps most important is what's changed -- changes and what does not. Fabri will continue to operate with the same local management, the same entrepreneurial culture and the same decentralized way of working that has made the group successful. What changes is that Fabri now becomes part of Instalco's consolidating reporting, and we expect closer collaboration across the organization. Markus Zübert, the CEO of Fabri, will also join -- CEO, of course, of Fabri, will also join Instalco's Group management team. We already see a strong exchange of experience between our Nordic companies and Fabri and becoming a majority owner gives us an even better platform for sharing best practice, developing capabilities and supporting continued profitable growth. So Germany represents a significant long-term opportunity for Instalco, and together with the Fabri team, we look forward to continue in that journey. So with that, I will say also let's move into the CEO theme for the quarter. And before we move into Q&A, I'd like to spend a few minutes on the topic that we believe will become increasingly important for Instalco over coming years. And one we -- and one we have received a lot of questions on over the past few months, I promise you. AI is changing many industries. Most discussions focus on software or semiconductors, but much less attention is paid to what has happened in the physical world to make AI possible. For us, AI is not just a technology -- technological trend. It affects both the demand for technical installation and how we run our own business. And let me explain directly what I mean. The first perspective is the market. AI requires physical infrastructure. Data centers need electricity, cooling, ventilation and advanced control systems. Higher electricity demand also drives investment in grids and energy infrastructure. Data centers are a growing end market for Instalco. We already delivered projects in this area and see good opportunities to grow further. We evaluate every project based on the right balance between risk and return. And I will say there is another important effect. Large AI investments absorb installation capacity across the market, no matter which company is doing the installations. That improves market conditions in many other types of installation projects as well. So AI creates opportunities in 2 ways through growing demand for data center projects and by strengthening up the broader installation market. The second perspective is our own organization. We believe AI can remove friction from everyday work, allowing our employees to spend more time on activities that create value for customers. It can support the entire project life cycle from analyzing tender documentation and planning projects to administration, documentation and follow-up. So during June, we launched Instalco AI across the group. It provides a secure common platform together with both general and specialized assistance that are available throughout our decentralized organization. The important point is that this is built to support our people, not replace their professional judgment. Our project managers, engineers and installers remain the ones making the decision. And before we move on, let me make one personal reflection. I have worked in this industry for almost 45 years. I have seen the introduction of computers, CAD/CAM, BIM, and many other technology shifts. But I can honestly say that I have never seen a development with greater potential than AI. This is exactly why we decided not to wait. We wanted Instalco to move early learn early and build capabilities early. I want us to be among the companies shaping this change, not reacting to it afterwards. And that brings me to the third point. AI can support our business, but it cannot install a ventilation system, connect an electrical panel or commissioning a building. Installation work remains local, physical and increasingly technically advanced. As buildings becomes more complex, the need for skilled professionals actually increases. So while AI changes how buildings are designed, operated and used it also increased the importance of technical installation expertise. We see this as an opportunity from 2 directions. It supports demand in our markets, and it helps our people work smarter every day. Together, that strengthens Instalco's long-term position. So with that, let me finish with a few concluding remarks. In Q2, we delivered strong growth together with improved profitability. It is encouraging to see that all segments contributed with organic growth, while our focus on execution continues to strengthen margins. The market recovery is gaining momentum, although it remains uneven across geographies, segments and customer groups. At the same time, our order backlog has strengthened further giving us a solid foundation for the coming quarters. Instalco 2.0 continues to gain traction. The work we started last year is becoming increasingly embedded in our daily operations. and we are seeing the benefits in more parts of the business. During the quarter, we also launched Instalco AI across the group. We see AI as an opportunity both to support productivity in our operations and to benefit from the long-term demand it creates for technical installations. And after the end of the quarter, we took the next strategic step in Germany by becoming the majority owner of Fabri, it's a natural continuation of the strategy we presented in 2024 and strengthens our platform for long-term growth. Overall, we leave the first half of the year with a stronger business than we had a year ago and with confidence that we are moving in the right direction. And with that, I would like to thank you for listening in and open up for questions. First from the telephone conference, but those of you following via webcast can submit written questions as well that Mathilda will read out.

[Operator Instructions] The next question comes from Oscar Ronnkvist from SEB.

So my first will be sort of some details just on the Fabri acquisition. So first of all, just on the margin side, the SEK 125 million turnover. Is that sort of coming with a 12.7% margin as in 2025? Should that be a sort of a reasonable assumption? And then just on minority, et cetera. I assume that you will report the 49% as a minority and not any sort of put call options, et cetera.

Mathilda, are you ready for that question?

We haven't published any margins apart from what was press released yesterday and the SEK 125 million is a pro forma from Fabri's website, including an acquisition they made a couple of weeks ago. But I mean, Fabri has reported impressive margins. They're operating in a slightly different market than we are in the Nordics. And of course, we're hoping that they can maintain a level like this, but we're not making any promises. When it comes to minority interest, I think Christina is the best to answer on that one?

We will consolidate the Fabri now when we have the 51% in the group and the minorities of 49% will be noncontrolling items. So according to IFRS, as nothing else than that expected.

Perfect. Then just regarding the data center comments, you say that, obviously, it has an impact on market pricing as capacity is tied up in data centers from either you or your competitors, so if we look at the order backlog, which was developing quite nicely in the quarter. So have you seen this shift in pricing already? Or is it more that you expect to see that going forward?

I think we have seen it -- maybe we have seen it already. As you said, it ties up a lot of resources. And I think also when we talk about data centers to participate, we have scaffolding, we have ventilation, we have heating and plumbing, maybe there is a huge demand for electricians, of course, in a data center to install all the equipment and you have to allocate a lot of resources, maybe it should be -- we are a little bit more cautious around that. But on the other side, we are willing to participate in those projects, and we have a discussion around that, of course. So the answer is yes, we can see changes already in the market due to data centers.

Got it. And just regarding your capacity on delivering on large data center orders. Is that -- are you in those procurements? Just thinking of the larger ones that maybe have been announced from a competitor? Or are they a little bit out of your scope, would you say?

No, it's not out of scope. I mean we are partners. If it suit us, we are definitely a partner in those discussions. So we have, I mean, a dialogue around data centers and with the colleagues in the construction market.

I think I can add on just reiterating Per's comments from before, but we're as always, evaluating every project on a risk-reward basis. So we will only go for projects that suit us and our capabilities.

Perfect. Yes. I had one question on the Finnish margin. Obviously, you've been very, very strong over the last 3 quarters, took a little bit of a dip in this quarter, albeit obviously stronger year-over-year from the 7% last year. So could you just add some color? Do you think that you saw some sort of dip was the sort of 11%, 12% elevated? Or is there any sort of comments on the sort of run rate we have?

I mean Finland still come in above 8%, and I'm satisfied with that. I think that's great, and what -- Finland is also our smallest segment, SEK 1 billion a year. And I can't -- of course, it can go a little bit ups and downs there. They are very focused on industrial, the more heavy industrial part in Finland. So I think I'm satisfied with 8% or above. So I'm not worried, but it can fluctuate a little. That's for sure. from quarter-to-quarter.

Yes. Got it. And then sorry, just a last question, if I may. The cash flow, you talked about a stronger end, I suppose, with the receivable tie-up in June, if I interpreted correctly. So is it fair to assume that you had sort of strong acceleration towards the latter part of the quarter? I think you made some comments about that.

Yes, you are totally sure about that. We tied up more capital with -- around accounts receivables in the end of the quarter. And it's no problem to sort of say, overdue accounts receivable. So we are confident.

Okay. It looks like we currently have no more people in the queue for the telephone conference. Or no, we just got one.

The next question comes from Karl Bokvist from ABG Sundal Collier.

So I'm just curious on the Swedish development here. When we have had these comments for a couple of quarters now, with improved market activity, more projects becoming available, you're doing a lot of things internally as well. And we've been talking about how we need to get a few things in place, so to say, before margins really start ticking upwards because of contracts taken earlier in time and so on and so forth. So when we now look into the next perhaps 6- to 12-month period, can you now say that the orders that are to be executed upon are on a better level?