Bravida Holding AB

STO:BRAV

Earnings Call Transcript 2022-Q3

[Mattias Johansson, executive]

Good morning, everyone, and welcome to the third quarterly report for 2022, Bravida. Today, I hope you hear me, Asa and myself; as usual, is going to take you through this presentation. So again, very welcome, and I think we start.

[Åsa Neving, executive]

I think we do.

[Mattias Johansson, executive]

Yes.

[Åsa Neving, executive]

Go ahead.

[Mattias Johansson, executive]

Thanks. The agenda; Bravida and the position in the Nordics as usual and then we deep into the Q3 numbers. Also I will take you through the different countries. And then in the end, we will have a summary and an opportunity for all of you to ask some questions and we will do our best to answer them as good as we can.

Starting with our position in the Nordics, and again, the one of you have listened to us before, you have heard this story many, many times. But I think it's so important to mention that Bravida is in many different places, in many different local markets with many different customers.

And as you can see to the left, we are developing and improving our ability to act like a one-stop shop for the customers. And our customers are many different type of customers. But all customers have the potential to buy all the services from Bravida as a one-stop shop.

Our main segments are electrical, plumbing and HVAC. But we have segment; security, sprinkler, cooling, automation, technical FM, energy management, solar panel, car chargers, et cetera, et cetera. So the services we offer to the customers are many. And the customers are many with different kinds of needs and that is what creates stability in our business model.

So having diversified end markets, low customer concentration and very small average contract size is, of course, a good thing to have; no matter the market conditions we are acting in. As you see, we are getting closer to SEK 25 billion in sales, 13,000 employees. And we have -- the main part of our projects is below SEK 50 million and close to 2/3 of our sales is service, renovation and refurbishment.

So I will argue and I will say to you that we are a very stable company today, going forward as well. And on top of this, we have a very strong balance sheet. And this is what it looks like when you use a position in the market, the different opportunities you can see in the market, the different kinds of demands in many different places.

This is the CAGR regarding sales and profitability since 2014. So we have added 9% on average on sales and 10% on average on the profit, fantastic. And then you have a very stable cash flow as well. And the average during this period is somewhere around or above 100%. All in all, we can use this strong cash flow to invest in our business, to invest in M&A. And together with acquired growth, we can grow this business organically with a very stable margin and that is what has created this fantastic, as I see it, track record.

We are and want to be -- stay as the Nordic leader in sustainable technical solutions. We want to be a partner for the customers from the whole lifecycle of their building. And we want to support our customers with sustainable services in both service as well as installation. And the last couple of years, we have extended our service offer to the customers with solar panels, car chargers, energy management, et cetera.

And we will probably see some other areas added to the business as well, in the coming years. So the leading Nordic provider of sustainable technical solutions for buildings and every customers has access to our entire offering, lifecycle perspective on every building and we are and want to stay as the industry leader in this segment.

So what about the quarter? As I see as a really strong quarter. Yes, not -- even if we have had some kind of difficulties in the market. We have a high inflation rate. We have managed that in a really good way, as I see it. But today we still see a good demand for both service and installation, especially for service, you will see later that our service business has been growing 30% in the quarter.

We see growing demand, definitely growing demand for sustainable and energy-efficient solutions. A year ago it was the interest of sustainable services that actually were driving this demand. Today it is still the sustainable reasons. But on top of that, we have high energy prices that is driving this as well to helping our clients save energy is much more interesting today than it was 6 months ago.

We definitely see a lower risk for material shortages. Said that, we, of course, see some uncertain times, increasing interest rates and a very high inflation and that may lead to delays in investments or changes in how our customers choose to use their capital.

But anyway, I think that if someone thinks they have too expensive or too high cost on the premises side, I think they need to do something, maybe they move to another place. And if they move to another place, they need to do some adjustment in that building and that's a good service business for us. So all in all, today, we see a good demand in the market.

But we have the full respect of that, it can be somewhat trickier going ahead, high inflation and some, what you say, push on the margin side as well. But we will always have a very stable margin, that's for sure. Maybe I'm a bit afraid for the whole industry because normally when we see a slightly softer market and I'm thinking mostly on -- or mainly on the residential market; people, competitors, other types of actors in the industry thinks that it is possible to buy material, labor, whatever cheaper.

I think the risk now is that some of our competitors is pricing a bit lower, which I think would put some pressure on our margin. But if they price it lower, and at the same time you see inflation continue to go up, they will end up in trouble. We will avoid that. But I think also we're seen as a very stable partner to work together with as a very -- we have a very strong balance sheet. We will be there in a couple of years to finalize the project or the service agreement, et cetera. But there is a risk for increased bankruptcy in the industry. And I think that that is something we can, yes, get stronger out of because the customers has to focus more about stronger, financially stronger partners and that is Bravida.

So our quarter; net sales is up 26%, organic growth at 13% and order intake is good. We have a seasonality regarding the order intake. But if you look at one of the slides in the material, you can see that the LTM order intake is increasing and have increased every quarter.

And we have a record high order backlog. It seems like I have said that many, many times. It's close to SEK 18 billion now. And margin is stable at 5.9%. Cash flow improved much better than last year. And we have a very strong improvement on the safety side.

The LTIFR, as we call it, very easy thing to say, is down to 6.9 compared to 8.6 down 20%, which is something we are really happy about because that means that all our employees have a safer working place today than they had a year ago. And we continue to work with this and our focus is high.

Electrical cars. Changing our car fleet is improving a lot. 63% of all ordered vehicles are electrical. That is actually summing up to close to 1,000 cars so far this year, that is 100% electrical driven. And that will, of course, be seen in the KPIs going forward. Unfortunately we haven't got all the cars delivered yet. There are some laggings in that process. But that we'll make sure that we have a good opportunity to reach our sustainable targets for 2025.

And on group level, as I said, 26% sales increase from SEK 4.8 billion, up to SEK 6.1 billion. Organic growth 13%, which is extremely good, very high in our type of business. And maybe that is one reason why we are struggling a bit with the margin in -- on the project side in Norway and Denmark for the moment. We have maybe been growing too much. Also I will elaborate on that later.

EBITA margin, very stable, 5.9%, and if we take into consideration all the investments we are doing in both systems and all the people we are hiring to be a very -- an even better supply for our customers on the service side, energy side, automation side, et cetera. We have actually at least having presenting a flat margin or maybe even improved it.

As we say on this slide as well, we have increasing costs for upgrading the IT platform, new systems and business development. And that is approximately SEK 35 million compared to the same quarter last year. Order intake, I mentioned, but order backlog is up 17% and close to SEK 18 billion.

And if we break down the sales performance, you can see that SEK 627 million is coming from organic growth. M&A is contributing with close to SEK 0.5 billion and then we have some currency effect with SEK 100 million plus. All in all, that sums up to a really strong growth at 26%.

And what about EBITA then? The margin, I mentioned, very stable. We see improved margins in Finland, unchanged in Sweden and somewhat lower in Norway and Denmark. And EBITA affected by nonrecurring costs for implementing the system I just recently mentioned. And that is SEK 11 million in the quarter. So far this year, that sum is SEK 46 million. And our forecast for the year is, as we have said before, somewhere between SEK 80 million and SEK 100 million.

And then we also have some effects from developing the new businesses that we are talking about, sustainability and modern IT platform. And those are going to plan. And they are costing due to plan as well. We are driving the business plan forward. And that is, of course, increasing the administrative costs a bit as I just mentioned. But it will improve our margin and our ability to grow going forward.

We have said that the margin impact will probably come out positive from these investments in late -- in the end of 2023. And as you may be seen this morning, we have sent out a press release where Magnus Hamerslag, he is internally recruited. He is part of the Group Management. He will be in-charge of those new businesses that we are calling growth segments. And that is because we want to accelerate the growth, accelerate the development of those segments. And we want to become even better in helping our customers save energy, be more sustainable.

So Magnus will drive this and accelerate that segment in a very good way. And I'm really looking forward to talk more about this going forward as well. Increased recurring costs due to the IT platform; we have some digital development capabilities as well. Of course the increased sustainability focus needs some resources.

And those resources cost something and that is also into the P&L. And then we have improved our HR support to be able to attract more and new talents, attract more and new technical skilled people and as well as we want to improve our ability to foster new talents, foster new leaders within Bravida and that is also something that is part of the recurring costs.

Initial costs for the investments in new businesses, is technical facility management, automation and energy management. And we haven't been talking very much about energy management before. But we have good solutions in place for our customers to help them save energy. And that is something we are putting into this new business unit, which we call growth segments, to be able to accelerate and help more customers better and more often. And as I said, this is expected to add positively to the margin in the end of 2023.

Order intake and order backlog. Now you can see that the order intake in the quarter at 5.9 is adding to the LTM order intake. And you have a seasonality in the order intake, as you can see. And of course it's driven by the positive development in the service business.

The order backlog, as you can see to the right, is and has improving every quarters, a couple of years back, record high level. And we have increased order intake in all countries, which is a very positive thing. We are very stable for the moment. We have a strong balance sheet. So yes, a lot of things; is looking good.

Regarding the sustainability and then KPIs, declining engineering numbers, as I said, minus 20% and declining engineering numbers in Sweden and Denmark, it's going up a bit in Finland, slightly smaller business. So they are more sensitive to 1 or 2 accidents. But the focus is high in Finland. And in Norway, they are well below the target at 5.5.

And they are the polestar in the group. That is what all the other one is striving for to make sure that we have the same focus and are as good as they are in Norway. Ordered electrical cars or vehicles 63% of total number year-to-date, that means close to 1,000 cars, quite fantastic. And that means that we in practice that we will have a good possibility to reach our sustainable targets for 2025.

We can see now that the change in CO2 emissions from vehicles is up with 3.7% and that is mainly because that cars haven't been delivered yet. On the other hand, if we adjust or take this into correlation with our sales, you can see that it's down 7.7% in relation to the LTM net sales and that is positive, of course. We're seeing that when we do acquisitions that we very often get, if you can say, a worse car fleet into our books.

And that is, of course, one way we can do some good things for the environment as well. When we acquire a company, we also increase that company's sustainability focus or even actually start the sustainability focus. So that is one way we can help and support the whole industry to improve in this area.

Acquisitions so far this year, 21, adding SEK 1.6 billion. And as we said in the last quarter, we will see somewhat lower tempo in H2 this year. With that said, that doesn't mean that we don't have a pipeline. The pipeline is strong. We closed 21 deals before the summer. And then it has been somewhat lower tempo, but we are in discussions. You should not see this as we have stopped doing acquisitions. We will use our balance sheet. And we have plenty of opportunities to continue to do that as well.

Still attractive multiples. I expect the multiples to go down a bit. We still see some players in the market who is paying quite much, which is a bit strange, but let's see what happens. But it hasn't increased, but it hasn't gone down either. So let's see what happens. We think that we will see a small adjustment downwards regarding the multiples. But anyway still attractive multiples.

So Asa, performance by country, performance, please.

[Åsa Neving, executive]

Thank you, Mattias. So let's start with our largest country, Sweden, that continues to be the engine of our business. Sweden is growing with 12% in the quarter to SEK 2.9 billion and the growth is mainly coming from service.

The organic growth is plus 4%. And it's a bit uneven, you can say, spread in the country. So we have a higher growth in the northern part, lower growth in the Stockholm area and Southern part.

If you look at the year-to-date figures, the growth is 8% in total and the organic growth is 2%. EBITA margin is unchanged at 6.9% in the quarter, so very stable, 6.3% year-to-date. And the EBITA is on SEK 199 million compared to SEK 178 million last year. It's really good that we can continue to keep a strong and stable margin in Sweden. We are taking, as Mattias said, some additional costs from -- for improving our business and modernizing IT and new initiatives and so on.

And these costs are spread out or we are allocating them into the different countries. But then mainly Sweden is taking a little bit more because we're taking some resources here for the new businesses like technical FM and automation and so on. So they are taking some extra costs here and still continue to deliver a strong margin.

Order intake is plus 11%. That is SEK 3 billion. This is coming from service, so installation is negative in the quarter, but a strong order backlog, 3% -- plus 3% year-on-year. And then, moving on to Norway that has been growing and growing a lot with 45% during the quarter to SEK 1.3 billion. The growth is coming from both installation and services, but mostly from installation in the quarter.

The organic growth is 29%. And we're growing by acquisitions by 6%. The year-to-date total growth is 37% and organic growth is 25%. EBITA, SEK 69 million compared to SEK 53 million last year. The EBITA margin is declining to 5.2% from 5.9% last year. And this is mainly due to the fact that we have -- first of all, we have been growing really fast, so the margin doesn't -- in some areas, doesn't really keep up with the growth.

Then, we also have a change in the sales mix now with more installation and installation has a lower margin than service. And we have a couple of projects in the Oslo area, where we have some write-downs. And we have been -- we are taking actions there and we talked about this before.

Order intake; plus 2%. It's slightly negative in Norwegian kroner. And it's negative. The installation side is negative. And this is -- we actually have a really strong order backlog here. So we're growing in the backlog with plus 43%. So we are a bit selective now on taking our new installation projects also with when we've had this high growth. And then Denmark, also growing a lot growing with 47% in the quarter and is now our second largest country. They are growing both in service and installation and the organic growth was 25% and acquisition grew by 17%.

Year-to-date, figures is 29% total and 17% organic. Here, EBITA was SEK 70 million compared to SEK 51 million last year. And the EBITA margin is declining here to 4.6% from 5.0%. And this is also almost the same trend you can say as in Norway. We have a different sales mix towards more installation, also been growing a bit too fast in some areas, so the margin doesn't really keep up. And then we have a couple of projects where we had some write-downs and we've also talked about this before.

Order intake, plus 18%, and the order intake comes from both service and installation and a strong order backlog, plus 38% year-on-year. And then Finland. Finland has also been growing in the quarter with 19%. They are growing in both service and installation. The organic growth is negative, minus 3%. So the growth comes from acquisitions, although we have an organic growth in service in the quarter. EBITA SEK 20 million compared to SEK 13 million last year.

EBITA margin improving 5% from 3.8%, really happy to see this strong improvement in the EBITA margin that has been continuing now for some quarters. It's really good to see how the Finnish business is working very structured to increase the margin bit by bit. So improvement in the margin comes from both the service and installation in Finland. Order intake is plus 51% and the order intake comes from both service and installation; order backlog, strong plus 35% year-on-year.

So then, if you look at our net debt and cash position. If you look at the chart in the middle, you can see our operating cash flow and the third quarter is the worst quarter in the year. But this year, it's positive. So it's plus SEK 78 million compared to SEK 139 minus last year in the quarter. And this also then leads to an improvement in the year-to-date figures, so plus SEK 482 million. And we're also then improving the cash conversion to 88% from 80% last year.

And this is -- yes, if you look at our financial position, then on the left-hand side, you can see that we have a cash balance of SEK 1 billion roughly. Then we -- our debts are from a term loan, SEK 500 million. We are using the RCF, SEK 1 billion. And then we have some commercial papers now around SEK 700 million and that adds up to SEK 2.2 billion in loans. And then adding the leasing contracts, it's another SEK 1 billion, so total net debt is SEK 2.1 billion, which then leads to a net debt-to-EBITDA ratio of 1x compared to 1.1x last year.

So our financial targets, where are we? We have a financial target -- financial target on EBITA margin on 7%. We're not there yet. The LTM figure is 6.7%. But then you need to remember that we had got some repayment on pension funds money last year. So adjusting for that, it's on 6.3%. Cash conversion, we wanted to be more than 100%. We are increasing it now. So it's on 88%, going in the right direction. Net debt to EBITDA is a lot lower than our target. It should be lower than 2.5x, and it is, as I said, on 1x.

Sales growth, a lot higher than 5%. It's on 17% year-to-date. And last year we paid out more than 50% of our net profit.

So I think that's all for me, Mattias.

[Mattias Johansson, executive]

Thank you, Asa.

[Åsa Neving, executive]

I'll take my notes here.

[Mattias Johansson, executive]

Yes. Maybe I need them. Okay. Just a summary before we enter into the Q&A. And I think you have heard a 26% growth, somewhat lower margin. On the other hand, we are making more money. And we are increasing the earnings per share with 19%, which is not said on this slide, but I think it's 19% up on earnings per share, which is maybe the most important thing.

Organic growth, 13%. We see organic growth in Sweden, Norway and Denmark. Acquisitions continued to contribute with another 10%. We see increased backlog in the quarter close to SEK 0.5 billion. And the margin is somewhat lower, but very stable. And considering the circumstances with high inflation, material prices going in some areas sky high, we have handled that both in our pricing to the customers as well as our procurement team and our procurement strategy has been shown once again to be working.

So I think this is a good, solid quarter. And both myself, Asa and the rest of the management are really motivated to continue to take care of the business, no matter what the market will look like. We know what to do and we will do it. And we have so many opportunities in the energy sector, energy management, sustainability areas, et cetera. So really looking forward to the coming quarters as well.

So by saying that, I think we can open up for some questions.

[Operator]

[Operator Instructions] The first question comes from the line of Karl Norén from SEB.

[Karl Norén, analyst]

So I have a couple of questions here. First on the visibility in terms of the organic growth going into next year. I mean, you have a quite solid order backlog and a continued strong order intake now in Q3. So I was wondering what is your expectations for next year given what you know at the moment with the Stockholm project moving into the production phase next year, would be interesting to hear your thoughts there.

[Mattias Johansson, executive]

Yes. First, we never guide on the organic growth for different reasons. But -- on the other hand, when we have entered into a growth phase, the big machinery of Bravida, we normally stay in the positive organic growth phase for a while.

And as you said, we have a really strong order backlog. We have a good order intake, solid demand for services. So I don't think that the organic growth will disappear. 13% is high. I think we can say that we expect organic growth in the next quarter as well.

But it's, of course, hard to say. But we are very busy for today. Just an example, when we're out traveling last week in the organization, I met a Region Manager who prepared the budget for next year. And that regimen, he said, he's pretty much sold out for the full for the next year. Then, of course, we see in Stockholm area, where the residential building is a big part of the total market where we see some project is delayed or actually canceled or stopped.

That is another type of market. And I think that is why we can be very stable in Bravida, because we won't have a big downturn in all markets at the same time. Then, we have different kinds of cycles regarding the local order stocks, et cetera. So I think 13% organic growth in Q3 must mean that we will have some organic growth going forward as well.

I think the growth side is not our challenge for the moment. I think as we have said a couple of times, it is on the margin side where we see some pressure from different reasons. You have the inflation on the material side, which we are handling very good. But the customers can't pay all the increases. We have some competitors who, I guess, won't price very structured or logically going forward.

I think the whole industry or not some players in the industry will estimate -- underestimate the fact that we can have a situation where the market is a bit unsecured, slightly softer. At the same time, as everything you need to fulfill your contract is actually getting more expensive.

But positive outlook on the growth in the coming quarters, I would say, slightly tougher on the margin, but the margin will be very stable.

Asa, do you want to add something?

[Åsa Neving, executive]

No, I think that's a very good picture.

[Karl Norén, analyst]

Yes, good answer. And just a follow-up, just on the margin side and maybe how you are pricing your projects right now because I guess we will see some more higher salary inflation going into next year. So I'm just curious about how you're pricing disciplines right now? And how you expect this to contribute to the margins here?

[Mattias Johansson, executive]

Yes. We are -- the way we are pricing in the discussions we're having in the prices we are offering to the customers, we are expecting higher wages definitely and somewhat higher material prices as well. We have a very structured way of working with the materials.

We -- I expect that we won't get the same increases as the rest of the market because we are #1. We have a very clear strategy regarding how to procure. We have our partners, as I said a couple of times before. We have some suppliers that are not -- that isn't our partners or it seems like they don't want to be our partners, acting a bit strange sometimes.

But we are working close to our partners and the partners, is the one that we can help and they can help us to take down prices, to keep the prices on a very stable level. So in the offers, we are calculating with higher wages and somewhat higher materials.

[Karl Norén, analyst]

And then just the last one on the order intake in the quarter. If you look on the organic side, it's a fair assumption that the organic order intake was relatively flat year-over-year?

[Mattias Johansson, executive]

Yes. I think it's -- if you look at the history, you can see that we have a quite low order intake last Q3 as well. So there is a seasonality in those numbers. So I think you couldn't look too much on it. On the other hand, order intake this year is much, much better than last year.

Overall, the order intake is a combination of the service sales and the installation sales. And the service sales, is very positive for the moment. And the order backlog is high, meaning, that we are not very stressed in the negotiations because we don't -- in some places, we don't need new jobs. And that can also impact the order intake because we don't have -- we are not in the position that we need to sell more jobs because we need to focus on delivering the contracts we already have signed.

[Operator]

The next question comes from KJ Bonnevier with DNB Markets.

[Karl-Johan Bonnevier, analyst]

Just to continue on the previous question and you're saying that to some extent, you can't really take on more, I mean, you have more orders for the market. In the current situation, what kind of visibility do you have for yourself into 2023? I guess it must be at least a very good load in the first half and dependent on really what happened in the market at this stage? Or how do you see it?

[Mattias Johansson, executive]

Yes, I think -- yes, I agree. Then -- and that is from the group perspective. We are following the order backlog on not only on the branch level. We're actually following the order backlog on cost unit level. So all the -- our Region Managers, when we had the reviews, we are discussing the order backlogs in [indiscernible].

So that is, of course, also the case that in some areas, we are probably needing some new projects in the beginning of the next year. But overall, I would say that we have at least a clear view of where those places are. We have a clear view about what we are supposed to do in the coming 7 to 9 months.

So where we have a full order backlog, we know that. And if we have some places where we need some more top line, we definitely know that as well. But overall, the full picture is that we have a good visibility in the order backlog. And we have plenty of things to do in the coming quarters.

[Karl-Johan Bonnevier, analyst]

Excellent. And if you are really hit by a deep recession here for some reason, so to say, how does your plan B look in that kind of situation?

[Mattias Johansson, executive]

Again, we are looking at not only branch level we are looking at the local markets on cost unit levels. And of course, if we don't have any jobs, if it will be a dramatic change in the market, for example, let's say you have a CTX.

The case can be that the electrical department can have plenty of things to do, but the plumbing department needs some jobs and we can't find those jobs to the right prices. Then, we will try to take out cost and 30% of our cost base is material. Another 30% is the labor cost needed to assemble the material we don't need.

So we have a very flexible cost base. And in our world, we are adjusting and taking out some of those costs if that is occurring that you are saying. But I think that we have, of course, residential will be built to a much, much -- yes, much, much fewer residential will be built.

On the other hand, you have the transformation in the society regarding charging new energy systems, new energy sources, taking down the energy consumptions. The green -- the sustainable demand in our industry will increase at the same time as I think the renovation and service market will be very stable or even go up.

I remember, in the crisis 2009, new build sector went down a lot. But the service and renovation market, I think that was growing a bit at the same time. So having close to 2/3 of the top line on service renovation and refurbishment is quite good, I will say.

[Åsa Neving, executive]

Yes. And I can just add that we are actually planning for a plan B as well. So we are now into the budget discussions. And we have the main scenario and then all regions will also a plan B scenario if we see a larger downturn.

[Mattias Johansson, executive]

And that something we have had for the last 3 years.

[Åsa Neving, executive]

Yes. So it's not -- but now it's maybe a bit more important.

[Mattias Johansson, executive]

Relevant, yes.

[Karl-Johan Bonnevier, analyst]

And as you say, I guess, it's something that is going to be implemented on case-by-case instead and a way in a decentralized kind of setup. So it's never going to be a situation where you probably will experience over the whole platform or something like that?

[Mattias Johansson, executive]

No. And I think in the crisis 2009, you saw -- I was a region manager at that time. And actually, we were able to grow our business during that period, in my region, depending on different circumstances.

But it's also a lot of possibilities. Today, we have a market share in Norway and Denmark around 5%. We normally say that means that we have 95% we don't have. So there is a lot of opportunities. At the same time, you, of course, need to take actions if the market is too tough, definitely.

And we are ready to do that if that's needed. But we're not there today.

[Karl-Johan Bonnevier, analyst]

Excellent and good to hear. Looking at the write-downs you are taking in Norway and Denmark, are there any common themes where you end up in this write-down situation? Is delayed projects not access to material or say, too few installers on your side? Or why have you ended up in these kinds of project write-down situation?

[Mattias Johansson, executive]

I don't think we have finalized the full analysis of that yet. But I would say that if you remember last year, Norway had a quite low activity on the installation side, Q3 last year.

Now they have a really high activity because some of the postponed projects then have come into the production now. So there are, I would say, too much things to do at the same time, leading to the fact that we can't produce with the same productivity as we normally have been able to do.

So -- and that's why this is why we don't want to grow the business too much. We are focusing on margin. We want to grow this business with quality, with the margin control. And I think what has happened in Denmark and Norway is that we have been growing too much. Meaning that we haven't found enough white collars resources or good enough white collar resources that have been able to produce it with efficient enough.

And then, of course, when you have a lot of things to do on the blue collar side as well, then you maybe need to use slightly more subcontractors and the quality isn't really the same. You need to build it stone by stone with quality and I think that is the reason.

We have in Norway been very structured in what kind of projects we want to win, what kind of customers we want to work with. So we think we have a much better order backlog today than we had a year ago. But it has been too high productivity at the same time. And that is why we are losing too much money on the installation side for the moment.

And then, to try to improve this area and support the organization slightly better, we have mentioned the investment on the IT side.

One system that we're investing in is actually a system to be able to produce our installation business more efficient with a better control with a slightly easier way following up as well. So we are taking measures locally. And we are taking measures centrally to -- in a structured way to try to improve our installation business and make sure that this is not happening too many times.

[Karl-Johan Bonnevier, analyst]

And also, when I look at the seasonality in working capital, is there any reason why we shouldn't see a similar kind of Q4 phenomena as we have seen in the last couple of years this year. Is there anything on the growth side that will impact that as you see it?

[Mattias Johansson, executive]

Yes. On a general level, I can say, we have always an improved cash flow, et cetera, from now on until end of February. The worst position is 22nd of September something, then it improved to February.

[Åsa Neving, executive]

Yes. Yes. And so Q4 is normally really good. It's also like end of the year. So everybody is cleaning up what they haven't cleaned up before you can say in sending out the invoices. So yes, we believe that it will be improving.

[Karl-Johan Bonnevier, analyst]

Excellent. And Mattias, just 1 or 2 words on the structure of putting these growth segments together. Could you indicate the size of these operations today and maybe your ambitions for why you want to take it over the next 3 to 5 years?

[Mattias Johansson, executive]

Let us come back with a more structural way of presenting this. But I have said before that automation, for example, our ambition, our vision and ambition is definitely to be the market leader in that segment in the Nordics in 2 to 3 years' time from now. Let's see. I'm very aspirational when I'm saying that. But -- and I think that goes for the technical FM and the energy management as well.

We want to be a leading player, a leading partner for all our customers in all the segments we are acting in and that is the same case for those as well. Then, of course, this is -- we see -- it's quite difficult to grow in these segments through acquisitions because this is quite new markets.

So this will be mainly organically driven, which is, of course, complicating it a bit. But on the other hand, that seems like an even more fragmented market to try to win compared to the rest of our business. So really looking forward to Magnus Hamerslag, that we -- yes, he's responsible to lead this will be really good.

I am really looking forward to how he can accelerate those segments going forward. Those segments have been reporting to me. So this is actually meaning that we are adding more leadership to this investment at the same time as I can focus slightly more on the rest. And I think that is 1 plus 1 should be more than 2 here, so really. Yes. I'm as keen or eager as you are to see the numbers, but let's come back to how we present it.

We will present -- we'll continue to present at different countries. So we won't have this segment as a certain report and point in the reports. But we will, of course, follow this closely. And I understand that you are very interested in this as well. So let us come back with that Karl-Johan.

[Karl-Johan Bonnevier, analyst]

And just to finish off on that, if we now end up in the recession, how will you treat these growth areas? Is that an area where you -- I guess it's the easiest area to probably postpone investments in as well to some extent.

[Mattias Johansson, executive]

Yes. But I think we have done the investments that we need, some system investments remaining. But on the other hand, those -- I think those segments are extremely stable. And maybe they will -- I think we can continue to grow and develop these areas even if the market goes down. I think that is one of the reasons why we try to win this market.

[Operator]

The next question comes from Ben Wild with Deutsche Bank.

[Ben Wild, analyst]

Just -- I've got 3 questions. Maybe I'll just start with the first 2 and then come back. Firstly, can you give us an idea of what the organic revenue -- what the growth is for service and installation on an organic basis?

And secondly, within the 13% organic growth, how much is pricing? If you can give us some idea, it would be much appreciated.

[Mattias Johansson, executive]

Yes. I think on the first part of the question, we not disclose that number. And also, I think you have the answer on the price part of that.

[Åsa Neving, executive]

Yes. Well, if we look at the organic growth, it's a smaller part that is coming from price increases actually. So -- and it's difficult to say exactly how large that is. But it is mostly organic growth.

So I'd say it's a couple of percentages that comes from inflation or price increases, rather.

[Ben Wild, analyst]

And if we think about that versus previous quarters and the coming quarters, do you expect -- or is pricing playing an increasing role in Q3 versus Q2 and Q1? And how do you think it will evolve going forward?

[Mattias Johansson, executive]

If the question is about service, I think that's quite difficult to answer. But on the installation side, we have some index clauses in the agreements. And of course, they will have some impact in -- yes, in that perspective. And I think the index clause starts to pick up now.

There are some delays in those clauses. So I think we don't have systems. We are not measuring the thing you're asking for. But I think services, is very much that we are charging for the things we're doing. So there is no risk.

Of course, there will be some inflation from more expensive material and then later on wages, et cetera, but so far, not a very big part. And I don't think the changes will be very dramatic.

[Åsa Neving, executive]

No, it doesn't look like that now at least, so -- let's see.

[Mattias Johansson, executive]

Let's see, about the wages in the spring. We have new wages coming up in all countries, in April next year. We don't know anything about that. It's too early to say. But of course, that will impact the whole industry.

It doesn't change our competitiveness because that is the change everyone gets in the market.

[Ben Wild, analyst]

Sure. And then the final question was just coming back on some of the broader points you've made on the outlook materials and particularly around the potential for rising bankruptcies in the industry next year and later on through a downturn.

And if we think about market consolidation and of course, your own consistent M&A activity, given these risks that you've described, do you prefer to wait to compete for market share organically? Or will you be looking to continue to acquire smaller players through a downturn? How do you see this dynamic playing out? And how do you participate in that?

[Mattias Johansson, executive]

I think we will continue to do both, because there are some different reasons why we are doing acquisitions. In some acquisitions, we actually want to get hold of a really strong leader. In some of the other acquisitions, we want to add a new vertical to the existing offer to our customers.

And in some cases, we are buying a top line with a profit that we think we can increase due to the synergies, et cetera. So we will continue to do both. We will be more selective what kind of acquisitions we want to do.

On the other hand, I think the opportunities will increase. I think some will get -- might get into some troubles, needs support from a financial stable partner. Then I think some other buyers will disappear because they don't have the same balance sheet as we're having. So I think we will continue to do both definitely.

[Ben Wild, analyst]

And finally, on that point around your balance sheet. Of course, if you do -- if things do slow down, you will build a very, very strong position over the next 12 to 18 months. How would you think about the potential for a significant deal, a larger deal during this dynamic?

[Mattias Johansson, executive]

Yes. I think the smaller one, the bolt-ons. They're just happening going on. We have a very structured way of doing that. That's part of -- someone said it's close to semi-organic growth because we are paying, so yes, due to the prices we are paying.

And we have always said that we are always looking for some larger deals. We're having discussions with different players, not only to because we want to buy them. But we want -- when they are ready to sell for some reasons, we want to have a relation being first in line to be able to do the deal.

So we are prepared and ready to do bigger deals if it adds values to our shareholders or if it adds values to us as a company. And I think it's not the first or the second. I think both are going hand-in-hand. So we won't do acquisitions just because we want to become bigger. We want to do acquisitions because we want to improve our ability to provide service to our customers.

[Operator]

[Operator Instructions]

[Mattias Johansson, executive]

Yes, I think maybe that was all because we have some -- we know that are doing something different as well. So -- do we have any more questions?

[Operator]

Sir, we do not have questions in the queue.

[Mattias Johansson, executive]

Okay. Thank you so much. Then I think we end this session. Then we are running to the next pit stop.

[Åsa Neving, executive]

Exactly.

[Mattias Johansson, executive]

Thank you so much for listening. And I hope you get a really great day and a great week. So if you have any questions, just contact us and then we will do our best to answer those questions. So until next time, have a great time. See you soon. Bye.

[Åsa Neving, executive]

Thank you. Have a good day. Bye-bye.