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Ladies and gentlemen, welcome to the Instalco Q2 reports 2019. Today, I'm pleased to present CEO, Per Sjöstrand; and CFO, Lotta Sjögren. [Operator Instructions] Speakers, please begin.
Thank you very much, and I also want to welcome you to this presentation of Instalco's quarter 2 report for 2019. As you heard at the introduction, my name is Per Sjöstrand, I'm CEO of Instalco. And during this presentation, as always, I'll be assisted by our CFO, Lotta Sjögren. And let's move to Slide #2, showing a brief overview of Instalco company. And of course, I'm now pleased to report that we have reached sales of more than SEK 4.5 billion, it's on a 12-month rolling basis. We have now 60 companies and in total almost 2,500 employees. You can also see there that we have an adjusted EBITA of 8.4%. Moving to the next slide, little bit about the market and we will say that the total value of the Nordic market is more than SEK 200 billion. Sweden is the largest component. And we think also that throughout the Nordic region, still, urbanization is strong trend, one of the main driving forces in this sector. But we have also other factors fueling the market, such as shortage of housing, technological development, lot of investments in infrastructure and also aging property holdings. And as you know, more recently, there has also been greater emphasis on environmental awareness, generating benefits to society and sustainable entrepreneurship in the markets. Over time, the Nordic installation markets have stable rate of growth, it's starting to level off, but important to emphasize that it is doing so at a record high level. We'll be back to that later on. Going to next slide, Slide 4. Of course, I'm proud to report we that have had a good profitability and strong growth in the second quarter of this year. During the period, we have made 5 acquisitions, which has grown our geographical coverage. We also start up 2 new companies of our own and we will go back to that too. Net sales increased by 20% to SEK 1.4 billion and with an organic growth of 2.7%. Adjusted EBITA for this quarter was SEK 123 million and that's up from SEK 107 million last year, that gives us a margin of 8.7%. Also our order backlog remains high at more than SEK 4.5 billion, which was an increase of 16%. We can move to Slide #6 -- 5. Slide #5. Okay. These diagrams show the trend for Instalco net sales and adjusted EBITA compared to prior years. Our robust growth stems from our active acquisition strategy. And also for several quarters, we have had order backlog the size of the last 12 months. These strong figures are now reflecting the result of our strategy of working with many small companies and medium-sized projects that each -- that keeps risk at a low level and with a high profit margin. Our business also has low exposures to the housing -- declining housing market where we have 10% of new construction. Our largest area of operation is installation work on the building, such as schools, preschools, hospital and other public facilities and offices and commercial facilities, our next largest area. We can then move to Slide 6. And as I already mentioned, our backlog of orders remains high and our situation is quite stable, thanks to our wide portfolio regarding types of projects and markets. Our large order backlog also provides us with excellent opportunities for that in our business if changes occurs in the market. If you go to Slide #7, I would like to highlight 2 projects from the quarter and I think they are great examples of how we work in Instalco. And as we have said from the beginning, creating synergies and cross-selling between our companies is fundamental to Instalco's business model. And 1 excellent example of that is our project of expo where 5 Instalco companies with different areas of specializations are collaborating. And together, we will provide heating and plumbing, electrical and ventilation installations, along with control and regulations technology associated with construction of the new supermarket [indiscernible]. And another example of a successful collaboration between the Instalco companies you will find in Finland, where LVI Paavola and Sähkö-Buumi are collaborating on the heating, plumbing and electrical installation at a large office building in Helsinki that is being renovated. Moving to Slide #8. Now if we look a bit closer -- more closely at the segment Sweden, you can see the net sales increased by 15% -- over 15%, with an organic growth of 2.4%, and I also think we have a stable margin here at 8.6%. Lotta will comment on that later on. We think that Swedish markets remains stable with electrical installation as the largest component. We can also say that, in Sweden, we have organized ourselves in 4 regions, it's north, south, east and west, where each region has a regional manager. They can carry around 10 to 15 companies each. And these managers are working not only as managers there, they're also acting like supporting coaches for the companies in the region. So if you want to grow, we can also start new regions. I think that's the strength that they have. Moving to Slide #9 and the rest of Nordics, that means Sweden -- that means Finland and Norway, of course. Net sales increased by slightly more than 33% with an organic growth of 3.8% is about Sweden. And in recent quarters, I think you have heard before that profitability for rest of Nordic was negatively impacted by a negative loss project in Norway, and that project has now been completed, so we expect some good results here going forward, you can already see good results here. And of course, I'm very pleased with the steps we have taken to improve profitability. I'm proud that rest of Nordic is performing so well. I mean improvements are partly attributed to our efforts to improve processes, also higher focus on activities to improve profitability, and of course, also our improvement program, our focus we have launched. We have also well -- done a lot of good acquisitions, obviously.Looking into the market. The market interest in Finland, obviously, is strong. We have a good and a large order backlog. Here at major metropolitan areas and industry clusters have still remained active in the markets. Going to Norway. The market is stable, has also for many years, especially in the [indiscernible] region and high growth in all regions where we are represented as well. Okay. Going to Slide #10, a little bit about the acquired companies. And as you have understand, we -- obviously, we have continued to actively pursue our acquisition agenda. And during the quarter, we acquired several new interesting companies and operations, which has broadened our geographic coverage and offering. And here are 2 examples of that, that I want to highlight. One is a company called Moi Rør, it's located in Kristiansand in Norway, South Norway, which has given us access to a new interesting market. The company primarily is focused on major heating and plumbing operation project for industrial customers. And the second acquisition I'd like to highlight is Bogesunds El & Tele AB, it's located in Ulricehamn in Sweden, and it specializes in electrical installation of residential property. And the acquisition broadens our coverage of [indiscernible] which is strategic important regions for us. And I think that both are good examples of strategic acquisitions we made to strengthen our position in a particular area. As you all well know, I think all our companies and these companies as well have strong brands and reputations in their local markets. Also the other companies we had acquired during the second quarter are [indiscernible] and they have their business. The latest was acquired by our subsidiary, Dala. Talk a little about what we call startups, that's on Slide 11. And sometimes, we start up our own companies, that's a supplement to our main acquisition strategy. It involves setting up company together with a local entrepreneur. We have concluded, of course, first that the market there is favorable. And one example of this is our startup company, Insta-EL, in Malmö. It's an electrical installation company, which enables us to work on major electrical installation contracts in Southern Sweden, of course, as well as collaboration projects with other Instalco companies in the region. And the other example to the right here is a startup company, Instamate, in Södertälje. It was established for the purpose of running the installation division that they acquired from DynaMate, which is owned by Scania. And Instamate offers heating and plumbing, electrical and ventilation installation for industrial companies, of course, including Scania. Moving to Slide #12, and looking forward, our assessment is that the market remains stable, as I said before, with a constantly rising demand for energy-efficient sustainable solutions. I think that the rate of growth for construction in the public sector remains high and the same applies to construction of commercial properties, such as offices and business facilities. But as you know, everyone at this point, there has been an overall slowdown in the economy and in our market, of course, but I think we have a wide portfolio and large backlog of orders. And because of that, we have many ways of adapting to any changes that might occur in the market.
Thank you, Per. I'd like to do some additional comments on that. Next slide, please. During the first half of the year, we made 8 acquisitions in total. At the end of the reporting period, we have made another 5 acquisitions. These 5 companies have an estimated annual sales of around SEK 350 million. That means that so far this year, we have acquired annual sales of slightly more than SEK 1 billion, which far exceeds our goal of SEK 600 million to SEK 800 million per year. With this in mind, we have more than 5 months left this year for upcoming interesting acquisition. What I'm saying is that we'll keep up our acquisition pace, even though we already reached our target by far. I'm also glad to report that thanks to our strong cash conversion, we have been able to mostly acquire companies without increasing our loans. And as you perhaps noted, the adjusted EBITA margin for the growth was lower than EBITDA. Explanation of that is that it stems from an adjustment of prior reported additional earn-outs. I would also like to comment on the fact that EBITA for Sweden is lower than it was for the same period in 2018. The slight decline is primarily attributable to an extraordinary margin the same period last year and the late start of some projects earlier in this year. These are now underway, however. On the other hand, as Per said, the margin for rest of Nordics improved exceptionally well.Next slide, please. First 6 months in the year, we nearly achieved our run rate EBITA target of SEK 450 million by 2019. As you might remember, it's a goal we formulated when Instalco first was established. This historical impact calls for a much stable profitability and the graph here shows that we accomplished what we set out to do all the way back in 2014. And with this in mind, we will continue our path of acquiring profitable companies, creating synergies and developing companies together with others within the Instalco group.Next slide, please. On this slide, we show our financial targets. As you can see, on the right, we are green lights for all the targets. Instalco's growth progress is the average growth in sales should amount no less than 10% per year over a business cycle. The growth should be achieved both organically and through acquisitions. Thus, we can conclude that our performance is in line with all of our financial targets. It is also worth mentioning that there are set targets that we can attain over time and which enable us to scope with expectations in the markets.
Okay. Thank you for those clarifications, Lotta. We can then move to Slide 16 and the summary. So I can probably conclude that Instalco has another strong quarter and with high growth and profitability. Of course, as you have understood already, I'm particularly proud of how rest of Nordic has performed. As we have also mentioned, we have made 5 additional acquisitions subsequent to the end of the reporting quarter, leading me to conclude that the acquisition climate remains favorable, and interest in becoming part of the Instalco group is very high.And now we can go to the last slide. This time, I'd like to conclude with a reference to another classic Rolling Stones hit from 1974 and Time Waits For No One, and it won't wait for us. I think the song and its titles reflect what a profitable entrepreneurship is all about, mainly doing business here and now. What that means that is, I think we have the right business model to act now and the climate for consolidation in our industry couldn't be better, both from a customer and a sustainability perspective. I also think that conditions are right for making acquisitions and we have many interesting acquisition targets in the pipeline. We both can and should act now on the opportunities in front of us.The last slide, and with that, I'd like to thank you all for joining in on this call. And now I'd like to take your questions.
[Operator Instructions] Our first question comes from the line of Stefan Andersson of SEB.
Stefan Andersson, yes. A couple of questions. First on the growth rate, 2 questions there.
Can you speak out louder, please?
Absolutely. Can you hear me better now?
Yes.
Yes.
Okay. So 2 questions on the growth first. You said organic growth in the quarter was 2 point -- well, almost 3%, and for the half year, 2%. And now if I remember correctly, it was 6% or something like that in Q1. So it doesn't really work if you weigh those together and maybe it has something to do with the -- all the companies coming onstream, maybe if you can just elaborate on that number? And while you do that, what kind of impact do you think that it used to had on your revenues in the quarter? I guess it's been negative. Is it like 2% to 4% or around 3% negative? Yes, that's first.
First, for the organic growth, when you have just the second quarter, it's the same as the second quarter last year. But when you take for the first half year, it's not the same companies because some of the companies was not there from the beginning of the year and that's why it doesn't really collaborate when you look at it like that. And so it's hard to explain, but...
Okay. So it's different basis that I used, I guess.
Yes.
Yes. So if I'm trying to understand why -- the reason I'm asking is that I would like to look at the half year to see the underlying organic growth and this is impacting Q1 positively and Q2 negatively. So if you just look at Q2 isolated, the 2.7% or 3%, what kind of impact do you think Easter had, if any? Maybe you would say it had nonimpact, I don't know.
I don't think the -- pardon me.
No major impact.
No major impact. It's more -- while the project is starting and ending and while project is going on for the time being, it has much more impact than the Easter comes a lot.
Okay. And then second question is on the earn-out revision that you do here. Maybe if you can just mention where it originates from?
It's from several companies, but we have report from last year or the year in 2017 and 2018, some of the companies hasn't performed so well than before they would do. So they didn't get so much earn-outs that we focused with that in this period.
So is the fact that -- sorry.
And we have tried to refine how to calculate it. So it won't be so big difference in the future.
So is it fair to say that you made a bigger run-through of that subject and adjusting it and...
Yes.
Okay. Good. And then the financial net, boring question, and maybe '18 report, I haven't seen it, but it's only SEK 2 million, I think, which looked a little bit low. Is there any positive -- is there any specifics in there? Or is that the level now?
?On what? I didn't get them.
The financial net was SEK 2 million only in costs. I think it was SEK 5 million in Q1. So was it a little bit on the low side. Is there some reevaluations in there or?
No.
You look surprised. Maybe I was -- I'm wrong here.
No. We have to look into that, but I'll confirm after that.
Okay. And then the Swedish margin, you don't write much about that on the year-on-year comparison. But I guess we saw a little bit of that in Q1 as well. So it's 2 quarters with margins down. Maybe if you would like to elaborate a little bit on that development, why it's there and how we should view that going forward? It's well covered now by the improvement in the international, but still it surprised me on the weak side, to be honest.
Yes. I mean it's more normalized margin now, I think. I think that last year was extraordinary margins, obviously. You can't held's 11.7% or what we had, it's impossible. So I think we know we have our financial goals, 8% margin over time. You can also look into the rest of Nordic where we today have 9.7%. So it differs, but I think Sweden is doing very well. And I think those we can accelerate the production this year or next year. But the margins, I don't see we can expect 11% in margin in any markets. And we also can say that in this year, maybe the second half of the year would be stronger, but I think that the margin, as I said, is more normalized now than last year.
[Operator Instructions] Okay. There seems to be no further questions at this time. So I'll hand back to our speakers for the closing comments.
Thank you very much. And see you next time in November 6, I think, 6, something like that. So thank you very much and have a nice weekend. Thank you.
Thank you.