Risk and risk management
Like all business operations, Instalco’s operations are associated with risks. For a description of risk factors, please refer to the company’s latest annual report.
Instalco takes a holistic view of risk management. “Balanced risk” is included as part of the group’s business model, which aims to achieve a profitable business with a reasonable risk level. Balanced risk is built on strategic principles for risk management in three areas:
- Acquisitions of experienced profitable businesses: Instalco strives to acquire profitable companies with long experience in the industry.
- Existing customer structure is retained: Instalco consist of local units that have been acquired by the group, meaning that each local unit has a very good knowledge of its market and customers.
- A large number of local units: Instalco consists of over 100 local units in six disciplines and different geographical markets. This leads to a good risk diversification for the group as a whole.
- Flexible cost structure: Instalco has a large share of variable costs (approximately 50 percent of the costs are variable while approximately 34 percent are semi-variable). Thus, the group can quickly adapt the cost base when market demand changes or for certain types of services or in a certain region.
Market and customer structure
- Clear selection of geographical market: Instalco only focuses on the markets in Sweden, Norway and Finland for which the group has good knowledge.
- Recurring customers: Instalco has 80% recurring customers. Instalco thereby has good knowledge about the group’s customers and long-term customer relationships.
- Risk diversification among customers: Instalco has more than 1,000 customers. The three largest customers represent approximately 20 percent of the group’s net sales. However, Instalco’s customers, like Instalco, often have a decentralised structure where the client at the customer is local and where the service procurement decision is local, which means that the relationships with the three largest customers is made up of a large number of individual relationships between the customers and Instalco’s local units.
- Strict internal decision model: Instalco has an authorisation procedure whereby all projects valued at less than SEK 20 million may be approved by the CEO of the local unit. If a project is valued over SEK 20 million approval is required from the Business Area Manager. If a project is valued between SEK 20 million and SEK 30 million, approval is required from both the local unit’s CEO and two Business Area Managers. If a project is valued over SEK 50 million, the CEO and the group chairman of the board must approve the project and the board to be informed.
Type of projects
- Instalco is mainly operating in the installation markets mid-size segment: Instalco considers itself to achieve an optimal combination of size and project risk. Instalco’s project portfolio also includes large projects, which the group assumes on a selective basis, primarily with partnering as a form of collaboration. Instalco’s project portfolio includes more than 5 000 projects, of which 10 with an outstanding contract value in excess of SEK 50 million. Many of them has partnering as collaboration form.
- Balance between fixed price and variable price: Approximately half of Instalco’s projects are fixed price projects, one third as collaboration projects and the rest in other compensation and collaboration formats.