Focus on efficiency in a weak market

Comments on the second quarter 2024 from CEO Robin Boheman: The long-term rising need for qualified installation services remains. From a short-term perspective, Instalco continued to navigate a challenging market in the third quarter. This was particularly true of the major metropolitan regions and southern Sweden. Although we are unable to impact the market situation, we are working proactively with our profitability and mitigation efforts.

The service area is still reporting strong growth, which is an important stabilising factor for the Group. Instalco’s decentralised business model and strategy of proximity to our customers has enabled us to adapt to local market changes.

Many of our ongoing projects were signed in a market where there is significant price pressure, which is reflected in our margins. Just like previously this year, we have remained cautious about growing the order backlog to avoid getting locked into long-term, less profitable projects because of the pricing situation that we currently face. We want to have available capacity for when market conditions improve, so that we can ensure sustainable, profitable growth. Though many leading indicators point upward, it is of course still too early to know exactly when the market will turn.

It is reassuring to see that, despite the external challenges, we are reporting stable cash conversion. At the same time, our leverage is somewhat higher than our target, which is primarily attributable to the lower growth in earnings. During the last year, we have slowed down the acquisition tempo, which was the case during the third quarter as well. In August, however, we did make one interesting smaller acquisition in Finland of IT-Line Service Oy which primarily serves customers in the mechanical industry. It has solid profitability and strengthens our industrial offering in Finland – in line with our strategy of growing the industrial segment and expanding on the Finnish market.

Unique culture, collaboration and expertise gives us advantages
The last few quarters have been a time for efficiency measures and strategic preparations. Although the market remains challenging, we know that it is precisely in times like these that we must lay the foundation for our future growth. We are keeping the focus on fostering our unique culture and promoting profitability within the Group. Through our GoGr8 program, we are working proactively to spread best practice and a culture of strong profitability, while offering coaching and support to specific subsidiaries to ensure their success.

The Instalco model is also based on collaboration with customers and among our subsidiaries. Through our close ties and comprehensive solutions on offer, we are able to generate successful projects. One example of that is the comprehensive assignment for installations at the new Gothenburg Central Station, where eight Instalco companies are collaborating to deliver design and installation of the electrical, heating & plumbing, ventilation, sprinkler and automation solutions. Besides that, Instair and Sprinklerbolaget recently signed a joint agreement for the ventilation and sprinkler systems at the new emergency hospital in Västerås after first having been involved in the planning and design phase. It confirms our position as one of the leading providers of installations at hospitals in Sweden. We are both delighted and proud to have been chosen for this next phase of the project. It also confirms that the multidisciplinary comprehensive solutions we offer is a winning concept.

Preparations for sustainable growth
Energy efficiency and lower consumption of resources provide the foundation for the services that Instalco offers. We have also noticed a growing interest in ways of measuring greenhouse gas emissions and how to report ESG data among our customers and investors. The green transition is a shared responsibility where we, customers and suppliers need to work together to create a robust sustainability data platform. These are things that have been high on our list of priorities during the year, and we are preparing for adaptation to the new EU Directive on Corporate Social Responsibility (CSRD). It is something that will make our customer offering even more attractive.

In summary, we do not see the challenges of the market situation as permanent. We are preparing for the next growth cycle. When the turnaround comes, Instalco will be better positioned than ever to capitalise on the opportunities that arise.

The full quarterly report: https://instalco.se/en/investors/reports-and-presentations/