InstallatørGruppen A/S (IG) Earnings Call Transcript

Good day, and thank you for standing by. Welcome to the Trading Statement Q3 2026 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Niels Meidahl. Please go ahead.

Yes. Good morning, and welcome to InstallatorGruppen's presentation of our trading statement for Q3 2026. My name is Niels Eldrup Meidahl, and I'm Group CEO. And with me today is our Group CFO, Mathias Ringsted Gruner. I'll take the highlights, our growth and acquisitions. Mathias will then take you through the financials and outlook, and I will close before we open for questions. Q3 was a quarter with high activity in our companies. In the first 9 months, we delivered DKK 3.458 million in revenue, up 34% with an organic growth of 6.2%. In Q3 alone, our organic growth was 15.2% and it lifted the organic growth for the first 9 months. At first half, we said that growth would pick up in Q3, and that has happened. Our order book stands at DKK 4.6 billion, up 13.6% like-for-like since the beginning of the year and also up 3.5% in the quarter. We have done 9 acquisitions in the first 9 months. In Q3, we completed Erik Lytzen, Steinmann was completed in October, and Poul Sejr Nielsen has been signed but needs competition approval. In total, we have completed 10 acquisitions and signed 1 more. At the end of Q3, we had 48 companies against 40 a year ago. Our plan to enter Austria or Ireland in 2027 is unchanged and are going on track. Adjusted EBITA of DKK 311 million year-to-date, up around 30% on last year with a margin of 9% and 8.4% in Q3. On this basis, we are very satisfied with the development in our business and we confirm our outlook for 2026. Looking at organic growth, it was 15.2% in Q3 and 6.2% in the first 9 months. Bear in mind that organic growth in Q3 2025 was an easy comparable. For comparison, organic growth was 7% for the full year of 2025. At the last webcast, we explained the project had moved from the first half into the second. That is what we have seen. Growth picked up early in the quarter and continued through it, driven by newly won orders that moved into execution over the summer and by orders delayed from first half into second half. Growth was highest in our project companies and by the disciplined plumbing, heating and ventilation, where larger projects have started up. Electrical was more stable. The rest of the portfolio grew in line with the market. Market activities increased in Q3 with growth across segments in both Denmark and Switzerland. It is driven by construction activity, defense spending and supported by demand for energy efficiency, electrification and building automation. We expect the positive market development to continue for the rest of the year. Looking at the order book, it now stands at DKK 4.6 billion against DKK 3.6 billion by the end of 2025, and it stands at DKK 2.3 billion a year ago. Measured like-for-like, the order book continues to grow, up 3.5% in the quarter and 13.6% since the beginning of the year. The order book grew despite a high organic growth in the quarter. Most of our projects are small and delivered within 12 months. And historically, 80% of the order book converts into revenue within the next 12 months. On top of the order book comes service work and new projects that we win and deliver the same year. Service revenue is not included in the order book. Acquired companies are included from completion, so Steinmann and Poul Sejr Nielsen are not included. Looking at acquisitions. 9 acquisition has been completed in the first 3 quarters, 7 in Denmark and 2 in Switzerland. Three of them were add-on acquisition integrated into our portfolio companies. In the quarter, we signed agreement with acquiring Poul Sejr Nielsen, which is awaiting approval from the competition authorities. After the end of the quarter, in October, we completed the acquisition of Steinmann Haustechnik AG, a plumbing and heating company in Switzerland. Including those 2, the transaction table represent combined revenue of around DKK 950 million with an adjusted EBITA of around DKK 80 million based on their most recent annual reports. On top of this, we are doing due diligence on several target companies and the pipeline supports our M&A ambitions for the year. I'll give you a short introduction to the companies we have announced since the last quarter. Poul Sejr Nielsen was founded in 1956 and is one of the larger installation business in North Zealand and in the Greater Copenhagen area. Poul Sejr Nielsen consists of Poul Sejr Nielsen Service and Poul Sejr Nielsen EL. Together, they have a revenue of around DKK 250 million and an EBITA of around DKK 16 million in 2025, and they have a total of around 220 employees. The acquisition strengthened our presence in North Zealand and Greater Copenhagen area. It adds a large service business with multiple framework agreements and a strong position within district heating. The company continues under its current management. We still need approval from the competition authorities, which we expect in December. Once approved, Poul Sejr Nielsen will be our 44th acquisition in Denmark. Steinmann Haustechnik, which was completed here in October, takes us into the canton of Zug in Switzerland. The company was founded in 1881 in Baar and is one of the oldest heating and plumbing companies in Switzerland. It has around 40 employees and a revenue of around CHF 12 million. Steinmann is led by Philippe Steinmann, the fifth generation of the family and continues under its own name. Being able to acquire a company with such a long tradition clearly shows that our value proposition is well received in Switzerland too. The acquisition takes us into an economically strong part of the Central Switzerland and Steinmann is our sixth company in Switzerland. That is where the business stands. Mathias, over to you to give us some insights in the financials.

Thank you, Niels, and good morning from me as well. I will take you through the financials and the outlook. Revenue in Q3 was DKK 1.235 billion, up 42.8% and DKK 3.458 billion for the first 9 months, up 34%, driven by acquisitions and organic growth. Adjusted EBITA was DKK 104 million in the quarter, up 20.3% at a margin of 8.4% against 10% a year ago. For the first 9 months, adjusted EBITA was DKK 311 million, up 29.5% and a margin of 9% against 9.3% last year. The increase in adjusted EBITA came from organic growth and from the completed acquisitions. The margin in Q3 was driven by the growth in the project business, which has a lower margin and higher central costs, including the running cost of being listed, which were in place for a full quarter for the first time. We expect these costs to be absorbed by operating leverage as the group grows. Special items were DKK 12 million in the quarter, mainly related to the listing. We expect no further special items related to the listing and special items for the rest of 2026 to relate to acquisitions only. Our outlook implies an adjusted margin just above 9% for 2026 against 9.7% in 2025. On a last 12-month basis, revenue was DKK 4.6 billion and adjusted EBITA of DKK 429 million. LTM revenue is up 24% since Q4 '25 and LTM adjusted EBITA is up 20% from DKK 358 million. The LTM margin is 9.4% against 9.7% for the full year '25. Turning to the 2 segments, starting with Denmark, which you see on the current slide. On the right side of the chart, Denmark realized a revenue of DKK 1.047 billion in the quarter, up 36.3%. The adjusted EBITA margin was 9.3% against 11.2% a year ago. The difference in margin reflects 2 things: the growth in the project business, which has a lower margin and part of the higher central costs, which are carried in the Danish segment. For the first 9 months, Denmark realized revenue of DKK 2.948 billion, up 22.4% and an adjusted EBITA margin of 9.9% against 10.1% last year. On the left side of the chart, Denmark's LTM revenue is up 16% since the beginning of the year to DKK 3.9 billion at an adjusted EBITA margin of 10.1%. Moving on to Switzerland. Looking at the right side of the chart, Switzerland realized revenue of DKK 188 million in the quarter, up 94% at an adjusted EBITA margin of 6.8%, up from 4.7% last year. The Swiss margin remains below the Danish level, which reflects the earlier stage of the platform and the cost of the country organization and we expect it to increase as the platform reaches scale in Q4 -- reaches scale. Q4 is a larger share of the full year in Switzerland than in Denmark. For the first 9 months, Switzerland realized revenue of DKK 510 million and an adjusted EBITA margin of 6.7%. Looking at the left side of this chart, LTM revenue in Switzerland has almost doubled to DKK 681 million and the LTM adjusted EBITA margin has moved from 6.2% to 7.7%. Switzerland is growing fast and now accounts for 15% of group revenue on a last 12-month basis. Turning to cash. Our cash generation is seasonal and the timing of working capital around the year-end can also move between individual years. So we look at conversion over longer periods. Over the last 3 years, adjusted conversion has ranged 63% to 110%, averaging around 85%. On a last 12-month basis, it was 86.1%, which -- with adjusted free cash flow of DKK 371 million, in line with that average and with our ambition of above 85%. In the quarter, adjusted free cash flow was DKK 55 million and adjusted cash conversion 48.7% against DKK 88 million and 89.4% a year ago. Two things explain the difference. First, the quarter included DKK 33 million of IPO-related special items expensed in earlier quarters and paid in Q3. Excluding these, adjusted free cash flow was DKK 88 million, the same as a year ago and the conversion, 78%. Second, the working capital buildup over the first half was released at the start of Q3, but the high organic growth through the rest of the quarter then built up trade receivables towards the end of September. Net working capital was DKK 564 million, equal to 12.3% of LTM revenue against 13.7% a year earlier. Net interest-bearing debt was DKK 1.175 billion against DKK 1.090 billion at the end of Q2. The increase reflects the acquisition of Erik Lytzen, the working capital movement and the payment of IPO-related costs, partly offset by cash from operations. Leverage is 2.1x against 2x a year ago and within our target of below 2.5x. Our DKK 1.75 billion RCF runs to June 2031, and we currently have around DKK 900 million in available liquidity at the end of Q3. The new bank agreement from the listing has lowered our interest expenses. Interest on borrowings and lease liabilities was DKK 10 million in the quarter against DKK 17 million a year ago despite higher debt. The Board has also decided to initiate a share buyback program of up to DKK 25 million. The background is our acquisition model where the selling owners reinvest typically 20% of the purchase price in treasury owned shares. We have the flexibility to deliver those shares either by issuing new shares or from treasury shares and we will use both routes over time, depending on the size and the timing of the acquisition. For the near term, our treasury holding needs to be replenished to serve as an active tool and the program does that while limiting the dilution of our existing shareholders. The program runs from the 2nd of November 2026 until the 31st of March 2027 at the latest with ABG as a lead manager. The effect on leverage is around 0.05x and the capital structure support continued acquisition activity within our leverage target. That brings me to the outlook. All 5 guided measures are unchanged. After 9 months of '26, year-to-date reported revenue stands at 72% of the midpoint of our full year 2026 range and year-to-date adjusted EBITA at 71%. At the same point in 2025, year-to-date revenue had reached 70% of the full year '25 outcome and adjusted EBITA 67%. So on both measures, we are tracking slightly ahead of last year. Q4 is our highest activity quarter and the remainder of '26 depends on the conversion of the order book, a full period from the acquisitions completed to date and the Swiss season, which is more back-end weighted than the Danish. On that basis, the outlook for '26 is reiterated. And with that, back to Niels.

Thank you, Mathias. Let me sum up. Organic growth picked up to 15.2% in Q3 as we have indicated at the first half results. And that lifted organic growth for the first 9 months to 6.2% with an adjusted EBITA margin of 9%. The order book stands at DKK 4.6 billion, up 13.6% on a like-for-like basis from the beginning of the year. We have completed 9 acquisitions in the first 9 months, completed Steinmann in October and signed Poul Sejr Nielsen. On top of that, we are doing due diligence on several target companies and the pipeline supports our M&A ambitions for the year. We enter Q4, our highest activity quarter with a strong order book. On this basis, we are very satisfied with the development in our business, and we confirm the outlook for 2026. Operator, please open up for questions.

[Operator Instructions] We will now take our first question. This is from Kristian Tornoe from SEB.

A couple of questions from my side. Speak about the project business as the explanation for this margin dilution due to mix. And I think it's fairly clear why, I mean, the project business would carry lower margin. But maybe if you can help us understand a bit, I mean what do you define as your project business? And also when looking into your backlog now, should we expect this trend to continue into Q4, i.e., a margin dilution from higher activity within projects?

Thank you, Kristian. So I think answering your question here that, yes, as you say, the margin on the project business carries a slightly lower margin. And it is the primary driver of the growth which is also following what you see in the market that it is primarily projects driving it. And we define projects as businesses which primarily operate within renovation or newbuild. So it is those sort of activities which drives this growth. And for Q4, well, I would say that you should -- you can see that the expectation is that this will also drive the market going forward. So we would also expect to see growth in those areas for the coming quarter.

Understood. Then I would like to turn to your guidance and the assumptions and especially in the lower end. So if my math is correct, the lower end of your revenue guidance would imply 6% revenue growth year-on-year in Q4. Looking at the impact from already acquired companies, excluding Poul Sejr Nielsen, I get that you had a contribution of, say, DKK 175 million roughly. If that number is correct, it would imply an organic growth of around minus 10% in Q4. So I mean, one, is my calculations roughly correct? Are you assuming a fairly negative organic growth in the lower end? And obviously, why?

So thank you, Kristian, for your question. I think you should send over your math. I think not easy necessary to follow the details here. But I think in general, Q4 is, as I said here before, our biggest quarter on activity and also the biggest on M&A. And I think we prefer to have further clarity of the outcome of this and that is why we confirm our guidance.

No, I understand that. I'm just more curious on the assumptions to your guidance. So are your guidance allowing for significant negative growth in Q4 organically?

We expect growth in Q4 as well, but it's too early to say how much it will be. Q4 is our largest quarter and the outcome depends on project timing and when projects will start up.

And you're referring to organic growth when you say you expect growth in Q4, just to be clear.

Sorry, again, Kristian.

So you say you expect growth in Q4. Do you mean you expect organic growth or reported growth? Because obviously, there's a bit.

Organic growth.

Organic growth. Okay. That is very clear then. Then my last question is just on the interest rate sensitivity. So obviously, we have seen interest rate moving up. Just your thoughts on how that could potentially impact demand and your business.

Yes. I think it will not affect very much our interest expenses. But when you look at the building activities in the market, we are seeing that if interests are going significantly up, it tends to see that some projects will be postponed. We've seen that early on. And I think that is fair that, that will also happen if interest picks up a lot over the next quarters. But how much it will be and when and so on it's super difficult, Kristian as you know, but it has an impact on the construction activities.

We will now take the next question. This is from Sebastian Grave from Nordea.

Peter Sebastian here from Nordea. Congratulations on a solid print. First, I would just like to follow up on the discussion with Kristian. Can you just confirm that when I look at the organic growth number from Q4 last year, Q4 2025 of 0.8%, that makes fairly benign comparisons compared to what we've seen previously. Is that correctly understood?

We can confirm that, yes.

Okay. That's good. Then I would like to dig a little bit into the comment you have in the trading statement around the growth. You stated that the growth was strongest in the project work with higher share of materials. Does this mean that growth is largely driven by pricing? And if so, is it possible to sort of talk around the split between volume and pricing growth here in the quarter on an organic basis?

I think, Sebastian, you should do it as a mix. You can't really address that it's driven by one of those impacts. It's a mix of several of them.