Dear ladies and gentlemen, welcome to the Solar Group quarterly report Q1 2022. For the first part of this call, all participants will be in listen-only mode, and afterwards there will be a question and answer session. Today, I'm pleased to present CEO Jens Andersen and CFO Michael Jeppesen. Speakers, please begin.
Thanks a lot. Everyone, welcome to this first quarter webcast for the Solar Group. Together with me here in Vejen at our headquarters are my colleague, CFO Michael Jeppesen. The agenda for today is a general business update with some highlights here in the beginning of year 2022, and I will present that. I will give you some insights about our biggest customer segment installation and a short status on our central warehouse expansion in Denmark. Michael will present our first quarter results, including a high level cash flow status, and naturally some comments to our revised guidance for year 2022. Last but not least, there will be a Q&A session.
If we start with the highlights in Q1, we delivered an EBITDA increase of DKK 77 million, up to DKK 281 million. This is, by the way, the highest Q1 EBITDA in our long history. High growth combined with resilience in all market segments resulted in an EBITDA increase of 8.1%, up with 1.3 year-over-year. All our segments, installation, industry and trade, deliver strong organic growth of 9%, 18% and 35% respectively. This in combination with a substantial increase in the demand for renewable solutions across all our markets. A situation we expect will be accelerated and long-lasting due to the after effects from the terrible war in Ukraine, but also more generally, the need for electrifying our society in a faster pace than ever.
As a consequence of the strong start of 2022, revenue and EBITDA guidance were revised by DKK 500 million and DKK 125 million to a revenue of DKK 13.25 billion and EBITDA result of DKK 975 million. Finally, also announced today, the board of directors has decided to distribute an extraordinary dividend of 45 DKK per share, which will be paid out in mid-May. Again, I want to thank my colleagues across border for their continued efforts and dedication to execute on our Core-Plus strategy in an extremely volatile market environment. Next slide, please. Installation. With a share of approximately 60% of our total revenue, installation is our biggest segment, followed by our industry with 32% and finally trade with 8%.
In installation, our daily product and service sales counts for approximately 70% and construction sites, or what we also call projects, for approximately 30%. In the Solar Group, we truly believe that installation is local business, meaning that the daily contact between installers and our sales and technical teams are key to mutual success. This is why our sales and technical organizational set up is locally anchored, ensuring that we can draw on local knowledge, offer the right product assortment, and adjust to the level of digitalization and the number of branches needed. With more than 20,000 active installer customers and a huge product assortment, the need for standardized services are obvious. Together with our customers, we have during the years tried to change status quo, aiming for increased efficiency, digitalization, and technical knowledge sharing, and now also more and more in a green context.
The list of integrated services are huge, so therefore, I will only give you a few examples. Night distribution is a very well-known service from Solar, and it is sent out from our different warehouses across border. Fastbox one-hour delivery in bigger cities, so that's an urban concept. Construction site logistics, smart supplies in vans and buildings, e-commerce trade and solutions, technical support, last but not least in all our niche areas, and that is both physically and 24/7 digitally. We have a competence development in the Solar School and one of our focus activities, namely Solar Concepts, which is what we call dags by Solar. You could state that we are deeply trying to be stronger, digital and green together with the installers.
Even though we are pretty humbled in Solar, I will definitely argue that we have succeeded with that over the years. If there is one customer segment that can make the society green, support that we decarbonize as soon as possible, and reduce our dependency of fossil fuels, that is the technical installers. Not even the increased inflation and interest rates and a potential slowdown in construction will not change the fact that the future for the installers look bright. Next slide, please. The Central Warehouse expansion in Vejen is really going as planned, and this, the AutoStore solution is now up and running for test, and we will start to move goods into the solution in the middle of May.
Our plan is that we will be fully operational at the end of June, and capacity-wise, 80% of all our order picks will be serviced out of our AutoStore solution. In our new high bay building of 11,000 square meters, all racks have been mounted. Here, we will also start to move goods into the racks mid-May. Parallel with that, all external warehouses are under notice, and the last one will be left the latest in January 2023. Cost so far is approximately DKK 157 million out of the estimated DKK 250 million. We are on track both with budget and timeline.
Finally, I want to emphasize that the installation of a huge rooftop PV solution at our central warehouse in combination with 45 heat pumps will enable us sooner than expected to be nearly CO2 neutral on country level in Denmark. I will now give the word to Michael for some insight to the financials. Please, Michael.
Thank you, Jens. Turning to page seven, revenue in terms of DKK increased with more than 15%. We came out with almost DKK 3.5 billion compared to DKK 3 billion last year, equal to an adjusted organic growth of almost 14%. All main segments delivered strong growth rates, as mentioned by Jens. Particularly the trade came out extremely strong and thereby continuing the strong performance we already saw back in Q4 last year. Looking at the industry segment, we're particularly happy to see that the growth within Marine & Offshore delivered strong two-digit growth rates. It's no secret that Marine & Offshore have seen quite a rollercoaster development over the last years, so we're very happy with this very strong performance.
If we shortly reflect a bit on the growth rates, it should be noticed that back in Q2 last year, we saw a substantial trend shift in growth moving from -0.6% to 8.6% and reaching actually 8.8% in Q3, meaning that the point of reference for Q1 growth is the easiest point we will see in 2022. This is also reflected in our guidance on which I'll comment shortly. Turning to page eight, where an EBITDA of DKK 281 million in Q1 was the 14t h consecutive quarter with year-over-year growth in EBITDA. Actually one of the few quarters, if not the only one, where Q1 actually exceeded the Q4 earnings. The main driver in the earnings was the increase in gross margin combined with strong growth.
The growth margin in itself delivered astonishing 1.8% increase. This was driven by our Core-Plus strategy focusing on concepts, but of course also our Better Business project. We did also realize a one-off impact of approximately DKK 35 million compared to zero last year or equal to 1% increase compared to last year. Looking at the cost level, please notice that the reference point here in Q1 is actually the COVID cost level. External operating costs, travel, entertainment, cars, which are the main single contributions, and IT as well within external operating costs, are increasing just slightly, and it is in line with what we expected. It should be noticed that we are actually still below the pre-COVID levels. The absolute increase in staff costs were more than outweighed by the increase in revenue and also in gross profit.
It should be noticed that the main driver in staff cost is a combination of incentives, but of course also cost for handling the growth. Looking at loss on debtors, it remains firmly under control. We have not seen any write-off here. In absolute terms, earnings thereby increased from an EBITDA of DKK 204 million to DKK 281 million, or 38%. Turning to page nine, looking at cash flow. We see, as was expected, a negative impact from the operating activities of DKK 202 million, which I'll comment on shortly. Investing activities came out with DKK 109 million.
should be noticed that the investment in the expansion and upgrade of the Central Warehouse environment is by far the main driver here with DKK 51 million, meaning that there remains, as Jens was saying, slightly above DKK 19 million of the total investment of DKK 250 million. Also, we did an acquisition of a small company called Højgaards, which had an impact of DKK 34 million. Please notice that there was a cash position in this company of DKK 10 million, meaning that the net investment is DKK 24 million. Højgaards is a small B2C business that we will start to expand within this area, but more will follow on this. Financial activities net amounted to minus DKK 37 million, which can be.
Which relates to the repayment of non-current interest bearing debt of DKK 2 million, installment on lease liabilities of DKK 29 million, raising in current interest bearing debt of DKK 323 million, which actually equals the payment of dividend we did in Q1 of DKK 329 million. Let's take a closer look at the operating activities. What initially sprang to mind is that last year we saw a change of minus DKK 88 million, whereas we this year came out with DKK 202 million, despite the substantial increase we have seen in our earnings. The main difference compared to last year is that accounts receivable here has a negative impact of DKK 531 million versus DKK 354 million last year, meaning a delta of DKK 177 million. There are two main reasons behind this.
Firstly, of course, the strong growth, which explains a major part of it. Bear in mind that last year we did see a negative growth of 0.6%. Also the fact that Easter has moved slightly, meaning that last year the quarter ended including the 3 days up till Easter, where we normally see a slowdown. We normally drop to index 50, 60, 70 in these days. That plays a role as well. Whereas here in this year, we'll see the full impact of Easter in April, meaning our Q2 will bear the entire weight of Easter. In order to secure our performance toward our customers, we stick to the increased inventory level we have seen during last year as well. It's important to notice that approximately 85% of the increase can be referred to AR deals, meaning it's the fast runners.
Although we have increased the inventory value, we do not see an increased risk since the major part of the increase can be referred to AR deals. This means, of course, that we will see an increased net working capital going forward, at least until things get more normalized. In the current environment, there is no doubt that it's a prerequisite in order to do business that you actually have the goods available. It is still a challenge that we are fighting every day. Turning to page 10. Looking at the net working capital. Yes, as I was mentioning before, we see a minor increase in Q1, where the average increased from 11% in Q4 to 11.5% here in Q1.
Please notice that the way we calculate net working capital here, it's debtors, it's creditors, it's inventory, and therefore it's not affected by the temporary support packages, of which we still have DKK 85 million left, of which the main part will be repaid here during Q2. If we look at the gearing, we see again the normal effect of the seasonality, which lifts us to 0.6. Turning to page 11, our guidance. As announced the 21st of April, we now expect a revenue of DKK 13.25 billion corresponding to an organic growth of approximately 7%. Bear in mind that our Better Business is an integrated part of our core strategy, and it is expected to reduce our revenue by approximately DKK 200 million compared to last year.
Adjusted for this, we can say we expect an underlying organic growth of approximately 9%. If you look at the EBITDA compared to 2021, we have now a guidance of DKK 975 million. We do expect one-off income of DKK 80 million versus DKK 112 million last year, meaning that there's an underlying improvement of almost DKK 100 million included in our guidance. Finally, as Jens also was mentioning, the annual general meeting authorized the board of directors permission to pay out an extraordinary dividend. The board of directors has therefore decided to pay out 45 DKK per share, equal to DKK 329 million, and the dividend will be paid out the 13th of May. Thank you.
Thank you, Michael. I don't know if there's any questions. If there are any, please, join in.
To ask a question, you have to press zero and one on your telephone keypad. The first question comes from Kristian Tornøe Johansen, SEB. Your line is now open. Please go ahead.
Yes, thank you. I have a couple questions. Firstly, if we look at the margins on a geographical level, Denmark is the only market where you don't deliver an EBITDA margin improvement. I fully understand that is also the market where you have the highest margin, but can you just elaborate on why you don't see any improvement in Denmark?
There's one thing that needs to be mentioned very clearly. The expansion of the Central Warehouse makes it really difficult to be as productive as we normally are, and that is the main reason for that on the cost side. If you look at the margin side, we still see quite a lot of orders where we deliver later than expected due to product shortages. That also puts some pressure on the price we can allow to take when it's delivered, because it's simply ordered in the month before, delivered in the month later, and that puts some pressure to the gross margins. That's the two main reasons.
You can actually say that right now we have a negative leverage. Growth actually doesn't give us any advantages. Here it's really a challenge to be sure that the customers receive what they have ordered as promised. We are running now on, I think five or six external locations right now.
That's right.
It's really quite a puzzle that they need to solve every day. You know, our customer promise actually requires a superb logistics. We still deliver that, but there's a price to pay for it. We are clear about it. It doesn't matter that in short term we have to pay additional, as long as the customer doesn't experience anything.
Okay. That's very clear. Can you just remind us again, when do you expect that situation to ease?
I would say the total expansion will be finished at the end of the year. That means that in 2023 we will have the capacity needed and also the efficiency needed. The AutoStore solution will be up running in third quarter, more or less. That depends, of course, the speed where we move the goods into the solution. The planning now is that we are up running on the AutoStore solution in mid of third quarter. It would gradually be better and better the efficiency. The cost will of course thereby go down.
Very clear. Then my next question is on the demand for renewable products. You highlight this as being extremely strong, which is not a surprise I guess. Can you just talk about the exact exposure you have? So you're obviously disclosing the exposure to the climate and energy segment. Is that entirely renewable products or does this also tap into some of the other segments?
I think it's effective in all segments. Of course, the installation segments is the first movers, and then hopefully over time, industry will also do what we have done in Denmark or Solar Denmark, start to make PV solutions on rooftop, change the fossil fuel to heat pumps and insulations. We think it will be a long-lasting market, starting with the private or the residential houses, and then over time also industry companies where it's possible to get rid of fossil fuel. We have never seen an effect like we have seen the last two or three months. Again, the shortage of especially heat pump and PV panels is a huge problem.
Sure. When you in your report say that 6% of your revenue comes from climate and energy products, is that-
Yeah.
equivalent to your exposure to renewable products?
That was the baseline in 2021. That will increase quite a lot.
Yeah.
Definitely we can say that.
We will later give an update on.
Yeah.
On our strategic focus areas.
there we will see a strong development, that's for sure, despite the shortage problem.
All right. Just to your guidance assumption on further price increases by your suppliers, what have you embedded? The DKK 80 million, is that price increases you've already seen or are you assuming in that more will come from suppliers and you can pass on?
It's very difficult to predict the impact of this. I would say we've taken a conservative look at it. It's not that we've been looking too much into the crystal ball because I mean, nobody really knows what will happen. There are another side to this coin as well, which we also should remember. In order to get any benefit of this, you need to be able to pass it on to the market. That's an open question to which extent you can do it. So far we've been very successfully in it, and we'll strive to make sure that it stays that way, clearly. It is.
I mean, it's based on what we can see, and then we're leaning a little bit out of the window, and that's it. That's the way we look into it.
Okay. It would be fair to say that if we have a scenario where there's gonna come another round of price increases in the third quarter, that wouldn't really be reflected in your current guidance?
I think that depends on the level of it.
Yeah.
What is happening in Q2. It's very difficult for us to have any firm ground. I mean, this is the best man's best guess on what we think is achievable, here, with the knowledge we have today. Of course, the world can change, and it is volatile. It has clearly become much more volatile, there's no doubt about it.
That makes sense. Just a clarification, Michael, you said that net working capital should increase. Are you talking about absolute net working capital or are you talking about net working capital to sales ratio or both for that matter?
In absolute terms, of course you will see it increase. It kind of goes without saying when you're growing and if you keep expenses fixed, then it will increase. There is also a risk that we will see an increase further compared to the percentage we've seen now, but I think it will be incremental.
Mm.
In terms of percentage, but in terms of Danish Krone, you will see another impact.
Okay. That's clear. Just my last question then obviously happy to see that you announced the extraordinary dividend. Would you then consider also to do share buybacks later in the year if your performance allow you to do so?
No decision has been made about this. The annual general meeting also gave the board of directors that tool in the toolbox. I mean, let's wait and see how things are developing. Also bear in mind, we have quite some investments that are moving closer that we're still looking into. The board of directors assess the capital structure of the company at each meeting and discuss what we should do or not do. It's another yes or no, or no to the answer.
Great. As I expected.
Yeah.
Anyways thank you so much for your answers.
Yep. Thank you.
Thanks.
Thank you, Kris.
There are no further questions. I hand back to you speakers.
Thank you. Thank you to all who have listened in and have a great day. Thanks from us in Vejen. Bye.
Bye.