Ladies and gentlemen, welcome to the Solar quarterly report Q3 2021. For the first part of this call, all participants will be in a listen-only mode. 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.
Thank you, Sarah. First of all, a very warm welcome to this third quarter webcast for the Solar Group. We are here in our headquarters environment, and together with me, I have my colleague, CFO Michael Jeppesen. Please go to slide two. The agenda for today is a general business update with highlights presented by me. Then I will give you some insights about the important focus area, Climate & Energy, and our recent CW expansion here in Vejen. Michael will then present our Q3 results, including a high-level cash flow status and naturally, some comments to the recently revised guidance for 2021. Of course, finally, we will have our Q&A session. Please go to slide number three. On Friday, the 15th October 2021, we published yet another positive profit update.
Guidance for 2021 is now an EBITDA of DKK 900 million, up from DKK 825 million. Moreover, we also increased our revenue guidance by DKK 200 million to DKK 12.3 billion, up from DKK 12.1 billion. The background for the positive profit update is that we in Q3 have seen a continuation of the strong growth rates we saw in Q2, which we expect will continue in Q4. It has to be mentioned that supply and demand on certain product categories are creating shortages. That is also why we have increased our stocks to secure our service degree towards our customers.
Besides that, we see our Core+ strategy continues to exceed our own expectations by, among other things, increasing our concepts and industry business, with industry delivering all-time high growth in September. In all fairness, it has to be emphasized that we are estimating with one-off price increases of approximately DKK 100 million, which is on a historical high level. Personally, I'm particularly very satisfied to see that the positive performance growth for all our legal entities was broader than the same. Furthermore, we are preparing an update of our 2023 financial targets, as they already have been released. Finally, I want to thank my colleagues for their continued efforts and dedication that have resulted in 12 straight quarters of EBITDA. Next slide, please. Climate & Energy. Caring for the environment is of utmost importance to Solar and for our customers.
Environmental regulations are becoming stricter, and national and supranational goals to reduce CO2 emission has been enhanced. Our Climate and Energy strategic focus areas ensures that our customers have access to the correct assortment and receive the relevant training, guide items and technical support. Climate and Energy comprises a diverse customer base that includes industrial enterprises, public buildings, and private home installations. Our starting point in 2021 was DKK 600 million of our total revenue deriving from Climate and Energy, and our ambition is to grow the area by 5% annually until 2022. Now in Q3, we are on track to deliver the targets presented in the 2020 annual. Based on our experience and expertise and customer requirements, we have divided Climate and Energy into four main areas.
That is solar panels or photovoltaic, heat pumps, EV chargers, and wind turbines. Next slide, please. Solar's warehouse expansion investment is beginning to take shape. DKK 250 million has been earmarked for the expansion. Some 11,000 sq m will be added, and the new halls will comprise a semi-automatic picking system, all with strict focus on reducing energy consumption. The expansion project will also include a high bay warehouse for pallet handling and a building for an AutoStore robot-controlled picking system to handle 108,000 boxes. The system is much more energy efficient than the previous systems and will mean a significant reduction in electrical consumption. Moreover, we will install a huge solar panel rooftop solution and do our heating with heat pumps, but also make biodiversity landscaping around the buildings.
AutoStore has already been installed at Solar's warehouses in Norway and the Netherlands with great success. The new warehouse in Vejen is expected to be completed in the spring of 2022, too. We look forward to the increased capacity and also, last but not least, better working conditions for our employees. I will now give the word to Michael for some more insight to the financials. Please, Michael.
Thank you, Jens. Turning to page seven. As in Q2, we saw a clear trend shift in the growth rates where we came from negative area and ended up delivering 8.6%. Here in Q3, we managed to keep the momentum with adjusted organic growth of 8.8%. This, combined with increased gross margin, more than outweighed the increase in staff cost, and thereby led to a substantial increase in our earnings. If you look at the revenue in terms of DKK, we came out almost DKK 3 billion, compared to DKK 2.6 billion last year. If we take a look at the different segments in Q3, you can see growth in all the main segments.
Installation and trade, which you would have noticed, is still affected by the improving of product, which is one of the initiatives in our Better Business project, which basically means that the underlying growth is higher than what is being disclosed. If you look into the industry segment, we're particularly happy to see that the growth related to OEM/MRO remains high, and that it's being supported by strong growth rates in Sweden in this quarter as well. In the offshore, we see the same pattern as in Q2 actually. Norway delivered solid growth rates, whereas Denmark continued to experience headwind. Finally, we shouldn't forget to mention that MAG45 delivered astonishing 23% organic growth, and thereby continuing the strong improvement track record they have delivered as of late quarters. Turning to the next slide.
The EBITDA of DKK 237 million Q3 was, as Jens said, the 12th consecutive quarter with year-over-year growth. The main growth driver was decreasing the gross margin, which in total delivered 1.5% increase. This was driven by our Core+ strategy with focus on concepts in Better Business, but we also delivered a one-off positive impact which had a net effect of DKK 14 million, meaning DKK 50 million this year compared to DKK 10 million last year, which equals 1.5%. If we take a look at the cost level, please notice that the reference point here in Q3 is still the COVID cost level that we have been benchmarking against. Starting with external operating cost, some of the main contributions within this category is travel, entertainment, and cars.
The increase we have seen here compared to the COVID level is in line with our expectation, and is still below the pre-COVID level. This is following exactly as they planned and as we expected it to do. If you look at staff costs, first of all, it was more than outweighed by the increased gross margin. If you take a closer look at it, the main drivers of increase in staff cost is the incentive schemes, but also additional cost in handling the growth. It is no secret that we are in a situation where we are running on full capacity, hence the expansion in the central warehouse in Vejen is most needed. Looking at last one, debtors, they remain on the move.
In absolute terms, we increased the churn from DKK 177 million to DKK 237 million. Turning to page nine. If you look at the year-to-date figures, we actually see a similar pattern as we saw for H1, with a margin expansion from 5.2% to 7.3%, of which 0.7% can be directly explained by the result of our Core+ strategy, delivering very strong results. This, in combination with cost containment, added, actually, up to 20% savings from the external operating costs and staff respectively. Of course, it was also supported by one-off effects from price increases of 4.8%, resulting in a total lift of the margin of 2%. If we turn to the next slide, we can also look at this from another angle.
If we decompose the improvements year-to-date, we can see that under the DKK 18 million can be referred to increased revenue, DKK 63 million from a gross margin increase and DKK 70 million from one-off price increases, while costs increased to DKK 14 million. We delivered a total increase of DKK 206 million or astonishing 46%. Turning to page 11. Looking at cash flow, we actually see a negative impact from operating activities of minus DKK 38 million, which I'll comment on shortly. Investing activities of DKK 65 million. It should be noticed that the investment in expansion and upgrade of the central warehouse ongoing, but so far in the quarter only had an impact of DKK 36 million, but this will increase in the quarters to come.
Financial activities amounted to DKK 77 million, which mainly relates to repayment of non-current interest-bearing debt of DKK 55 million, installment of lease liabilities was DKK 29 million, and finally changing the current interest-bearing debt of DKK 161 million. If we take a closer look at the operating activities, we see a substantial change from last year where we had a positive impact on DKK 142 million to -DKK 38 million this year, despite the improvement in the profitability. Part of the explanation is, of course, that we are moving into a growth scenario, where we have organic growth of 8.8% versus -4.8% last year.
The main reason is that the inventory which last year had a positive impact of DKK 6 million, this year had a negative impact of DKK 198 million, meaning a delta of more than DKK 200 million. As Jens mentioned, we are seeing a deteriorating performance in our suppliers. There's no doubt that supply chains are being stretched. In order to secure our performance towards our customers, we have decided to increase the inventory. However, it's very important to notice that approximately 95% of this increase can be referred to A items, meaning the fast movers. Although we have increased the inventory value, we do therefore not see any increase in the risk since it's the fast movers we are investing in.
Of course, this means that we will see an increase in working capital going forward, at least until things get more normalized. It's our clear assessment that in the current environment, it's those who have the goods that will end up with the order. Turning to the next page. You can see that here on the net working capital that there is a minor increase, which reflects the increase in inventory. There is a temporary impact in total on our interest-bearing debt of DKK 114 million of support packages. They don't have any impact on the net working capital, but of course, they have an impact on interest-bearing debt. Bear in mind that the majority of these will be repaid during H1 next year.
If you look at the gearing, it's actually we see a minor increase, despite the improvement in profitability, which brings us now to 0.5%. Bear in mind here that there remains approximately DKK 180 million, regarding the expansion in line which have not been paid yet, which of course will have a substantial impact in Q1. Turning to page thirteen. As Jens mentioned, we announced the new guidance early in October. We now expect a revenue of DKK 12.3 billion corresponding to organic growth of approximately 6%. Our Better Business projects, which is a part of the More strategy, is expected to reduce our revenue by approximately DKK 200 million, compared to 2020, which basically means that the organic growth that we are expecting is not 6%, but actually 8%.
Short status on the Better Business projects. At the end of Q3, we have approximately taken out DKK 150 million, meaning we are on track with our expectations here. It's mainly the Netherlands and Spain which is focused here. If you look at the EBITDA compared to 2020, we see a one-off income of DKK 106 million and underlying improvements on DKK 157 million, which brings us from the DKK 637 million to the DKK 900 million that we are guiding. This actually equals an EBITDA of approximately DKK 750 million, which even when adjusted for one-off effects is all-time high. Thank you. That was the last one here.
Thank you, Michael. Now it's time for questions and answers. Please, if you have any.
Thank you. Ladies and gentlemen, if you do have a question, please press zero one on your telephone keypad now. Once again, that is zero one on your telephone keypad to register for a question. Our first question comes from the line of Christian Johansson from SEB. Please go ahead. Your line is open.
Thank you. I have three questions. First of all, in terms of the 2023 targets which you are planning to update, when will you publish the new targets? What sort of considerations do you have since here you're now saying that they need to update them?
The expectation is that when we disclose our Q4, where we report positive net debt status of the strategy execution so far, that was in all of our focus areas, but at the same time we'll [inaudible].
All right. Quite clear. In terms of the 13% growth in industry, in Q3, obviously I mean, you cannot open any kind of newspaper or the like without reading about the congestion and the shortage of supply and so on. To what extent are your customers sort of buying more than they actually need, just from the simple fear of not being able to get products?
I would say that, of course a big part of the growth is also price increase, as mentioned by Michael. That being said, I think it's about having the products on the shelves, so it's about availability and that's also why we increased our stocks to secure the availability also in Q4. Of course, we also unlocked customers due to the way we're working forward, no question. I think it's a combination of the three things I just mentioned. Sweden is doing very well. Normally we have been very small on industry in Sweden and now we see a really strong growth in it, which is very positive. Because we invested in industry segment two years ago, now we see that it's paying off.
Okay. Obviously what I'm trying to get to here is whether we should fear an effect of, I mean, headwinds on revenue next year because your customers go into 2022 with high level of inventory than they usually do, assuming that the things normalize.
First, yeah, of course we disclose our guidance for 2022, early part of 2022. My own expectations so far is that of course the growth will be more normalized to the reference point, but I still believe that the market is out there and in some countries, especially Holland, actually we are very small. So taking only a minor market share will also be good for those suppliers. As you know, we have a goal in our focus strategies that we want the industry to be 30% of our total revenue, below our
Okay. That makes sense. My last question on the gross margin potential. Obviously, as your waterfall illustration for Q3 illustrates the effect on gross margin in Q3, excluding the raw prices were more limited compared to what you've seen in the first half. How much more underlying potential for gross margin improvements do you see when looking ahead?
It is still about increasing our concept here, and that is still we are doing well in Denmark as many know, but we still have a lot of potential, especially Holland, but also Norway and Sweden. It's the same ingredients we want to work with toward our strategy. That's still a lot of potential if we do what we have been doing in Denmark and in the other markets. That's the way we work. It's organized, as you know, in one organization driven by our SVP, Peter Pedersen. That's the way we want to work. It works honestly. We are measuring that and follow up every day, every month. It's an integrated part of our approach.
Is there any reason to expect a deceleration of the penetration? I mean, are the low-hanging fruits gone and is it more difficult to increase the penetration further? Is the potential easy to expect even next year?
I think it's up to us to execute on the potential. The potential is definitely there. We have like three sales channels. We have our e-commerce shop, which of course will be, I would say, we want to lift our concept here in the e-commerce share. We have our branches where it's up to ourself, what do we sell? We have our manual sales processes, our internal sales guys and ladies, and they are also being incentivized if they sell more concepts than they did in the past. It's about three ways to work with concepts and the potential is definitely there.
Excellent. Great. That was all for me. Thank you very much.
Thank you.
Thank you. As there are no more questions virtually, I hand back to our speakers for closing comments.
Okay. Thanks for that. Thanks for listening in, and have a very nice day. Bye-bye.
This now concludes our conference. Thank you all for attending. You may now disconnect your lines.