Earnings Call: Q2 2021

Aug 12, 2021

Welcome to the Solar Quarterly Reports Q2 20 21. For the first part of this call, all participants will be in listen only mode, so there's no need to mute your own individual lines. And afterwards, there will be a question and answer session. Today, I am pleased to present CEO, Jens Anderson and CFO, Michael Leoperson. Speakers, please begin. Thank you. A very warm welcome to this 2nd quarter webcast for the Solarguen. Together with me, as you also mentioned, I have my colleague, the are CFO, Mike Gillett. The agenda for today is more or less as usual, a general business update with some highlights presented by me. Then I will give you some insights about 2 important focus areas, that is concepts and trade. Then I will hand over the word to Michael, who will present our signature results, including high level cash flow phases and, of course, some comments to our recently revised guidance for the year 2020. Finally, and hopefully, we will have some questions, and therefore, we'll have a Q and will be in a position. Next slide, please. With our second positive profit update just been 6 months into our call plus during the period, we are now guiding for the best result in our long history. Guidance is now an EBITDA and total shares are showing traction across markets and have contributed significantly to the strong result. This quarter, our EBITDA has increased with 66% to DKK211 1,000,000 compared to the same quarter last year. But in all fairness, it also has to be mentioned that extraordinary one off price increases of approximately €30,000,000 supports the positive development. In addition, I am particularly satisfied see that deposit performance goes for all our legal entities, but also if you measure on customer segment level year over year. Especially our industry segment within OEM and MRO has picked up this quarter have a strong 2 digit growth within our industry team in solar stream. As a consequence of the strong result and cash flow, We distributed Ekdon a dividend of $110,000,000 to our shareholders, whereby the total dividend payment in the first half year of twenty twenty one was DKK340,000,000 corresponding to DKK43 per share of DKK100. Again, I want to thank our dedicated and hardworking employees cross border. You are surely the foundation Based on our customers' needs, Solar have developed 7 concepts, each with a different DNA. They embody 5 elements. It's about price, quality, assortment, availability and a high service degree. The main target groups are installation customers and industry customers. Solar Plus, are in the range of 2, 2020 1. Our oldest and most important concept continues to develop. New concepts such as solar tools, are now starting to contribute quite significantly to the overall consumer share. Although more than 22% of our core revenue derives from concept, we are aiming for 25% by We see strong performance in all our markets, were the largest chains originated from Solar Netherland that achieved an impressive share increase of more than 2%. Next slide, please. Trade. Customer markets and the demand presented to us are constantly changing. As a sourcing and service company, we have to be ready to adapt to the shifting circumstances, and trade is a good example to this. Trade is our most recent strategic area. It targets customers who do not really fit into installation and industry segments, and it's typically DIYs, retailers, web shops and smaller independent B2B customers. Unlike installation and industry trade customers, they do not need a physical visit from Facilities team nor technical support. Are in the process of providing a business partner with a strong digital mindset. We introduced Trade back in 2018 with the intention of providing this customer view with services unavailable elsewhere. And the availability, a wide assortment are paramount. We offer, we think at least, have a great web shop where customers can gain a quick overview and receive deliveries through our flexible logistical solutions. Sourcing all their products from solar means that customers can cut back on suppliers, deliveries and administration, which saves time and money. It is indeed a win win situation for our customers and also for solar, and it makes very good business sense all over. Trade is currently an active part of our proposition in Denmark and the Netherlands. In Norway and Sweden have taken huge steps in the 1st 6 months of 2021 to launch the new segment in their markets. So I would say that our organization and structure are more or less in place in all solar markets, and the sales teams are really onboarding new customers month by month. I will now give the word to you, Mikael, for some more insights to the financials. Please, Myles? Thank you. Now turning to Page 7. Compared to the last quarter's Q2 is a trend shift, delivering an adjusted organic growth of 8.6%. This combined with the increased gross margin more than outweighed the slightly increase we did see in staff costs, leading to a substantial increase in our earnings. Revenue in terms of DKK increased. We came out with almost $3,100,000,000 compared to the segments in Q2, we did see growth in all the top segments. And this is actually despite the fact that in Stellation and Trade segments, we are still are doing a substantial pruning effort, meaning we take out products with a low margin. This is a part of This is one of the initiatives within our Better Business project, which is a part of our core plus strategy. And this actually means that the underlying growth is are actually above what is being disclosed. This is particularly the case in the Netherlands where, as you may remember, we did start this processed last year, but we encountered a setback due to contractual obligation, meaning that we first really got traction on this in H2 last year. Looking at the industry segment, OEM, MRO is really picking up. But also, Marine Offshore in Norway has moved into the positive territory, Whereas in Denmark, we still see headwind within Marine Offshore. As a side note, we noticed that MAG actually delivered almost 21% in organic growth, thereby Contributing to the improvement in the growth rate within industry. Turning to Slide 8. With an EBITDA of 2.11 million, Q2 was the 11th consecutive quarter of year over year growth within EBITDA. The main growth driver was the increase In gross profit margin, which delivered astonishing 1.5% increase. This was driven by our core plus strategy, are focusing on concepts, but also on better project, better business. We did also realize a positive one off impact from price increasing to delivering €30,000,000 or equal to 1% point. But even adjusted for this, The strategy is delivering improvement in gross margin within all countries. The increase we did see in staff in terms of were more than outweighed by the increase in revenue, adding another 0.5% to the margin increase. In absolute terms, we thereby increased the EBITDA over the $127,000,000 to $211,000,000 If we take a short look at the cost level, please notice that the reference point in Q1 now is the COVID-nineteen cost level, Which actually means that travel, entertainment and cars, which are the main single contribution within external operating costs, If not, they are following what we expected. We are still below the pre COVID level. We are quite pleased with this. Staff costs are, of course, affected by increased activity levels for handling costs, But also, of course, increase in bonus schemes. Looking at loss on debtors, this remains in control. Turning to Page 9, short on H1. The pattern we see is similar to what we did see in Q2 with a We see is similar to what we did see in Q2 with a margin expansion from 4.6% to 6.8%, of which one can be explained by the result of our core plus strategy delivering very strong results on the gross margin. This, in combination with cost containment, is adding another 0.3% and 0.5%, respectively, from external operating costs and staff. It should be noticed, as we've mentioned on the previous slide, that this is, of course, also supported by the one off effect, which adds 0.5% to the margin, leading to a total margin increase of 2.2%. Turning to Page Looking at H1 in absolute figures, if we do a Simple decomposition, not taking FX into consideration. We can see that the 146 €1,000,000 is decomposed into an effect from growth of €64,000,000 Gross margin increase of €60,000,000 and then again €30,000,000 from one off prices. We're very pleased with the improvement we see here. Turning to the cash flow on Page 11. We have a positive impact from operating activities of €351,000,000 which I'll comment on shortly. Investing activities amounted to €63,000,000 It should be noticed that the investment in the expansion and the upgrade of of Central Warehouse in Weyen had an impact of €35,000,000 on the cash flow in Q2. We do expect that this will increase in the quarters to come. In total, we do expect to invest 250,000,000 Financial activities amounted to CHF 271,000,000 and of course, you see here the impact of the CHF110,000,000 we did pay out in dividend, But also, of course, change in current interest bank debt is a main contribution here. But let's take a closer look at the operating activities. We generated $148,000,000 in net profit, noncash items of are $58,000,000 Inventories actually slide down, more or less eliminating the increase we did experienced in last quarter. We do see an increase in receivables, but it should be noted that this is an impact of the growth that we have experienced year in Q2. Liabilities were up with $172,000,000 of which a part of it is are temporary due to COVID-nineteen support packages. Turning to Page 12. If you look at the net working capital as an average, we see the continuous improvement in Q2 compared to Q1 previous quarters, we're now down to 10.8% at the end of the quarter. Please notice that the way we calculate net working capital is not supported by the temporary The support package that we have, which currently holds a value of $102,000,000 If we take a look at the gearing on the other side, we ended up with 0 point Turning to the next slide, Page 13. We reconfirm the guidance that we announced early in July. We expect a revenue of $12,100,000,000 Corresponding to an organic growth of approximately 4%. Our Better Business project is Which is an integrated part of our core plus strategy is expected to reduce the revenue with CHF200 1,000,000 compared to last year, Meaning adjusting for this, we're basically guiding from an organic growth of approximately 6%. EBITDA, we expect $825,000,000 And if we take a look at it, How is this achieved? Yes, there's extraordinary price increases of approximately €50,000,000 are on a non recurring income of €6,000,000 meaning that the improvements compared to last year net has to be 130 €2,000,000 bringing us from the €637,000,000 last year to the €825,000,000 this year. This equals approximately an EBITDA of €640,000,000 which as Jens worth mentioning Thank you, Michael. So now it's time for questions. Did you have any, please? Once their name is unannounced, you can ask your question. If you find it answered before it's your turn to speak, you can dial at 2 to cancel. Will be conducting a question and answer session. There will be a brief pause now once we register your questions. Okay. There seems to be no questions from the participants. I'll hand back to our speakers for the closing comments. Okay. Then I think our comments were successful, I hope. Okay. Thank you for listening, and have a nice day. Until next time, we look forward to hear and give you some comments again. So thank you for listening in. Bye bye.