Ladies and gentlemen, welcome to the Solar Quarterly Report Q1 2021. 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. Please go ahead with your meeting.
Thanks a lot. A very warm welcome to this Q1 webcast for the Solar Group, which is also the Q1 in our new three-year strategy, Core Plus period. Together with me here in Vejen at our headquarter, I have my colleague, CFO Michael H. Jeppesen. The agenda for today is a general business update presented by me. I will give you some insights in our focus area industry. Michael will take and present our first two results, including a high-level cash flow status, and naturally, some comments to the recently revised guidance for 2023. Finally, we will, of course, have our Q&A session. Next slide, please. With a good start of 2021, our Q1 EBITDA increased by 62 million year-over-year to DKK 204 million and exceeded our expectations.
In fact, our EBITDA increased by 44%, and the EBITDA margin went up to 6.8% and increased 2.1% year-over. It makes me particularly happy that all markets and segments contributed to this overall positive development. As a good example, Solar Holland or Solar NL, more than doubled the EBITDA in Q1. The recipe for the positive development is more or less the same in all markets and segments. First of all, the needed courage to make necessary product pruning of bad business or low-margin business. Secondly, to accelerate and focus on our concepts. Thirdly, to be in control with cost. Finally, to accelerate growth on the various numbers of special sales value chain that we have, e.g., tools and fastbox. Next slide, please.
Consequently, due to the good start in Q1, we increased our guidance for the 2021 to a revenue of DKK 11.75 billion, up to DKK 200 million, and our EBITDA to DKK 725 million, up with DKK 75 million. As the news of today, we also this morning announced that the board of directors had decided to distribute an extraordinary dividend of DKK 15 per share. Our Core Plus strategy has shown its first effect on our business, and I'm very delighted and humbled to see how efficient we execute across the board. I'm also 100% sure that our regional set up within commercial market, operations, finance, and industry, in combination with local market knowledge, are doing what is needed to execute as well as we do. Simply because strategy is of course one thing, but it's even more important that we are able to execute.
In my words, it's everything to execute. Again, a very big thanks to all Solarians in all countries. Luck can or will never be a long-lasting strategy, but it surely helps. At the moment, we see extraordinary price increases on certain products due to increasing commodity prices. A part of these price increases will for sure materialize in one-off fluctuations on stocks over the coming quarters. For good reasons, we have been cautious when calculating into our revised guidance, simply because they are very difficult to track and trace. Next slide, please. Focus area industry. As you may recall, Solar's industry segment are divided into four verticals, which are OEM, MRO, infrastructure, and finally, Marine & Offshore. I think even more important, we have also organized our sales force as such in a regional set up cross-border.
With this regional structure, we have set the goal that the industry business should be at least 30% of our total revenue stream by the end of year 2023. The sharp eye can also see that the profitability in the industry segment is close to be double as high compared to the installation segment, primarily because the cost to serve is much lower. Everything equal, it is normally also less cyclic than our installation and trade segment. The rationale for industry as an important focus area in our Core Plus strategy should be more than clear. Besides deep technical knowledge, a wide product assortment, different unified but sometimes also custom-made services, Solar also support a digital and green industry.
With this winning formula or aspiration, we will do our utmost to convince our customers and new customers that we both can increase the productivity by delivering the right product at the right time and in the right quality. By use of digital tools, and at the same time reduce waste and CO2 emission in our corporation. In our first Q report, we have included two, I think, very interesting customer cases that are perfect describing that. I will also allow myself to let you read them on your own. I will now give the word to Michael for some more insights to the financials. Please, Michael.
Thank you, Jens. Turning to page seven. In a nutshell, Q1 reflects the preceding Q3 , where we see a lower revenue that was more than compensated by increasing gross margin combined with lower cost, hence leading to increased earnings. In terms of DKK, revenue declined slightly. We came out just above DKK 3 billion. If we adjust for number of working days, the organic growth ended at -0.6 versus a positive organic growth last year of 1.4. If we take a closer look at the segments development in Q1, we did see a flat growth within the installation segment, with Denmark being a notable exception where we did see growth rates.
Both installation segment and the trade segments, there is substantial effect of pruning products, which is one of the initiatives in our Better Business projects, and this actually explains part of the negative growth, particularly if you look into the Netherlands. As you may remember, we started off in the Netherlands, focusing on gas boilers, amongst other things, last year. We did encounter a setback due to there were quite some contracts that it took some time to terminate, meaning the initiatives did not gain full impact before H2. Regardless of the negative growth, the flat growth in installation and negative growth in trade, we did see an increase in the earnings. If you look at industry, we did face some headwinds within infrastructure in Denmark, but this was mainly due to weather conditions where everything came to a halt for quite a part of February.
We expect, of course, this to normalize going forward. We're particularly pleased to see that the activities within OEM/MRO seems to be picking up, and we do expect infrastructure to return to strong growth rates going forward. Marine & Offshore were unfortunately still in the negative territory in Q1. Turning to the next slide, eight. With an EBITDA of DKK 204 million, Q1 was actually the 10th consecutive quarter of year-over-year growth in EBITDA and at least therefore to Solar Group, quite a milestone. The main growth driver was the increase in the gross margin, which delivered an astonishing 1.4% increase. This was driven by our Core+ strategy, focusing on concepts but also on Better Business. We did in addition see a more favorable mix, particularly in the Danish business.
If you look at the cost in absolute terms, we can see that they're down with DKK 32 million, despite a negative impact from exchange rates of DKK 4 million. If we normalize the cost last year, we did actually encounter quite some SAP rollout cost, DKK 9 million, and Alpha Store implementation in the Netherlands of DKK 8 million, so the underlying really cost savings are DKK 19 million. If we take a closer look at the cost lines, it's the items we've seen deliver results in the last quarters. It's travel, it's entertainment, it's cost on cars. That is the single main contribution within external operating costs. Please notice that the reference point going forward will no longer be pre-COVID cost level, but we'll start to get a quite different point of reference in Q2 in terms of cost.
If we take a look at loss on debtors, it's actually one mid-size installer that accounts for approximately 20% of the loss that we did see in this quarter, so it's definitely not a general trend. This loss has nothing to do with government support packages being reversed. So for the time being, we do not see any concerning trends there. Turning to page nine. Looking at the cash flow, we did as expected, see a negative impact from operating activities of DKK 88 million, which I will comment on shortly. Investing activities were DKK 10 million, positive impacted by the sale of a building, DKK 18 million. It should be noticed that the expansion and the upgrade of the central warehouse here in Vejen has not yet had any impact on our cash flow in Q2. Going forward, we will start to see an impact from it.
It will start here in Q2. In total, we expect to invest DKK 250 million. Financial activities, DKK 71 million, mainly the payment of dividend of DKK 204 million, also installment of interest-bearing debt and lease liabilities had an impact on this. If we take a closer look at the operating activities, we do have quite some non-cash items, DKK 61 million. Inventory was actually slightly negative. As you may remember, one of the drivers for the improved net working capital during 2020 was that we reduced our inventory. Part of it has simply to do with the fact that we did see this unexpected stop in sales of infrastructure, which meant that there was a less. There's quite some lead time on these products, we cannot adjust so fast. This will normalize over the year, we don't see any concern in it. Receivables increased with DKK 354 million.
This is the normal seasonality that we always see since the reference point here is December, where they are all-time low. We managed to increase liabilities with DKK 143 million, leading to a net impact of DKK 88 million. Turning to the next page. Looking at the net working capital, there is a minor improvement in Q1 compared to Q1 2020, meaning we go from 12.2 - 11.8 at the end of the quarter, or if we see it as an average, we came down from 12% - 11.4%. If you look at the right side bigger, we can see the gearing and the net interest-bearing debts. We see, of course, in Q4, quite a drop, which is above the normal seasonality. Here we have the impact from the sale of our shares in Dematic, which generated DKK 237 million. Normal seasonality, of course, has an impact in Q1.
Still, we end up with a gearing of 2.7 at the end of the quarter, which of course, is also why there's room for the payment of the extraordinary dividend of DKK 15, as Jens mentioned previously. Turning to the next page 11. Guidance for 2021. We did revise our guidance the 22nd of April this year. The guidance is based on the assumption that we'll not see any significant lockdown in our business segments or any other knock-on related effects from the COVID-19. The guidance is DKK 11.75 billion in revenue, which is equivalent to an organic growth of approximately one percent. It should be noticed that our Better Business project, which is an integrated part of our Core+ strategy, is expected to reduce revenue with approximately DKK 200 million compared to last year, meaning that the underlying organic growth is approximately three percent .
We take a look at the earnings as illustrated here in the waterfall diagram, we disclosed DKK 637 last year. We compare the non-recurring income with the non-recurring cost last year, all this balance out. We did have some additional tailwind due to cost containment, sorry, last year. You can say a more normalized level last year is DKK 617, which basically means that the current guidance of DKK 725 means we need to deliver an improvement of DKK 108 million. Well, the DKK 725 is equivalent to approximately an EBITDA of DKK 540 million. That was the last slide from here.
Thank you, Michael. Now it's time for questions, if there are any. Please, I will hand over to our speaker or to our audience. Sorry.
Thank you. Ladies and gentlemen, if you have a question for the speakers, please press 0 one on your telephone keypad. Please hold until we have the first question. Our first question comes from the line of Alexander Borreskov from Carnegie Investment Bank. Please go ahead. Your line is open.
Thank you very much. Hi, Jens, Michael, and Dennis. Just a few questions on my side. One, you mentioned sort of the continued improvement in concept sales share as a key driver of the gross margin improvement. This is a trend we've seen for a few quarters now. Could you maybe talk a little bit about where we are at in terms of the share of concept sales in Denmark and internationally? Are you sort of beginning to close the gap internationally to Denmark? Maybe a second part of that question. Previously, you've said that your share was around, I think, 30%, and that was sort of a glass ceiling. Have you now broken that glass ceiling?
Yes. Hello, Alexander. The situation right now is that Denmark is above 30%, and as a group, on group level, we are above 22%. We are definitely above the 20%. Our goal is still that we, on group level, at the end of 2020 should reach 20%. A very good track record in the beginning of the year. 22% on average, and then mainly Holland is improving a lot.
Okay. That's very clear.
Yeah.
Maybe, just moving on, could you talk a little bit about what you've seen so far in the year in your climate and energy segment, considering the strong interest there's been in sort of the energy efficiency subsidy schemes, especially in Denmark, that's focused on heat pumps. Is that something you've seen in the numbers yet? If not, when do you expect that to have an impact?
Definitely. Especially in Denmark, we see it's rapidly a growing market, of course, also because it's subsidized. That helps, that people like to be green when it's subsidized, honestly speaking.
Yeah.
Now we really see the effect of the government who subsidizes that. On group level, we are more or less flattish, and that's simply because we have been pruning a lot of certain brands the market was simply too low. In the markets where we have, I would say, the right products, we have definitely seen a strong development, and we also foresee that will continue over the coming quarters and years. We are very satisfied with our climate energy folks. That's for sure. EV chargers, of course, is also growing rapidly. That's, I would say, more or less a no-brainer, but it's really growing a lot. Yeah.
Just for clarification, the flat growth you mentioned, is that on group level or on the energy?
No.
Okay, you're growing in the energy part.
We are growing, I will not say the figures, but it's strong growth. Strong two-digit growth, I would say, to be honest.
Within energy and climate?
Yes.
Yeah. Okay. Just a final question from me, and I'll let someone else.
Also, if you look at it from another perspective, when we sell heat pumps, we also sell cables. You have a parallel positive situation. I think don't underestimate the effect on cable sales when you grow on climate. It's just to be totally transparent.
Okay, thank you. Just a final question for me on industry. I see you do a deep dive in your quarterly report on one of these four key enablers of your 2023 strategy. Just to get a sense, are you seeing improved momentum and sort of less hesitancy from industry customers in general? I know that they've been impacted quite a bit by COVID-19. What should we sort of expect for the remainder of 2021?
We did see this setback on infrastructure here in Denmark. We think that is a temporary thing, clearly. As we also stated that Marine & Offshore is still being challenged, at least it was in Q1. The good news is that in general, OEM, MRO are starting to pick up and gain momentum again. If we compare to last year, because if you look at the top line last year in industry, you didn't really see that much, but there were quite some changes within the sub-segments where we did see OEM, MRO suffer, and of course Marine & Offshore also to some extent. The top line we managed to keep due to a very aggressive growth within infrastructure. Now it looks like that they are starting to gain momentum. It's still early days, Alexander Børrild, but it looks like it's really gaining momentum.
Yeah, if you look at the PMI figures, they look really strong.
Yeah, in all markets.
We are-
That's very clear. Thank you.
Yeah. Okay. Thank you.
Sorry. That's all from me. Yeah, thank you so much.
Thank you.
Thank you. The next question comes from the line of Michael Petersen from SEB. Please go ahead. Your line is open.
Hi. Thank you for taking my question. Have a couple as well. We start in the Netherlands. It was down around eight percent organically. Can you try to come up with a figure how much of that is due to Better Business, or maybe give a figure of around organic growth excluding the Better Business for Netherlands?
I don't have the exact figure present here, Michael, but I would say the entire drop can be referred to pruning and probably also offshore is reacting in time to see some underlying growth if you take that one out. They're really doing all the right things in the Netherlands, but the exact figure I simply don't have.
All right. That's fine. You mentioned some contract.
That was last year. Now that is out.
It's all out? Okay.
That contract. That is why the reference point here in Q1 and Q2 will be very different. Then you suddenly see a drop in the revenue in the Netherlands last year. When you measure the organic growth, you measure towards last year.
Okay. That makes sense. My next question is, in terms of the installation market, it's been going quite well in especially Denmark, the recent quarters. Do you see clients having capacity constraints, or do you still see that potential, let's say five percent growth the next two coming years, or do you think that the market is stretched in terms of capacity right now?
I think you have a point. The capacity is more or less. The market needs more skilled workers, and there will be a capacity problem. That's for sure. I would say definitely, the installation market, it's not only the COVID market, also the renovation market. The renovation market is in fact bigger than the market for new buildings. There will be a need for hands. Maybe there will be, again, people from Poland, et cetera, who will join the workforce in Denmark. So far, it's not a possibility due to COVID-19, but there's definitely a problem.
Okay. I have another question relating to the Core+ strategy. You say it's progressing well. Can you try to mention some of the things that has been successful during the Q1 , in particular?
Yes. As I said before, our concept is really moving in the right direction. Climate and energy might not be on the top line, as we have said we want to grow five percent on average per year. That has not been the case on the top line. On the gross margin, we have grown much faster than expected. It's still a matter of tuning, and we're still working with that. Within industries, as Michael stated, it's starting to really move in the right direction. Everything is starting to opening again. We also see that in Solar. Our trade segment, of course, we are not delivering directly to B2C, so the lockdown, for instance, in Denmark in January and February were hitting us partly. We saw in March when the DIYs retailers start to begin, then the market were there.
Also there, we are quite positive. That was Denmark. Sweden, Holland, also there we have been losing some customers and some partners. In Norway, we have started to build up the trade offices. We never had one. There we are on, I would say it's more or less a turnkey situation we have in. We are quite positive about the trade segment going forward and see a lot of new interesting customers. Also the way we work as a team cross-border is quite impressive. I think that will come over the coming quarters.
Okay. Thank you very much. Maybe a final question. You mentioned before, like the heat pumps and the cabling, where the cabling is a part of the whole contract value as well. Can you try to split up the cost for, let's say, heat pump and the cabling, like total value, say heat pump is like 70% of the total value or how would the split be?
It's more. If you take the EV chargers, they really need heavy cables. You have a more balancing situation. Heat pumps versus the cables, I think that 10% of cables and 90% to the heat pumps, you go for the EV chargers, might be 30/70. It's any man's guess. It's my guess. Don't put too much into that. It was just from my head.
All right. Well, thank you very much for great answers.
Okay. Thank you.
Thank you. I remind you that if you want to ask a question, you will have to press zero one on your telephone keypad. We have a follow-up question from the line of Alexander Borreskov from Carnegie Investment Bank. Please go ahead. Your line is open.
Thank you. Just one quick one for me. Previous, I think last year, you mentioned that you have this contract with GlobalConnect in Denmark and Norway, and they did an acquisition in Sweden. I was just wondering if you have an update on, has there been a tender on their cable business in Sweden, or do you still see that as an opportunity for you?
Yeah, we see it definitely as opportunity. The tender will, I think that will be in the autumn as far as I remember. Far, there will not come anything out of that this year, at least that I can see. I think that their agreement with the recent distributor is running out at the end of the year. We will see a tender in maybe soon or at least in the Q1 . That's my best guess.
That's very clear. That was all for me. Thank you very much.
Thank you. There are no further questions at this time. Please go ahead, speakers.
Okay. Thank you for listening. Of course, have a nice day despite the rain. We will say goodbye here from Solar in Vejen. Bye-bye