Hello and welcome to the Solar 2020 report Q3. For the first part of this call, all participants will be in listen -only mode, and afterwards there will be a question and answer section. Today, I'm pleased to present CEO Jens Andersen. Speakers, please go ahead with your meeting.
Thank you very much. A very warm welcome to this third quarter webcast for Solar here in Copenhagen. Together with me, I have my two colleagues, CCO Hugo Dorph, and Michael Jeppesen, our CFO. The agenda for today is a general business update from my side, and then Hugo will go in to make a deep dive on our sustainability activities and also our digital business. And finally, Michael will present our third quarter results and our increased outlook for 2020 before we go to the Q&A session. In next slide, please. In third quarter, we delivered an EBITDA increase of more than 25%, and this is now the eighth quarter in a row where we deliver year-over-year growth on EBITDA. During the quarter, we also managed to sell our shareholding in BIMobject for a total cash consideration of DKK 237 million .
We confirm our newly revised 2020 EBITDA guidance of DKK 435 million, including one-off costs of DKK 25 million relating to our SAP EWM rollout. This supports our strategic target of a 4% EBITDA level on group level. We owe this positive development to our gross margin initiatives, efficiency gains, and also our cost structure. Michael will later give you some more detailed insights to our financial figures. Next slide, please. I will now give you a short update on our strategic focus areas. We start with a very important one, our strategic suppliers. During the second wave of COVID-19 pandemic, we have succeeded in maintaining our delivery performance. The combination of well-known brands and Solar concepts makes us reliable and a robust company when it comes to our service degree.
We are highly committed to increase our share of concept sales across markets, and we are making very good progress in this regard. At group level, our current share of concept is now close to 21% and that is still the ambition to reach 30% over time. It is an ambition, but at the moment we are on 21%. We collaborate with our suppliers on exclusivity rights, and just as an example, during our strategic period from 2018 - 2020, we have increased our exclusivity share of revenue from our Solar Light concepts from nearly nothing to now around 70%. Industry focus, also one of our very important strategic focus areas. At the beginning of this year, our Scandinavian industry business extended its agreement with Copenhagen Airport. The agreement is based on a TCO approach, a common understanding of process optimization, supplier consolidation, and of course, strong logistics services.
Our industry team also have strengthened our position within infrastructure a lot, in this quarter, again, we saw 2-digit growth despite COVID-19 within infrastructure. On the other hand, we have also seen a declining demand from especially the OEM industry, and even a harder decline on Marine & Offshore. It is partly due to COVID-19, but of course also declining oil prices. If we then turn to our operational excellence, as I said before, we are steadily growing our concept share, and we do it with our new customer experience platform or e-commerce platform where we are onboarding a lot of new customers at the moment. As I said before, Hugo will give you a small update on our digital business in a few minutes. We still expect to implement SAP EWM Extended Warehouse Management system in Solar Holland in early 2021.
This will finally complete the implementation of SAP EWM throughout Solar. Remind you that the journey started back in June 2018. Furthermore, we are right now preparing a business case on our central warehouse in Denmark. This is of course to analyze opportunities and hopefully also further optimization of the very important Danish central warehouse. I will now give the word to Hugo. Please Hugo.
Thank you Jens. If we turn to the next slide, I just want to give you a small example from the quarter, on sustainability. We have a highly efficient and very precise supply chain in Solar, which we've honed over decades, and efficiency has been achieved by driving standardization and lean processes. As sustainability grows as a topic for our customers and for Solar, we also look at our supply chain operation with fresh eyes. We look broadly across our supply chain, starting with what we deliver to our customers and working our way backwards to how we deliver, how we transport, how we package in our central warehouse, how we store, how we receive goods, and how we work upstream with our suppliers to improve sustainability. For efficiency and standardization purposes, we've used air cushions to protect goods that don't fully fill up our standard boxes.
This is also excess waste that we send to our customers, so we wanted to reduce it. With better knowledge of what we are packing, it turns out that we can. We've cut out more than 75% of air cushion use through better data and better training of our employees on packaging, on handling, and on product fragility. That not only reduces waste, it also reduces time, both for us and for our customers, as well as cost. It's just a small example of how sustainability is also Better Business. We are working on taking it even further. As part of our AutoStore implementation in the Netherlands, we are testing automated box raising, which builds the box on the fly to the specific height needed, reducing cardboard and shipping volumes with further sustainability, efficiency, and cost gains. Let's go to the next slide.
As Jens said, we had a very solid exit from our investment in BIMobject. We bought at DKK 172 million and sold at DKK 237 million, and we're obviously thrilled with that. If you go back to what we said when we made the investment, I want to also give you a sense of what we have achieved from a digital business development perspective with BIMobject. BIMobject run the world's largest and fastest-growing content management platform for BIM objects, which are essentially digital twins of construction materials, complete with not only a 3D model, but also the specifications describing the product, which is used by digital construction tools. BIM is the standard for digital construction and sharing product specs across our value chain. We believe that any major player in the future of construction needs to understand how to add value in the context of BIM.
With BIMobject, Solar has built competencies on BIM, which we couldn't have gained on our own. Today we support our customers on projects with a BIM mandate by sourcing or even developing BIM objects on supplied materials. Our customers and designers and even contractors can find a wide assortment of Solar concept articles on the BIMobject cloud. We've actually developed an entirely new concept assortment, Solar Project, which is tailored for BIM-based design, estimating, and sourcing. Finally, we have for some years now, worked closely with our suppliers, really requiring them to supply BIM data for the products that we source from them. With this, we feel well-positioned for the growing significance of BIM in the projects we supply. With that, I'll hand the word to Michael.
Thank you Hugo. Turning to page number seven. We can say that in essence, Q3 reflects the same development as we saw in Q2, where the revenue was slightly down, but this was more than compensated by increasing gross margin in combination with lower cost leading to an increased earning. If we focus on the revenue, we came out with DKK 2.6 billion down from almost DKK 2.8 billion. This is equal to a negative organic growth of 4.8%. Looking at the segments in Q3, it's very much in line what we also have seen in Q2. As Jens was mentioning, there are very different developments within the segments. Industry OEM is facing headwinds. Marine & Offshore is down with 21%, but we do see growth with infrastructure and also our new top segment Trade continues to deliver solid growth rates.
It should be noticed that a part of the negative growth can be explained by pruning of products, which is one of the initiatives in our project, Better Business. Amongst other things, we see that the sale of boilers in Netherlands, but also in Denmark, where we stopped completely, continues to be reduced as initially announced also, and as expected. If we now turn to the next page, page eight. With an EBITDA of DKK 132 million, Q3 was the eighth consecutive quarter of year-over-year growth in EBITDA. The main driver is the increase in gross margin, which delivered an astonishing 1.8% increase. It should, however, be noticed that this was supported by a one-off income of approximately DKK 10 million related to extraordinary price increases. This actually on group level has an impact of 0.4%. This mainly relates to our Norwegian subsidiary.
If you look at the cost in absolute terms, we continue to see a drop similar to what we saw in Q2. There's a drop of DKK 13 million, of which there's a positive contribution of FX of DKK 7 million and general cost saving of DKK 11. Partly countered by additional cost for the SAP EWM rollout of DKK 5 million. If we look at what type of cost is it that we see this reduction, it is among others, it's travel costs, it's entertainment cost, and it's also costs on running cars, showing that we are becoming a more and more digital company. Looking at the next page nine, the year to date performance. In total, we spent DKK 21 million on SAP EWM, DKK 8 million on restructuring and AutoStore. This is partly offset by the DKK 8 million we got in other income.
In essence, core business compared to last year has delivered DKK 73 million increased earnings, or DKK 63 million if we adjust for the one-off due to price increases, and related has increased with DKK 13 million. In total, we managed to increase the earnings with DKK 65 million from DKK 245 million - DKK 310 million, or astonishing 27%.
Looking at the next page, cash flow. We see a positive impact from operating activities of DKK 142 million, which I will comment on shortly. Investing activities of DKK 8 million, financial investments of DKK 116 million, which mainly relates to repayment of short-term debt with DKK 138 million, repayment of long-term debt, installment of lease liability. Also a reclassification from non-current interest-bearing debt of DKK 43 million related to holiday allowance. If we take a closer look at the operating activities, we are particularly happy to see that the improvement we have realized in Q1 and Q2 regarding inventory continues.
We did see, despite we're entering the high season, a small positive impact from inventory, and this is done without jeopardizing our strong logistical performance, as mentioned by Hugo previously. The main single contributor is receivable, which is down with DKK 29 million. It should be noticed that September, of course, also were impacted by negative of organic growth.
We do not, this is important for us to see any delayed payments from customers, so our debtors remain strong and healthy. Liabilities was slightly negative with DKK 48 million, of which of course, the reclassification is a part of it. Looking at the financial support we have received in deferred payments of VAT and tax, this now total DKK 73 million. At the end of Q2, it was DKK 60 million. Of these DKK 73 million, approximately 50% will be repaid here during Q4, and the remaining 50% will be paid during early 2021.
Turning to the next page. Looking at net working capital, we see a continuous improvement compared to Q3 2019, going from 12.6% down to 11.9%. This, of course, has a positive impact on the gearing, where we see a combination of increased earnings, and reduced net working capital, bringing the gearing down to 1.2%. Within a year, we have reduced the gearing with more than one times EBITDA. It should be noticed that a part of this is due to the support packages which will be reversed, and there's still a small impact, which is more technical due to the way IFRS 16 was implemented, but still it's a strong performance. Turning to the next page. We revised our guidance the 21st of October, increasing the earning from DKK 400 million-DKK 435 million. The main driver here is increased gross margin, increased efficiency in combination with cost containment.
As stated by Jens also, our guidance here on core is in line with our initial expectations to the strategy period, which come to an end here by the end of 2020. We will deliver the 4% we announced when we started this strategy period. That was the last comment from me. Thank you.
Thank you Michael. Now it's time for questions and answers, and hopefully there will be some on the phone. Please?
Thank you. If you do wish to ask a question, please press zero one on your telephone keypad. If you do wish to withdraw your question, you can do so by pressing zero two on your telephone keypad. Our first question come from the line of Michael Peterson from SEB. Please go ahead. The line is open.
Hi thanks for taking my question. The first question we'll ask is relating to the revenue generated through the BIMobject collaboration. You talk about the impact going forward from the Solar product concept. Maybe can you try to quantify that, how large that is or could be?
We don't disclose that at this point.
Okay. Maybe another question then. In Industry, you talk about the infrastructure performing well, you mentioned double-digit growth. What should we expect going forward? Is this some kind of new markets you guys are tapping into and what is driving this?
The market is definitely growing. We see 5G also coming now. The expectation is that we will still see two-digit growth, at least for a period, but then, of course, the reference point is also getting higher and higher, but the market is growing all in all. The market is owned by a few players, so it's also our ability to win those players. We have good cooperation with Fibia in Denmark and with Telenor in Norway, and also now GlobalConnect in whole Scandinavia. I think we are tracking well, and we believe that the market will still be pretty solid the coming years. Of course, one day it comes to an end. The structure will definitely, maybe in 2024, be ended in Denmark, but then we see other markets where we can support our customers. It's a very exciting journey we are on.
Okay thank you. Then maybe to my second question, I see that Sweden is down quite a lot in Q3. Can you maybe try to describe why that is? Is it driven by Onninen, or what is the main reason for the last decline?
Yes. You mean revenue-wise?
Yes, revenue.
Okay. Yeah, because if I'm not mistaken, earnings is up. There was, of course, an impact from the Onninen acquisition. We did some heavy pruning after we took over Onninen. We simply had to close down some segment. They were not profitable for us. I would say a part of the negative growth that you see is simply due to the initiatives that were launched, including Q4 last year. Now we have a fairly high reference point, which will balance out here during next year. It's a very good explanation.
Okay. Thank you very much.
Our next question comes from the line of Simon Block from Nordea. Please go ahead, your line is open.
Hi. Thank you. First of all, a question regarding the guidance. I was just wondering how much the lower revenue expectation is due to lower overall activity and how much is a consequence of the Better Business activities?
Yeah, it's a good question. Of course, the COVID-19 is still hitting us, mainly on the industry part. Of course, also the installers who are visiting industry customers. I would say maybe 1/3 is pruning, roughly speaking, 2/3 is coming from the COVID-19 situation. That is very roughly estimated.
Okay. Thank you. Perfect. I also have a question regarding the sales BIMobject. I am just wondering what your thoughts are about how the proceeds should be used, because it looks like your gearing is low and most of the warehousing business has been completed by now. I was just thinking, yeah, what your thoughts are, if it would make sense to pay it out to shareholders, or if you have anything else you are looking into.
We are not done with renovating the warehouses. We are currently looking at the central warehouse in Vejen, which both needs to be expanded but also to be optimized. Of course, when we have something more firm here, we will of course disclose it. I'd say that we are not done on that journey. Regarding the proceeds, it is still too early to say. Of course, we are considering various ways. I think it's fair to say if you look at our track record, the board of directors has always been very firm on exercising the gearing, meaning in periods where we have been below, we have always sent the money back to the shareholders. There's no intention of trying to run a bank. I would expect that things to come fairly soon.
I think as we also have said, we can in one single quarter or two be below the gain before we actually react. The gain guidance stands, the board has always been very firm on that.
Okay. Perfect. Thank you.
We have a follow-up question from Michael Peterson from SEB. Please go ahead, your line is open.
Hi. Thank you for taking my follow-up question. This is relating to the Solar concept. You mentioned that the target is 30% over time. Have you made any initiatives in order to reach this, or how do you expect to get there from the 21% - 30%?
It's a long journey. I said it was an ambition. It's not a clear target, it's more an ambition, and we have one country already delivered on that. That's Solar Denmark. The learnings from Denmark is of course cascaded to the other markets and headed up by the same director as well. The learnings from Denmark will be cascaded to the other markets, and of course, when we make exclusivity as we have done on Solar light, then you have your clear answer, because then we are selling the same products across border. The 30% is an ambition. Maybe Hugo, you can support this.
Yeah. This is daily business for us. There are daily activities in all markets on optimizing this. For sure, there is a lot of very concrete steps underneath that overall objective.
Okay. Thank you. Maybe a follow-up in relation to the gearing, the financial target of the 1.5x, is it likely to be the same going forward, or is it subject to change?
Well, it's been like that for quite a while. I would be very surprised if any changes came up on that. It doesn't really make any sense, as we see it, at least, to change it. I assume you are here looking at to revise it in downwards direction. There's absolutely, as far as we know, no plans on doing that. It has been like this for years.
All right. Thank you very much.
Thank you. We have no more questions from the line. I will hand it back to our speaker. Please go ahead.
Thank you. Thank you for the questions and hopefully also good answers. Have a very nice day here in Copenhagen. Bye-bye