Welcome to the Solar Q2 2020 financial report. For the first part of the call, all participants will be in listen-only mode, and afterwards, there'll be a question-and-answer session. I'll now hand the call to the speakers.
Thank you a lot. A very warm welcome to our second quarter webcast for Solar on a very sunny day in Copenhagen. Together with me, I have my two good colleagues, CTO Hugo Dorph and CFO Michael Jeppesen. The agenda for today is a general business update from my side. Hugo will take over and give you some insights about our digital business. Finally, Michael will talk about the second Q results and of course, the outlook for 2020. Finally, of course, the Q&A session. As I stated at our last webcast for Solar Group, Solar is today fundamentally a digital company and combined with our strong and agile supply chain services, we can support our customers 24/7, 365 days in an efficient but also very safe way. Therefore, we also really am very pleased to report a solid financial result despite the headwind followed by COVID-19.
Our dedicated focus on improved profitability pays off with a 35% EBIT increase compared with last year, and that includes considerable cost for a successful SAP EWM rollout in Norway, but also completion of our AutoStore project in Holland. Equally important, we also managed to deliver a very strong and positive cash flow and a ROIC above 12% if you measure on our core business. I will now give you some insights about our strategic focus areas. If we start with the normal one, strategic suppliers, we have been able to deliver as normal during COVID-19, and a part of that is, of course, our combination of dual product assortment on fast runners covering both A brands and our own concepts, and that allows us to compensate for potential shortage of certain products caused by the COVID-19 crisis.
Overall, all segments and markets are showing steady growth on our concepts, and thereby support our long-term margin improvement goals on group level. Michael will later give you some insights about delivering in this quarter. If we then turn to industry focus, Solar industry business continues to strengthen our market position within infrastructure. Infrastructure has performed extremely well during COVID-19 crisis, seeing double-digit growth in second Q. In Denmark, we are really pleased that we have extended our agreement with the fiber company, Fibia. We have served Fibia for several years, and the collaboration has developed into a very strong strategic partnership where we are operating and managing large parts of the fiber solutions to the Fibia supply chain. On the other hand, we have seen a declining demand from the OEM industry, machine builders, and also the marine offshore business due to COVID-19.
The unanswered question so far is how long that will last. Last but not least, I will explain a little bit about operational excellence. Over the last weekend of May, we launched our fifth SAP EWM solution at our central warehouse in Gardermoen in Norway. Overall, again, this was a very successful implementation with extremely small disruptions. Due to the COVID-19, and the resulting traveling restrictions, we need to rethink our rollout approach, and therefore we did more or less a remote and digital go live for the first time ever, with only a limited number of people on-site. Now we only have one implementation left out of the six we need to do in our central warehouses, and that will take place in Q4 in Holland, in Alkmaar, and then we are over with the SAP implementation.
Finally, yet importantly, we constantly pursue the green movement and have decided to phase out all products related to oil and gas boilers in Solar Danmark. From now on, only focus on heat pumps and non-fossil heating solution. Besides that, we have entered into a great agreement with EVBox in Solar Norge in order to serve the fast-growing market for charging electrical cars. Now, Hugo, I will give the word to you. Please, Hugo.
Thanks very much, Jens. We are a digital business. That is really how, as an investor, you should look at Solar. The vast majority of our business comes through our digital channels. I mentioned last quarter how we saw a pickup in digital ordering during corona lockdown, and I can confirm today that we've seen a sustained high level of digital order share in all countries throughout the quarter, even with easing of restrictions. We've also registered a whopping 30% increase in downloads of our mobile apps. Some of that traffic is of course, driven by interest in our new web shop platform and new mobile app. Therefore, we are extra delighted to have won gold at the recent Danish Digital Awards in the coveted commerce category with our new mobile app. We even won another award in the customer experience category.
The emphasis we have on creating the best buying experience for our customers is being recognized. As we transition more than EUR 1 billion of business to this new e-commerce platform, we are finding that it compares favorably to our existing webshop in terms of higher conversion rate, higher basket size, and shorter amount of time spent on each transaction. Customers are more likely to buy when they enter our new webshop. They find the products faster, they buy more, and they're able to get quickly back to get on with their work. That's what we designed it for, and that's what we're seeing. Our business is well-positioned for where our industry is moving to and for new generations of customers with a more digital mindset.
In the coming quarters, we will leverage our high digital share for new opportunities within digital self-service, increased automation, such as connection to our new automated warehouse systems, and close collaboration with our strategic suppliers on data and conversion , campaigns, and stuff like that. Overall, we've made great progress in the quarter on digital, and we have more to come. Thanks very much, and over to Michael for the numbers.
Thank you, Hugo. Turning to the next slide. Revenue in Q2 came out slightly above DKK 2.7 billion, down from almost DKK 2.9 billion, or equal to an organic growth of -1.6%, which should be compared to the +5.6% we saw last year. Looking at the development within the segments, this is very much in line with what we saw in April. We see installation, in particular service sales are facing a slight drop. It should be noticed that we also have an impact of the pruning of products, which can partly explain the negative growth we see within installation and to some extent also within industry. Looking closer at the sub-segments within industry, we can see that OEM and marine offshore really are challenged, whereas we, as Jens mentioned before, see double-digit growth within infrastructure. Trade also delivered very solid growth rates in Q2.
Looking at the next page. Despite the headwind we face from the customer mix, which all other things equal has a negative impact on the gross margin %, we actually managed to strengthen the gross margin and thereby continuing the trend we have seen for the last quarters. We managed to strengthen it with 0.3%, which basically means that the underlying strengthen of the margin is above 0.3%. Costs were down with DKK 42 million compared to last year, of which the exchange rate, the FX impact, amounts to approximately 10%, leading to real savings of DKK 27 million. Furlough accounted for DKK 12 million, we also had cost for SAP rollout, mainly within Norway and to a lesser extent still Denmark, of approximately DKK 7 million.
Despite the fact that revenue was down with DKK 123 million compared to last year, we managed to compensate more than that by increased gross margin % in combination with improved efficiency and cost containment, and thereby we managed to strengthen the earnings with DKK 21 million, up from DKK 60 million to DKK 81 million or 35%. Looking at the next slide, if you look at the H1 result, we did have a total spend of DKK 16 million on SAP EWM rollout. We spent approximately DKK 8 million on restructuring and implementing AutoStore. We had a delta of approximately DKK 5 million in other income. If we take this out of the equation, we can see that we increased the underlying performance of core with DKK 47 million and in related business with DKK 10 million.
This is if we sum it all up, we increased the earnings from DKK 140 million to DKK 178 million or 27%. Looking at the next slide. Cash flow. Cash flow, we saw a positive impact from operating activities of DKK 282 million, which I'll comment on shortly. Investing activities of DKK 18 million, of which DKK 12 million are related to our digital investments. Finally, financial investments is basically repayment of short-term debt with DKK 166 million, DKK 3 million on long-term debt, and finally installment on lease liabilities of DKK 29 million. Let's have a closer look at the operating activities. Here we are particularly happy to see that the improvements we obtained on our inventory in Q1 are maintained. The main contribution here is receivable, which had a positive impact of DKK 212 million.
It should, however, be noticed that receivable in March were particularly high, but we do not see any increase in delayed payments from customers. Similar, if we look at loss on debtors, they are on par, or actually slightly below the level we saw last year. Cash flow was positively impacted with approximately DKK 60 million from various COVID-19 government support packages. Looking at the next slide. Net working capital at Q2 amounted to 11.9% versus 12.9% at the end of Q2 last year. We see a continued improvement of our net working capital as well. If we then look at the gearing, the combination of increased earnings and the strong cash flow, not only from the net working capital, but also from the P&L before the impact from cash flow actually enable us to reduce the gearing down to 1.5%. 1.5 times, sorry.
Compared to last year, gearing is down with actually 1.1 times EBITDA. Partly of this is, of course, due to the support packages, and these will be reversed partly through Q3 and before we get out of Q4, as based on the knowledge we have now, they will be outphased completely. Looking at the next slide. On the 27th of March, we withdraw our guidance for 2020. Be very happy to reiterate an EBITDA guidance now of DKK 400 million, despite we expect a slightly lower revenue compared to our withdrawn guidance. There is, should be mentioned, increased uncertainty compared to what we normally see, despite the fact that we're only looking at six months, or actually five months, because I'll comment on July shortly. I think the main assumption is that we do not expect any new lockdown to happen in any of our markets.
That's the external factors. Internal factors is that we can continue the improvements we have seen of our gross margin in combination with cost containment and improved efficiency. In total, we now expect a revenue of DKK 11.4 billion, which is equal to a negative organic growth of approximately 1% and an EBITDA of DKK 400 million. Looking at July, we can see that the fact that Solar is basically an agile and digital company was also proven in the results we saw in July. Despite headwinds in terms of negative organic growth, we saw an increase in the earnings compared to the earnings we saw in 2019 in July. The result in July clearly support our guidance. Thank you.
Thank you, Michael. Now it's time for questions and hopefully also we can answer the questions. Please, if there are any questions.
Thank you. As a reminder, if you wish to ask a question, please dial zero one on your telephone keypads now to enter the queue. If you find your question is answered before it's your turn to speak, you can dial zero two to cancel. Our first question comes from the line of Christian Johansen of Danske Bank. Please go ahead. Your line is open.
Yes, thank you. First question is on the sales development. Can you elaborate a bit on the sort of growth development, and especially in these segments where you're seeing a negative trend sort of during the quarter and into July? Is there any improvement or are they staying at a declining trend?
Yeah. Should I? We definitely see a declining trend within the OEM industry, machine builders, and also in marine offshore. It's still declining. On the other hand, we still see growth within infrastructure. It's more or less a vertical issue. Looking at installation, I would say that the summer was okay, but we also saw a lot of people more or less were forced to get on holiday. Now we see activity is going up again here in August. All in all, I would say the tendency from second Q was the same we saw in July.
Is it okay?
Yep.
The next question is on your receivables. Just if you can elaborate of what is driving this fairly large positive cash flow. Have you done anything specific in order to get this, or is this just normal fluctuations?
I would say the main part of it is normal fluctuations. We have, of course, as announced in Q1, been a bit more strict on the credit management in general. The majority of it is normal. Seasonality impact we see. Bear in mind, the reference point, if you look at the quarter, March was a very strong month in terms of revenue. Because this has become a bit technical, but if you look at the payment terms, quite some customers have current months plus a certain number of days, and March actually did have an additional working day. There's quite a lot of revenue in March. The debtors were fairly high at the end of March, whereas that was not the case in June. I would say that the normal seasonality accounts for the vast majority of it.
We are particularly happy, and I know I said this, but I'm happy to say it again, to see that we do not see any increase in delayed payments. That's really a relief.
Okay. That's clear. My last question is on your e-commerce sales. Hugo, you mentioned that your new webshop is showing great results so far. Can you in any way quantify this into financial numbers? Especially I'm interested in hearing the success of increasing your concept sales, when having people ordering through your webshop, instead of physical orders.
First of all, on comparing the metrics and releasing those numbers, I'm going to hold off the comparison between the old and the new webshop. The reason is we don't have all customers over, and from the customers we have over on the new webshop, it's not all users who are over. We're just seeing the first positive signs here on higher conversion and all these things about traffic. You're right that the digital channel is a very important one in terms of featuring our concept products, and we are working on that, making sure the data is there and the mapping of alternative articles is present also on our digital channels, as in our stores and over the phone. In terms of sharing actual numbers on the new webshop, I will defer a couple of quarters before we get into that.
Okay. As sort of my follow-up, you expect that from next year, we should be able to, or at least you should be able to have sufficient data to make firm conclusions?
That's a fair assumption. Yes. From mid next year, I would say. Yeah.
Okay. Great. Excellent. That was all for me. Thank you.
Thank you. Our next question comes from the line of Mikael Petersen at SEB. Please go ahead. Your line's open.
Hi, thank you for taking my question. First, if I may start, the profitability that you show in the EBITDA bridge going from Q2 2019 to Q2 2020, the improvement in the cost of goods sold, is that a result of the Better Business, or is it a product mix, or is it geographical mix? Maybe you can elaborate on that.
Yes, I can add a few comments to that. I would say that it is. We can say this project, Better Business, is a matter of selling the right products. There's a lot of other initiatives beneath this. There's no any major impact on the geographic part. I would say that the major impact is that the customer mix is shifting towards something which is less variable. Which actually means that the underlying improvement is exceeding the figures that you are seeing there. It's the initiatives who are driving this despite the headwind from the customer mix.
Okay, thank you. A second question, if I may. The external operating costs, in those DKK 42 million, you mentioned that the cost savings are DKK 27 million. What does this include exactly? Maybe how much of these DKK 27 million are sustainable?
Well, the big question is how much of it is sustainable. It's absolutely clear to us that everything will not be sustainable. We are currently working to establish a new normal situation where we, going forward, will be able to run this at a lower level. You can see a part of this is postponed maintenance, where we simply, due to COVID-19 restriction, were a bit reluctant, in the beginning at least, to have any external getting access to our premises. That will gradually normalize again over time. There are other costs where we're absolutely sure that we will also, going forward, see a substantial lower level. One of the obvious one, which you probably already have guessed, is traveling costs. We moved everything into digital meetings. We do not expect this to return to normal levels.
Just to be sure that it doesn't, we, of course, changed the guidelines just to make sure that it doesn't bounce back to the normal level.
Thank you. If I could ask in a different way, how much of the DKK 27 million is sustainable? Is it the majority or the minority?
I would say-
50/50
50/50 is probably a qualified guess.
Maybe a final question, if I may. If you look at the second half of the year, the implied performance would be of the core business of 4.2% EBITDA margin. That is more or less the same as what you delivered last year, despite that you have a lower revenue. What is driving this? Is it something in particular that you would highlight? Is it also the Better Business improvement that you will be doing? Is it just general cost savings that will make the margins flat year-over-year in the core business?
What is going to the bridge in H2, as we see it is, as you probably notice, even though we have a substantial lower expected revenue compared to last year, we simply expect that this Better Business will continue into H2. We will also see an increase in the gross margin % compared to what you saw last year. At the same time, we also expect to have lower costs, clearly, because the lessons learned in Q2 will bring into Q3 and Q4 as well. It's going to be a combination. You should remember that we have SAP EWM rollout costs in H2 of approximately DKK 14 million that we need to absorb as well, because there's still some minor things to do in Denmark and Norway. Then we will, as Jens was mentioning, execute a SAP rollout also in the Netherlands.
That one we need to absorb.
All right. Thank you very much.
Thank you. There is one further question in the queue. Just as a reminder to participants, if you do wish to ask a question, please dial 01 now. The next question comes from the line of Simon Block at Nordea. Please go ahead. Your line is open.
Thank you. I just have one question regarding the guidance and cost savings and I guess gross margin as well. You're saying that the EBITDA target will actually be maintained despite lower revenue. You also say that part of the cost savings that you have done are temporary and will normalize towards the end of 2020. I'm just thinking that since the EBITDA guidance is maintained, you would also have found some more permanent savings and efficiency gains. I'm just wondering if you can elaborate a bit more on what these are. I guess you've already touched a bit on the cost savings.
In general, we are now working on changing our guidelines because we really learned something during this Q2 on the cost level. We actually think we can run a business, and we expect to take that with us. You can do a backside of the envelope calculation, where you look at the revenue, and if we can maintain the gross margin we've seen in H1 into H2, then that will give us some tailwind. We'll have the full impact of AutoStore in the Netherlands, which we implemented here in H1, which is now more or less running like a clockwork. We are really happy to see the improved efficiency and the improvement in quality in particular, that we are currently seeing in the Netherlands.
If you take these into consideration as well, and then if you can make an assumption on that, say for the sake of the rationale, that half of the cost savings we saw in Q2 can be maintained, that'll be like DKK 13 million each quarter. That adds up to DKK 26 million. I think you pretty much have your bridge then. You have your bridge.
Perfect. Thank you. Actually just one more regarding the trade segment, which you're saying that you saw solid organic growth in special sales. I was just wondering what that implies specifically.
It implies sales to DIY web shops, but also B2B customers who want to serve them directly by themselves, buying directly at Solar. It's a very broad and very mixed type of customers, but it's mainly DIY and web shops we are servicing. There we see, of course, due to COVID-19, that the B2C segment really has a lot to do because people have been working from home. That's why it's growing like we see it in other DIY shops. That's the answer to that.
Perfect. Thank you.
Thank you. We've had one follow-up question, that's from the line of Mikael Petersen at SEB. Please go ahead. Your line's open.
Hi. Thanks for taking my follow-up questions. This is a question regarding Norway. You have a decline of 5% in the second quarter, organically around 3.4%. Can you try to elaborate on how much this is related to the industry? Maybe if you do a split between the industry and installation business in Norway in Q2.
Say it clearly, Michael, it's industry, all of it. It's mainly marine offshore, but we are deeply hit by the marine offshore. It's all about industry, the decline.
The installation business is flat.
It's flattish. Yeah. Close to flattish. Yeah.
Okay. Thank you. Then maybe a final question. In Denmark, you grew 3% in the first half of the year. How does second half look? Do you expect the same growth to continue, or is it more or less like a flattish development that you include in your guidance?
We haven't guided any revenue growth in the second half of 2020 in Denmark. We definitely see that the industry, that will take time before they are back and have the same demand again. On the other hand, as Michael also stated, there are some uncertainty in the market. We know that our infrastructure will hopefully grow double-digit. We also know that other industry companies, that will take some time. Installation, yeah, I think it will be close to flattish. We have our special sales where we still believe that it will grow also in Denmark. It's a broad picture we are looking into, with a lot of uncertainty, I have to say.
Okay. Thank you very much.
Yeah.
Thank you. As there are no further questions in the queue, I'll hand back to our speakers for the closing comments.
Okay. Thank you. Thank you for your good questions, and have a very nice day, and a warm one, I would believe. Okay. Bye-bye.