Ladies and gentlemen, welcome to the Solar A/S quarterly report for the second quarter 2019. For the first part of this, all participants will be in listen-only mode, afterwards there'll be a question and answer session. Today I am pleased to present CEO Jens Andersen and CFO Michael Jeppesen. Please begin.
Thank you. First of all, a very warm welcome to the gentlemen in the room and also to those who are on the line for this second quarter webcast for Solar. Together with me, I have my colleague, CFO Michael Jeppesen. The agenda for today is a general business update from me, also on our strategic focus areas. Michael will take over and make a presentation of the second Q results. Finally, we have our Q&A session. In Solar, we are now halfway through the current strategy period and for our core business. We still aim for an EBITDA margin of at least 4% as one of our main 2020 financial targets. Looking at our first half-year performance in 2019, revenue was above our expectations and EBITDA was on par with our expectation.
We also have bought some business activities from Onninen, and that I will explain a little bit about it later. We expect a 2019 revenue of at least DKK 11.6 billion and we reconfirm our EBITDA on DKK 365 million, which is equal to improvement of DKK 38 million or similar to 12% improvement compared to 2018. I think in this quarter, the most important market information is that we have strengthened our position in Sweden, and that is within heating and plumbing and climate and energy by acquiring business activities from Onninen. The integration was more than successful and on time. I have to say it's with great pleasure and a warm-hearted thanks to all our dedicated people in Sweden and in Denmark who have made an incredibly good job with this integration.
To harness the full potential of the acquired activities, we also need to adapt the number of FTEs. We have dismissed 45 people and also informed that eight branches will be closed as soon as possible, at the latest the first quarter of 2020. Just for clarification, all direct costs related to that is booked in second quarter for both the 45 people and the eight branches which we will close down. If we take a look at our strategic focus areas, we overall see a quite okay progress. As planned, we see that industry is really stepping up now and it's very nice to see that our first half year of 2019, we really had a strong performance on industry. If we turn to strategic suppliers, we still pursue growth opportunities and of course we harvest synergies cross-border.
Again, I have to say that our industry team have done a very strong job because we're increasing quite rapidly on our concepts within industry. Talking about industry, we also have trained our sales guys out there in what we call the total cost of ownership approach. The training is really a base, and it's really basic training, but we involve customers, we involve suppliers, and I think we really had a good training session. Moreover, to match the customers' purchasing patterns, we are expanding our product assortment. I also explained that last time, we recently created 30,000 new products within mechanics and made them available in the Danish market. In the next quarter they will also be available within the Norwegian and the Swedish market. Last but not least, operational excellence.
In 2018, we took a big step in moving close to 100 work or employees to Poland from the core business in our regional setup. Now we also have established what we call a centrally led market and sourcing organization covering both commercial market product management and sourcing. As I've said before, to optimize the handling of small and medium-sized goods and provide strong competitive logistics, we implemented AutoStore in Norway. Since mid-June, this automated storage and retrieval system has been fully operational and as expected, we have seen that our calculated benefits have exceeded our original goals and it really starts to materialize. I will now give the word to Michael for an update on the financial performance for second quarter. Please, Michael.
Thank you, Jens. We turn to slide number five, please notice that STI has been deconsolidated also for the figures in 2018, meaning that it's been disclosed as discontinuing operations. Looking at the revenue, it increased from DKK 2.7 billion to almost DKK 2.9 billion, equal to a growth of almost 5%. More important is it that the shift in trend that we did see back in Q4, where core returned to growth again, continued not only into Q1, but also into Q2 with an organic growth of 5.6%. In particular, we're very happy to see that Sweden, with an organic growth slightly above 3%, is now returning to growth, starting to regain business. We turn to slide number six, looking at the EBITDA, we ended at DKK 60 million versus DKK 56 million last year. It should be noticed that the underlying improvement is actually stronger than what appears.
We had the acquisition, as Jens mentioned, of the activities in Sweden, which had a negative impact of approximately DKK 5 million. In addition, we managed to compensate for the full impact of Easter, meaning if we compare to last year, Easter were only to a limited effect in Q2, whereas this year we have the full effect of Easter. If you look at the margin, we can see that there is a substantial improvement on external operating cost, EOCs, and a similar negative on depreciation. This is mainly the effect of the change in accounting policy regarding leasing, which is now being capitalized. Now, despite the challenges on freight costs and quite strong growth within low-margin areas in Norway, and also, again, the full impact of Easter, we actually managed to strengthen the underlying margin from 2.0% to 2.3%.
Looking at slide number seven, we can see the EBITDA per company, and we do see improvements in all countries except Sweden. Notice, please, that it was actually in Q2 last year that the problems in Sweden actually start to materialize. In core, we managed to improve the EBITDA from DKK 62 million to DKK 66 million, whereas related remained unchanged at minus DKK 6 million. MAG saw a very disappointing development where growth in June came to a sudden and unexpected halt. We see that MAG is returning to the growth path expected again here in July. Again, delivering two-digit growth rates. We have launched a series of initiatives in MAG in order to adjust not only the cost base, but also to strengthen the gross margin and to make sure that we stick to the growth path that originally was expected.
Turning to slide number eight, looking at the half-year result, this is a more transparent way to compare with last year because we do not have any impact of Easter moving from one quarter to another. We can actually see that core business delivered an improvement of DKK 16 million, equals 12%, Related business improved with DKK 4 million, bringing the earnings from DKK 125 to DKK 145. We did spend DKK 5 million on the acquisition. That was the net negative impact, ending at DKK 140 million. Turning to page number nine, cash flow. Looking at the cash flow in Q2, we see a minor negative impact from operating activities. I'll comment on this shortly. Investing activities were up to DKK 78 million. However, it should be noticed that we upfront did pay DKK 14 million for the acquisition of the activities from Onninen.
In addition, the last installments on the investments in Norway, AutoStore, were also paid here in Q2. If you look at the IT investments done, this is mainly our new webshop as we are constantly improving, and our SAP WM. That is our warehouse management system. We have quite a difference also on financing activities compared to last year, this is simply due to a reclassification of short-term debt that has been reclassified to financing activities. If you look at the operating activities and take a closer look on that's on the right side on the slide. You can see we only see minor changes except from liabilities where there's a negative impact of DKK 123 million. However, this is compared to Q1, whereas if you compare to Q4, it remains flat. We don't see any structural changes in this.
We more see it as a one-off event. Looking at the next slide, that is 10, we can see that net working capital has increased slightly. Part of it is, of course, because we saw the temporary setback on liabilities, but also the impact of the acquisition we did where we have the full balance sheet impact but only a very limited P&L impact is a part of the explanation. This actually adds in its own right, 0.6%. As mentioned in the announcement, we did acquire mainly inventory, and we are, of course, currently working in Sweden to normalize the inventory level and, of course, expect this to happen gradually during H2. If you look at the gearing, we can see that there is a minor increase from Q1 to Q2 from 2.5 to 2.6.
All other things equal, we will expect the gearing to start to reduce in the coming quarters. Looking at the guidance at slide number 11, as Jens said earlier, we reconfirmed our guidance with DKK 370 for core, and this is including the additional expected DKK 10 million cost that the acquisition is expected to have. For related, we reconfirmed the minus DKK 5, meaning in total DKK 365. If we look at the markets, we also reconfirmed the outlook we gave in Q1. We still see that there's a risk in the Swedish market to slow down in Q2, but this was in line with what we also said in Q1. Thank you.
Okay. Thank you, Michael. It's time for question and answers, and let's start with the gentleman in the room, and hopefully, there will be someone on the phone as well. Please, if you have any questions.
Yes. Thank you. Alexander from Carnegie. If we look at MAG45, if we just get a bit of color on the growth, which was a bit below your long-term expectations. At the same time, if you get a bit of coloring on your full-year guidance on the profitability, because if my math is somewhat correct, for the first half of the year, you've had a loss of DKK 7 million, but you're guiding for a DKK 5 million loss, give or take, for the full year. Are you expecting it to break even in the second half of the year or actually turn slightly profitable? What will be the main driver of this?
If we look into MAG, you can say they were on this path to profitability, and they actually tracked very well during the first five months, as expected, improving. June was a very nasty surprise to us, and it was a sudden stop in the sale to a handful of key accounts. Talking to the customers, they have reconfirmed that their total expectations for the year remain unchanged. They still expect to reach the same volume as originally anticipated. We see this as a temporary setback, basically. We can see in July that they are back to two-digit growth rates again. Give and take, they should be able to deliver ±. The guidance, it is approximately. I'm not going to give you 100% guarantee it's going to be minus five, can be minus seven.
At least compared to the core business, it's small figures. I know it's still also for us a disappointment, but at least compared to the core business, it's still small figures. We fully admit that June was a very negative surprise for all of us. The first week was pretty okay. The last three weeks of June was only declining. Whether it has something to do with the overall environment, with trade war, et cetera, we don't know yet. At least we saw a very negative surprise in the revenue of June the last three weeks. Yeah. As Michael also stated, July at least looks better.
As a follow-up on the trade war, have you seen any impact from trade war fears or trade war on the industry segment?
No. Of course, within the food and beverage, we know that some of the big players, of course, they feel and also are very sensitive about it. There is this, I don't know, pig disease in China, so they have something else which is improving their business. We don't see anything, at least not hitting Solar so far. Of course, there's a lot of rumors, there's a lot of uncertainty, but so far, we haven't seen any major impact on Solar. No.
Hi. I'm Simon from Nordea. I have a question regarding Sweden. You say that you are planning to implement further initiatives to improve earnings in the coming quarters. Could you elaborate a bit on what kind of initiatives they are?
Yes. As also mentioned in our report, we dismissed 45 people, and we will close eight branches in the coming month. At least that is official, and it's also booked in the second quarter, I have to say. Those costs have been taken. That is one thing. We are back on the growth track in Sweden, but we need to work more on the profitability or the gross margin, and we have a get well plan, which we are working on at the moment. We have some very strong people from our organization who are very close to the Swedish organization to support them, not to help, but to support them in regaining the profitability as soon as possible. We don't have a time limit. At least we are growing again. We have taken the necessary steps on the cost side.
Now we need to regain our margin, and that's what we will do over the next coming month.
Thank you.
Just a question on Norway. Obviously, very strong organic growth there. I saw that you've had a few impressive wins with Bennonyha and Fosfospik. I was just wondering, are they part of the growth you saw in Q2, or are they future drivers?
They are starting up now, so they are future drivers.
All right. I was wondering, is it possible to get an update on your concept progress in your key markets?
No, it's not. I would love to do that, but we are progressing pretty well. Of course, as we have said before, operational excellence was year 1, industry year 2, and concept year 3. I think so far at least, we can see that industry is really growing in year 2. Year 3, hopefully I can be more open about the concept share, but it's growing. Especially Holland and Norway are doing well, and our industry segment are doing really well, it's going in the right direction. I think at least the progress on our strategy is really good, as expected, and also as we planned in the roadmap.
Yeah.
I think we are pretty comfortable, and we have really a great team around it, so we are pretty sure about we will deliver as promised.
I can take one more. In terms of the Onninen acquisition, have you already seen any sort of purchasing synergies, or is that something to consider going forward, or do you see any potential for that at all?
There's always a potential, and you always get surprised when you start to dig into it. It was a part of the integration plan that was set up, and they are being harvested as well. The short answer to it is yes. Of course, it's not something that will add percentage to the overall margin. Definitely not. We are making sure to pick them up. There is a potential we are working with continuously.
Also because the size of the Swedish operation on HVAC is now close to double up compared to where we were in the first quarter. It seems like a good case for us. At least I have to say it again, what the Swedish team and the Danish team have done together within 2 months to acquire such a, I would say, quite a big business and then integrate it within 2 months, I think that's really impressive, I have to say that. Also taking the cost immediately.
Yeah.
We're very pleased about that.
Thank you. That's all for me.
Thank you, Alexander. Okay, Simon. Okay, anyone who is on the line with questions?
Okay. If you're on the phones and you have a question, please can you press zero and then one on your phone keypad now in order to enter the queue. Then after I announce you, just ask that question. If you find that question has been answered before it's your turn to speak, just press zero and then two to cancel. There will be a brief pause while any questions are being registered. There are currently no questions for today from the phones, can I please pass it back to you?
Thank you. Thank you for listening in. Thank you for the gentlemen in the room and the good questions and hopefully also fair answers. Thank you for today, and have a nice day. Bye-bye.