Solar A/S (SOLARB) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Solar A/S Full Year Report 2025 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jens Andersen, CEO of the company. Please go ahead.

Thanks a lot. Welcome to this Fourth Quarter webcast for the Solar Group. Together with me here in Vejen, I have my colleague, CFO, Michael Jeppesen. Our agenda for today is, I will present some high-level statements on our recent acquisition in Norway and the consequences in year 2026 and beyond. Then I will give you some insights into our approach to create long-term value by transforming our business platform to new heights. And then I will hand over the word to Michael, who will present our 4Q results, of course, also the results for year 2025 and our guidance 2026. And at the end, as always, there will be a question-and-answer session. Despite headwinds in 2025, we reached key milestones that will shape the future of Solar. The acquisition of Sonepar Norge is for us a major step forward in strengthening our position in Norway and be a Tier 1 company in the Norwegian market. It will expand our reach, create economy of scale and enhance our distribution network. When the merger is finished, we will offer a broader portfolio of products and deliver even greater value to the common customers of both Sonepar and Solar. The integration is already taking shape and will be completed mid-2026. Following the acquisition of Sonepar Norge, 2026 will be a transition year for Solar in Norway and therefore, also for the Solar Group. This, in combination with the expected restructuring costs, dilutes the EBITDA margin for Solar Group by approximately 0.7 percentage in year 2026. But from 2027 and onwards, we expect the acquisition to strengthen the margin as we can utilize the gain of DKK 700 million extra revenue with a very low cost to serve as we have installed AutoStore in Norway. Next slide, please. We continue to invest in digital transformation, upgrading platforms to deliver a seamless future-ready customer experience. Our enhanced digital solutions will provide greater transparency, efficiency and convenience, ensuring that we remain competitive in an increasingly digital marketplace. These investments go beyond technology. They are about delivering a better customer experience, but also enabling data-driven decision-making across the business and segment in solar. Logistics modernization is another cornerstone in our current strategy. The construction of our state-of-the-art logistics center in Kumla, Sweden is progressing better-than-expected and will be fully operational mid-2026. This facility consolidates our operations into one automated setup in Sweden, improving service levels and supporting sustainable goals. It represents a significant leap forward in automization and efficiency, reduces complexity, lowers cost to serve and enable faster, more reliable deliveries. But most importantly, it also marks our final major investment under the current strategy. And from 2027 and onwards, we expect to return to a normal investment level of below 1% of our revenue. So to summarize, year 2026, that marks the ending of a long transformative journey in the Solar Group with huge investment in all our [ CVs ] and upgrading to SAP S/4HANA on all our platforms and finally, a brand-new digital universe towards our customers and other stakeholders. And I dare to say that creating long-term value requires a mindset that extends beyond quarterly cycles and support the strategic direction of our business. We consider the above as just that. Now I will give the word to you, Michael. Please, Michael.

Thank you, Jens. Please turn to Page #6. Q4. If we start by looking a little back, we gradually in 2024 returned to a growth path, and this continued in Q1 2025, where we reached 6.5% in organic growth. However, the trend changed, and we saw increasing headwind during 2024, resulting in minus 6.1% at here Q4. This resulted in a revenue of DKK 3.1 billion versus DKK 3.2 billion the year before. The acquisition of Sonepar, Norway added additional DKK 46 million revenue in December. If you look at the segments, in general, installation saw positive organic growth in Denmark [ saw ] just above. Sweden and Poland, we saw organic growth within installation, whereas the other markets faced headwind. Only in Sweden and Poland did we manage to see growth in industry. The others were below 0. You can take a closer look at this at a segment basis, particularly infrastructure in Denmark faced strong headwinds with 2-digit negative growth. We see a shift in the customers' focus moving more towards investments in high voltage, which means we short term will not benefit from this as we're not active in that part of the market. It goes directly. We do, however, over time, to benefit from these major investments that is being done in the grid, but you should not expect any change to this before late '26 or we might even have to move into '27 before we start to see a reverse trend where we can go back to growth. So it's not that we are losing customers and not move to anyone else, but their focus has moved. Their investments are in other areas. Marine & Offshore was stagnant in general. It was growing in Denmark, but we were losing in customer -- we were losing revenue in Denmark. Similar picture, could we say for OEM. MAG45 was also faced by substantial headwind. This is mainly driven by a few major customers who have revised their expectation downwards throughout '25. So it's not that we have lost them. They've simply just reduced their manufacturing and thereby the plants where MAG is serving them, they purchase less from MAG45. MAG actually managed to onboard new customers. So they are broadening the customer base, but it's a long journey before we start to see the impact of it. If we now turn to Page #7, with an EBITDA of DKK 205 million Q4 was above our expectations, due to other operating income of DKK 74 million related to the gain of our sale of the warehouse in Halmstad. I'll comment on the guidance a little bit later and explain what went better than anticipated. Looking at the underlying EBITDA of DKK 146 million, it was actually slightly below what we delivered last year. Cost of goods sold, we did see an increase of the underlying margin of approximately 0.2% compared to last year, but this can in all material aspects, be explained by Solar Polaris, where the major project they had in '25 came to an end. So we did not see the diluting effect that they have on the margin, whereas we had that in '24. So it's -- and similar, as you may remember in '24, we managed to collect additional bonuses here in Q4. We actually managed to do the same here in '25 at the same level. We do not disclose these as a part of the normal business, so they're not shown separately. In addition, we managed to accelerate the integration of Sonepar, meaning that we move forward costs of DKK 11 million. Approximately 50% of the 0.8% negative impact you see from staff can be explained by this. Regardless, we'll, of course, continue to have a strong focus on cost in order to ensure that it remains on a downward trend in order to support our guidance for 2026, which also includes cost initiatives. Loss on trade receivables remains fully under control. Please turn to Page 8. If we take a short look at the full year of 2025, it came out with a reported EBITDA of DKK 501 million versus last year's DKK 646 million. If we make it a comparable basis, we see DKK 503 million in '25 versus DKK 505 million (sic) [ DKK 585 million ] in '24, meaning that the underlying performance is, yes, it's below, but less than what just meets the eye. There's no doubt that the challenges we faced with our margin as the competition became more and more fierce, we were not able to reverse this trend in 2025. And that, of course, played a significant impact on the result. We more or less managed to offset the headwind on a cost basis, and we only saw a diluting effect of 0.1% and 0.4% on external operating costs and staff cost, which given the organic growth we saw, the negative organic growth is in our assumption, an acceptable performance. Please turn to Page #9. To make a short follow-up on our guidance from 2025, it becomes a bit difficult because there are so many points of references here. And try to bridge the difference between the DKK 460 million and the DKK 501 million, we made -- you can say that mainly -- that is the impact from the sale of Halmstad, which adds DKK 74 million, which were not a part of the guidance, although the building has been for sales as we announced back in 2023. So that leaves us at DKK 427 million, meaning minus DKK 33 million compared to our guidance. This difference can in all material aspects be explained by the accelerating of the integration of Sonepar in Norway, which added DKK 11 million, additional bonuses of DKK 10 million and then DKK 12 million is actually less performance compared to what we thought initially when we gave the guidance. So what went better in 2025 than we initially expected? We were faster at vacating and selling the central warehouse in Halmstad and the fact that we could vacate it earlier was actually the key to the sale of it. Have we not been able to do that, we have not been able to sell it. Our new logistics center in Kumla is ahead of schedule. And you can say the integration in Norway is also ahead of plan with the first initiatives already being implemented in December, where, as we also announced when we closed the deal, did not expect us that we will be able to reach that. We did not expect anything to happen before this year. Cost initiatives delivered as expected. What was less than expected was that the development in the market and consequently, we had to revise our guidance downwards and which also had a negative impact on the underlying earnings of the company. Please turn to Page #10. If we look at the cash flow in Q4, there are a few major things that sprang to your eye. First of all, we had a positive impact from operating income of DKK 430 million. And if you look at the right side of the slide, you can actually see where these origin from. The DKK 353 million is the seasonal effect from receivables, which -- and they reverse here during Q1. Inventory was actually slightly up, but these were a decision -- a tactical decision in order to optimize the bonus agreements that we have with our suppliers. So it did not happen by chance. It was a decision we made. So consequently, you can say that the current inventory level is slightly above what we would consider the optimal point given the current activity levels. We expect this to normalize during Q1. If we look back again on the right side, you can see that we invested a lot. Net investments were DKK 52 million when adjusted for the acquisition. We invested in total DKK 131 million in PPE, of which the DKK 117 million relates to Kumla. We managed to sell the last of the central warehouse Halmstad, which brought in DKK 124 million. Looking slightly ahead, you can see that approximately DKK 125 million remains, and then we're done with the investment in Kumla, which means, as Jens also emphasized, we return to a lower and a normal investment level at the 1% or below. Please turn to Page #11. If we look at the net working capital as an average for the last 4 quarters, we see a continued reduction, albeit the curve has become slightly more flat here towards the end of the quarter. So we ended at 14.9%. But bear in mind that this is -- it's more difficult to reduce the percentage when your revenue is reducing compared to when your revenue is growing. If we look at the gearing, we see a minor increase from -- a minor drop from Q3 despite the investment in Sonepar. But again, bear in mind that this is the seasonal effect from receivables. So we end at DKK 3.2 billion, even though we have the full balance sheet impact from Solar and no P&L effect from Sonepar except the minus DKK 11 million we used on the acquisition and the integration. Looking forward, you should expect this gearing to increase further, and this is well within our expectations that will happen and it stays well within the thresholds with the agreements we have with our financing sources. So we're fairly comfortable with it, even though you particularly should expect the gain to become very high at the end of Q1 and Q2. Please turn to Page 12, guidance. Now in general, we think the uncertainty has increased throughout 2025, meaning we see greater uncertainty at the start of '26 compared to what we normally see and what we saw in -- when we came with the guidance from '25. And I would say the start did not offer any relief and our guidance, of course, reflects this uncertainty. We have a weak start, and that was, of course, to some extent, expected. I think also the weather is slightly against us. In the most likely scenario, the mid-range scenario, we expect all our markets to have a stagnant growth with installation being slightly positive and industry slightly negative. Partly, of course, because -- and particularly in Q1 because we have a very strong point of reference in Q1, so we expect it to wear off. Solar Polaris has succeeded in winning yet another major solar park project, which will add additional DKK 275 million to the revenue. If you look at it in terms of organic growth, and bear in mind, they added quite some revenue in '24 -- '25 as well. It will add close to 1% organic growth to the total growth. As also mentioned by Jens, we have made significant investments during the last years, meaning we can handle quite an increase in volume with only incremental cost. And I would say that the acquisition of Sonepar in Norway exemplifies this where we can add DKK 700 million in revenue, which we will handle at a very low cost once fully integrated. Following the acquisition '26, this will also be a transition year, mainly for Solar in Norway and also partly in Sweden, where we will be moving out of Örebro and into our new logistics center in Kumla. And as shown in the figure here on the slide, you can see that we expect that to spend approximately DKK 35 million in restructuring costs, of which the DKK 20 million is related to the move to [ Kumla ] and then DKK 50 million on integrating the business we acquired in Norway. Bear in mind, we initially announced DKK 60 million, but we managed to accelerate the process. So it's basically unchanged. We have not changed our opinion on this. Looking at '26, our guidance also reflects a minor decline in the gross margin, mainly driven by these ongoing pressures on sale prices and also less cycling inventory gains than what you would see in a normal -- more normal macroeconomic environment. Revenue, we expect to end between DKK 12.9 billion and DKK 13.4 billion with DKK 13.15 billion as the midrange. This means that the midrange corresponds to an organic growth of approximately 1%. You can say the top and the lower is approximately minus 1.5% versus plus 3.5%. So you can say the range is fairly wide. There is quite some uncertainty on what will happen. If we look at the EBITDA, we expect a range between DKK 400 million and DKK 408 million (sic) [ DKK 480 million ], including the DKK 85 million in restructuring costs. Again, if we make it comparable with '25, you take the midrange we said that's DKK 440 million, you add DKK 85 million, that means that we basically expect an underlying performance of DKK 525 million versus DKK 503 million. So actually, we are expecting a small improvement. Bear in mind that the positive impact from the acquisition will not start to materialize before H2. That's part of it. We are absolutely convinced that when we move forward, this will contribute to increase the margin in Solar, whereas in '26, it will dilute the margin. I think that was the last comment I had to our expectations.

Thank you, Michael. Now it's time for questions. Please.

[Operator Instructions]

It doesn't seem to be the case. Okay. Then I will allow myself to conclude that the webcast is over, and you may have a very nice day. Thank you for listening in.

This concludes today's conference call. Thank you for participating. You may now disconnect.