Solar A/S ($SOLARB)

Good day, and thank you for standing by. Welcome to the Solar A/S Q1 Report 2026 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. Please go ahead.

Thank you. Good morning, and thanks for joining us today. I will focus my update on execution and progress across a few key areas: integration of Sonepar, customer platform, our operations in Kumla and then finally, also some growth segments where we see increasing activity and relevance for Solar. After that, I will give the word to Michael, our CFO, who will give you some insights into our financials. Let's start with the integration of Sonepar Norge. Overall, the integration is progressing ahead of plan, both operationally and commercially. Execution is strong, and collaboration between teams is working well. Importantly, we already see synergies taking shape. Operational efficiency are improving, and the commercial side, we are seeing positive momentum from leveraging combined capabilities and customer access. From a financial perspective, we now expect integration costs to be DKK 10 million, lower than originally planned. This reflects disciplined cost control and a very pragmatic approach to integration. Turning next to our customer-facing digital platform. We are approaching an important milestone with our new platform scheduled to be launched on our smallest entity, that is Solar Faroe Islands, during June. This launch marks a concrete step forward in a broader digital strategy. The platform is designed to simplify how customers interact with Solar. It enables an easier buying experience, supports better visibility and allow us to engage customers in a more consistent and scalable way. Beyond the initial launch, the platform is a key enabler for cross-selling, higher customer engagement and more digital end-to-end customer journey. Just as importantly, it provides a modern, flexible foundation that can be rolled out and expanded across additional markets over time. Let me now turn to operations and especially to our new distribution center in Kumla. Operations have been ramped up as planned. AutoStore is now operating, and the long-goods systems are ready for operation and currently being loaded. This has been a complex and important transformation, and execution is tracking well. At this point, Kumla is handling more than 2/3 of Solar Sverige's total order volume per day. We remain on track for the warehouse to take over all distribution in June. Kumla is a critical cornerstone in strengthening our logistics platform in Sweden. It supports high efficiency, improved service level, better scalability and ultimately better customer satisfaction. Over time, it will also support margin resilience by improving cost efficiency and throughput. Next slide, please. If we look at the growth areas or segments, we see, and I think others are seeing the same, the defense industry and critical infrastructure. We continue to see that the defense industry construction and related critical infrastructure, this is a segment where requirements for reliability, documentation and security are particularly high. In this context, it's worth noting that Solar is already ISO 27001 certified, and that plays an important role as it supports confidence in how we handle information and operate securely. This strengthens Solar's position as a reliable partner in projects involving sensitive infrastructure and security requirements. The next one we are working with at the moment is data centers, and it's particularly small- and medium-sized projects. Demand in this segment continues to grow, driven by increasingly needs for local capacity, resilience, uptime and information security. While much attention is often given to large hyperscale facilities, we see attractive opportunities in small and midsized projects where flexibility, logistics and standardization matters. Solar is well positioned to support these projects, and we see already now that orders are coming in through small and midsized data centers. Last but not least, we have a special focus on what we call small installers or small installation contractors. We call it smart price customers. The new initiative is simply to do it as simple as possible, to work with Solar, so a simpler pricing, faster onboarding and an even more digital approach and an easier customer experience. This is to aim and reduce complexity, improve accessibility and make it easier for smaller contracts to do business with Solar. Before I give the word, I will summarize our priorities. Integration is ahead of our plan and delivering synergies faster than expected. Our logistics and digital performance are scaling as intended, and we are seeing increased activity in important segments such as defense, critical infrastructure and data centers. And at least, we are sharpening our customer proportions to support long-term growth. We remain focused and disciplined executing, strong customer relations and hopefully, over time, sustainable value creation for our shareholders. Thanks for your attention and look forward to your questions. But now I will give the word to Michael. Please, Michael.

Thank you, Jens. Let's turn to Page #6. Now Q1 was quite a roller coaster quarter. We started out weak in January, and that was known when we came out with the guidance, followed by an even weaker February, where we came down to minus 7.4%, in negative growth. And then things started to turn. So we ended in March with minus 0.8%. And if you take Solar Polaris out of the equation, which makes things more comparable, we are actually growing with plus 1% now. So the turning point that we saw materialize late Q1 has continued into April as expected, but also the fierce competition -- price competition regime has also continued. Now this resulted in a revenue of DKK 3.3 billion versus DKK 3.2 billion last year. Now please notice that the acquisition of Sonepar Norge added approximately DKK 175 million. And in addition, there is a minor positive FX effect as well. If we look a bit at the segments, Installation saw positive growth in both the Netherlands and Sweden and Poland, whereas the other faced headwinds to some degree, but not something dramatically. Within Industry, we came out a bit worse. Industry, particularly Poland, where -- in the Industry, only Poland managed to deliver positive growth. And if you look at the subsegments within Industry, you see quite a scattered picture. Infrastructure saw close to minus 30% in Q1, particularly in Denmark and of course, in Norway, which is the -- where we have the strongest position. The harsh winter was particularly evident within this segment. Marine/Offshore was also negative, both in Denmark and Norway with minus 10%, which was slightly more than we expected. It should, however, be noticed that Marine/Offshore, to a large extent, is driven by projects, of which there were very few in Q1. MRO also came out slightly negative. MAG45 were also in negative territory as in line with our expectations. We still expect MAG45 to return to growth, mainly in H2 due to an increasing order pipeline that has continued to strengthen throughout the quarter but also continue to strengthen here in Q2. Now please turn to Page 7. Then EBITDA of DKK 59 million in Q1 was in the low end of our expectations, mainly due to the harsh weather where integration and restructuring costs actually came out as expected. So it is the underlying performance. Regarding the guidance, I'll comment on this a little bit later. If we look at the underlying EBITDA, which is equal to DKK 90 million, this was below our expectation. And as I mentioned just before, it can mainly be explained by the headwind we saw within infrastructure due to the harsh weather, which simply put a stop to all work in the soil where you can simply not put cables in. We do not expect any catch-up effect from this. So what is lost, remains lost. If you look at the cost of goods sold, we saw a decrease of 0.9% compared to last year, of which a minor part can be explained by increasing cost of freight due to the increasing fuel cost. The drop we saw were mostly pronounced in Denmark, but -- and if you look at them, it's spread out across segments and subsegments. It is our assessment that this is due to a very fierce price competition in the market, but there's also an impact from negative mix with more sales to low-margin customers, particularly in the Netherlands. Regarding freight, we have not yet seen the full effect of the increases in fuel prices that we have seen. I'll comment a little bit more on this when we come to the guidance. Cost initiatives mainly done last year ensured that there is only a minor dilution of the margin due to cost despite the headwind that we saw in the quarter. Loss on trade receivables remain well under control. Now please turn to Page 8. Operating activities came out with minus DKK 173 million. And if we take a closer look at this, we can see that there's actually an increase in inventory which is in line with our expectations. Due to the transition where we merged Sonepar in Norway with Solar, now we have increased the inventory in the Norwegian part of the business with approximately DKK 75 million. As Jens also mentioned during the integration, we're well prepared now for the transition. We have started also to do tactical purchases to counter not only potential price increases, but also potential shortage. As of the end of March, we have not seen any major impact on the inventory value due to this, but it will start to materialize here in the coming months. Now given that the additional purchase is only done within A-tiers, and that is the fast-runners. And only typically up to max 3 months of additional sale, we think that the risk here is fairly limited and we also think that, to a large extent, if you look at the inventory as at the end of June, there will be a limited impact. The increase you see in accounts receivable of DKK 401 million is due to the normal seasonality, December versus March. Now if we look at the investing activities, we spent DKK 111 million. Of these, DKK 62 million can be referred to our new central warehouse in Kumla. There remains approximately DKK 150 million, and we've done and over, and you should expect this to materialize the main part of it here in Q2. And you can say that will be the finalization of the huge investment program that we have seen, meaning moving into H2 territory, you'll see a normalization of our investment and therefore, also an improvement of our cash generation. Please turn to Page #9. Now if we look at net working capital as an average for the last quarters, we have seen a slightly reduction of it. This did not materialize here in Q1. And the reason is, of course, that the ramp-up we've done in Norway. All other things equal, we will, when we are on the other side of this, start to see a continued reduction. So if we kind of take out the DKK 75 million we invested in Norway, and there is a small impact already from the tactical purchases, we still think that the inventory is slightly on the high side compared to what would be the optimal level. Now looking at the gearing, we see an increase from 2.8x to 4.2x. And it is, of course, without our range, but it is as expected, and it's well within the lines of the covenants within our debt financing. Now please turn to Page #10. Now in general, the macroeconomic uncertainty increased throughout '25. And I think it's fair to say that the start of '26 did not offer any relief actually on the contrary. Now in the most likely scenario, the midrange, and we stick to what we said before, we expect still our markets to be stagnant in '26 with Installation being slightly positive and Industry supported by MAG, although might be slightly negative. So compared to Q1, an improved run rate. Solar Polaris delivers to a major solar park, with an expected total revenue of DKK 275 million, will positively affect '26, and it will start to kick in during Q2. Our outlook for '26 reflects a minor continued decline in gross margin, mainly driven by the ongoing price pressure we see. But compared to previously, we have now increased our expectations to cyclical inventory gains up to DKK 20 million compared to our initial expectation. This is due to these price increases, mainly within oil-based products, but we can see that it's also spreading out to other categories that we expect to come in the coming months. Revenue. So we confirm the revenue guidance we had before with DKK 13.15 billion as the midrange. And if you calculate with the growth we saw in Q1, you need approximately 3% organic growth for the year to go. Please note that our reference point in Q1 was fairly strong, whereas the quarters that followed last year were substantially softer, and you can return to the figure, which we've shown on Page 6, in order to see the development. So that makes it slightly easier. In EBITDA, we still expect an outcome between DKK 400 million and DKK 480 million, now including DKK 75 million in restructuring and integration costs versus previously DKK 85 million. The latter can be split into approximately DKK 40 million to integrate Sonepar, DKK 20 million to relocate to Kumla and approximately DKK 15 million in restructuring costs. This is basically unchanged with the -- except that we changed Sonepar due to the strong progress we have seen. Now despite the weak start where we ended at the low end, we still think we can manage to catch up, mainly due to the factors that mentioned above regarding less cost to integrate, but also increased cyclic inventory gains. As regard increased cost for transportation in March, we only saw a limited impact of it. We expect this to continue in the remaining part of the year to go. We cannot -- that's not the assumption, at least, expect to carry all of this into the market. We will need to absorb part of it within Solar. And this has been taken into consideration. But then again, as I said at the -- before, there are quite some uncertainty on this point, but we tried to incorporate the things that we can quantify the way we see things now. If we look a little bit ahead, you can see that the Sonepar acquisition currently dilutes the margin with approximately 0.7%. But of course, moving forward from the end of the integration, and that will be done here in H1, we expect this to turn and it will be able to strengthen our margin. Thank you.

Okay. Thank you, Michael. Then it's time for questions.

[Operator Instructions] And your question comes from the line of Sebastian Grave from Nordea.

It's on the inventory gains here that you alluded to, Michael. Maybe I missed it, but could you maybe just talk around again the DKK 20 million number here that you floated in the guidance section of your report, compared to an inventory position of around DKK 2 billion, I think it doesn't sound like a lot, to be honest. So maybe just talk around the dynamics and the assumptions baked into this number? And also, could you clarify, to what extent, these DKK 20 million, is this a firm number baked into your full year guidance? Or how should we think of it?

Well, first of all, bear in mind that in the estimate, there is what we will call a normal level of these gains already. So you can say this is additional due to the price increases that we see coming. And of course, there's quite some uncertainty. So it's not a bulletproof figure as such because I understand if you measure it against the total inventory value, you get to this consequence. But you need to look into that. This is still within a fairly limited range of products that we see. And you should also take into consideration into what extent can we pass this on to the market. That will be -- that will vary from market to market from product to product and from segment to segment. So you should see it as something that came in on top of what we had in our estimate year to go before. And there's always some underlying normally. Normally, we expect prices to increase between 1% and 2%, but now we expect them to increase substantially, and we've seen that. So that is the rationale for -- it's an incremental increase to what we already had in the books, and it's a narrow assortment. It's not widely. It may spread out. We do not know that yet if we get, I think it's called second wave inflation because there is basically, you can say, energy in all products to a larger or lesser extent, but that has not really materialized yet. And then again, if you look back to 2022, I think the situation here is slightly different because in 2022, what happened there, and there, we had very huge additional gains, above what we would say our normal level, there was simply an imbalance between demand and supply. That made this happen. I think that's not the case here, to the same extent. That was a long answer. I hope it made a little bit of sense.

No, I really appreciate the color. And thank you also for the reference to '21, '22. That would have been my follow-up questions because obviously, if you benchmark the DKK 20 million that you guide here compared to back then, I think it was more than DKK 200 million in '22. I think it's quite a substantial difference. But it's a fair point.

It's a very different scenario, yes.

Yes. And could you maybe elaborate a bit on the -- then the discussions you have had with some of your customers? And I mean, the ability to pass on these increases because it seems like you have to maybe give in and as you say, also absorb some of this yourselves. I mean maybe some more color to the dialogue and dynamics here?

Let me give you, and this is for illustration purpose. If you normally sell a product for DKK 100 and you make 20% on it, that means you're left with 20% in profit on it. Now the price goes up to DKK 120. Our underlying assumption is that we cannot -- we will still be earning 20% on it. But you can see, in percentage, it doesn't go up because if you took the same percentage and added to the DKK 120, my earnings should increase from 20% to 24%. It didn't. We don't necessarily expect that. We may be left with something in between. That's the underlying assumption. I also said it will vary a lot from market to market, what happens. And also -- yes, Jens, do you want to...

Yes. I'm saying that still the demand for products is there. But of course, it's weaker than it were back in 2022, where we saw a lot of shortage and also a lot of hamstring. That's not the case at the moment. So I think I support Michael, that the fierce competition compared to a stagnant market is not -- then you cannot put everything out in the market. It's simply impossible. As we see it right now. It can change in 1 month or 2, but that's our predictions right now.

So you might be right that we were conservative, but mainly -- it's our best guess [indiscernible] right now.

It's a good thing to be a slightly conservative in the equity market, my experience.

Yes, but don't underestimate the uncertainty here before you deem us way too conservative.

Yes. No, no, I get it. It's a fair point. And maybe a follow-up question on the activity levels that you see. I mean, do you have any examples of customers who have sort of canceled projects in the wake of increased energy prices and material prices? Or what do you see on the activity level here, sort of -- yes, on an underlying basis?

It's always a difficult question to answer 100%. We do not hope, but I think the sum of major products is lesser. But on the other hand, there's a lot of smaller projects. So hopefully, that will be materialized over the coming months. But of course, the price for bricks and isolation material is increasing like hell due to the price. So you might see a stop and hopefully a go-effect again when things will normalize. So there is a risk that something will stop for a period or at least be postponed.

But we also see some benefits from it. I mean we can see that the sale of [indiscernible] is gradually gaining more traction.

Yes, it's coming up. It's coming up. So I think there is a risk that something will be postponed, that's for sure.

[Operator Instructions] There seems to be no further questions at this time from the phone lines. I would like to hand back for any written questions.

We currently got 5 written. The first is, how is Sonepar Norge integration progressing in the Q1? Are you on or ahead of schedule? And what are the early KPIs on synergies and market reactions from customers, suppliers and competitors?

I hope I already answered the question. At least we are on track or beyond our original plans, and the synergies we are measuring is also tracking as expected. So I hope -- and so far, we haven't seen any negative reaction from customers. On the other hand, we have seen positive reaction from a part of our suppliers, I would say. So I think that answers [indiscernible].

Perfect. Yes. So Solar Polaris is delivering DKK 275 million to a single solar park project in '26. Is there a pipeline of similar projects? And do you see your project business as a structural growth leg rather than a one-off contributor?

I would say, like this, we cannot disclose our pipeline, but I would also say that we do not have a similar size-wise projects coming in as the one we're working at, at the moment. But as we all know, sustainable electrification is again on the agenda. It was more or less closed down for 2 years. Now it's coming up again. The access to the grid is also a problem because the grid, at least, in certain markets are overloaded. So even though there are projects, there is a risk that the grid cannot allow us to connect. But at the moment, we only have, size-wise, this big one. And then we have a lot of smaller ones. But summing up, the big one we have now is the only one.

Third question. You are operating in a market that are soft across the board, and your '26 guidance reflects an assumption of broadly stagnant conditions. History shows that downturns tends to accelerate consolidation and separate the strong distributors from the rest. My question is this, are you approaching the current environment as an offensive opportunity to take share, deepen customer relationships and position for the recovery of the near-term, primarily to protect the margins and manage the balance sheet back with the gearing target? And consequently, what would it take for you to shift from one mode to the other?

Thank you.

Yes, it's true that the market we look into right now is a bit soft, but I would still say, if you look a little bit ahead, we're not overly concerned. As Jens also said electrification will be a key driver. Previously, it was mainly due to reducing the CO2 footprint, but now it also has a strategic importance in order to ensure that we get less dependent. And bear in mind that we have quite a strong position within infrastructure. And I think then, okay, currently, they are investing in high voltage that we have a limited role to play, but soon, they'll move into mid-voltage and low voltage. And then we'll have a substantial role to play. So we're not overly concerned. Now looking at the consolidation part, I mean, I've been in this now for 26 years, and I've seen nothing else, but consolidation. It's been going on at least for 26 years I've been around. So I'm not sure whether this is going -- maybe it's accelerating. I don't know. It's an open question. I think we will take part of it where it makes sense. We did acquire Sonepar in Norway, and it was not a brand-new idea to us. We have actually shared this with you for many, many years, been wanting to buy Sonepar in Norway. So that was -- but there was -- always with these things, you need both a buyer and a seller in order to succeed. So it's difficult to plan, but we have a close monitoring of the market, and we have a list of things we potentially would find interesting in case the opportunity should occur. And for good reasons, we will not share that list. Now in terms of the financing that was also a part of the question. Yes, it's true that we currently are above our target gearing. We still expect that this will start to normalize after the summer and continue to do so, so that we, during next year, we'll get back within line. And at the Annual General Meeting, we actually got a renewed permission from the shareholders, through that we could also potentially do a capital increase of another 10% if the need should arise. So I think we are in a good position to manage. And should, say, for the sake of the rationale, something materialize already in Q3, even though we are above the gearing, we would take a look at it. We have very good relations with our financial sources. So I think we have a huge portfolio of opportunities in front of us here as well. That was a long answer again, but it was a long question, I would say.

That's right.

Fourth question. One of your Danish competitors recently bought a cable distributor, and cable seems to be your unique selling points. How do you think that this will affect your already somewhat sluggish sales in Denmark?

I would say -- we are talking about GME. We know them already. They are servicing the same customers we are servicing with the same assortment and with the same -- or not the same, but at least some cable knowledge. So for us, it is simply not an M&A target. And another -- saw that differently, which is as the market is. But it only explains that consolidation is going on, like Michael explained, we did in Norway. Someone did the same in Denmark. But for us, we already have the knowledge. We already have the assortment, and the customers are already served by Solar. So for us, it was a no-go in this case.

Fifth question, which countries are the data centers and other growth initiatives primarily located in?

I think it's spread all over. But for sure, we are very strong in our infrastructure footprint in Denmark and in Norway. But of course, we can also serve the Dutch and the Swedish market. But I think particularly Denmark and Norway is our -- there, we are strongest at least when we look into to infrastructure, of course, cable-wise because it's not only about infrastructure, that way around. We also have a specialized team within data in Denmark and partly also in Norway and Sweden. So I think we are -- in the Nordic, at least, we have a decent footprint to take in the mid- and small-sized data centers, our part of it.

The final question. Does Solar lose or gain market share across different segments? How is Thermonova performing? What are the earnings expected for Thermonova in 2026?

There's no single answer to that question.

At least if we turn back, we doubled the number of sold units entities -- products last year or solutions last year. So we doubled from '24 to '25. Of course, the energy crisis right now should increase demand for Thermonova solutions. But again, we cannot disclose that on this call. We can -- of course, follow us during the next quarters. But so far, we have won quite a lot, mainly in the Solar business. And then Thermonova for a moment is a little bit weaker in the export share, but that can be changed in 1 or 2 months. It's very early days in 2026. But at least we have won some good, strong orders also to the defense industry with Thermonova, by the way.

And regarding the market share, first of all, data is what data is. And what's the market? That's always the question. But based on what we know, we know that in some countries, we are actually gaining market shares in the country as a whole, but there's also -- we can also find subsegments where we clearly are losing market share. So again, it's a mixed bag when you look into. There's not one answer that is a silver bullet here. So some places winning, but we are clearly also, I think, losing in some subsegments. But the infrastructure part where we really saw the headwind, let me just -- let me just make that absolutely clear. That has nothing to do with loss of market share, just for the avoidance of doubt.

No further questions.

Okay. Then we will close the call for today, and thanks for listening, and have a nice sunny day. Bye-bye. Bye.

Bye.

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