Solar A/S (ZVR.F) Earnings Call Transcript & Summary

A warm welcome to this update regarding our guidance for 2025 and also preliminary second Q figures for the Solar Group. Together with me here at our headquarter in Vejen are my colleague, CFO, Michael Jeppesen. The agenda today would be pretty short. l will give a general update on our guidance and also try to explain why we have adjusted and lowered our guidance for year 2025. Then Michael will take over and give you some more detailed figures as background for our decision. And then, of course, finally, there will be questions and answers. What we saw was an unexpected market slowdown for especially Industry and, to a lesser extent, for Installation. Trade and Climate & Energy delivered growth, driven by mainly Solar Polaris, who are right now building a major solar park project. Summering up, our figures for Q2 and especially July showed disappointing revenue growth in all key markets. In Q2, we, therefore, executed additional staff reduction and continuing to initiate measures to optimize our operating model. But our half year results, therefore, include transition costs of DKK 12 million regarding Kumla, but also restructuring cost of DKK 45 million. Of which, the level is expected to generate near equivalent savings in 2025 and full year savings of approximately DKK 70 million, equal to an EBITDA growth of 0.7% into 2026. Therefore, we have decided to lower our 2025 revenue guidance to a range of DKK 11.8 billion to DKK 12.3 billion from previously DKK 12.3 billion to DKK 12.8 billion, but also our EBITDA guidance to a range of DKK 450 million to DKK 510 million, down from DKK 530 million to DKK 600 million. Given our resilient business model combined with the already executed initiatives, we are convinced that Solar will be able to improve profitability in our strategy period, despite the increased uncertainty in the market. Finally, I want to say that we have to go 7 years back to the autumn of 2018 since we were in a similar situation as now. And with words, I will hand over to Michael. Please, Michael.

Thank you, Jens. Please turn to Page 5. And bear in mind, these are preliminary figures. I'm only going to say this once. So what we'll do is we'll give you a 10,000-feet overview on both Q2 and H1 and then. of course, some more to the bone regarding the new guidance. But if we start on Page 5, the revenue was disappointing in Q2 with an organic growth of minus 1.2%, but again, bear in mind, Solar Polaris is currently a major growth driver. So we adjust for them. We're actually looking at a negative growth in the remaining part of the business of minus 3.6% even when adjusted for working days. Now the challenges with Solar Polaris is that it is a business with a very limited scale effect. But of course, also on the other hand, they have a very limited risk. Everything is hired in, but it doesn't -- there's no operational leverage in it, basic. So we ended with DKK 3 billion versus DKK 3.1 billion last year in revenue. EBITDA came out with DKK 112 million, which were below our expectations. And if you look at the underlying EBITDA, because we, as Jens also said, did restructurings of approximately DKK 5 million, it's DKK 117 million versus last year, you can see that we are going down earnings wise. If you look at cost of goods and the figure shows that it's down with 0.1% compared to last year. However, given the strong performance in Solar Polaris, and since this is low margin, this actually dilutes the margin to 0.4%. Consequently, the underlying margin, as they get defined as the rest of the business, is actually increasing compared to last year, which is a trend shift. It doesn't change the fact that it is our assessment that it still is a fierce price competition in the market in all segments and all product categories. The restructurings we carried out in June had a cost of DKK 5 million, which was expended in June, but they will deliver full year savings of DKK 10 million, and they will be cost neutral in 2025. Regardless of this, we'll continue to have a very strong focus on the cost development and ensure that we continue to have a downward trend in it. Loss on trade receivables are still under control. We may have seen the first signs of a slightly worsening situation among some customers. But again, credit management is really competent within Solar. Now please turn to Page #6. If we take a quick look at H1, then EBITDA of DKK 186 million, you can say that H1 came out also below our initial expectation due to the performance in Q2. The result is affected by restructuring costs of DKK 45 million compared to DKK 27 million last year and transition costs of DKK 12 million, meaning if we adjust for this and compare like-for-like, we're looking at an underlying performance of DKK 243 million versus DKK 252 million, meaning it's in more flattish development compared what immediately springs to the eye. Again, I think we saw in Q2, there is a diluting effect on the gross margin also on Page 1 from Solar Polaris. So if we adjust for that, we'll likely see that the margin is slightly increasing also in H1 if we can -- if we adjust for this. So to conclude on H1, yes, the development in Q1 was in line with expectations, whereas Q2 is clearly below our initial expectations. Please turn to Page 7. If you look at the figure on the left side, you can actually see what is happening with the growth rates that the constant improvement we've been seeing since Q1 2024 turned in Q2. And again, if you adjust for Solar Polaris, it's actually slightly more downturn where Solar Polaris doesn't really play any role in the preceding quarters. This continued into July where we ended with a negative organic growth of approximately minus 3%. So -- and this trend shift that is the main reason behind the fact that we had to adjust our guidance. So we still expect an improvement in the market during this year compared to the current level. If we look at the main segments, we now expect a slightly negative development overall for Installation and a clearly negative development within Industry, sort of positive development within Trade. But regarding Trade, this is solely driven by Solar Polaris, which is recorded as part of Trade. So where we've seen the most headwind, if you look at the segments, where we expect the most headwinds going forward is Industry segment, where as Installation varying a bit from market to market is only slightly negative, some actually even been positive, but not sufficient to offset the Industry. If we look at the guidance, we changed the revenue range down from DKK 12.3 million to DKK 12.8 million to now down to DKK 11.75 million to DKK 12.25 million. And as a consequence, we also changed our EBITDA from a range of DKK 530 million to DKK 600 million, now down DKK 450 million to DKK 510 million. If we take the midrange, and you can see it in the figure in the middle, the reported -- the mid-range guidance is DKK 480 million, where last year, we reported DKK 646 million. Last year had quite some extraordinary income. In the first half, it was expensive, but the remaining part of the year was income, mainly capital gain on sale on property, but the net effect was DKK 81 million, meaning that the underlying performance last year were DKK 565 million. If you do the same exercise in 2025, we end up at DKK 537 million, meaning we are approximately 5% down. Given the initiatives we already have implemented, we do -- we have an impact on the margin, all other things equals, of 0.7%. We are fairly comfortable that looking ahead also here within the current strategy that we will be able to improve the profitability going forward. Thank you.

Thank you, Michael. And now it's time for questions. So please.

[Operator Instructions] We will now take the first question from the line of Christian Overgaard from ACCO Group ApS.

I was just wondering if you could define transition costs versus restructuring costs, the difference.

Okay. The transition costs relates to closing down of our operation in Halmstad. We are in the process of moving from 2 to 1 central warehouse in Sweden. We're constructing a new one in Kumla, which is just outside the [indiscernible]. And as a consequence, we have to close down 2 of the current central warehouses. We have been able to accelerate the plan, meaning we can now close down Halmstad, even before Kumla is finalized, meaning we can both free up capital earlier than initially expected, and we also reduced the total risk. And the risk in moving from one central warehouse to another is less than the risk of moving from 2 central warehouses to 1 central warehouse. So it's the cost of closing down, saying goodbye to people, cleaning up. So that's the difference.

It's DKK 12 million, yes.

That's the DKK 12 million whereas the remaining DKK 45 million is simply redundancies.

And [indiscernible] is sold, and Halmstad is on the market right now, just to clarify that.

We will now take the next question from the line of Sebastian Grave from Nordea.

My first question, so you alluded to a market slowdown for Industry. And I know we get a lot more details in conjunction with numbers next week, but is it possible to expand a bit on what you're seeing here in Industry and where you're seeing it? And also, I guess, most importantly, why you are seeing it? I mean, is this a trade war scare and companies holding back? Or could you maybe add some color to this at this point?

Of course, it's pretty early days, but there are no doubt that the tariffs are, to some extent, postponing decisions and thereby also -- we have seen a lot of small machine builders, which are exporting to U.S., which are, of course, in a situation should they even sell and if, could then they manage the now 15% tariff that was before 10%. But at least those decisions are postponed to some extent. Then I think, overall, the uncertainty due to all the gossip around tariffs still have some kind of impact. But we are not 100% sure yet. But it's widely spread. It's not that 1 or 2 or 3 customers have left or because that's not the cause in Solar. We have a hell of a lot of customers. So it's more a spread of uncertainty among many Industry customers, because that is more export related than, of course, Installation.

But if you look at where we see it, we see also MAG45 is suffering. This was partly expected because some of their big blue chip customers have announced that they are expecting to purchase less this year compared to the year before, but they also expected to pick up late this year, early next year. But it's actually less than what we see. And then here, we talk MedTech and high tech. So they are suffering. If you take a geographic view on it, I think now we see only one, which is not suffering, but Industry in Norway is almost 100% Marine Offshore and utility infrastructure, whereas if you look at the other countries, we see that particularly MRO and OEM are struggling and to some extent also infrastructure in other countries. So it is -- as Jens is saying, it's widely spread. And we're, of course, monitoring this very closely. So it's not the customers that have completely less, they're simply just buying less. And it seems that they're postponing orders.

That was very appreciated. And maybe to follow up, I mean, you used the formulation a market slowdown. So do you have any strong indication that this is a question of a market slowdown and not you losing market share or anything like that?

We are fairly convinced that it's -- I mean, we have -- I think it's -- in the industry, we have, I think, 15,000 customers plus, minus. Don't kill me on the details. I think that's weak. And we have, of course, been in close dialogue with a lot of these customers. It's not the feedback that we received, and we can see that some of our main international competitors, though we cannot see in which segments, but they have also announced headwind at the European market, even though we cannot see the exact same market which we're operating in. So we are fairly convinced that this is a market thing also because it's actually materialized rather suddenly. And normally, you don't see that in a shift in market. And it's not like they stop completely, but they just buy less.

We are not depending on a few customers. So it's widely spread, as I said before. Of course, that is a concern, but that's also why we're sitting here today and have made the adjustment, yes.