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Solar — Annual Report 2020
Feb 11, 2021
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Download source fileSolar A/S LEI: 21380031XTLI9X5MTY92 Industrivej Vest 43 ■ DK-6600 Vejen ■ Denmark Tel. +45 79 30 00 00 ■ CVR no. 15 90 84 16 ■ Web: www.solar.eu 1 of 3 Announcement no. 2 2021 11 February 2021 Annual Report 2020 In 2020, we achieved a strong EBITA, which exceeded our expectations. At the Annual General Meeting, the Board of Directors will propose a 2020 dividend distribution of DKK 28 per share. CEO Jens Andersen says: "In 2020, our three-year strategic period came to an end. During this period, we successfully managed to increase EBITA by DKK 145m to DKK 455m and exceeded our target of 4% EBITA margin for our core business. We conclude the strategic period by proposing dividend payment of DKK 204m in total. We are very pleased with the progress and results delivered in 2020, and with the launch of our new strategy - CORE+ - that will set new standards for the period from 2021 to 2023. Finally, I want to thank our dedicated and skilled employees. Together, we succeeded in delivering strong results despite the challenges brought about by COVID- 19. We have become stronger as a company and as a group.” Financial highlights (DKK million) Q4 2020 Q4 2019 2020 2019 Revenue 3,057 3,077 11,465 11,679 EBITDA 191 161 637 538 EBITA 145 115 455 360 Earnings before tax -7 73 300 120 Cash flow from operating activities 432 305 813 300 Financial ratios (%) Organic growth adj. for number of working days -2.1 2.6 -2.0 4.9 EBITDA margin 6.2 5.2 5.6 4.6 EBITA margin 4.7 3.7 4.0 3.1 Net working capital, period-end/revenue (LTM) 9.7 11.0 9.7 11.0 Gearing (NIBD / EBITDA), no. of times 0.2 1.7 0.2 1.7 Solar A/S LEI: 21380031XTLI9X5MTY92 Industrivej Vest 43 ■ DK-6600 Vejen ■ Denmark Tel. +45 79 30 00 00 ■ CVR no. 15 90 84 16 ■ Web: www.solar.eu 2 of 3 2020 revenue • Adjusted organic growth amounted to -2.0% (4.9%), partly due to a declining demand caused by COVID-19 and partly due to our Better Business initiatives. 2020 EBITA • The results for our core business exceeded our expectations with EBITA being up by DKK 56m to DKK 456m compared to the original guidance. • Focus on strategic suppliers and concept sale, project Better Business and Operational excellence were stronger than expected. See the follow-up on page 8 in Annual Report 2020. Dividend distribution • At the Annual General Meeting, the Board of Directors will propose dividend distribution of DKK 28.00 per share, corresponding to a payout ratio of 92%. 2021 outlook • We expect revenue of approx. DKK 11,550m equal to an organic growth of approx. 0%. • Better Business initiatives are expected to reduce revenue by DKK 200m. The adjusted organic growth amounts to approx. 2%. • We expect an EBITDA of approx. DKK 650m, corresponding to an EBITA of DKK 465m. See the remaining assumptions on page 9 in Annual Report 2020. Introduction of our new CORE+ strategy With CORE+ we will be building on the solid foundation of our core. The new strategy focuses on four areas: Concepts, Climate & Energy, Industry and Trade. Areas in which we have a solid track record and see further opportunities for profitable growth in the years to come. Our ambitions for the strategic period from 2021 to 2023 can be found on page 17 in Annual Report 2020. Solar A/S LEI: 21380031XTLI9X5MTY92 Industrivej Vest 43 ■ DK-6600 Vejen ■ Denmark Tel. +45 79 30 00 00 ■ CVR no. 15 90 84 16 ■ Web: www.solar.eu 3 of 3 Audio webcast and teleconference today The presentation of Annual Report 2020 will be made in English on 11 February 2021 at 11:00 CET. The presentation will be transmitted as an audio webcast and will be available at www.solar.eu. Participation will be possible via teleconference. Teleconference call-in numbers: DK: tel. +45 823 331 94 UK: tel. +44 333 300 9264 US: tel. +1 833 526 8384 Contacts CEO Jens Andersen - tel. +45 79 30 02 01 CFO Michael H. Jeppesen - tel. +45 79 30 02 62 IR Director, Dennis Callesen - tel. +45 29 92 18 11 Enclosure: Annual Report 2020, pages 1-155, including Q4 2020 quarterly information. Facts about Solar Solar is a leading European sourcing and services company mainly within electrical, heating and plumbing, ventilation and climate and energy solutions. Our core business centres on product sourcing, value-adding services and optimisation of our customers’ businesses. We facilitate efficiency improvement and provide digital tools that turn our customers into winners. We drive the green transition and provide best in class solutions to ensure sustainable use of resources. Solar Group is headquartered in Denmark, generated revenue of approx. DKK 11.5bn in 2020 and has approx. 2,900 employees. Solar is listed on Nasdaq Copenhagen and operates under the short designation SOLAR B. For more information, please visit www.solar.eu Disclaimer This announcement was published in Danish and English today via Nasdaq Copenhagen. In the event of any inconsistency between the two versions, the Danish version shall prevail Solar A/S CVR no. 15 90 84 16 ANNUAL REPORT 2020 MANAGEMENT REVIEW 3 Solar in brief 4 Letter from the CEO 6 Year at glance 7 Financial highlights 2020 8 Guidance follow-up 2020 9 Guidance 2021 10 Strategy 2021-2023 11 Our business model 12 Core+: stronger execution of better business 13 Digital Together 14 Green Together 15 Strategic focus areas for profitable growth 16 Our four strategic focus areas 17 Ambitions for 2023 18 Our strategic focus areas 19 Concepts 21 Climate & Energy 23 Industry 25 Trade 27 Review 28 Five-year summary 29 Financial review 32 Corporate matters 33 Our people 35 Risk management 40 Social responsibility 41 Corporate governance 42 Shareholder information 44 Board of Directors 47 Executive Management FINANCIAL STATEMENTS 49 Consolidated financial statements 51 Summary for the Solar Group 53 Statement of comprehensive income 54 Balance sheet 55 Cash flow statement 56 Statement of changes in equity 58 Notes 100 Separate financial statements 102 Statement of comprehensive income 103 Balance sheet 104 Cash flow statement 105 Statement of changes in equity 107 Notes 136 Group companies' overview 138 Statements and reports 139 Statement by the Executive Board and the Board of Directors 140 Independent auditor’s report 144 Q4 2020 We are a leading European sourcing and services company mainly within electrical, heating & plumbing, ventilation, and climate & energy solutions. A DIGITAL COMPANY >60% e-business share OUR MARKETS Denmark, Norway, Sweden, the Netherlands, Poland & the Faroe Islands OUR 20212023 STRATEGY IS ENTITLED CORE+ AND HAS FOUR STRATEGIC FOCUS AREAS TRADE CLIMATE & ENERGY INDUSTRY CONTENTS CONCEPTS ORDERS Solar Group handles more than 2.7m digital orders every year. 10:46 Martin from SIF-Gruppen is permanently based at the newly opened hotel, VILLA Copenhagen. As a services engineer, it can be dicult for him to plan his work schedule. Solar Webshop allows him to place an order whenever the need arises. SOLAR IN BRIEF 3 DELIVERING ON TARGETS During the 2018-2020 strategy period, we increased EBITA by DKK 145m to DKK 455m and more than reached our target of 4% EBITA margin for core business. We conclude the strategic period by proposing a dividend payment of DKK 204m in total. LETTER FROM THE CEO SOLAR IN BRIEFMANAGEMENT’S REVIEW 4Solar – Annual Report 2020 FINANCIAL RESULTS In 2020, we posted a strong EBITA, which exceeded our expectations at the beginning of the year. For core business, EBITA increased by DKK 77m or more than 20% in 2020, corresponding to a return on invested capital (ROIC) aer tax of 15%. THE 20182020 STRATEGY RESULTED IN ~14% EBITA CAGR The strategy launched in 2017 marked the begin- ning of our return to a strong focus on the core business. Financially, the target was to reach an EBITA mar- gin in the core business of a minimum of 4% by 2020, corresponding to a ROIC of 12% aer tax. Our starting point was to change a product- focused business into one with a more solution- focused approach. At the same time, the intention was to remain an attractive sourcing and services company for our customers. By focusing on investments in further digitalisa- tion, reallocation of cost to growth areas and maintaining strict management over the cost base, the aim was to achieve continuous growth in the EBITA result and to expand the core busi- ness EBITA margin above the targeted 4%. These remain the guiding rules for our success. LAUNCH OF THE 20212023 STRATEGY CORE+ With the launch of CORE+ we are building on the journey we began in 2018, with continued focus on the core business. The cornerstone of CORE+ is to be the leading green, digital sourcing and services company in our industry. We wish to continue to develop Solar in a profitable way by enabling our key mar- kets to focus on our four strategic focus areas and by building on the core capabilities embed- ded in a strong and agile operating model. The four strategic areas – Concepts, Climate & Energy, Industry and Trade – are the key to our success. The aim is to grow the share of Con- cepts and Industry sales and introduce Trade and Climate & Energy to the remaining markets. This will be supported by maintaining rigorous cost management. In the new strategic period, we change the guid- ance level from EBITA to EBITDA. By doing so, we are following the trend in other companies. Our target is to expand the EBITDA margin further compared to the current level of 5.6%. EMPLOYEES Our employees’ well-being is of the utmost im- portance. The annual employee survey, Navigator, recorded an all-time high motivation score. Thanks to Solar’s dedicated and skilled workforce, we have succeeded in delivering strong results, even in a market aected by COVID-19. We have become stronger as a company and as a group. CONCLUDING REMARKS We are very pleased with the progress and results delivered in 2020, and with the launch of CORE+ we have set new standards for the 2021-2023 period. With CORE+ Solar will be well positioned to con- tinue to create value for our customers. HIGHLIGHTS 2020 EBITA IN DKKM 360 455 26% EBITA FROM CORE BUSINESS IN DKKM 379 456 20% EBITA MARGIN FROM CORE BUSINESS 3.4% 4.2% 24% DIVESTMENT OF OUR SHAREHOLDING IN BIMOBJECT DKK 237m In total cash consideration COVID19 Limited eect on our business from COVID-19. We reached 4.2% partly as a result of our Better Business project initiatives. LETTER FROM THE CEO Jens Andersen CEO SOLAR IN BRIEFMANAGEMENT’S REVIEW 5Solar – Annual Report 2020 2 1 EBITA GUIDANCE The original 2020 guidance was for revenue of DKK 11.8bn and EBITA of DKK 400m. In late October, we increased the EBITA guidance by DKK 35m to DKK 435m, which included one-o costs of DKK 25m relating to SAP eWM implementation. Revenue guidance was adjusted to DKK 11.3bn, a decline of DKK 100m compared to the previous guidance of DKK 11.4bn. BIMOBJECT SOLD In early October, we divested our shareholding in BIMobject for a total cash consideration of DKK 237m. The shares were acquired at DKK 172m in H1 2017. In early 2020, the world was impacted by COVID-19 - as was Solar. Our agile business model with strong supplier partnerships, a high and ever-increasing share of e-business and an enhanced group mindset, enabled us to manage the ensuing challenges. We took the necessary precautions and introduced a number of initiatives to limit the risk of infection. OPERATIONAL EXCELLENCE As a digital sourcing and services company, our digital transforma- tion continued throughout 2020. We successfully implemented Au- toStore, an automated storage and retrieval system, at the central warehouse in Alkmaar, the Netherlands. We also implemented SAP eWM at our central ware- houses in Denmark, Norway and Duiven, the Netherlands - the fih successful- ly completed implementation. The final implementation took place at Alkmaar, the Netherlands and was finalised in late January 2021. REACHING OUR GOALS 2020 was the final year of the strategy launched in 2018, and we reached an EBITA of DKK 455m. The aims were to work proactively with our customers to help them increase their eciency and to meet their requirements. We succeeded in doing this through an open-minded partnership with our customers and the further develop- ment of our digital services. We achieved the ambitions set out at the launch of our strategy and will introduce new ambitions through the new CORE+ strategy. YEAR AT A GLANCE COVID19 DIGITAL EXCELLENCE At the Danish Digital Awards, our Solar Mobile app was rewarded with a GOLD and SILVER award for Commerce and Customer Experience respectively. As our business is centred on digitalisa- tion with strong customer focus, the award is testimony to the fact that we are pursuing the right concepts. 435 DKKm 455 DKKm SOLAR IN BRIEFMANAGEMENT’S REVIEW 6Solar – Annual Report 2020 MANAGEMENT’S REVIEW 20182017 2019 2020 500 400 300 200 100 20182017 2019 2020 0.0 0.5 1.0 1.5 2.0 20182017 2019 2020 0 5 10 15 20 25 30 10.6 10.8 11.0 11.3 11.5 11.8 20182017 2019 2020 FINANCIAL HIGHLIGHTS 2020 Organic growth of -2.0% was impacted by product pruning of low-margin business of approx. DKK 250m and decline in demand caused by COVID-19. Within core business, we saw positive growth in Solar Danmark while other entities saw negative growth. Organic growth for related business reached 2.7%. In 2020, EBITA was up by DKK 95m due to in- creased gross profit margin and lower cost level. Non-recurring income of DKK 25m aected EBITA and was related to extraordinary price increases, additional discount from suppliers and settlement with the former shareholder of MAG45. However, costs related to the imple- mentation of SAP eWM aected EBITA negative- ly by DKK 25m. With EBITA of DKK 456m, core business posted the best financial results in more than a de- cade, and EBITA increased in almost all entities. Related business improved its results by DKK 18m to DKK -1m. At year-end, gearing was 0.2 times EBITDA. Calculated as an average, gearing was 1.1 times EBITDA in 2020. Gearing was impacted by high cash generation in operating activities and by the divestment of our shareholding in BIMobject for a total cash consideration of DKK 237m. In 2020, we paid dividend of DKK 102m and invested DKK 83m in digital improvements and operations optimisation. Net interest-bearing debt decreased by DKK 793m of which DKK 51m is due to COVID-19 fi- nancial support packages that will be reversed in 2021. . Our target for payout ratio is at least 35% of profit aer tax. The Board of Directors will submit a proposal to the Annual General Meeting for a dividend payout of DKK 28 per share, corresponding to a payout ratio of 92%. In 2018 and 2019, the dividend payment amounted to DKK 14 per share. GEARING times EBITDA EBITA DKKm REVENUE DKKbn DIVIDEND PER SHARE DKK 11.5 455 0.2 28.0 SOLAR IN BRIEFMANAGEMENT’S REVIEW 7Solar – Annual Report 2020 MANAGEMENT’S REVIEW 1) The updated guidance was presented on 21 October, 2020. Prior to October Solar withdraw initial guidance March 27, 2020, as a consequence of COVID-19, and re-introduced a guidance of revenue DKK 11,400m and EBITA of DKK 400m again August 12, 2020. STRONGER THAN EXPECTED GROSS PROFIT MARGIN Focus on strategic suppliers and concept sales continued to deliver growth opportunities and we saw revenue and margin from concept sales picking up in all markets. Our Better Business project continued to deliver gross profit margin improvements by focusing on supplying the right products to the right cus- tomers and by product pruning. As a derived ef- fect, revenue was reduced by approx. DKK 250m compared to the expected approx. DKK 200m. Extraordinary price increases in combination with additional discount from suppliers, mainly in Norway, had a one-o impact of approx. DKK 18m. COSTS Other operating income of DKK 8m of which DKK 7m was the outcome of a settlement with the former shareholder of MAG45. Operational excellence. Due to COVID-19, we launched several prudent cost-saving measures to protect short-term earnings and to deliver cash generation. The initiatives performed bet- ter than expected, delivering approx. DKK 40m of which we estimate DKK 20m to be temporary. Non-recurring income of around DKK 25m in total consisted of the above-mentioned extraordinary price increases of DKK 18m and other operating income of DKK 7m. AS EXPECTED SAP eWM implementation at our central warehouse in Denmark, Norway, and in Duiven, the Netherlands, was performed successfully with hardly any disruptions experienced in the following weeks. Costs relating to the implementation amounted to approx. DKK 25m. WEAKER THAN EXPECTED Revenue from core business amounted to DKK 10,890m, corresponding to organic growth of -2%. Our initial guidance for core business was for revenue of DKK 11.200m including pruning of DKK 200m. When adjusted for FX impact, revenue was DKK 200m lower than our initial expectations. In Industry, in particular, we saw variance within the sub segments. Our focus on infrastructure continued to deliver strong growth rates while Marine & Oshore saw strong headwind with negative organic growth of more than 20% in Q3. During Q4, we saw more stable development in Marine & Oshore. The results for core business were above our expectations, while the results for related business were on par with the expectations. GUIDANCE FOLLOWUP 2020 REVENUE AND ADJ. ORGANIC GROWTH DKKm EBITA AND EBITA MARGIN DKKm Core business Related business Solar Group Core business Related business Solar Group Guidance Updated 1 Updated 1 Guidance 11,200 600 11,800 10,750 550 11,300 435 0 435 400 0 400 10,890 -2.2 % 575 2.7 % 11,465 -2.0 % 456 4.2 % -1 -0.2 % 455 4.0 % Actual Actual SOLAR IN BRIEFMANAGEMENT’S REVIEW 8Solar – Annual Report 2020 2018 2017 2019 2020 eWM costs Non-recurr. Income Cost norm 2020 adj. improvements 2021 Guidance 25 -25 700 650 600 550 500 450 400 350 300 637 538 379 362 33 650 617 -20 GUIDANCE 2021 For the Solar Group, we expect revenue of DKK 11,550m equal to organic growth of 0%. We expect EBITDA of DKK 650m, corre- sponding to EBITA of DKK 465m. Due to the resurgence of the COVID-19 pandemic, our market outlook reflects increased risk. The guidance is based on several assumptions. GENERAL ASSUMPTIONS Gross profit margin The guidance for 2021 assumes that the re- surgence of COVID-19 will not result in new significant lockdowns in our business segments or other COVID-19 related knock-on eects. As stated on pages 11-17, we launch our Core+ strategy, including four strategic focus areas, which we expect to aect gross profit margin positively. In addition, we expect to continue our cost con- tainment measures. Despite these measures, we expect costs to partly normalise to pre-COVID-19 levels. The guidance does not include any signifi- cant restructuring costs. Loss on trade receivables is assumed to be at the same level as in 2020. There is, however, a risk that we will see increased loss on debtors as government support is reversed. MARKET OUTLOOK FOR SOLAR’S SEGMENTS Overall, we expect the installation and industry markets to show modest growth rates in 2021. Installation We expect the installation market to show modest growth in 2021 compared to 2020, positively aected by electrification as one of the important megatrends. Industry The guidance is based on the assumption that sales to OEM, Marine & Oshore remain at least at Q4 2020 level. Infrastructure is expected to continue to deliver strong growth rates. Trade We expect growth in Special Sales, which is the primary activity in the Trade segment. FINANCIAL OUTLOOK 2021 Revenue guidance We expect revenue at DKK 11,550m, corre- sponding to organic growth of approx. 0%. Our Better Business project is an integral part of the Core+ strategy and is expected to reduce revenue by DKK 200m compared to 2020. Adjust- ed for this, we expect organic growth of approx. 2%. DKK 600m of the expected revenue can be ac- counted for by related business. EBITDA guidance In 2020, we saw non-recurring income of around DKK 25m and non-recurring costs of DKK 25m. In addition, prudent cost-saving initiatives deliv- ered DKK 40m of which we estimate DKK 20m to be temporary. In total, the above had a net pos- itive eect of DKK 20m. We expect the strategic focus areas to deliver continuous improvement in earnings, more than osetting the above DKK 20m and delivering an EBITDA of DKK 650m. Approx. DKK 10m of the expected EBITDA can be accounted for by related business. Investments We have initiated an expansion and upgrade of our central warehouse in Denmark. We will add a 10,000 sq.m warehouse. When completed, this will enable us to close down three external warehouses, which we are currently operating in the vicinity of Vejen. In addition, we plan to invest in AutoStore as we have done in Norway and the Netherlands. Aer the completion, we will have more than 25% available capacity for future growth. The total investment is expected to amount to approx. DKK 250m and will be finalised in 2022. The expansion and upgrade will have a minor negative eect on earnings in 2021 of approx. DKK 5m. 650 corresponding to EBITA of DKK 465m EBITDA 2021 DKKm EBITDA DKKm 11,550 REVENUE 2021 DKKm SOLAR IN BRIEFMANAGEMENT’S REVIEW 9Solar – Annual Report 2020 14:06 ØSTRE LANDSRET IN COPENHAGEN IS BUILDING A NEW COURT. From the start of the construction phase, construction plans and buildings are virtualised using BIM technology. BIM enables the project manager to visualise the final result at any given place. BIM OBJECTS Solar has digitalised more than 4,600 of our products into BIM objects. STRATEGY 10 We build on long-term cooperation with stra- tegic suppliers, and by consolidating customers’ sourcing needs, we aim to increase eciency throughout the supply chain. We work closely with the customers to oer tailored, value-adding services that optimise their business and make them more productive. Central and regional warehousing, common lean processes, integrated IT systems and shared services across our local operating companies support our business. With an e-business share above 60%, we are a true digital company and use our platform, including web- shop, website and digital marketing, to support a personalised customer experience. SOURCING EXCELLENCE SERVICE EXCELLENCE OPERATIONAL EXCELLENCE DIGITAL LEADERSHIP Based on our understanding of the customers’ needs we work with brand manufacturers while proactively seeking alternatives. The services range from product engineering, advisory services and technical support to customer logistics and Fastbox. We drive continuous im- provement within a broad range of disci- plines, and we eectively leverage our regional footprint to reduce costs and improve eciency. We assume digital leadership and drive business development in collaboration with digital partners. HUMAN RESOURCES Our 3,000 ‘can-do’ people use market insight to develop new business areas and move our business forward. INNOVATION CULTURE Our people have both the right and the duty to chal- lenge the customers, suppliers and each other in pursuit of innovative solutions. TECHNOLOGICAL KNOW-HOW Our people have thorough knowledge about products and technologies. STAKEHOLDER ENGAGEMENT We engage with a number of dierent stakeholders to keep developing our business and create an understanding of our productivity agenda. FINANCIAL CAPITAL Our financial situation is sound and our collabora- tion with the capital mar- ket helps to ensure the continuous development of our business. CUSTOMER VALUE Within Installation, Industry and Trade we drive customer productivity by helping the customers run their business more e- ciently. SHAREHOLDER VALUE We create value for the shareholders by con- stantly optimising our business to increase the value of the company. EMPLOYEE VALUE We create value for the employees by giving them responsibility, trust, exciting jobs and career opportunities. KEY RESOURCES CORE ACTIVITIES VALUE CREATION We oer a number of Solar concepts that meet dierent customer needs. We have concepts suitable for both installation and industry customers. Our broad range of ser- vices is suitable for both installation and industry customers. We strive to keep costs low to protect the margins in a market with increasing price transparency. We exercise strict management over our cost base. We leverage the digital transformation of the construction industry to develop new services to drive productivity and cost savings in collaboration with our customers. OUR BUSINESS MODEL STRATEGY 20212023 STRATEGYMANAGEMENT’S REVIEW 11Solar – Annual Report 2020 CORE CORE + CORE+: STRONGER EXECUTION OF BETTER BUSINESS For the next strategy period, we are building on the solid foundation of CORE. So we remain stronger together, while adding further leverage from two megatrends impacting our business: DIGITAL and GREEN. At Solar, we see market opportunities as well as operational eciencies in digital and green. And the two oen go hand in hand with customer productivity, eciency and cost savings, e.g.: • A new robotics solution based on AutoStore improves warehouse productivity, saves space, costs and energy. • A Smart Supply kanban solution with digital inventory management and ecient replenishment boosts customer productivity. • A green Fastbox service, where customers place a digital order through our mobile app, enables us to deliver within the hour by electric scooters, thus saving customers time. Everyone wins, including the environment. THE CORE: STRONGER TOGETHER Solar has successfully completed a three-year strategic drive to improve the profitability of our core business while investing in the future. At the core we are a Sourcing & Services company. We play an assertive role in the value chain, mindful of our value add. We are a partner for the customers as well as the strategic suppliers. This allows us to always source the right products and deliver on time, every time, in ways that make the customers more productive. We call it ‘Stronger Together’. CORE+: STRONGER EXECUTION OF BETTER BUSINESS STRATEGY 20212023 STRATEGYMANAGEMENT’S REVIEW 12Solar – Annual Report 2020 Engaging and productive digital channels Challenging the status quo Ecient and data driven business operations DIGITAL TOGETHER 1. Ecient and data driven business operations We operate our business with powerful, easy to use productivity tools, leveraging data insights and a high degree of automation. 2. Engaging and productive digital channels We have a digital first approach and strive to provide the customers with a personalised and engaging digital experience, supporting their productivity through innovative digital services. 3. Challenging the status quo We are driving our industry forward through digitalisation. We are setting new standards in e-business, automation and digital logistics services by working closely with first mover customers, suppliers and technology partners. Our high digital order share is the perfect enabler of both automated and data driven operations and digital services for our customers. We are developing our business, delivering personalised and productive digital customer experiences. We are automating operations for eciency and integrate digitally with customers and strategic suppliers. In addition, we have a close network of technology partners with whom we are actively exploring the next wave of digital solutions. We are not afraid to challenge the status quo – where it adds more value. That is what true partners do. We call it ‘Digital Together’. DIGITAL TOGETHER We see a digital transformation happening all across our industry. App usage, digital integration and virtual design and construction are all on the rise. And with COVID-19, even the laggards are logging on. Solar already leads our peers in the digital area with the highest digital order share. We are essentially a digital company, uniquely wired to reap the benefits. MEGATREND DIGITAL TRANSFORMATION STRATEGY 20212023 STRATEGYMANAGEMENT’S REVIEW 13Solar – Annual Report 2020 Providing climate & energy solutions Contributing to a more sustainable world Securing a responsible business GREEN TOGETHER 1. Ensuring a responsible business Being a responsible business is at the very core of who we are. Today, this includes proactively reducing waste and energy consumption across our processes and operations. 2. Providing climate & energy solutions As a sourcing and services company we have a unique opportunity to work together with customers and suppliers to capture the growing green potential. This involves exiting non-sustainable product areas, like oil and gas boilers, and shiing to green alternatives. 3. Contributing to a more sustainable world By seeking sustainable solutions, placing demands on suppliers and supplying to our customers in more sustainable ways, we contribute to a more sustainable world. Global attention on sustainability presents Solar with both market opportunities and operational demands. Customers and suppliers expect us to run a responsible business and rely on our expertise in bringing sustainable products and solutions to market. Therefore, we are measuring and monitoring our consumption and, together with employees and business partners, we constantly focus on how to reduce our CO 2 emissions. Jointly we are able to contribute to a more sustainable world. We call it 'Green Together'. GREEN TOGETHER We see a growing demand for green solutions in all markets. Many are closely linked to the technical solution areas we already serve and have mastered. Electrification of society and transportation has the potential to supercharge Solar’s business – as did the introduction of light bulbs into homes when Solar was founded over a century ago. MEGATREND GREEN TRANSFORMATION STRATEGY 20212023 STRATEGYMANAGEMENT’S REVIEW 14Solar – Annual Report 2020 1. Concepts Grow Concept share across all customer segments 2. Climate & Energy Focus on Climate & Energy solutions in all segments 3. Industry Become the preferred supplier to four selected Industry segments 4. Trade Grow Trade with focus on retail, e-tail and e-trading customers STRATEGIC FOCUS AREAS MEGA TRENDS Digital Green CORE CORE + STRATEGIC FOCUS AREAS FOR PROFITABLE GROWTH With Core+, we will focus the Digital and Green trends on four strategic areas, where we have a solid track record and see further opportunities for profitable growth in the years to come. Industry and Trade are distinct segments, while Concepts and Climate & Energy are strategic drivers in the Instal lation, Industry and Trade segments. Digital and Green investments and initiatives shape the operating plans for each of the four strategic focus areas. STRATEGY 20212023 STRATEGYMANAGEMENT’S REVIEW 15Solar – Annual Report 2020 OUR FOUR STRATEGIC FOCUS AREAS CONCEPTS CLIMATE & ENERGY INDUSTRY TRADE Our concepts embody our deepest insights into customer needs within Installation, Industry and Trade. Every segment in which we want to play a significant role is supported by a Solar concept. They power our sourcing as well as the service-led sales of products from strategic suppliers. Where Core was about broadening and proving the concept portfolio, Core+ is about expanding concept share across all markets with an emphasis on digital and green, such as digital concept sales and sustainability documentation. Solar is already well established in sales of sustainability solutions, and we aim to grow substantially in the coming years, especially within the fields of heat pumps, EV charging, photovoltaic and energy storage. Where Core was about product sales and building expertise in solution selling, Core+ is about establishing Solar as a value-added reseller and sourcing partner within selected sustainability solutions. In parallel, we invest in sustainable operations, energy eciency, and reducing packaging and waste. We have long served selected sub-segments of Industry with an industry-deep approach. Industry customers appreciate the breadth and depth of our product assortment as well as our digital integrated services, which leads to long-term contract relationships. With Core we took the first steps in a regional sales setup and a value proposition around total-cost of ownership. With Core+ we will drive the regional sales approach deeper into Infrastructure, MRO, OEM and Oshore & Marine, each with unique value propositions and an emphasis on digital and green. A large and growing customer segment, including DIY stores and e-tailers, no longer source their materials from installers or from traditional wholesalers. With our digital business model and broad and specialised assortments, particularly within energy eciency and sustainability, we can attract these customers through a proactive sales approach. Where Core was based on a local approach, Core+ will apply best practice across markets, with an emphasis on outreach sales, as well as digital and green. Our target is to increase our share of revenue in Sweden, Norway and the Netherlands. Ultimately, targetting a concept share of 25% of revenue for the core business, up from 21%. share of revenue CAGR for our strategic period share of core revenue CAGR for our strategic period With a starting point of DKK 600m for 2020, we are targetting a CAGR of 5% for the strategic period. We aim to increase our Industry share of revenue, particularly in Sweden and the Nether- lands, which supports our ambition of an Industry share of 30% of core revenue, up from 27%. Our ambition is to introduce Trade to more of our markets and aim for a CAGR of 5% over the coming three years with a starting point of DKK 874m for 2020. 25% 5% 30% 5% STRATEGY 20212023 STRATEGYMANAGEMENT’S REVIEW 16Solar – Annual Report 2020 CORE + GROUP: FINANCIAL TARGETS EBITDA margin above 6%, corresponding to a ROIC above 17% aer tax Gearing (NIBD/EBITDA) 1.5-3.0x GROUP: NON FINANCIAL TARGETS E-business share of 70%, corresponding to almost DKK 8bn Complete the training of 2,000 participants in renewable solutions at our Solar School ESG Increase gender diversity at management level All electricity for Solar's own buildings will be from renewable sources Install PV equipment at all Solar-owned sites and EV chargers at all major Solar sites Further ESG targets will be launched during 2021 CONCEPT 25% share of core revenue CLIMATE & ENERGY Revenue CAGR of 5% for the strategic period INDUSTRY 30% share of core revenue TRADE Revenue CAGR of 5% for the strategic period Our CORE+ strategy derives from the winning aspiration to be a leading green and digital sourcing and services company in our industry. We want to develop Solar in a profitable way by focusing on key markets, building around our four strategic focus areas and deploying the core capabilities embedded in a strong and agile operating model. AMBITIONS FOR 2023 STRATEGY 20212023 STRATEGYMANAGEMENT’S REVIEW 17Solar – Annual Report 2020 18 DELIVERIES We deliver more than 115,000 fastboxes a year. 14:32 A GREENER CHOICE Solar Fastbox makes our customers more ecient and flexible in their daily work. Moreover, by using bicycles and electric vehicles wherever possible, we underpin our aim to make Solar Fastbox the more sustainable option. OUR STRATEGIC FOCUS AREAS 1 2 3 6 5 4 7 CONCEPTS OUR STRATEGIC FOCUS AREAS Solar Concept is our product portfolio targeted at customers in the installation and industry segments. We oer a selected assortment of high-quality products. Solar Concept embodies five elements - price, quality, availability, coverage and delivery. Our seven concepts are tailored to dierent customer demands 2020 SHARE OF CORE REVENUE 21% Solar Plus oers access to products and components needed on a day-to-day basis. When it comes to top tier quality, but at lower prices, we do not compromise. And we understand the importance of profes- sional pride. Solar Light oers a carefully chosen as- sortment of products and a group of Solar Light specialists who are ready to support you with solutions to projects of any size. Solar Tools oers high quality products at competitive prices and makes ordering tools more accessible. We have introduced seven dierent concepts: Solar Plus, Solar Light, Solar Tools, Solar Netto, Solar Cable, Solar Heat and Solar Project. Each concept comprises a simple and transparent product oering together with guidance from industry specialists. Solar Netto is our most cost-eective alternative. This means fixed low prices for materials that meet standard requirements. Solar Cable entails collaboration with a number of suppliers across Europe, which means we can oer a wide range of cables to match individual requirements. Solar Heat comprises a wide assortment of high-quality products within heating solutions, which are sold by piece or as full concepts. Solar Project covers the full project scope – from Plus to Heat. Aesthetics plays a major role at Hotel Villa in Copenhagen. Lighting is particularly important for creating a welcoming atmosphere. 19Solar – Annual Report 2020 MANAGEMENT’S REVIEW OUR STRATEGIC FOCUS AREAS NEW LIGHTING IMPROVES SAFETY When the world’s second largest aluminum producer, Alcoa, needed a new lighting solution, Solar Light was the ideal choice. The end result provides better and safer working conditions for all employees on site. Obsolete light bulbs and fluorescent tubes were replaced with a customised LED solution that created a brighter workplace for almost 200 em- ployees at Alcoa in Norway. As well as delivering greater energy eciency, the new lighting system has also enhanced safety in the production area. “Our sta used to wear headlights, but aer the new lighting system was installed, we were able to do without them. We also used to have a few vehicle collisions, but the improved vision will obviously help to prevent more accidents,” says Ove Martin Kjølleberg from Alcoa. He also points out two other benefits. Colour representation has improved, which means that cables are easier to distinguish. And with the fur- naces emitting dierent gases, it is now easier to spot when extra precautions need to be taken. Electricians at Alcoa used to change light bulbs every three years, and some of the lighting was changed even more frequently than that. The time saved can now be spent more eciently. Before Aer “We had constant problems with our lighting and the cables were too old to provide power. Our new LED solution means that these issues are consigned to the past”, explains Ove Martin Kjølleberg. Prior to the installation, Solar Light components were tested in an operational environment and exposed to the aluminum production tempera- ture which is 30 degrees higher than the outside temperature. As a result of the successful installation, another Solar Light solution will be installed inside two hangars at Alcoa’s production site in Norway. Alcoa LISTA, NORWAY Alcoa is the second largest aluminum pro- ducer in the world, supplying industries across Europe. The production site is located in Lista in southern Norway. OUR STRATEGIC FOCUS AREAS CASE: CONCEPTS We had constant problems with our lighting and the cables were too old to provide power. Our new LED solution means that these issues are consigned to the past. 20Solar – Annual Report 2020 MANAGEMENT’S REVIEW OUR STRATEGIC FOCUS AREAS CLIMATE & ENERGY OUR STRATEGIC FOCUS AREAS Climate & Energy is experiencing increased focus on, and activity within, climate and energy-ecient solutions. This stems from a diverse customer base, including industrial enterprises, public buildings and private home installations. The expanding base is the result of ever-in- creasing energy prices, stricter environmental requirements and government targets to reduce CO₂ emissions by 2030. Solar Climate & Energy provides the right assort- ment of climate & energy solutions and supports customers with tailored construction designs, tech- nical support and future energy consumption calcu- lations, all of which ensure that customers receive products with minimum energy consumption. The EU as well as governments have introduced a range of targets to reduce CO₂ emissions by 2030. Solar Climate & Energy will be an active player in this endavour. We are experiencing an increasing demand for sustainable solutions. 2020 REVENUE 600 DKKm In 2020, we sold more than 2,700 charging stations - over 60% more than the year before. 21Solar – Annual Report 2020 MANAGEMENT’S REVIEW OUR STRATEGIC FOCUS AREAS INSTALLING HEAT PUMPS REDUCES CO₂ EMISSIONS Danish concrete producer Boligbeton’s ambition is to reduce CO₂ emissions significantly. Therefore, they have decided to replace all oil and gas heating with greener alternatives. Alongside Solar, they have found the right solution, which will ensure sustainable energy, a comfortable indoor climate and better business. It takes a lot of water, heat and electricity to pro- duce concrete panels round-the-clock. Boligbeton produces concrete panels for all types of con- structions, and the largescale production means a high level of CO₂ emissions. The company has resolved to reduce its emissions and improve the environmental labelling of its products. “It is important that we take action both as an industry and as a company,” says Tom Kristensen, Boligbeton’s Managing Director. One initiative is to replace the old heating sys- tems with new heat pumps. “For the sake of the environment, it makes sense to replace oil and gas with greener solutions such as heat pumps – and there are financial benefits”, explains Tom Kristensen. “Compared to the old system, Boligbeton is set to reduce energy consumption by approximately 70 percent. The heat pumps will also result in improved circulation and a more comfortable indoor climate”, says Tom Nielsen, Sales Engineer at Solar Climate & Energy. Solar is assisting Boligbeton with project design and product selection in its green transition. So far, the company has installed five new heat pump systems. They are also working on an idea for a solar cell park that will provide green energy for lighting and machinery. CASE: CLIMATE & ENERGY OUR STRATEGIC FOCUS AREAS Boligbeton LØSNING, DENMARK Boligbeton delivers innovative concrete solutions to the Danish construction industry - covering residential, industrial and oce construction. Compared to the old system, Boligbeton is set to reduce energy consumption by approximately 70 per cent. The heat pumps will also result in improved circulation and a more comfortable indoor climate. 22Solar – Annual Report 2020 MANAGEMENT’S REVIEW OUR STRATEGIC FOCUS AREAS INDUSTRY OUR STRATEGIC FOCUS AREAS Industry constitutes a significant part of our business. The prime focus is on long-term contracts with industrial customers, both with a local and cross-border presence. Our main industrial business focus areas are: Infrastructure, MRO (Maintenance, Repair & Oper- ation), OEM (Original Equipment Manufacturer) and Marine & Oshore. Our assortment oers everything from lighting and tools to vital spare parts that safeguard against production downtime. One of our key focus areas is to help customers reduce costs by cutting back on suppliers, orders and administration – a process known as Total Cost of Ownership (TCO). This allows the customers to eliminate heavy and inecient processes, which results in significant financial savings. Having the right stock is important in almost every industry. Our Smart Supply service, for instance, oers a transparent stock solution with greater overview. Moreover, the system ensures that the right items are available at all times and helps customers to avoid expensive production downtime. Increased productivity and eciency are the result. Industry is the most profitable segment in the majority of our markets. 2020 SHARE OF CORE REVENUE 27% More than 100 industrial customers are already using our smart supply kanban storage solution which reduces their stock by 30%. 23Solar – Annual Report 2020 MANAGEMENT’S REVIEW OUR STRATEGIC FOCUS AREAS WHEN ONE SUPPLIER IS ENOUGH The Danish food manufacturer, Flensted, has optimised its sourcing setup in partnership with Solar. Making Total Cost of Ownership (TCO) visible has led to more transparency and tighter control. It all began with a phone call Jes Christensen, Purchasing Manager at Flensted, was looking for a supplier for a new project. The technical support department needed to simplify procurement. “As an example, we used to buy components from four dierent suppliers, but I was convinced that we could optimise that.” In close collaboration with Flensted, Solar undertook a transparency analysis of the purchasing pattern for technical components. This provided Flensted with the opportunity to optimise its sourcing and handling setup, such as consolidating suppliers, improving master data and standardising products and brands. “The benefits are clear. We have cut back on suppliers, orders, deliveries and administration, which of course means significant financial savings”, says Jes Christensen. The next step was to implement a Smart Supply system to enable the 15 technicians to locate items and components in stock more easily. “We had too many items in stock and bought products whenever we needed them – even though we probably had them already. We needed an overview,” the Purchasing Manager explains. With a constant backup, the Smart Supply system ensures that Flensted never runs out of important products. The system is based on two bins contain- ing the same items. When the first bin becomes empty, a new delivery will be on its way. Meanwhile, the technicians use the second bin. “We now have transparency, which makes it easi- er for our employees”, he says. Minimising downtime An additional benefit is that the factory has kept downtime to a minimum. According to the Purchasing Manager, a breakdown can be very expensive; machines come to a standstill, goods for customers may be delayed, and products may go to waste because of their short shelf-life. “Availability and a clear stock overview are essential to run a cost-optimised business with maximum eciency and minimum cost. Flensted has a clear future strategy deeply rooted in a TCO mindset that ensures continued transparency and a structure for phasing in and phasing out products. Being in control in this way increases competitiveness in a competitive market”, explains Lars Lange, Head of Food and Beverage at Solar. CASE: INDUSTRY OUR STRATEGIC FOCUS AREAS Flensted, Denmark Flensted Food Group is a Danish manufacturer of convenience food. It was founded in 1966 and employs 200 people. The group's head oce and production facilities are based in Western Jutland. The benefits are clear. We have cut back on suppliers, orders, deliveries and administration, which of course means significant financial savings. 24Solar – Annual Report 2020 MANAGEMENT’S REVIEW OUR STRATEGIC FOCUS AREAS TRADE OUR STRATEGIC FOCUS AREAS Trade focuses on a growing customer group with dierent buying patterns from the Installation and Industry customer segments. They are typically DIY/retailers, webshops or smaller independent B2B-customers. The main criteria for these customers are a wide assortment, a convenient webshop and flexible logistics solutions – requirements that are com- bined into a solution that puts them in the best possible position to leverage their 'go to market' strategy. Contracts typically contain agreements on storage facilitation, inventory management and logistics solutions for either customer or end-us- er deliveries. We can oer all that, which makes us the preferred partner for a large group of such customers. Trade is currently centred in Denmark and the Netherlands. 2020 SHARE OF CORE REVENUE Our long-standing experience and know-how within logistics and inventory solutions enable us to serve new segments. 25Solar – Annual Report 2020 MANAGEMENT’S REVIEW OUR STRATEGIC FOCUS AREAS 8% Buying behaviour has changed. Many companies demand one-stop shopping. As a sourcing and services company, we constantly adopt new ways to make our customers more ecient - which is why we have a strategic focus on Trade. Instead of buying batteries at a hardware store and light bulbs from a webshop, our customers use Solar as a one-stop shop to purchase whatever consumables they need from our wide assortment. This makes good business sense for the customers and for Solar. Customers can cut back on suppliers, deliveries and administration, which saves them time and money. We see this as a self-service concept, where customers typically do not require technical support or visits from our sales team. Instead, they need a great webshop with a wide assortment, where they can quickly find what they are looking for and have everything delivered through our flexible logistics solutions. OUR STRATEGIC FOCUS AREAS WHEN ONLY ONE SUPPLIER IS NEEDED CASE: TRADE Trade is a business area that will contribute to our financial growth. The next step is to take best practice from Denmark and implement it in Swe- den, Norway, Poland and the Netherlands. CARSTEN ANTONISEN Senior Vice President, Sales 26Solar – Annual Report 2020 MANAGEMENT’S REVIEW OUR STRATEGIC FOCUS AREAS 15:38 THE END OF A WORKDAY IS APPROACHING Even aer the end of our customers’ working day, we are still busy making sure that their products are delivered and ready for tomorrow’s work OUR CUSTOMERS Solar services the 200,000-plus fitters based at our customers. 27 REVIEW In general, financial ratios are calculated in accordance with the Danish Finance Society’s “Recommen- dations & Ratios 2019”. As at 1 January 2019, Solar implemented IFRS 16, Leases, by applying the modified retrospective ap- proach. Comparative figures are not restated. This especially aects EBITDA, interest-bearing liabilities, EBITDA margin, gearing and equity ratio. In general, restatements have been made of income statements, cash flow and key ratios for discon- tinued operations regarding STI for 2017 and 2018, and Claessen ELGB N.V. and GFI GmbH for 2016 and 2017. In accordance with IFRS, the balance sheet has not been restated. Consolidated (DKK million) 2020 2019 2018 2017 2016 Revenue 11,465 11,679 11,098 11,061 10,420 Earnings before interest, tax, depreciation and amortisation (EBITDA) 637 538 379 362 368 Earnings before interest, tax and amortisation (EBITA) 455 360 327 310 312 Earnings before interest and tax (EBIT) 248 260 224 176 256 Earnings before tax (EBT) 300 120 237 176 223 Net profit for the year 222 64 133 19 125 Balance sheet total 4,607 4,990 4,633 4,717 4,506 Equity 1,696 1,592 1,638 1,591 1,683 Interest-bearing liabilities, net 128 921 461 489 43 Cash flow from operating activities, continuing operations 813 300 224 7 203 Net investments in property, plant and equipment -25 -110 -59 -14 51 Employees Average number of employees (FTEs), continuing operations 2,935 3,039 2,941 2,870 2,814 Financial ratios (% unless otherwise stated) 2020 2019 2018 2017 2016 Organic growth adjusted for number of working days -2.0 4.9 2.2 7.0 2.3 Gross profit margin 21.0 20.1 20.2 20.7 21.1 EBITDA margin 5.6 4.6 3.4 3.3 3.5 EBITA margin 4.0 3.1 2.9 2.8 3.0 Eective tax rate 26.0 45.2 23.3 17. 0 28.3 Net working capital (year-end NWC)/revenue (LTM) 9.7 11.0 9.8 9.7 8.4 Gearing (net interest-bearing liabilities/EBITDA), no. of times 0.2 1.7 1.2 1.3 0.1 Return on equity (ROE) 13.5 4.0 8.2 1.2 7.1 Return on invested capital (ROIC) 13.8 8.3 8.1 6.3 10.0 Equity ratio 36.8 31.9 35.4 33.7 37.4 Share ratios (DKK unless otherwise stated) Earnings per share outstanding (EPS) 30.42 8.77 18.22 2.60 16.50 Dividend per share 28.00 14.00 14.00 10.00 12.00 Dividend in % of net profit for the year (payout ratio) 91.9 159.4 76.7 385.6 70.2 FIVEYEAR SUMMARY 28Solar – Annual Report 2020 MANAGEMENT’S REVIEW REVIEW We succeeded in our journey towards improved EBITA, which reached DKK 455m and thereby exceeded guidance. We delivered an EBITA increase of more than 25% despite an adjusted organic revenue growth of -2.0% (4.9%) partly due to a decline in demand caused by COVID-19. The EBITA increase of DKK 95m was driven by an improved gross profit margin, eciency gains and cost containment. REVENUE Solar’s overall adjusted organic growth for Installation amounted to around -3% and for Industry to around -1%. Solar Danmark saw positive growth in both Installation and Industry while other entities saw negative growth. With regard to Installation, the Better Business project focused on supplying the right products to the right customers. Part of this project involved product pruning of low-margin business, which is one of the drivers of negative growth. In total, this had a negative impact on revenue of approx. DKK 250m. With regard to Industry, Infrastructure saw positive organic growth, while Marine & Oshore and OEM experienced substantial headwind. The Trade segment delivered solid positive organic growth driven by Special Sales. Adjusted organic growth at group level amounted to -2.0% (4.9%). Revenue totalled DKK 11.5bn (DKK 11.7bn). Core business delivered adjusted organic growth of -2.2% (5.2%). Solar Danmark saw positive adjusted organic growth. GROSS PROFIT MARGIN Despite lower revenue in 2020, gross profit increased by DKK 52m. We saw continuous improvement in the gross profit margin, which increased to 21.0% (20.1%). Gross profit margin was positively aected by the Better Business project initiatives, such as product pruning, and by the increased sale of Solar’s concepts. In addition, extraordinary price increases – mainly in Solar Norge - led to one-o income of approx. DKK 18m, corresponding to 0.2% at group level. OTHER INCOME Other income amounted to DKK 8m (DKK 9m). Of this, DKK 7m is the outcome of a settlement with the former shareholder of MAG45, see Annual Report 2019 and the note on litigation. In 2019, the DKK 9m primarily related to the impact of Solar Polska winning a court case regarding a VAT refund and to the net impact of the acquisition of the Swedish business activities. EXTERNAL OPERATING COSTS AND STAFF COSTS Due to COVID-19, we launched several prudent cost-saving measures to protect short-term EBITA INCREASED BY MORE THAN 25% TO DKK 455M (Figures in brackets are figures from the corresponding period in 2019) Our comments on core and related business and disclosures in the note, Segment information, should be regarded as supplementary information. Information on the following segments - Installation, Industry and Trade - is included in the note, Segment information. RELATED BUSINESS Revenue from related business amounts to approx. 5% of our total revenue. We continue to see a positive eect from the substantial reorganisation of MAG45 - which led to an ongoing improvement in profitabili- ty, with an increase in EBITA of DKK 18m in 2020. Due to the COVID-19 situation, the strategic review of MAG45 initiated in Q3 2019 is on hold. Related business showed adjusted organic growth of 2.7% (-0.3%) while EBITA was up at DKK -1m (DKK -19m) in 2020. * Besides MAG45, our related business includes Solar Polaris. FINANCIAL REVIEW 29Solar – Annual Report 2020 MANAGEMENT’S REVIEW REVIEW earnings and to deliver cash generation. We implemented a freeze on recruitment, reduced the use of temporary sta and introduced general cost containment. Some of the cost savings were temporary savings and, as expected, costs were gradually normalised in H2 as COVID-19 restrictions were partly lied. External operating costs and sta costs were down by DKK 53m compared to 2019. Of this, foreign exchange translation adjustments accounted for DKK 23m, cost savings for DKK 40m, and furlough schemes for DKK 15m. In addition, the cost of the SAP eWM rollout amounted to approx. DKK 25m. LOSS ON TRADE RECEIVABLES Solar conducts ecient credit management at all times. In March, we tightened our credit policy due to the COVID-19 pandemic. Furthermore, we have taken out insurance to hedge against potential losses on trade receivables. Impacts from COVID-19 have increased risks on trade receivables but loss on trade receivables remained at a normal level in 2020 amounting to unchanged 0.2% of revenue. EBITA EBITA increased by DKK 95m to DKK 455m, corresponding to an EBITA margin of 4.0% (3.1%) of revenue. Non-recurring income of DKK 25m aected EBITA and was related to extraordinary price increases, additional discount from suppliers and settle- ment with the former shareholder of MAG45. EBITA from core business was up at DKK 456m (DKK 379m) corresponding to an EBITA margin of 4.2% (3.4%). The increase was driven by improve- ments in Solar Danmark, Solar Sverige and Solar Norge. As expected, SAP eWM roll-out costs aected Solar Danmark’s financial performance by DKK 10m. Rollout costs also impacted Solar Norge by DKK 9m and Solar Nederland by DKK 6m. Solar Nederland’s performance was also aected by approx. DKK 6m in restructuring costs and costs relating to the implementation of Auto- Store, an automated storage and retrieval system. The results of the individual countries are disclosed on page 64. AMORTISATION AND IMPAIRMENT Amortisation totalled DKK 207m (DKK 100m). Review of intangible assets resulted in an impairment loss of DKK 139m in total. Of this, DKK 129m related to goodwill obtained when Solar Sverige acquired Alvesta V.V.S-Material AB in 2007. In addition, a DKK 10m impairment of soware was made which mainly related to Axapta soware acquired in 2015 and deployed at Solar Polska. In 2019, a review of intangible assets resulted in an impairment loss of DKK 25m for MAG45. DKK 21m related to soware and DKK 4m related to customer lists obtained when MAG45 acquired the industrial business activities in Savone, Italy, in 2017. DKK million 2020 2019 Core business, amortisation 67 71 Core business, impairment loss 139 0 Related business, amortisation 1 4 Related business, impairment loss 0 25 Amortisation and impairment of intangible assets 207 100 SHARE OF NET PROFIT FROM ASSOCIATES Our share of earnings from our digital, construc- tion and services associates amounted to DKK -12m (DKK -19m) related mainly to BIMobject. In 2019, DKK -15m related to BIMobject and DKK -4m to HomeBob including write-down of the HomeBob app. IMPAIRMENT ON ASSOCIATES Impairment on associates amounted to DKK 104m (DKK -86m). In Q4, we divested our shareholding in BIMobject for a total cash consideration of SEK 333m (DKK 237m). Profits from the divestment amounted to DKK 23m based on a book value of DKK 214m as at 30 September 2020. Furthermore, previously performed BIMobject write-down of DKK 86m was reversed. In addition, we divested 60% of our investment in Viva Labs. The write-down and loss related to this divestment amounted to DKK 4m. Other invest- ments resulted in a loss of DKK 1m. In 2019, Solar identified a need for write-down of DKK 86m related to BIMobject. FINANCIALS Net financials amounted to DKK -40m (DKK -35m) negatively aected by DKK 10m due to a partly redemption of an interest swap. A similar positive amount is reported under Other comprehensive income. Adjusted for this item, net financials totalled DKK -30m (DKK -35m). EARNINGS BEFORE TAX Earnings before tax increased to DKK 300m (DKK 120m). Earnings before tax were aected by impairment losses etc., see table below. When adjusted for these items, earnings before tax were up at DKK 335m (DKK 231m). DKK million 2020 2019 Earnings before tax 300 120 Impairment on associates -104 86 Earnings before tax, adjusted for impact from associates 196 206 Impairment loss, other intangible assets 10 21 Impairment loss, goodwill and customer lists 129 4 Adjusted earnings before tax 335 231 INCOME TAX Income tax totalled DKK 78m (DKK 54m) which corresponds to an eective tax rate of 26.0% (45.2%). Adjusted for impairment on associates and non-deductible items, the eective tax rate was 23.5% (27.8%). FINANCIAL REVIEW 30Solar – Annual Report 2020 MANAGEMENT’S REVIEW REVIEW NET PROFIT Net profit for the Solar Group totalled DKK 222m (DKK 64m). CASH FLOWS Net working capital calculated as an average of the previous four quarters amounted to 11.5% (11.9%) of revenue. Net working capital at the end of 2020 amounted to 9.7% (11.0%). Cash flow from operating activities totalled DKK 813m (DKK 300m) impacted by inventory changes of DKK 126m (DKK -92m) and changes to receiv- ables of DKK 173m (DKK 21m). We succeeded in reducing our inventory level which was one of our focus areas in 2020, while receivables were impacted by negative revenue growth. Total cash flow from investing activities amounted to DKK 162m (DKK -194m) where divestment of BIMobject and Viva Labs impacted by DKK 237m and DKK 3m respectively. In 2019, the divestment of STI had a positive impact of DKK 5m, the acquisition of the Swedish business activities had a negative impact of DKK 40m, and further investments in our existing financial portfolio impacted negatively by DKK 14m. Purchase of property, plant and equipment amounted to DKK 33m (DKK 110m) aected in both 2019 and 2020 mainly by the AutoStore investments in Solar Norge and Solar Nederland. Cash flow from financing activities was aected by dividend distribution of DKK 102m (DKK 102m) and instalments on lease liabilities of DKK 121m (DKK 117m). Raising or repayment of non-current interest-bearing debt amounted to DKK -199m (DKK -9m). Change in current interest-bearing debt is presented as part of the financing activities and amounted to DKK -205m (DKK 118m). Cash flow from financing activities thus totalled DKK -627m (DKK -110m). Cash flow from discontinued operations amounted to DKK 0m (DKK -2m). Consequently, total cash flow amounted to DKK 348m (DKK -6m). Net interest-bearing liabilities amounted to DKK 128m (DKK 921m) positively aected by DKK 51m due to COVID-19 financial support packages. Over the past 12 months, we have • invested DKK 50m in digital improvements; • invested DKK 33m in optimising our operations e.g. AutoStore; • paid dividend of DKK 102m. As at 31 December 2020, gearing was 0.2 (1.7) times EBITDA. Calculated as an average, our gearing was 1.1 (2.0) times EBITDA. Our gearing target is 1.5-3.0 times EBITDA. As at 31 December 2020, Solar had undrawn credit facilities of DKK 474m (DKK 383m). Invested capital for the Solar Group totalled DKK 1,760m (DKK 2,297m). ROIC amounted to 13.8% (8.3%). ROIC for core business amounted to 15.1%. Activities with a Solar equity interest of less than 50% and discontinued activities are not included in the ROIC calculation. Invested capital only includes operating assets and liabilities. REMUNERATION OF EXECUTIVE BOARD AND MANAGEMENT TEAM In accordance with Solar’s remuneration policy and general guidelines for incentive-based remuneration, the Board of Directors granted restricted shares to the Executive Board and management team in February 2020. Overall, the granting of shares is covered by the same terms as the previous grants of share options. 7,664 restricted shares were granted, amounting to a fair value of DKK 2.4m at the time of granting. The restricted shares vest three years aer the time of granting, i.e. this grant of shares vests in 2023. In February 2020, 28,398 share options from the grant in 2016 expired. For more information, please see this report’s note 25 on share-based payment. In 2019, new incentive schemes focusing on increased return on invested capital were established for both the Executive Board and the management team. General information on Solar’s incentive scheme is available on our website: FINANCIAL REVIEW DIVESTMENTS AND ACQUISITIONS Acquisition of Swedish business activities On 15 May 2019, Solar acquired selected parts of Onninen AB’s Swedish business activities. In 2019, we saw full-year revenue of approx. DKK 300m. As the acquired activities are fully integrated into Solar Sverige, we estimated the 2019 EBITA impact to be approx. DKK -10m due to integration and restructuring costs. Divestment of Norwegian training business In March 2019, Solar concluded the process, initiated in December 2018, of a manage- ment buyout of our Norwegian training business, Scandinavian Technology Institute (STI), part of our related business. The divestment constituted a loss of DKK 17m, which was recognised in the Solar Group’s income statement as part of the loss from discontinued operations in Q4 2018. WWW.SOLAR.EU/INVESTOR/POLICIES/ 31Solar – Annual Report 2020 MANAGEMENT’S REVIEW REVIEW 13:21 AM RERUMET AUDA CUS DOLORRO BLANDUS. Ra dernam alique aliquas as eos ea dollupt ae- pelia ndicabo. Iqui blamus autae vellupt atese- quae voloribea dolupta tionsectas am nimin cum simporest ORDER LINES Solar Group has more than 14 million order lines every year FULL SPEED AHEAD AT NIGHT Sta at Solar warehouses do their utmost to ensure that all orders are ready for collection the next day 22:06 CORPORATE MATTERS 32 Through our values SmartFun, Glow and Courage, our many employees have continually developed the means by which we service the customers. We have evolved from a pure sales organisation to a sourcing and services organisation that not only provides products, but also solutions and guidance for the end-users. We believe in service as a way of changing the way we do business – it makes us stronger together. DEVELOPING OUR PEOPLE Creating opportunities and developing employees has always been among Solar’s main priorities. Our online learning and development platform, Solar Compass, encourages and supports employees’ ongoing career development. At Solar, we pro- mote internal recruitment and thus benefit from inter-departmental knowledge and the continued development of the employees. DIVERSITY The Solar Group’s approach is to ensure that all employees at the individual companies are treated equally, irrespective of gender, age, OUR PEOPLE People lie at the very heart of our organisation. Since our foundation in 1919, Solar has been the link between suppliers and customers, always with increased eciency and productivity as the guiding star. 33Solar – Annual Report 2020 MANAGEMENT’S REVIEW CORPORATE MATTERS race, religion etc., thereby ensuring equal opportunities in terms of employment, training and promotion. We wish to ensure a high level of diversity, but not at the cost of the necessary skills sets. We always hire the most qualified candidate for the job, regardless of political, religious or personal orientation. SENIOR LEVEL MANAGEMENT Solar has defined two upper levels of manage- ment: Solar Group Management (SGM) and senior level management, where the latter comprises Vice Presidents and Directors reporting to an SGM member. Our aim is to achieve an overall distribu- tion of women and men of 25% and 75% by 2025. Our employee performance appraisals focus on skills development, performance and career plans. Solar encourages the career development of managers, project workers and specialists and enables an underrepresented gender to have the right opportunities to develop and advance within the administrative bodies. We arrange internal management training and onboarding for all new managers, which provides the right tools and qualifications for further man- agement development. Our Global Manager Onboarding programme is targeted at all Solar's new managers - whether recruited externally or internally. In 2020, we con- ducted the training online. Our group recruitment policy ensures that when hiring managers, HR takes dierent backgrounds and qualifications into consideration. The aim is to ensure that our business develops with the right human resources - always with the best person for the role and for the company. Our recruitment advertising emphasises that Solar seeks to achieve a diverse representation throughout our management group. We require that candidates shortlisted for managerial positions include at least one member of the underrepresented gender. The overall gender distribution in the two upper levels of management was 17% women and 83% men as at 31 December 2020 with a low sta turnover in 2020. This should be compared with 14% and 86% respectively last year. BOARD OF DIRECTORS The diversity policy also sets out our objective for the composition of the Board of Directors. When board members are replaced, we conduct a broad sweep of the market to ensure a mix of skills and diversity. The Board of Directors strives for equal gender representation, while ensuring that it has a broad portfolio of skills and experience. Our aim is to ensure that women are not underrepresented. Our objective is that aer Solar’s Annual General Meeting in 2023, women will constitute 40% of the Board of Directors. No new board members were elected in 2020 and the gender distribution is thus unchanged. One in six members elected by the Annual General Meeting is, therefore, female. NOMINATION COMMITTEE The Board of Directors has established a Nomi- nation Committee with participation from major shareholders and one representative from the Board of Directors. The company wishes to en- able major shareholders to have an influence over the composition of the Board of Directors. It is the committee’s duty to assess the need for change to the composition of the Board of Directors, including making sure that the company’s Board of Directors comprises individuals with the necessary professional qualifications, expertise and experience. The committee ensures that at least half the members of the Board of Directors are indepen- dent. Moreover, the committee should, as far as possible, nominate candidates who will ensure that the diversity policy adopted by the Board of Directors will be met over the long term. In this connection, the committee is responsible for presenting the Board of Directors with an ac- tion plan for the future composition of the Board of Directors, including specific amendments. However, the Nomination Committee is not a board committee like other committees estab- lished by the Board of Directors. The committee does not prepare decisions that the Board of Directors is to make. The committee is a supple- ment to the Board of Directors’ work with the composition of the board. For further information please see our Sustainability Report 2020 and the Global Compact website. OUR PEOPLE We always hire the most qualified candidate for the job, regardless of political, religious or personal orientation. WWW.SOLAR.EU/OURCOMPANY/CSR WWW.UNGLOBALCOMPACT.ORG 34Solar – Annual Report 2020 MANAGEMENT’S REVIEW CORPORATE MATTERS Own risks and risk management activities Test, validate and assess eciency in risk management processes and activities Establish policies and frameworks, facilitate risk identification and monitoring Business Management & Risk Owners Internal Audit First line of defence Third line of defence Group Risk Management & Risk Managers Second line of defence Board of Directors / Audit Committee Approve and accept risk policy including risk appetite and tolerance Executive Board Monitor the risk management framework and eectiveness Solar’s risk management is based on Enterprise Risk Management (ERM) and the Board of Direc- tors’ rules of procedure, which place the responsibility for risk management with the Executive Board. RISK MANAGEMENT The Executive Board is responsible for ensuring that the necessary policies and procedures are in place, that ecient risk management systems have been established for all relevant areas and are improved continuously. The overall purpose of the risk management initiative is to support the running of a robust business that is able to react quickly and flexibly when conditions change. Solar’s risk management work covers all relevant Solar companies in Denmark, Norway, Sweden, the Netherlands, Poland and MAG45. The process supports national management teams in taking a structured approach towards risk management, with risk self-assessments anchored in the annual cycle. The data is consolidated at group level, and the findings are presented to the Board of Directors for approval. The individual risk owners are responsible for mitigating risks to a level within Solar’s risk appe- tite and tolerance. Throughout the year, Solar’s Group Risk Management and local risk managers actively monitor the progress of such mitigation to ensure that risks are at the acceptable level. THREE LINES OF DEFENCE Solar’s risk management is organised according to the three lines of defence model which demonstrates and structures roles, responsibilities and accountabilities for risks, decision-making and control to achieve eective governance, risk manage- ment and assurance. 35Solar – Annual Report 2020 MANAGEMENT’S REVIEW CORPORATE MATTERS RISK CATEGORY Risk seeking Risk tolerantRisk neutral RISK APPETITE RISK TOLERANCE Moderately Risk Averse Risk averse Governance and compliance Strategy and planning Operations and infrastructure Low Low-medium Low-medium High High Low Low IMPACT PROBABILITY C A H G B F D E A B C D E F G H RISK MANAGEMENT RISK DEFINITION The focus of Solar’s risk management is to iden- tify and assess operational risks and operational aspects of strategic risks throughout Solar Group. Solar defines these risks as events or develop- ments that could significantly reduce Solar’s ability to: 1. Meet profit expectations, 2. Execute the strategy, and/or 3. Maintain a licence to operate. Solar works with the concepts of gross risk (in- herent risk) and net risk (residual risk). The gross risk eect is defined as the product of the impact and the probability of the risk materialising without any change in current risk mitigation. The net risk eect is defined as the risk level when considering current as well as planned mitigation activities regarding both impact and probability. RISK APPETITE AND TOLERANCE Solar’s risk appetite and risk tolerance articulate the extent to which Solar is willing to accept risks in three overarching categories: Governance and Compliance, Strategy and Planning, Operations and Infrastructure. Accordingly, risk appetite outlines Solar’s strategic outlook towards risk and defines the degree to which Solar is risk-seeking or risk- avoiding, while the risk tolerance, as an indicative parameter, outlines the level of net risk that Solar is willing to accept for a given measure of reward. RISK APPETITE AND TOLERANCE PER RISK CATEGORY SOLAR RISK MAP 2021 Risk appetite and risk tolerance are set by the Board of Directors and are reviewed annually. RISK SELFASSESSMENT Solar evaluates the eect of a risk based on a product of the probability of the risk materi- alising and the gross impact if the risk does materialise. In detail, the probability of the risk is defined as the expected frequency with which the risk may occur, while the impact is divided into four dimensions: 1. Eect on earnings 2. Reputational damage 3. Compliance (licence to operate) 4. Business activities RISK HANDLING The purpose of identifying and then handling risk is, at all times, to bring it to an acceptable level, which is in line with risk appetite and tolerance. Solar works with four dierent risk treatment strategies when handling risks. • Avoid – seeks to eliminate uncertainty by changing circumstances. • Transfer – seeks to transfer ownership and/or liability of the risk to a third party. • Accept – recognises net risks and monitors risk exposure. • Mitigate – seeks to minimise risk exposure to below an acceptable threshold. To ensure an understanding of risk philosophy and the treatment preferences, Solar provides structured criteria concerning risk attitude and a catalogue of mitigating activities. Cyberattack IT interruptions Market volatility Warehouse operations Credit management Customer migration to new webshop New entrants in the market Central warehouse breakdown Solar’s top risks are mapped out in terms of probability and impact in the risk map. 36Solar – Annual Report 2020 MANAGEMENT’S REVIEW CORPORATE MATTERS RISK MANAGEMENT EXPOSURE TO POTENTIAL TOP RISKS AND MITIGATION One of the risks reported last year - change of warehouse management system (DK, NO, NL) - is no longer a risk as the SAP eWM system was successfully implemented in Solar Danmark, Solar Norge and Solar Nederland. CYBERATTACK The risk is unchanged. Risk of IT breakdown and/or data breach due to cyberattack. Business interruptions in the shape of data com- promise, denial of service, intellectual property the and regulatory consequences are among the repercussions of various cyber incidents, ulti- mately leading to financial losses and an inability to run daily operations. The probability of the worst-case scenario is medium, but the potential impact is assessed as high. Mitigation eorts concentrate on strengthening cyber resilience. This includes monitoring the network for unusual behaviour as well as pro- viding new security tools or upgrading existing ones. Ongoing activities related to network safety aim to minimise the damage from a potential attack. During 2020, Solar’s “crown jewels” (the most critical systems) were identified to facilitate proactive protection by implementing controls to safeguard them. Additional eorts focus on the impact analysis of business activities, which supports developing better business continuity and disaster recovery planning – these activities will secure readiness and clarity of priorities with- in IT and business during a potential interruption. Group IT continues to communicate appropriate internal information about IT security to maintain organisational awareness. IT INTERRUPTIONS The risk is unchanged. Risk of business interruption due to unforeseen but inherent events aecting IT operations such as fire, power outage, network or system failure, and other natural or unintentional man-made adversities. Potential IT interruptions may have a significant impact on earnings and reputation, depending on the nature and scale of the event. However, the probability of the worst-case scenario is between low and medium, but the potential impact is assessed as between medium and high. The IT area is continuously monitored and evalu- ated. Business-critical applications are mirrored at two central data centres in order to safeguard IT operations, so that the business can continue to run if one centre experiences downtime. Mit- igation eorts planned to reduce the risk of cy- berattacks – such as increasing network security and developing better business continuity plans – will simultaneously reduce the risk of losing the stability of digital operations. Risk Scenario Impact Mitigation 37Solar – Annual Report 2020 MANAGEMENT’S REVIEW CORPORATE MATTERS A B RISK MANAGEMENT MARKET VOLATILITY This risk has been added to the list of top group risks this year. Risk of adverse market conditions and multiple unwanted events due to the pandemic. Rapid changes caused by the pandemic, the authorities’ interference in the business sector as well as the dynamics of the regulatory environ- ment may influence the digital transformation and challenge the flexibility of our business model. The probability of the worst-case scenario is assessed as between low and medium, but its impact is assessed as high. In the first two quarters of 2020, Solar Group and its subsidiaries established a governance model supplemented by scenario analyses and high- level recommendations on how to act in certain circumstances. With the appointed response teams at corporate, local and business area levels, Solar adopted a number of preventative activities focused on the safety of employees, customers and suppliers. Detailed mitigation plans aligned with probable scenarios were implemented and regularly updated. The way Solar handled the pandemic fallout in Q1 and Q2 2020 by adopting quickly to market conditions gives confidence that the company can react quickly and appropriately if the situation recurs. WAREHOUSE OPERATIONS This risk has been added to the list of top group risks this year. Risk of business interruption in one or more central warehouses due to strict safety regula- tions and/or increased sta absence caused by COVID-19. The risk relates to a very dynamic spread of the pandemic leading to inevitable consequences, such as strict safety regulations during lockdown and/or increased sta absence. When absence in the warehouse grows visibly or when Solar companies need to reduce sta attendance in warehouses because of new regulations, it may have a visible impact on customer deliveries. The probability as well as the potential impact of the worst-case scenario is assessed as between low and medium. Solar regularly monitors the impact of the pan- demic on local markets and follows recommenda- tions of health organisations or local authorities in order to protect all employees and those of third parties. An extensive contingency plan for warehouse sta was created in March and is regularly upgraded to support the management of the consequences of the pandemic and to secure business continuity. It includes i.e. zoning procedures and equipment, strict hygiene rules, detailed capacity planning, protection of key employees as well as guidelines on how to act if any disease has been detected. The flexible remediation plan and a wide range of preventa- tive actions continue to keep the risk within the appetite for risk. CREDIT MANAGEMENT This risk has been added to the list of top group risks this year. Risk of negative financial consequences due to extending credit to customers. Extending credit to customers is regarded as a natural and important element in Solar’s business operations. If a negative market cycle occurs, then the credit risk will increase - the pandemic fallout may raise the likelihood of the risk, in par- ticular when government support packages are withdrawn. The probability as well as the poten- tial impact of the worst-case scenario is assessed as close to medium. Solar conducts ecient credit management at all times and monitors the development of credit risk. In March, the credit policy was tightened due to the COVID-19 pandemic. Furthermore, we have taken out insurance to hedge against potential losses on trade receivables. In addi- tion, uninsured trade receivables are generally spread across a large number of small customers. Impacts from COVID-19 have increased risks on trade receivables. Risk Scenario Impact Mitigation 38Solar – Annual Report 2020 MANAGEMENT’S REVIEW CORPORATE MATTERS C D E RISK MANAGEMENT CUSTOMER MIGRATION TO NEW WEBSHOP The risk is reduced. Risk of customers’ negative experience and failure to harvest expected benefits from new e-commerce platform Failure to transfer customers successfully from the current platforms (webshop and mobile app) to the new ones as well as failure to meet cus- tomers’ expectations concerning the company’s digital solutions may aect the benefits assumed by Solar and lead to loss of competitiveness. The probability as well as the potential impact of the worst-case scenario is assessed as between low and medium. Customers are invited to use the new platform on a regular basis. Ensuring the right market research model helps Solar to understand the needs and behaviour of customers who have mi- grated to the new platform. Enhanced reporting is distributed and promoted within the sales and commercial market organisations as a tool for analysing trends on a regular basis. Keeping the old webshop running remains an alternative for dissatisfied or non-migrated customers. NEW ENTRANTS IN THE MARKET This risk has been added to the list of top group risks this year. Risk of new market players entering the market leading to increased competition and/or price pres- sure with a negative impact on Solar’s business. The current commercial risk of strong new entrants in the market, which may result in reduced competitiveness, lost revenue and decreased earnings. However, the probability of the worst-case scenario is assessed as between low and medium with a potential impact assessed to be medium. A dedicated cross-functional team is in place to monitor potential new players’ strategies and/or recent market developments, as well as to under- stand customers’ present and future buying cri- teria. Commercial market and sales organisations monitor this for early indicators. In accordance with observations and feedback, Solar continues to invest in digital tools and value adding services, which adapt to new trends. CENTRAL WAREHOUSE BREAKDOWN The risk is reduced. Risk of business interruption within central ware- house due to unforeseen but inherent events such as fire, power outage, flooding, and other natural or man-made adversities. Unwanted events may potentially lead to partial or complete warehouse breakdown. Materialisa- tion of this risk can result in financial losses as well as loss of reputation. Thanks to continuous progress in removing equipment failure from significant risk factors, the likelihood of a ware- house breakdown decreased compared to last year. The probability of the worst-case scenario is now assessed as remote, but potential impact is assessed as between medium and high. Business contingency plan (BCP) is developed collaboratively in all central warehouse commu- nities. It clarifies roles and responsibilities and describes actions required from sta in case of possible force majeure events. Additionally, Solar ensures regular audits of warehouses in order to verify the level of preventative and detectable security measures undertaken to protect the facilities. Risk Scenario Impact Mitigation 39Solar – Annual Report 2020 MANAGEMENT’S REVIEW CORPORATE MATTERS F G H E n v i r o n m e n t a l Solar is committed to turning energy eciency into a profitable and responsible business for our customers. ENVIRONMENTAL, SOCIAL & GOVERNANCE SOLAR LEADING WITH TRANSPARENCY We see governance as a valuable tool for exercising sound management and ensuring transparency for shareholders and other stakeholders. RESPONSIBLE USE OF RESOURCES Solar seeks to reduce environmental im- pacts and promote sustainable solutions via our product and service portfolio. BECAUSE WE CARE We seek to ensure safe working con- ditions for our employees and respect human rights in our operations as well as in our business relations. 98% Board meeting attendance rate 24 times CEO pay ratio 1 4,115 tons CO 2 e, scope 1 5,191 tons 3 CO 2 e, scope 2 2,935 FTEs Full-time workforce 17% Gender diversity management 5.2% Employee turnover rate 2 9.2 days/FTE Sickness absence 27% Gender diversity 17% Gender diversity board Through several initiatives we have reduced our impact on the environment and will continue to focus on opportunities that benefit the surroundings, the customers and Solar. We have also reduced energy consumption by installing AutoStore, made a substantial reduction in the use of plastic in our operations, installed solar panels at the MAG45 site in the Netherlands, withdrawn fossil fuel driven equipment from our assortment in Denmark and introduced sustain- able courses at Solar School. We will continue to focus on our environmental footprint for the benefit of customers, shareholders and Solar itself. 1) If measured against Danish employees, the CEO pay ratio amounts to 20 times. 2) Voluntary employee turnover 3) Aer disclosing CO2e, scope 2, Metric tons 4,841 to CDP, additional 350 Metric tons were identified summing up to a total of 5,191 Metric tons in 2019. 1.14times Gender pay ratio For further information please see our Sustainability Report 2020 and the Global Compact website WWW.SOLAR.EU/OURCOMPANY/CSR WWW.UNGLOBALCOMPACT.ORG 40Solar – Annual Report 2020 MANAGEMENT’S REVIEW CORPORATE MATTERS G o v e r n a n c e S o c i a l CORPORATE GOVERNANCE In general, Solar considers the 2017 recommendations of the Danish Committee on Corporate Governance a valuable tool for exercising sound management, good transparency for shareholders and other stakeholders, and ecient risk management. SOLAR COMPLIES WITH CORPORATE GOVERNANCE RECOMMENDATIONS A full description of Solar’s views on the individu- al items in the corporate governance recommen- dations is available at: www.solar.eu/investor/ corporate-governance. DEVIATION Solar complies with 46 of 47 recommendations but deviates from: Recommendation on the procedure for evaluating the Board of Directors The Board of Directors undertakes an annual evaluation of the work of the Board and the inter- action between the Board of Directors and the Executive Board. This includes an evaluation of the Chairman’s leadership of the Board’s work. The evaluation is based on a number of questions covering all aspects of the Board’s work. The questions are the same every year in order to identify trends and are rarely changed. The Board of Directors finds that the repetitive format is preferable to occasional external assistance. The Chairman is responsible for evaluation, which is discussed by the Board of Directors. If the need for skills development becomes apparent, members of the Board of Directors participate in relevant courses and supplementary training as agreed. EVALUATION The Chairman is responsible for the evaluation of the Board of Directors’ work by means of a questionnaire. The purpose is to assess whether the overall skills of the Board of Directors match the company’s current needs. The evaluation also considers the quality of the material distributed to the Board, the holding of Board meetings and the relevance of issues discussed in terms of legal requirements, risk factors and the company’s development potential. The 2020 evaluation has been shared with the Nomination Committee and has not given rise to any additional measures. STATUTORY CORPORATE GOVERNANCE STATEMENT Solar has chosen to make the statutory corporate governance statement, cf. Danish Financial Statements Act section 107b, avail- able on the company’s website. Please use this link to view the statutory corporate governance statement 2020: THE AUDIT COMMITTEE AND INTERNAL AUDIT Descriptions of the roles and responsibilities of the Audit Committee and Internal Audit are available on the link below. 41Solar – Annual Report 2020 MANAGEMENT’S REVIEW CORPORATE MATTERS SOLAR.EU/INVESTOR/CORPORATEGOVERNANCE SOLAR.EU/INVESTOR/CORPORATEGOVERNANCE WWW.SOLAR.EU/INVESTOR/ INVESTOR RELATIONS POLICY We strive to maintain an open dialogue with its investors and to provide them with correct and adequate information for making reasoned investment decisions concerning Solar's shares. We ensure all investors are given fair and equal access to information by publishing relevant information via Nasdaq Copenhagen. We participate in conferences, arrange road- shows and conduct meetings with investors and financial analysts following the publication of quarterly and annual reports. Investor meetings and similar events cannot be held during our quiet periods, which start on 4 January, 4 April, 4 July and 4 October and end with the publication of a quarterly or annual report. SOLAR’S SHARES Solar’s share capital is divided into nominal value DKK 90m A shares and nominal value DKK 646m B shares. The A shares are not listed. The B shares are listed on Nasdaq Copenhagen under the ID code DK0010274844, are designated SOLAR B, and are part of the MidCap index and MidCap on Nasdaq Nordic. The share capital includes 900,000 A shares and 6,460,000 B shares. Solar’s portfolio of treasury SHAREHOLDER INFORMATION shares totals 61,708 B shares or 0.8% of share capital. A shares have 10 votes per share amount of DKK 100, while B shares have 1 vote per share amount of DKK 100. To be entitled to vote, shares must be registered in Solar’s register of shareholders no later than one week before the date of the Annual General Meeting. SHAREHOLDERS As at 31 December 2020, registered share capital totalled 92.8%, distributed among 4,807 sharehold- ers. Three shareholders have notified Solar of hold- ings of 5% or more of the share capital or votes: ANNUAL GENERAL MEETING Solar’s Annual General Meeting will be held on Friday 19 March 2021 at 11.00. Shareholders can register for the Annual Gener- al Meeting at the investor portal accessible via The Board of Directors will submit the fol- lowing proposals for approval by the Annual General Meeting: • Payment of DKK 28.00 in return per share outstanding of DKK 100. • Authority to decide to distribute extraordinary dividends of up to DKK 15.00 per share. • Authority to acquire treasury shares valued at up to 10% of share capital. • Approval of remuneration report 2020 • Approval of the Board of Directors’ remu- neration of unchanged DKK 200,000 in 2021. • Approval of Deloitte as new auditors A presentation of our Board of Directors can be found on pages 45-46. Investor Relations is responsible for communication with the capital markets. We make information accessible on our website and maintain an open dialogue with investors. Holdings of 5% or more of share capital Share capital in % Votes in % The Fund of 20th December, Vejen, Denmark 16.9% 60.0% RWC Asset Management LLP, London, England 1 14.7% 7.0% Nordea Funds Ltd., Helsinki, Finland 10.4% 5.0% Investeringsforeningen Nordea Invest, Copenhagen, Denmark 5.0% 2.4% 1) As of 14 January 2021, RWC Asset Management LLP holds 733,779 shares in Solar or 9.969% of share capital, corresponding to less than 5% of voting rights. DISTRIBUTION OF SHARE CAPITAL AND VOTES AS AT 31 DECEMBER 2020 IN % 42Solar – Annual Report 2020 MANAGEMENT’S REVIEW CORPORATE MATTERS 31.12.1901.01.19 MidCap Solar B 80 90 100 110 120 130 140 31.12.2001.01.20 MidCap Solar B 0 20 40 60 80 100 120 140 SHAREHOLDER INFORMATION DIVIDENDS Solar’s ambition is to pay an attractive return to shareholders. At the Annual General Meeting, the Board of Directors will propose distributing DKK 204m as dividend, corresponding to DKK 28.00 per share outstanding of DKK 100. TOTAL SHAREHOLDER RETURN Total shareholder return on the Solar B share during the holding period from 1 January 2020 to 31 December 2020 was DKK 75 equal to 25% as DKK 14.00 was paid out in dividend and the share price increase amounted to DKK 61 in 2020. SHARE PRICE DEVELOPMENT On 31 December 2020, the price of Solar’s B share was DKK 360, up from the 2020 starting price of DKK 299. This is an increase of approx. 20% in So- lar’s share price over the year. By way of compari- son, the MidCap index increased 33% in 2020. ANALYSTS The following financial institutions cover the Solar share: • Carnegie Bank • Danske Bank • Nordea Bank • SEB INVESTOR CONTACT Dennis Callesen Investor Relations Director Tel.: +45 29 92 18 11 E-mail: [email protected] Share price development (index) FINANCIAL CALENDAR 2021 19 March Annual General Meeting 4 April - 6 May IR quiet period 6 May Quarterly Report Q1 2021 4 July - 12 August IR quiet period 12 August Quarterly Report Q2 2021 4 October - 4 November IR quiet period 4 November Quarterly Report Q3 2021 WINNER OF THE ANNUAL REPORT AWARD FOR SMALL AND MIDCAP COMPANIES The highlights in Solar's annual report are the good description of the business model and risks, a good ESG overview and a good description of accounting policies that fits well with the size of the company. We are pleased to contribute to best practice in relation to future annual re- porting and thus support the Danish accounting culture. 43Solar – Annual Report 2020 MANAGEMENT’S REVIEW CORPORATE MATTERS BOARD OF DIRECTORS BOARD OF DIRECTORS' AFFILIATION WITH SOLAR Peter Bang, Morten Chrone, Louise Knauer and Jens Peter To are independent of the company pursuant to the definition in the recommenda- tions on corporate governance in Denmark. Jens Borum has been member of the Board of Direc- tors for more than 12 years. Jesper Dalsgaard is aliated with the Fund of 20 th December, Solar's majority shareholder. In 2020, the Board of Directors elected Jens Peter To, Peter Bang and Louise Knauer as members of the Audit Committee. Jens Peter To chairs the Audit Committee. He and Peter Bang have special accounting qualifications. The Board of Directors elected Jens Peter To and Louise Knauer as members of the Remuneration Committee together with the Chairman of the Board of Directors Jens Borum. Jens Borum chairs the Remuneration Committee. EMPLOYEE REPRESENTATIVES Under the law, employee representatives have the same rights, duties and responsibilities as the other members of the board. Under Danish law, employees have the right to elect a number of representatives and alternates, corresponding to half the representatives elected by the Annual General Meeting at the time of the announce- ment of the election of employee representa- tives. ELECTION PERIOD All board members elected at the Annual General Meeting stand for election each year, whereas employee representatives are elected by and among the company’s employees for four-year terms. ACTIVITIES A minimum of six ordinary board meetings as well as one conference for the Board of Directors are held each year. In 2020, we had nine board meetings and one conference for the Board of Directors. The Board of Directors and the Executive Board, which com- prises the CEO, CCO and CFO, are jointly responsible for Solar Group’s overall and strategic management. Board member Board Meetings Board Conference Audit Committee Remuneration Committee Jens Borum 8 1 1 1 Jesper Dalsgaard 9 1 - - Lars Lange Andersen 9 1 - - Peter Bang 9 1 9 - Morten Chrone 9 1 - - Ulrik Damgaard 9 1 - - Bent Frisk 9 1 - - Louise Knauer 9 1 8 1 Jens Peter To 8 1 9 1 MEETING ATTENDANCE IN 2020 44Solar – Annual Report 2020 MANAGEMENT’S REVIEW CORPORATE MATTERS Jens Borum Jesper Dalsgaard Jensen Lars Lange Andersen Peter Bang Morten Chrone Born 1953, joined 1982 Chairman Born 1968, joined 2017 Vice Chairman Born 1968, joined 2010 Employee-elected member Born 1969, joined 2018 Born 1966, joined 2019 • Associate Professor, University of Copenhagen • M.Sc. 1980, PhD 1985. • Has long-standing experience as chairman. • Remuneration 2020: DKK 712,500 • Holds 118,520 Solar B shares. Did not trade Solar shares in 2020. • Managing Director, Rambøll Environment & Health, Rambøll Group A/S. • M.Sc. in Law and Business Adminis- tration 1993. • Member of the board of directors of the Fund of 20th December and Mannaz A/S. • Possesses executive management experience of companies managed by funds and companies within the construction industry, and has experience within strategy, business development and mergers & acquisitions. • Remuneration 2020: DKK 418,750. • Holds 1,100 Solar B shares. Ac- quired 600 Solar shares in 2020. • Head of F&B Scandinavia. • Remuneration 2020: DKK 200,000. • Holds 93 Solar B shares. Did not trade Solar shares in 2020. • Executive Director & CFO, VELUX. • Cand.oecon. 1994 from Aarhus University, specialising in business economics and financing. • Seat on seven internal boards of the VELUX group. CEO and mem- ber of the board of O.B. Holding Aabenraa ApS and member of the board of directors of BIMobject. • Experience within construction, climate/energy, globalisation, digitalisation, organisational de- velopment, change management, communication as well as finance and performance management. • Remuneration 2020: DKK 400,000. • Holds 1,200 Solar B shares. Ac- quired 800 Solar shares in 2020. • Group CEO, Unisport Saltex Oy • MBA 2001 and B.Eng. in Civil and Constructional Engineering 1994. • Chairman of the board of Unisport Scandinavia ApS and CEO of Mads ApS. • Has held management positions within the construction industry/ wholesale business in Denmark and abroad for the past 25 years and has significant knowledge of So- lar’s core business and the markets we operate in. • Remuneration 2020: DKK 312,500. • Holds 712 Solar B shares. Acquired 302 Solar shares in 2020. BOARD OF DIRECTORS MEMBERS OF THE BOARD OF DIRECTORS 45Solar – Annual Report 2020 MANAGEMENT’S REVIEW CORPORATE MATTERS Ulrik Damgaard Bent H. Frisk Louise Knauer Jens Peter To Born 1973, joined 2014 Employee-elected member Born 1961, joined 2006 Employee-elected member Born 1983, joined 2017 Born 1954, joined 2009 • Regional Director. • Remuneration 2020: DKK 200,000. • Holds 60 Solar B shares. Did not trade Solar shares in 2020. • Central Warehouse Manager. • Remuneration 2020: DKK 200,000. • Holds 60 Solar B shares. Did not trade Solar shares in 2020. • CED of Lady Invest ApS. • BSc in business administration and commercial law, 2006, and MSc in finance and strategic management, 2008. • Member of the boards of directors of REKOM A/S, CC Fly Holding I ApS, CC Fly Holding II A/S, CC Globe Holding I ApS, CC Globe Holding II A/S, Skako A/S and two subsidiaries hereof. • Possesses experience as CEO and member of executive committees with developing strategies and companies both nationally and internationally. Expertise within technologically-driven innovation, digitalization, data/AI/ML and cyber security. • Remuneration 2020: DKK 393,750. • Holds 381 Solar B shares. Did not trade Solar shares in 2020. • CED of Selskabet af 11. december 2008 ApS and one subsidiary hereof. • Graduate Diploma in Business Administration (Financial and Management Accounting) 1983, the Executive Program, University of Michigan Business School. • Chairman of the boards of directors of Mipsalus Holding ApS and one subsidiary hereof and of Fonden af 4. December 2001. • Vice chairman of the board of direc- tors of M. Goldschmidt Holding A/S. • Member of the boards of directors of Bitten og Mads Clausens Fond, the unit trusts Danske Invest, Danske Invest Select, Profil Invest, Danske Invest Index and the capital units Danske Invest Institutional and AP Invest, Civilingeniør N.T. Rasmus- sens Fond, Enid Ingemanns Fond, Fondet for Dansk Norsk Samarbej- de, three subsidiaries of M. Goldschmidt Holding A/S, Dansk Vækstkapital II, Dagrofa ApS and Mahia 17 ApS, and Selskabet af 11. December 2008 ApS. • Member of the investment com- mittee of GRO Capital I. • Possesses experience of capital market transactions, financial matters, investments, organisation, general management and stock exchange matters. • Remuneration 2020: DKK 500,000. • Holds 1,250 Solar B shares. Did not trade Solar shares in 2020. BOARD OF DIRECTORS MEMBERS OF THE BOARD OF DIRECTORS 46Solar – Annual Report 2020 MANAGEMENT’S REVIEW CORPORATE MATTERS EXECUTIVE MANAGEMENT EXECUTIVE BOARD AND SOLAR GROUP MANAGEMENT Jens E. Andersen Hugo Dorph Michael H. Jeppesen Born 1968 CEO and MD Denmark Born 1965 CCO Born 1966 CFO • Chairman of the boards of directors of 8 Solar Group subsidiaries. • Member of the boards of directors of VELTEK, Associated Danish Ports A/S and HF Christiansen Holding A/S and two subsidiaries hereof. • Holds 5,520 Solar B shares of which 1,040 were purchased in 2020. • Holds 2,709 share options and 5,076 restricted share units. 2,666 restricted share units were granted in 2020. 2,912 share options expired in 2020. • Remuneration: DKK 9.3m. • Member of the boards of directors of 5 Solar Group subsidiaries. • Chairman of the board of directors of Flexya A/S, Flexya Innovations A/S and HomeBob A/S. • Member of the boards of directors of LetsBuild Denmark ApS. • Holds no Solar shares. • Holds 2,703 share options and 2,738 restricted share units. 1,341 restricted share units were granted in 2020. 2,928 share options expired in 2020. • Remuneration: DKK 5.3m. • Member of the boards of directors of all Solar Group subsidiaries. • Member of the boards of directors of Aktieselskabet Sønder Omme Plantage. • Holds 1,894 Solar B shares. • Holds 2,186 share options and 2,496 restricted share units. 1,331 restricted share units were granted in 2020. 2,432 share options expired in 2020. • Remuneration: DKK 4.9m. SOLAR GROUP MANAGEMENT Solar Group Management comprises the Executive Board, our senior vice presidents and the MDs of the Solar Group subsidiaries. Jan Willy Fjellvær Born 1961 Senior Vice President & MD Norway Lars Goth Born 1961 Senior Vice President, Group Operations Anders Koppel Born 1969 Senior Vice President & MD Sweden Peter Pedersen Born 1970 Senior Vice President, Commercial Market Michiel Rohrman Born 1967 Senior Vice President & MD the Netherlands Frank Simonsen Born 1978 Senior Vice President, Finance Ole Sørensen Born 1971 Senior Vice President, Industry Sales Dariusz Targosz Born 1969 Senior Vice President & MD Poland Bauke Zeinstra Born 1966 Senior Vice President & MD MAG45 47Solar – Annual Report 2020 MANAGEMENT’S REVIEW CORPORATE MATTERS 00:19 EFFICIENT LOGISTICS As time is of the essence, we use night deliveries. Our customers can place their orders until 6pm and receive their materials before starting work the next day. SHIPMENTS Solar’s drop shipments totalled 2.5 million in 2020 FINANCIAL STATEMENTS 4949Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 CONSOLIDATED FINANCIAL STATEMENTS 2020 CONTENTS NOTES TO THE FINANCIAL STATEMENTS Basis for preparation 1 General accounting policies 58 2 Significant accounting estimates and assessments 61 3 Financial risks 61 Notes to the income statement 4 Segment information 62 5 Sta costs 65 6 Loss on trade receivables 66 7 Depreciation, write-down, amortisation and impairment 66 8 Income tax 67 9 Net profit for the year 70 Invested capital 10 Intangible assets 71 11 Property, plant and equipment 75 12 Leases 77 13 Associates 80 14 Inventories 82 15 Trade receivables 83 16 Other provisions 84 17 Other payables 85 18 Acquisitions of subsidiaries and activities 86 19 Assets and liabilities held for sale 88 Capital structure and financing costs 20 Share capital 89 21 Earnings per share in DKK per share outstanding for the year 90 22 Interest-bearing liabilities and maturity statement 91 23 Financial income 95 24 Financial expenses 95 Other notes 25 Share-based payment 96 26 Contingent liabilities and other financial liabilities 98 27 Related parties 98 28 Auditors’ fees 99 29 New financial reporting standards 99 Summary for the Solar Group 51 Statement of comprehensive income 53 Balance sheet 54 Cash flow statement 55 Statement of changes in equity 56 Notes 58 51Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 Cash flow (DKK million) 2020 2019 2018 2017 2016 Cash flow from operating activities, continuing operations 813 300 224 7 203 Cash flow from investing activities, continuing operations 162 -194 -112 -342 -152 Cash flow from financing activities, continuing operations -627 -110 -108 99 -388 Net investments in intangible assets -50 -35 -88 -106 -88 Net investments in property, plant and equipment -25 -110 -59 -14 51 Acquisition and divestment of subsidiaries and operations, net 0 -35 50 -16 -97 Financial ratios (% unless otherwise stated) Revenue growth -1.8 5.2 0.3 6.4 5.2 Organic growth -1.2 4.8 1.8 6.4 3.2 Organic growth adjusted for number of working days -2.0 4.9 2.2 7.0 2.3 Gross profit margin 21.0 20.1 20.2 20.7 21.1 EBITDA margin 5.6 4.6 3.4 3.3 3.5 EBITA margin 4.0 3.1 2.9 2.8 3.0 EBIT margin 2.2 2.2 2.0 1.6 2.5 Eective tax rate 26.0 45.2 23.3 17.0 28.3 Net working capital (year-end NWC)/revenue (LTM) 9.7 11.0 9.8 9.7 8.4 Net working capital (average NWC)/revenue (LTM) 11.5 11.9 10.6 10.2 10.1 Gearing (net interest-bearing liabilities/EBITDA), no. of times 0.2 1.7 1.2 1.3 0.1 Return on equity (ROE) 13.5 4.0 8.2 1.2 7.1 Return on invested capital (ROIC) 13.8 8.3 8.1 6.3 10.0 Adjusted enterprise value/earnings before interest, tax and amortisation (EV/EBITA) 5.8 7.9 6.8 10.4 8.8 Equity ratio 36.8 31.9 35.4 33.7 37.4 Income statement (DKK million) 2020 2019 2018 2017 2016 Revenue 11,465 11,679 11,098 11,061 10,420 Earnings before interest, tax, depreciation and amortisation (EBITDA) 637 538 379 362 368 Earnings before interest, tax and amortisation (EBITA) 455 360 327 310 312 Earnings before interest and tax (EBIT) 248 260 224 176 256 Financials, net -40 -35 -35 70 -33 Earnings before tax (EBT) 300 120 237 176 223 Net profit for the year 222 64 133 19 125 Balance sheet (DKK million) Non-current assets 1,339 1,756 1,516 1,522 1,397 Current assets 3,268 3,234 3,117 3,195 3,109 Balance sheet total 4,607 4,990 4,633 4,717 4,506 Equity 1,696 1,592 1,638 1,591 1,683 Non-current liabilities 498 503 543 557 375 Current liabilities 2,413 2,895 2,452 2,569 2,448 Interest-bearing liabilities, net 128 921 461 489 43 Invested capital 1,760 2,297 1,797 1,790 1,744 Net working capital, year-end 1,10 9 1,280 1,090 1,081 998 Net working capital, average 1,322 1,386 1,182 1,133 1,187 SUMMARY FOR THE SOLAR GROUP 2016-2020 52Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 In general, financial ratios are calculated in accordance with the Danish Finance Society’s “Recommendations & Financial Ratios 2019”. As at 1 January 2019, Solar implemented IFRS 16, Leases, by applying the modified retrospective approach. Comparative figures are not restated. This especially aects EBITDA, interest-bearing liabilities, EBITDA margin, gearing and equity ratio. In general, restatements have been made of income statements, cash flow and key ratios for the discontinued operations regarding STI for 2017 and 2018, and Claessen ELGB N.V. and GFI GmbH for 2016 and 2017. In accordance with IFRS, the balance sheet has not been restated. SUMMARY FOR THE SOLAR GROUP Share ratios (DKK unless otherwise stated) 2020 2019 2018 2017 2016 Earnings per share outstanding (EPS) 30.42 8.77 18.22 2.60 16.50 Intrinsic value per share outstanding 232.38 218.13 224.44 218.00 230.60 Cash flow from operating activities per share outstanding 111.40 41.11 30.67 0.96 26.77 Share price 353.70 297.31 284.12 414.52 361.80 Share price/intrinsic value 1.52 1.36 1.27 1.90 1.57 Dividends per share 28.00 14.00 14.00 10.00 12.00 Dividend in % of net profit for the year (payout ratio) 91.9 159.4 76.7 385.6 70.2 Price Earnings (P/E) 11.6 33.9 15.6 159.2 21.9 Employees Average number of employees (FTEs), continuing operations 2,935 3,039 2,941 2,870 2,814 Definitions Organic growth Revenue growth adjusted for enterprises acquired and divested and any exchange rate changes. No adjustments have been made for number of working days. Net working capital Inventories and trade receivables less trade payables. ROIC Return on invested capital calculated on the basis of operating profit exclusive impairment on goodwill less tax calculated using the eective tax rate. 2016-2020 – continued 53Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 Income statement Note DKK million 2020 2019 4 Revenue 11,465 11,679 Cost of sales -9,060 -9,326 Gross profit 2,405 2,353 Other operating income and costs 8 9 28 External operating costs -288 -329 5 Sta costs -1,465 -1,477 6 Loss on trade receivables -23 -18 Earnings before interest, tax, depreciation and amortisation (EBITDA) 637 538 7 Depreciation and write-down on property, plant and equipment -182 -178 Earnings before interest, tax and amortisation (EBITA) 455 360 7 Amortisation and impairment of intangible assets -207 -100 Earnings before interest and tax (EBIT) 248 260 13 Share of net profit from associates -12 -19 13 Impairment and gain from divestment of associates 104 -86 23 Financial income 24 18 24 Financial expenses -64 -53 Earnings before tax (EBT) 300 120 8 Income tax -78 -54 Profit of continuing operations 222 66 19 Loss of discontinued operations 0 -2 9 Net profit for the year 222 64 21 Earnings in DKK per share outstanding (EPS) for the year 30.42 8.77 21 Diluted earnings in DKK per share outstanding (EPS-D) for the year 30.38 8.77 21 Earnings in DKK per share outstanding (EPS) of continuing operations for the year 30.42 9.04 21 Diluted earnings in DKK per share outstanding (EPS-D) of continuing operations for the year 30.38 9.04 Please see note 19 on discontinued operations for earnings per share outstanding (EPS) from discontinued operations. STATEMENT OF COMPREHENSIVE INCOME Other comprehensive income DKK million 2020 2019 Net profit for the year 222 64 Other income and costs recognised: Items that can be reclassified for the income statement Foreign currency translation adjustments of foreign subsidiaries -22 0 Fair value adjustments of hedging instruments before tax 7 -10 Tax on fair value adjustments of hedging instruments -1 2 Other income and costs recognised aer tax -16 -8 Total comprehensive income for the year 206 56 54Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 BALANCE SHEET Notes DKK million 2020 2019 Assets 10 Intangible assets 157 315 11 Property, plant and equipment 818 865 12 Right-of-use assets 288 341 8 Deferred tax assets 3 10 13 Investments in associates 2 146 Other non-current assets 71 79 Non-current assets 1,339 1,756 14 Inventories 1,531 1,666 15 Trade receivables 1,271 1,428 Income tax receivable 13 14 Other receivables 8 8 Prepayments 41 62 Cash at bank and in hand 404 56 Current assets 3,268 3,234 Total assets 4,607 4,990 Notes DKK million 2020 2019 Equity and liabilities 20 Share capital 736 736 Reserves -195 -179 Retained earnings 951 933 Proposed dividends for the financial year 204 102 Equity 1,696 1,592 22 Interest-bearing liabilities 199 156 12, 22 Lease liabilities 189 231 8 Provision for deferred tax 98 103 16 Other provisions 12 13 Non-current liabilities 498 503 22 Interest-bearing liabilities 41 477 22 Lease liabilities 103 113 Trade payables 1,693 1,814 Income tax payable 21 10 17 Other payables 544 464 Prepayments 2 4 16 Other provisions 9 13 Current liabilities 2,413 2,895 Liabilities 2,911 3,398 Total equity and liabilities 4,607 4,990 as at 31 December 55Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 Notes DKK million 2020 2019 Net profit or loss of continuing operations for the year 222 66 Write-down negative goodwill 0 -18 7 Depreciation, write-down and amortisation 389 278 Impairment and gain from divestment of associates -104 86 Changes to provisions and other adjustments -3 -6 Share of net profit from associates 12 19 23,24 Financials, net 40 35 Income tax 78 54 23 Financial income, received 7 8 24 Financial expenses, settled -47 -41 Income tax, settled -65 -62 Cash flow before working capital changes 529 419 Working capital changes Inventory changes 126 -92 Receivables changes 173 21 Non-interest-bearing liabilities changes -15 -48 Cash flow from operating activities, continuing operations 813 300 Cash flow from operating activities, discontinued operations 0 -2 Cash flow from operating activities 813 298 CASH FLOW STATEMENT Notes DKK million 2020 2019 Investing activities 10 Purchase of intangible assets -50 -35 Purchase of property, plant and equipment -33 -110 Disposal of property, plant and equipment 8 0 18 Acquisition of subsidaries and activities 0 -40 Acquisition of associates -2 0 Divestment of subsidiaries and activities 0 5 Divestment of associates 1 240 0 Other financial investments -1 -14 Cash flow from investing activities, continuing operations 162 -194 Cash flow from investing activities, discontinued operations 0 0 Cash flow from investing activities 162 -194 Financing activities Repayment of non-current interest-bearing debt -252 -9 Raising of non-current interest-bearing liabilities 53 0 Change in current interest-bearing debt -205 118 12 Instalment on lease liabilities -121 -117 Dividends distributed -102 -102 Cash flow from financing activities, continuing operations -627 -110 Cash flow from financing activities, discontinued operations 0 0 Cash flow from financing activities -627 -110 Total cash flow 348 -6 Cash at bank and in hand at the beginning of the year 56 65 19 Assumed on disposal of subsidaries 0 -3 Foreign currency translation adjustments 0 0 Cash at bank and in hand at the end of the year 404 56 Cash at bank and in hand at the end of the year Cash at bank and in hand 404 56 Cash at bank and in hand at the end of the year 404 56 1) DKK 237m relates to the divestment of our shareholding in BIMobject. 56Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 DKK million Share capital Reserves for hedging transactions 1 Reserves for foreign currency translation adjustments 1 Retained earnings Proposed dividends Total 2020 Equity as at 1 January 736 -66 -113 933 102 1,592 Foreign currency translation adjustments of foreign subsidiaries -22 -22 Fair value adjustments of hedging instruments before tax 7 7 Tax on fair value adjustments -1 -1 Net income recognised in equity via other comprehensive income in the statement of comprehensive income 0 6 -22 0 0 -16 Net profit for the year 18 204 222 Comprehensive income 0 6 -22 18 204 206 Distribution of dividends (DKK 14,00 per share) -102 -102 Reduction in share capital 0 Transactions with the owners 0 0 0 0 -102 -102 Equity as at 31 December 736 -60 -135 951 204 1,696 1) Reserves for hedging transactions and reserves for foreign currency translation adjustments are recognised in the balance sheet as a total amount under reserves. STATEMENT OF CHANGES IN EQUITY 57Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 STATEMENT OF CHANGES IN EQUITY DKK million Share capital Reserves for hedging transactions 1 Reserves for foreign currency translation adjustments 1 Retained earnings Proposed dividends Total 2019 Equity as at 1 January 775 -58 -113 932 102 1,638 Foreign currency translation adjustments of foreign subsidiaries 0 Fair value adjustments of hedging instruments before tax -10 -10 Tax on fair value adjustments 2 2 Net income recognised in equity via other comprehensive income in the statement of comprehensive income 0 -8 0 0 0 -8 Net profit for the year -38 102 64 Comprehensive income 0 -8 0 -38 102 56 Distribution of dividends (DKK 14,00 per share) -102 -102 Reduction in share capital -39 39 0 Transactions with the owners -39 0 0 39 -102 -102 Equity as at 31 December 736 -66 -113 933 102 1,592 1) Reserves for hedging transactions and reserves for foreign currency translation adjustments are recognised in the balance sheet as a total amount under reserves. – continued 58Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 1 General accounting policies The consolidated financial statements of Solar A/S for 2020 are presented in accordance with the International Financial Reporting Standards (IFRSs) as approved by the EU and additional Danish disclosure requirements for annual reports of listed companies cf. Nasdaq Copenhagen’s disclosure requirements for annual reports of listed companies and the IFRS executive order issued in accordance with the Danish Financial Statements Act. The consolidated financial statements have been prepared using the historical cost formula with the exception of derivative financial instruments and investments in equity instruments, which are measured at fair value, as well as non-current assets and groups of assets held for sale, which are measured at the lowest value of the book value before changes in classification or fair value less sales costs. The accounting policies described below have been applied consistently in the financial year and to the compar- ative figures except otherwise stated. Implementation of new financial reporting standards No additional standards have been implemented in 2020. We have implemented new amendments and interpre- tations on existing IFRS standards, including Amendment to IFRS 16 Leases: COVID 19-Related Rent Concessions. These changes have only insignificant impact on Solar. Presentation currency The annual report is presented in Danish kroner rounded o to the nearest 1,000,000 Danish kroner. Danish kroner is the parent company’s functional currency. Translation of foreign currency items A functional currency has been set for each reporting group entity. The functional currencies are the currencies used in the primary economic environments in which each individual reporting entity operates. Transactions in other currencies than the functional currency are considered transactions in foreign currencies. Transactions in foreign currency are translated at first recognition to the functional currency at the exchange rate prevailing at the date of the transaction. Dierences between the exchange rate prevailing on the date of the transaction and the exchange rate on the payment date are recognised in the income statement as items under financial income and expenses. All monetary items in foreign currencies that have not been settled on the balance sheet date are translated into the functional currencies using the exchange rates on the balance sheet date. Any dierence between the exchange rate prevailing on the date of the transaction and the balance sheet date exchange rate are rec- ognised in the income statement as items under financial income and expenses. When recognising entities with dierent functional currencies than Danish kroner in the consolidated financial statements, the income statements are translated at the exchange rate prevailing on the date of the trans- action and balance sheet items are translated at the balance sheet date exchange rates. The average rate of exchange for the individual months is used as exchange rate prevailing on the date of the transaction when this does not result in a considerably dierent presentation. Exchange rate dierences, from translation of these en- tities’ equity at the beginning of the year at the balance sheet date exchange rates and in connection with the translation of income statements from the exchange rate prevailing at the date of transaction to the balance sheet date exchange rates, are recognised directly in other comprehensive income as a separate reserve for foreign currency translation adjustments. When translating investments in associates with a functional currency other than Danish kroner in the consol- idated financial statement, the group’s share of comprehensive income is translated at the average exchange rates and the share of equity, including goodwill, is translated at the exchange rate on the balance sheet date. The exchange rate dierence resulting from the translation of the share of foreign associates’ equity at the be- ginning of the year at the exchange rate on the balance sheet date and the translation of the share of compre- hensive income from the average exchange rates to the exchange rate prevailing on the balance sheet date is recognised in other comprehensive income and presented in a separate reserve for foreign currency translation adjustments under equity. The cumulative currency translation adjustment is recycled to the income statement upon disposal of the investment. Consolidated financial statements The consolidated financial statements include the financial statements of the parent company Solar A/S and subsidiaries in which Solar A/S has power over the investee, exposure to variable returns and the ability to use its power over the investee to aect the returns. The consolidated financial statements have been prepared as an aggregation of the parent company and the individual subsidiaries’ financial statements and in accordance with the group’s accounting policies. Intercom- pany revenue, other intercompany operating items, intercompany balances, profit and loss from transactions between the consolidated entities as well as internal equity investments are eliminated. 59Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 General accounting policies – continued Entities over which the group has significant influence but not control over operational and financial decisions are classified as associates. Significant influence typically exists when the group directly or indirectly holds more than 20% of voting rights, but less than 50%. However, for each investment an individual assessment on the classification will be performed. The assessment will be based on our part of the voting rights and our representation on Board of Directors. If such an assessment concludes that we have insignificant influence then the investment is classified as other non-current assets. The group’s share of the associates’ earnings aer tax and the elimination of the proportional share of internal profit/loss is recognised in the income statement. The group’s share of the associates’ other comprehensive income is recognised in other comprehensive income. When obtaining significant influence over an entity in which the group has previously held an interest account- ed for as a financial asset, the fair value as of the date when the group obtained significant influence is deemed as cost under the equity method. Statement of comprehensive income Solar A/S presents the statement of comprehensive income in two statements. An income statement and a statement of comprehensive income that show the year’s results and income that forms part of other compre- hensive income. Other comprehensive income includes exchange rate adjustments, actuarial gains and losses, adjustments of investments in associates and hedging transactions. Presentation of discontinued operations Discontinued operations consists of geographical areas where activities and cash flow can be clearly separated in an operational and accounting sense from the other parts of the entity and when the entity has either been divested or separated as held for sale. Earnings aer tax of discontinued operations as well as write-down to fair value less costs to sell and gains/loss- es from any sale are presented in a separate line in the income statement with adjustment of the comparative figures. Notes include information on revenue, costs, value adjustments, financials and tax for any discontinued operations. Assets and related liabilities of discontinued operations are presented separately in the balance sheet without adjustments to comparative figures. Cash flow statement The cash flow statement shows cash flow distributed on operating, investing and financing activities for the year, changes in cash and cash equivalents, and cash at bank and in hand at the beginning and end of the year. The eect of cash flow on the acquisition and divestment of entities is shown separately under cash flow from investing activities. Cash flow from acquired entities is recognised in the cash flow statement from the date of acquisition and cash flow from divested entities is recognised until the time of divestment. Cash flow from discontinued operations is presented separately under operating, investing and financing activities. Cash flow from operating activities is determined using the indirect method as earnings before tax adjusted for non-cash operating items, changes in working capital, interest received and paid, and income tax paid. Cash flow from investing activities includes payments in connection with the acquisition and sale of intangibles, property, plant and equipment and investments, and acquisition and divestment of entities. Cash flow from financing activities includes acquisition and sale of treasury shares, dividends distribution, incurrence or repay- ment of non-current and current interest-bearing liabilities and instalment on lease liabilities. Cash at bank and in hand includes cash holdings and deposits with banks. Financial ratios Earnings per share (EPS) and diluted earnings per share (EPS-D) are determined in accordance with IAS 33. In general, financial ratios are calculated in accordance with the “Recommendations and Ratios 2019” of the Danish Finance Society. 1 60Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 1 General accounting policies – continued Description of accounting policies in notes Descriptions of accounting policies in the notes form part of the overall description of accounting policies. These descriptions are found in the following notes: Note 4 Segment information Note 8 Income tax Note 9 Net profit for the year Note 10 Intangible assets Note 11 Property, plant and equipment Note 12 Leases Note 13 Associates Note 14 Inventories Note 15 Trade receivables Note 16 Other provisions Note 18 Acquisitions of subsidiaries Note 19 Assets and liabilities held for sale Note 20 Share capital Note 22 Interest-bearing liabilities and maturity statement Note 25 Share-based payment 61Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 Significant accounting estimates and assessments When preparing the annual report in accordance with generally applicable principles, management make estimates and assumptions that aect the reported assets and liabilities. Management base their estimates on historic experience and expectations for future events. Therefore, actual results may dier from these estimates. The following estimates and accompanying assessments are deemed material for the preparation of the finan- cial statements: • Impairment test of goodwill • Impairment test of soware • Inventory write-down • Write-down for meeting of loss on doubtful receivables • Deferred tax assets These estimates and assessments are described in the following notes: Note 8 Income tax Note 10 Intangible assets Note 14 Inventories Note 15 Trade receivables 2 Financial risks Results and equity are aected by a range of financial risks. All financial transactions are based on commercial activities, and no speculative transactions are made. Financial instruments are solely used for hedging of finan- cial risks. The financial risks are described in the following notes: Note 15 Trade receivables Note 22 Interest-bearing liabilities and maturity statement For description of Solar’s other business related risks and our approach to risk management, see the manage- ment’s review on pages 35-37. 3 62Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 4 Segment information Solar’s business segments are Installation, Industry and Trade and are based on the customers’ aliation with the segments. Installation covers installation of electrical, and heating and plumbing products, while Industry covers industry, oshore and marine, and utility and infrastructure. Trade covers special sales and other small areas. The three main segments have been identified without aggregation of operating segments. Segment income and costs include any items that are directly attributable to the individual segment and any items that can be reliably allocated to the individual segment. Non-allocated costs refer to income and costs related to joint group functions. Assets and liabilities are not included in segment reporting. DKK million Installation Industry Trade Total 2020 Revenue 7,0 45 3,546 874 11,465 Cost of sales -5,645 -2,716 -699 -9,060 Gross profit 1,400 830 175 2,405 Direct costs -234 -99 -22 -355 Earnings before indirect costs 1,166 731 153 2,050 Indirect costs -542 -170 -50 -762 Segment profit 624 561 103 1,288 Non-allocated costs -651 Earnings before interest, tax, depreciation and amortisation (EBITDA) 637 Depreciation and amortisation -389 Earnings before interest and tax (EBIT) 248 Financials, net incl. share of net profit from associates and impairment on associates 52 Earnings before tax (EBT) 300 No single customer makes up more than 10% of the total revenue. Accounting policies The reporting on business segments follows the structure of Solar’s internal management reporting to chief operating decision makers, the group Executive Board. The group Executive Board uses business segmentation when allocating resources and following up on results. Furthermore, Solar presents the geographical distribution of revenue and non-current assets divided on Denmark, Sweden, Norway, the Netherlands and Other markets. The geographical distribution is based on the business units operating in these geographical areas. Related business includes MAG45 and Solar Polaris. MAG45 is included in the operating segment Industry, while Solar Polaris is included in the operating segment Trade. Revenue Revenue includes goods for resale recognised in the income statement if the transfer of control to the customer according to the agreed delivery terms takes place before the end of the year and if revenue can be determined reliably. Revenue is measured exclusive VAT and duties charged on behalf of a third party. All types of discounts allowed are recognised in revenue. Cost of sales Cost of sales includes the year’s purchases and change in inventory of goods for resale. This includes shrinkage and any write-down resulting from obsolescence. 63Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 4 Segment information – continued DKK million Installation Industry Trade Total 2019 Revenue 7,234 3,628 817 11,679 Cost of sales -5,896 -2,800 -630 -9,326 Gross profit 1,338 828 187 2,353 Direct costs -254 -108 -20 -382 Earnings before indirect costs 1,084 720 167 1,971 Indirect costs -562 -167 -45 -774 Segment profit 522 553 122 1,197 Non-allocated costs -659 Earnings before interest, tax, depreciation and amortisation (EBITDA) 538 Depreciation and amortisation -278 Earnings before interest and tax (EBIT) 260 Financials, net, including share of net profit from associates and impairment on associates -140 Earnings before tax (EBT) 120 64Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 DKK million Revenue Adjusted organic growth EBITA EBITA margin Non-current assets 2020 Denmark 3,642 3.2 251 6.9 1,757 Sweden 2,455 -8.7 53 2.2 198 Norway 1,807 -1.9 95 5.3 171 The Netherlands 2,893 -2.4 47 1.6 350 Poland 359 -12.0 5 1.4 27 Other markets 41 21.3 5 12.2 5 Eliminations -307 - 0 0.0 -1,220 Core business 10,890 -2.2 456 4.2 1,288 Several markets (MAG45) 560 3.1 0 0.0 51 Other markets 15 -10.9 -1 -6.7 0 Related business 575 2.7 -1 -0.2 51 Solar Group 11,465 -2.0 455 4.0 1,339 DKK million Revenue Adjusted organic growth EBITA EBITA margin Non-current assets 2019 Denmark 3,490 3.4 227 6.5 2,053 Sweden 2,515 1.5 26 1.0 346 Norway 1,941 10.1 53 2.7 198 The Netherlands 2,965 7.6 65 2.2 360 Poland 393 1.8 6 1.5 33 Other markets 33 22.4 2 6.1 5 Eliminations -221 - 0 0.0 -1,315 Core business 11,116 5.2 379 3.4 1,680 Several markets (MAG45) 544 1.1 -18 -3.3 75 Other markets 19 -31.1 -1 -5.3 1 Related business 563 -0.3 -19 -3.4 76 Solar Group 11,679 4.9 360 3.1 1,756 4 Segment information – continued Geographical information Solar A/S primarily operates on the Danish, Swedish, Norwegian and Dutch markets. In the below table, Other markets covers the remaining markets, which can be seen in the companies overview available on page 137. The below allocation has been made based on the products’ place of sale. 65Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 5 Sta costs Terms of notice for members of the Executive Board is 12 months. When stepping down, the CEO is entitled to 6 months’ remuneration. DKK million 2020 2019 Salaries and wages etc. 1 1,216 1,226 Pensions, defined contribution 99 94 Costs related to social security 148 156 Share-based payment 2 1 Total 1,465 1,477 Average number of employees (FTEs) 2,935 3,039 Number of employees at year-end (FTEs) 2,864 3,041 Remuneration of Board of Directors Remuneration of Board of Directors 3 3 Remuneration of Executive Board Remuneration and bonus 18 16 Share-based payment 2 1 1 Total 19 17 1) In 2020, Solar received DKK 15m from furlough schemes due to COVID-19 which is included in salaries and wages 2) See note 25 share-based payment 66Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 DKK million 2020 2019 Recognised losses 22 17 Received on trade receivables previously written o -4 -2 18 15 Change in write-down for bad and doubtful debts 5 3 Total 23 18 Relevant accounting policies are described in note 15, trade receivables. DKK million 2020 2019 Buildings 24 27 Plant, operating equipment, tools and equipment 34 29 Leasehold improvements 4 2 Tenancy, lease 85 83 Cars, lease 26 28 IT equipment, lease 6 6 Technical equipment, lease 2 2 Other lease 1 1 Total depreciation and write-down on property, plant and equipment 182 178 Customer-related assets 1 2 Soware 67 73 Impairment on intangible assets 139 25 Total amortisation and impairment of intangible assets 207 100 Relevant accounting policies are described in note 10, intangible assets, and note 11, property, plant and equipment, and note 12, Leases. 6 7 Loss on trade receivables Depreciation, write-down, amortisation and impairment 67Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 8 Income tax Accounting policies Tax for the year is recognised with the share attributable to results for the year in the income statement and with the share attributable to other recognised income and costs in the statement of comprehensive income. Tax consists of current tax and changes to deferred tax. DKK million 2020 2019 Current tax 78 62 Deferred tax 3 -8 Tax on profit for the year 81 54 Tax on taxable profit previous year 1 0 Adjustment of deferred tax for previous years -4 0 Total 78 54 Statement of eective tax rate: Danish income tax rate 22.0% 22.0% Tax base change for non-capitalised loss in subsidiaries 1.8% 1.8% Change to tax rates in Sweden 0.0% -0.6% Impairment on / gain from sale of / reversal of impairment on associates -7.7% 15.7% Non-taxable/deductible items in parent company 0.8% 4.5% Non-taxable/deductible items and diering tax rates compared to Danish tax rate in foreign subsidiaries 10.2% 1.7% Tax for previous years -1.1% 0.1% Eective tax rate 26.0% 45.2% 68Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 DKK million 2020 2019 Provision for deferred tax 1/1 93 103 Foreign currency translation adjustments 1 0 Acquired or divested enterprises 0 0 Recognised in other comprehensive income 1 -2 Ordinary tax recognised in income statement -1 -8 Other items 1 0 Total 31/12 95 93 Specified as follows: Deferred tax liabilities 98 103 Deferred tax assets -3 -10 Total deferred tax, net 95 93 Further specified as follows: Expected use within 1 year -9 -10 Expected use aer 1 year 104 103 Total, net 95 93 Not recognised in balance sheet: Deferred tax assets 58 42 Deferred tax assets not recognised in the balance sheet are the part of tax losses where it is not considered suciently certain that the tax losses can be realised within a short time frame based on the same assumptions as described in note 10, intangible assets. Non-recognised tax assets can in all material respects be attributed to tax losses in the Netherlands, where the non-recognised tax assets may be exercised until 2029 (2028). 8 Income tax – continued Accounting estimates and assesments Deferred tax assets Deferred tax assets are not recognised if it is not deemed suciently safe that these can reduce future taxable income. In this connection, management assess expected future taxable income. Accounting policies Current tax liabilities and current tax receivables are recognised in the balance sheet as calculated tax on the year’s taxable income, adjusted for tax on previous year’s taxable income and for tax paid on account. Deferred tax is measured in accordance with the balance sheet liability method of all temporary dierentials between accounting and tax-related amounts and provisions. Deferred tax is recognised at the local tax rate that any temporary dierentials are expected to be realised at based on the adopted or expected adopted tax legislation on the balance sheet date. Deferred tax assets, including the tax value of tax loss allowed for carryforward, are measured at the value at which the asset is expected to be realised, either by elimination in tax of future earnings or by osetting against deferred tax liabilities. Deferred tax assets are assessed annually and only recognised to the extent that it is probable that they will be utilised. Deferred tax is also recognised for the covering of the retaxation of losses in former foreign subsidiaries partici- pating in joint taxation assessed as becoming current. 69Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 8 Income tax – continued DKK million 1/1 Foreign currency translation adjustments Change in tax rate Other adjustments 2020 2019 Specification by balance sheet items Property, plant and equipment 44 0 0 -4 40 44 Inventories -3 0 0 0 -3 -3 Provisions for loss on receivables -4 0 0 0 -4 -4 Pension obligations -1 0 0 0 -1 -1 Other items 1 57 1 0 5 63 57 Total, net 93 1 0 1 95 93 1) Other items particularly cover intangible assets and loss balances in jointly taxed entities. 70Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 9 Net profit for the year DKK million 2020 2019 Proposed distribution of net profit for the year: Proposed dividends, parent 204 102 Retained earnings 18 -38 Net profit for the year 222 64 Dividends in DKK per share of DKK 100 1 28.00 14.00 1) Calculations are based on proposed dividends. Accounting policies Dividends Proposed dividends are recognised as a liability at the time of adoption of the general meeting. 71Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 10 Intangible assets Accounting policies Customer-related intangible assets Customer-related intangible assets acquired in connection with business combinations are measured at cost less accumulated amortisation and impairment loss. Customer-related intangible assets are amortised using the straight-line principle over the expected useful life. Typically, the amortisation period is 5-7 years. Goodwill Goodwill is initially recognised in the balance sheet as the positive balance between the acquisition consideration of an enterprise on one side and the fair value of the assets, liabilities and contingent liabilities acquired on the other side. In cases of measurement uncertainty, the goodwill amount can be adjusted until 12 months aer the date of the acquisition. Goodwill is not amortised but an impairment test is done annually. The first impairment test is done by the end of the year of acquisition. Subsequently, goodwill is measured at this value less accumulated impairment losses. On acquisition, goodwill is assigned to the cashgenerating units that form the basis of the impairment test subsequently. The determination of cashgenerating units follows the managerial structure and management control. Soware Soware is measured at cost less accumulated amortisation and writedown. Cost includes both direct internal and external costs. Soware is amortised using the straight-line principle over 4-8 years. The basis of amortisation is reduced by any write-down. DKK million Goodwill Customer- related assets Soware Total 2020 Cost 1/1 269 277 642 1,188 Foreign currency translation adjustment 0 1 -1 0 Additions during the year 0 0 50 50 Disposals during the year 1 -269 0 -1 -270 Cost 31/12 0 278 690 968 Amortisation 1/1 140 272 461 873 Foreign currency translation adjustment 0 1 0 1 Amortisation during the year 0 1 67 68 Impairments during the year 129 0 10 139 Amortisation of abandoned assets -269 0 -1 -270 Amortisation and impairment 31/12 0 274 537 811 Carrying amount 31/12 0 4 153 157 Remaining amortisation period in number of years - 1-5 1-8 - 1) Due to impairment of goodwill, see pages 73-74. 72Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 10 Intangible assets – continued Accounting policies Impairment of intangible assets Goodwill is tested yearly for impairment and at first before the end of the year of acquisition. The carrying amount of goodwill is tested for impairment together with the other non-current assets of the cash-generating unit to which goodwill is allocated, and is written down to the recoverable amount via the income statement, provided that the carrying amount is larger. Generally, the recoverable amount is determined as the present value of the expected future net cash flow from the company or activity (cash-generating unit) that the goodwill is aliated to. Write-down of goodwill is recognised in the income statement as part of amortisation of intangible assets. The carrying amount of intangible assets is assessed annually to determine whether there is any indication of impairment. When such an indication is present, the asset’s recoverable amount is calculated, which is the highest of the asset’s fair value less expected costs of disposal or value in use. Value in use is calculated as the present value of expected cash flow from the smallest cash flow-generating unit to which the asset belongs. Impairment loss is recognised when the carrying amount of an asset exceeds the asset’s recoverable amount. Impairment loss is recognised in the income statement. Impairment loss relating to goodwill is not reversed. Impairment on other intangible assets are reversed to the extent that changes have been made to the assumptions and estimates that led to the write-down. DKK million Goodwill Customer- related assets Soware Total 2019 Cost 1/1 270 570 608 1,448 Foreign currency translation adjustment -1 -2 -1 -4 Additions during the year 0 0 35 35 Disposals during the year 0 -291 0 -291 Cost 31/12 269 277 642 1,188 Amortisation 1/1 140 559 367 1,066 Foreign currency translation adjustment 0 -2 0 -2 Amortisation during the year 0 2 73 75 Impairments during the year 0 4 21 25 Amortisation of abandoned assets 0 -291 0 -291 Amortisation and impairment 31/12 140 272 461 873 Carrying amount 31/12 129 5 181 315 Remaining amortisation period in number of years - 1-6 1-8 - 73Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 10 Intangible assets – continued Goodwill, customer-related assets and other intangible assets (Comparative figures for 2019 in brackets) Management has completed the impairment test of the carrying amount of goodwill and soware. The im- pairment test was based on our new Core+ strategy, estimates and expectations as well as other assumptions approved by the Executive Board and the Board of Directors with the necessary adjustments under IAS 36. When performing an impairment test of cash-generating units, the recoverable amount (value in use), determined as the discounted value of the expected future cash flow, is compared to the carrying amounts of the individual cash-generating units. Non-allocated costs are proportionately distributed between the individual segments and thus aect the individual impairment tests by the estimated total costs. Overall, the impairment tests made are based on the new strategy for 2021-2023 approved by the Executive Board and the Board of Directors in December 2020. A budget period of 5 years (6 years) has been applied to ensure that the entire impact from strategic initiatives is included. This reduces the dependency of the terminal value and thereby also the volatility. Budgets and expectations for the budget for the next 5 years (6 years) are based on Solar’s current, ongoing and contract investments, in which risks of the material parameters have been assessed and recognised in the future expected cash flow. In general, expected growth for core business is based on a conservative outlook for market growth in the coming years. Management’s final assessment of the impairment tests made is based on an assessment of probable changes to the basic assumptions and that these will result in that the carrying amount of goodwill is exceeding the recover- able amount. Accounting estimates and assessments Impairment test for goodwill In connection with the annual impairment test of goodwill, or when there is an indication of impairment, an estimate is made of how the parts of the business (cash-generating units), that goodwill is linked to, will be able to generate sucient positive cash flow in future to support the value of goodwill and other net assets in the relevant part of the business. Due to the nature of the business, estimates must be made of expected cash flow for many years ahead which, naturally, results in a certain level of uncertainty. This uncertainty is reflected in the discount rate determined. The impairment test and the very sensitive related aspects are described in more detail in the comments section. Soware Soware is evaluated annually for indicators of a need for impairment. If a need to perform impairment is identified, an impairment test for the soware is performed. The impairment test is made on the basis of dierent factors, including the soware’s future application, the present value of the expected cost saving as well as interest and risks. 74Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 Intangible assets – continued Alvesta V.V.S.-Material AB The carrying amount of the group’s goodwill arises from the acquisition of the Swedish enterprise Alvesta V.V.S.-Material AB (wholesale of heating & plumbing materials). The impairment test as of 31 December 2020 shows that the carrying amount of goodwill exceeds its recover- able amount with the full carrying amount, DKK 129m, and consequently, goodwill has been written down to DKK 0m. The recoverable amount has been determined at a maximum of DKK 280m, whereas the carrying amount includ- ing goodwill amounts to DKK 415m. The impairment test is based on the Swedish part of the installation segment. The installation segment compris- es two divisions: the electrical division and the heating & plumbing division. The electrical division is delivering the majority of both revenue and earnings. Compared to the assumptions used in 2019, the actual segment growth and result for 2020 were substantially below the assumptions used. 10 Value in use is based on the Swedish part of the installation segment and on the following main assumptions: • The growth rate for 2021 is 2% (6%) • Growth rate for 2022-2025 is 3.0-3.4% (2.5%) • Gross margin increase of approx. 1% (0%) over the budget period • Expected growth rate in the terminal period: 2% (2%) The discount rate (WACC) used to calculate the recoverable amount is 9.5% (8.5%) in order to compensate for the risk. Historically it has proven very dicult to prepare accurate long-term estimates in Solar Sverige. There- fore, a 20% estimated discount has been applied to the estimated cash flow. 75Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 11 Property, plant and equipment Accounting policies Property, plant and equipment Land and buildings as well as other plant, operating equipment, and tools and equipment are measured at cost less accumulated depreciation and write-down. Cost includes the purchase price and costs directly attributable to the acquisition until the time when the asset is ready for use. Cost of a combined asset is disaggregated into separate components which are depreciated separately if the useful lives of the individual components dier. Subsequent expenditure, for example in connection with the replacement of components of property, plant or equipment, is recognised in the carrying amount of the relevant asset when it is probable that the incurrence will result in future economic benefits for the group. The replaced components cease to be recognised in the balance sheet and the carrying amount is transferred to the income statement. All other general repair and maintenance costs are recognised in the income statement when these are incurred. Property, plant and equipment are depreciated on a straight- line basis over their estimated useful lives which are: • Buildings 40 years • Technical installations 20 years • Plant, operating equipment, and tools and equipment 2-5 years There are a few dierences from the mentioned depreciation periods in which useful life is estimated as shorter. Leasehold improvements are depreciated over the lease term, however, maximum 5 years. Land is not depreciated. DKK million Land and buildings Plant, operating equipment, tools and equipment Leasehold improvements Assets under construction Total 2020 Cost 1/1 1,16 4 558 74 48 1,844 Foreign currency translation adjustments -10 -4 -1 0 -15 Additions during the year 1 67 5 13 86 Disposals during the year 0 -16 -2 -53 -71 Cost 31/12 1,155 605 76 8 1,844 Write-down and depreciation 1/1 454 470 55 0 979 Foreign currency translation adjustments -3 -1 -1 0 -5 Write-down and depreciation during the year 24 34 4 0 62 Write-down and depreciation of abandoned assets 0 -8 -2 0 -10 Write-down and depreciation 31/12 475 495 56 0 1,026 Carrying amount 31/12 680 110 20 8 818 76Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 11 Property, plant and equipment – continued Accounting policies – continued The basis of depreciation is determined in consideration of the asset’s residual value and reduced by any impairment. Residual value is determined at the time of acquisition and reassessed annually. If residual value exceeds the asset’s carrying amount, depreciation will cease. By changing the depreciation period or residual value, the eect of future depreciation is recognised as a change to accounting estimates. Impairment of property, plant and equipment The carrying amount of property, plant and equipment is assessed annually to determine whether there is any indication of impairment. When such an indication is present, the asset’s recoverable amount is calculated, which is the highest of the asset’s fair value less expected costs of disposal or value in use. Value in use is calculated as the present value of expected cash flow from the smallest cash flow-generating unit to which the asset belongs. Impairment loss is recognised when the carrying amount of an asset exceeds the asset’s recoverable amount. Impairment loss is recognised in the income statement. Write-down on property, plant and equipment is reversed to the extent that changes have been made to the assumptions and estimates that led to the write-down. DKK million Land and buildings Plant, operating equipment, tools and equipment Leasehold improvements Assets under construction Total 2019 Cost 1/1 1,156 519 68 31 1,774 Foreign currency translation adjustments 1 -1 0 0 0 Additions during the year 7 76 10 56 149 Disposals during the year 0 -36 -4 -39 -79 Cost 31/12 1,164 558 74 48 1,844 Write-down and depreciation 1/1 427 478 57 0 962 Foreign currency translation adjustments 0 -1 0 0 -1 Write-down and depreciation during the year 27 29 2 0 58 Write-down and depreciation of abandoned assets 0 -36 -4 0 -40 Write-down and depreciation 31/12 454 470 55 0 979 Carrying amount 31/12 710 88 19 48 865 77Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 12 Leases Right-of-use assets DKK million Tenancy Cars IT equipment Technical equipment Other equipment Total 2020 Cost 1/1 353 76 16 8 2 455 Foreign currency translation adjustments -1 0 0 0 0 -1 Additions during the year 163 23 14 2 0 202 Disposals during the year 1 -171 -13 -9 -1 0 -194 Cost 31/12 344 86 21 9 2 462 Write-down and depreciation 1/1 81 24 6 2 1 114 Foreign currency translation adjustments 0 0 0 0 0 0 Write-down and depreciation during the year 85 26 6 2 1 120 Write-down and depreciation of abandoned assets -42 -11 -7 0 0 -60 Write-down and depreciation 31/12 124 39 5 4 2 174 Carrying amount 31/12 220 47 16 5 0 288 1) Disposals relate to expiration and renewal of contracts. Accounting policies Right-of-use assets Right-of-use assets are lease assets arising from a lease agreement. Lease assets are initially measured at cost consisting of the amount of the initial measurement of the lease liability with addition of lease payments made to the lessor at or before the commencement date less any lease incentives received. Five dierent types of leases have been identified: • Tenancy • Cars • IT equipment • Technical equipment • Other equipment The lease assets are depreciated on a straight-line basis over the lease term. The carrying amount of the right-of- use asset can be adjusted due to modifications to the lease agreement or in special cases reassessment of the lease term. Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in the income statement. Short-term leases are leases with a term of 12 months or less. Low-value assets comprise IT-equipment and small items of oce furniture of a value below DKK 37,000. 78Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 12 Leases – continued Right-of-use assets DKK million Tenancy Cars IT equipment Technical equipment Other equipment Total 2019 Cost 1/1 221 46 16 5 1 289 Foreign currency translation adjustments 0 0 0 0 0 0 Additions during the year 142 43 0 3 1 189 Disposals during the year -10 -13 0 0 0 -23 Cost 31/12 353 76 16 8 2 455 Write-down and depreciation 1/1 0 0 0 0 0 0 Foreign currency translation adjustments 1 0 0 0 0 1 Write-down and depreciation during the year 83 28 6 2 1 120 Write-down and depreciation of abandoned assets -3 -4 0 0 0 -7 Write-down and depreciation 31/12 81 24 6 2 1 114 Carrying amount 31/12 272 52 10 6 1 341 79Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 12 Leases – continued Long-term lease liabilities DKK million 2020 2019 Maturity > 1 year < 5 years, undiscounted 166 178 Maturity > 5 years, undiscounted 29 64 Long-term lease liabilities 31/12, undiscounted 195 242 Discounting on lease liabilities > 1 year < 5 years -5 -7 Discounting on lease liabilities > 5 years -1 -4 Long-term lease liabilities 31/12 189 231 Amounts recognized in the income statement Depreciation of right-of-use assets 120 120 Interest expense on lease liabilities 5 5 Expense relating to short-term leases 0 1 Expense relating to leases of low-value items 1 1 Expense relating to variable lease payments not included in the measurement of lease liabilities 10 11 Total 136 138 Cash outflows for leases Instalment on lease liabilities -121 -117 Interest payments -5 -5 Total cash outflows for leases -126 -122 Future cash outflows not recognised as lease liabilities in the balance sheet amount to DKK 0m (DKK 14m) regarding signed but not yet started lease contracts on rent of premises. Extension options regarding lease contracts on rent of premises, which are not recognised in the balance sheet amount to DKK 24m (DKK 14m). Accounting policies Lease liabilities Lease liabilities arise from a lease agreement. Lease liabilities are initially measured at the present value of the lease payments during the non-cancellable lease period with addition of periods covered by an option to extend the lease if exercise of the option is considered reasonably certain on inception of the lease. At initial recognition, each contract is assessed individually to assess the likelihood of exercising a potential extension option in the contract. The option to extend the contract period will be included in measuring the lease liability if it is reasonably certain that Solar will exercise the option. When calculating the net present value, a discount rate corresponding to Solar’s incremental borrowing rate has been used. The weighted average lessee’s incremental borrowing rate applied to the lease liabilities on January 1 2020 are between 1.3% (0.6%) and 4.0% (3.66%) depending among other things on the term and the currency in which the contracts are denominated. The lease liability will be remeasured when changes occur due to modifications to the contract (extension, termination etc.), indexation or in special cases reassessment of the lease term. 80Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 13 Associates 1 Accounting policies Investment in associates Investments in associates are accounted for by using the equity method of accounting, by which the investments are measured at the proportional share of the entities’ equity determined according to the group’s accounting policies reduced by the proportional share of unrealised gains on transaction between the group and the associates and increased by goodwill determined as of the date when the investment became an associate. Investments in associates are tested for impairment when there is an indication of impairment. Associates with a negative equity are accounted for at DKK 0. If the group has a legal or actual obligation to cover the negative balance of the associate, this obligation is recognised under liabilities. Investments in associates, DKK million 2020 2019 Cost 1/1 273 273 Foreign currency translation adjustment 0 0 Additions during the year 2 0 Transferred to other investments -3 0 Disposals during the year -256 0 Cost 31/12 16 273 Adjustments 1/1 -127 -22 Foreign currency translation adjustment 0 0 Profit from associates -12 -19 Impairment/reversal of impairment 2 81 -86 Transferred to other investments 2 0 Disposals during the year 42 0 Value adjustment 31/12 -14 -127 Carrying amount 31/12 2 146 Impairment and realised gain from sale of associates, DKK million 2020 2019 Impairment/reversal of impairment 81 -86 Realised gain from sale of associates 23 0 Impairment on associates, total 104 -86 1) Associates include the following investments: • BIMobject where Solar owns 0% compared to 17.2% last year. In 2020, Solar divested its shareholding in BIMobject with a gain of DKK 23m • Monterra where Solar owns 30.0% • HomeBob where Solar owns 44.5% • Zolw where Solar owns 24.4% • The investment in VivaLabs was transferred to Other investments due to Solar’s ownership was reduced aer divestment of shares. Solar owns 7.89% compared to 20.0% last year. 2) Impairment/reversal of impairment primarily relates to fair value adjustments based on the share price of BIMobject shares which are traded on the First North Exchange. All shares were divested in 2020 cf. announcement no. 16 of 8th October 2020. 81Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 13 Associates – continued Below is a specification on Solar’s ownership in BIMobject AB, which is 0% (17,20%) as all shares were divested in 2020 cf. announcement no. 16 of 8th October 2020. Key figures according to 9 months’ interim financial statement of 30 September 2020 (30 September 2019) for BIMobject AB. DKK million 2020 2019 BIMobject AB Current assets - 159 Non-current assets - 36 Current and non-current liabilities - 57 Revenue - 74 Net loss for the period - -61 Other comprehensive income - -2 Total comprehensive income for the period - -63 Equity - 138 Solar’s share of net profit from associates regarding the 12 months’ period 1 October 2019 - 30 September 2020 (1 October 2018 - 30 September 2019) as to reporting from BIMobject AB -12 -15 DKK million 2020 2019 Investments in associates Solar A/S ownershare of equity in BIMobject AB - 24 Goodwill - 115 Booked value, investment BIMobject AB 139 Other associates - 7 Total - 146 Fair value according to First North Exchange (level 1) 31/12, investment BIMobject AB - 139 82Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 14 Inventories Accounting policies Inventories are measured at cost according to the FIFO method or at net realisable value, if this is lower. Cost of inventories includes purchase price with addition of delivery costs. The net realisable value of inventories is determined as selling price less costs incurred to make the sale and is determined in consideration of marketability, obsole- scence and development of expected selling price. DKK million 2020 2019 End products 1,531 1,666 Recognised write-down -2 6 The main reasons for the recognised write-downs are sales and scrapping of previously written-down products. Accounting estimates and assesments Write-down of inventories Write-down of inventories is made due to the obsole- scence of products. Management specifically assess inventories, including the products’ turnover rate, current economic trends and product development when deciding whether the write-down is sucient. 83Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 15 Trade receivables Accounting policies Trade receivables are measured at fair value at acquisition and at amortised cost subsequently. Based on an individual assessment of the loss risk, write-down to amortised cost less expected credit losses is made, if this is lower. Accounting estimates and assesments Write-down for meeting of loss on doubtful trade receivables The IFRS 9 simplified approach is applied to measure expected credit losses, which uses a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the day past invoicing. As the vast majority of our companies generally takes out insurance to hedge against loss to the extent possible, the write-down based on age distribution amounts to less than 0.5% (0.3%) of gross trade receivables. Individual assessment of write-down is performed by management specifically analysing trade receivables, including the customers’ credit rating and current economic trends to ensure that write-down is sucient. Write-down based on individual assessment amounts to 1.8% (1.4%) of gross trade receivables. As the total write-down on trade receivables amounts to less than 3% (2%) of gross trade receivables, no maturity statement of the write-down is included. However, the majority of the provision relates to receivables overdue by more than 31 (31) days. Financial risks Credit risk Solar is subject to credit risks in respect of trade receivables and cash at bank. No credit risk is deemed to exist in respect of cash as the counterparts are banks with good credit ratings. Solar A/S’ main banker is Nordea Bank Danmark A/S. As a result of customer diversification, trade receivables are distributed so that there is no significant concentration of risk. Credit granting to customers is regarded as a natural and important element in Solar’s business operations. Solar conducts ecient credit management at all times. The vast majority of our companies generally takes out insurance to hedge against loss to the extent possible. As a result, 70% of trade receivables is covered by insurance against 76% at year-end 2019. Loss due to credit granting is considered a normal business risk and, therefore, will occur. DKK million 2020 2019 Maturity statement, trade receivables Not due 1,215 1,133 Past due for 1-30 day(s) 66 244 Past due for 31-90 days 6 55 Past due for 91+ days 13 20 1,300 1,452 Write-down -29 -24 Total 1,271 1,428 Write-down based on: Age distribution 6 4 Individual assessment 23 20 Total 29 24 Write-down 1/1 24 21 Foreign currency translation adjustment 0 0 Write-down for the year 11 9 Losses realised during the year -4 -4 Reversed for the year -2 -2 Write-down 31/12 29 24 84Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 16 Other provisions Accounting policies Provisions are measured in accordance with management’s best estimate of the amount required to settle a liability. Restructuring expenses are recognised as liabilities when a detailed ocial plan for the restructuring has been published to the parties aected by the plan on the balance sheet date at the latest. DKK million 2020 2019 Non-current Other provisions 12 13 Total 31/12 12 13 Specification, non-current 1/1 13 19 Reversed during the year -2 -9 Provisions of the year 1 3 Total 31/12 12 13 Current Other provisions 9 13 Total 31/12 9 13 Specification, current 1/1 13 2 Reversed during the year -13 -2 Provisions of the year 9 13 Total 31/12 9 13 85Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 17 Other payables DKK million 2020 2019 Sta costs 232 215 Taxes and charges 164 111 Interest rate swaps 77 84 Other payables and amounts payable 71 54 Total 544 464 Relevant accounting policies for derivative financial instruments are described in note 22 on interest-bearing liabilities and maturity statement. 86Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 18 Acquisitions of subsidiaries and activities 2019 On 15 May 2019, Solar A/S acquired selected parts of Onninen AB’s Swedish business activities from the Finnish Kesko Corporation. Solar acquired the heating, plumbing and air conditioning business segment, which serves mostly small and medium-sized contractors in Sweden. The acquisition price for net assets is DKK 45m. The assets mainly consist of inventories and employee-related liabilities. The acquisition is financed via withdrawals from the Solar Group’s cash resources. Transaction costs related to the acquisition totalled DKK 2m. Negative goodwill has been identified with DKK 18m and is attributable to asssumed restructuring costs related to sta and rent. The amount is recognised in the income statement under other income minus the assumed restructuring costs of DKK 16m, leading to a net profit of DKK 2m. The acquired business activities had an estimated eect on our 2019 revenue of approx. DKK 175m and a negative EBITA impact of estimated DKK -10m including the above mentioned. The 2019 full year eect is estimated to approx. DKK 300m on revenue and approx. -10m on EBITA. As the acquired activities are fully integrated, the estimated full year eect is subject to significant uncertainty. Accounting policies Newly acquired or newly founded subsidiaries are recognised in the consolidated financial statements from the date of acquisition. For acquisitions of subsidiaries, cost is stated as the fair value of the assets transferred, obligations undertaken and shares issued. Cost includes the fair value of any earn outs. Acquisition-related costs are recognised in the period in which they are incurred. Identifiable assets, liabilities and contingent liabilities (net assets) relating to the enterprise acquired are recognised at fair value at the date of acquisition calculated in accordance with group accounting policies. Intangible assets are recognised if they are separately recognisable or originate in a contractual right. Deferred tax related to all temporary dierentials except taxable temporary dierentials on goodwill is recognised. For business combinations, positive balances (goodwill) between the acquisition consideration of the enterprise on one side and the fair value of the assets, liabilities and contingent liabilities acquired on the other side, are recognised as goodwill under intangible assets. In cases of measurement uncertainty, goodwill can be adjusted until 12 months aer the acquisition. Goodwill is not amortised but an impairment test is done annually. The first impairment test is done by the end of the year of acquisition. On acquisition, goodwill is assigned to the cashgenerating units that form the basis of the impairment test subsequently. Comparative figures are not restated for newly acquired enterprises. 87Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 18 Acquisitions of subsidiaries and activities – continued Fair value at the date of acquisition: (DKK million) 2020 2019 Property, plant and equipment - 1 Inventories - 55 Prepayments - 3 Other payables - -6 Other provisions - -6 Net assets acquired - 47 Negative goodwill - -18 Final acquisition price - 29 Cash paid at closing - 40 Withheld acquisition price - 4 Acquisition price - 44 Adjustment acquisition price 1 - -15 Net purchase price - 29 1) At closing, inventory was lower than estimated which triggered a similar adjustment of the acquisition price. 88Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 19 Assets and liabilities held for sale Discontinued operations On 20 December 2018, Solar A/S has initiated the process of a management buyout of our Norwegian training business Scandinavian Technology Institute (STI), a part of our related business. Expected accounting loss of DKK 17m has been included in the financial statement for 2018. The transaction was completed on 25 March 2019. The discontinued operations impacted the income statement as follows: DKK million 2020 2019 Revenue - 12 Cost of sales - -1 Gross profit - 11 Costs - -13 Earnings before interest and tax (EBIT) - -2 Financials - 0 Earnings before tax (EBT) - -2 Tax on net loss for the period - 0 Net loss for the period - -2 Write-down to fair value less cost to sell - 0 Net loss of discontinued operations - -2 Earnings from discontinued operations in DKK per share outstanding (EPS) - -0.27 Diluted earnings from discontinued operations in DKK per share outstanding (EPS-D) - -0.27 Deferred tax assets not recognised in the balance sheet of Claessen ELGB NV (activity divested in 2018) and Solar Deutschland GmbH (activity divested in 2015) amounted to DKK 113m (DKK 109m) at the end of the period. Accounting policies Assets held for sale are saleable assets with expected sale within 1 year. Write-down to a reduced fair value less sales costs is made. 89Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 20 Share capital DKK million 2020 2019 Share capital 1/1 736 775 Reduction of share capital 0 -39 Share capital 31/12 736 736 Share capital is fully paid in and divided into the following classes: A shares, 40 shares at DKK 10,000 0 0 A shares, 2,240 shares at DKK 40,000 90 90 A shares total 90 90 B shares 6,460,000 (6,460,000) at DKK 100 646 646 Total 736 736 In 2019, the share capital was reduced by 385,625 B shares. Number of shares Nominal value (DKK million) 2020 2019 2020 2019 A shares outstanding 31/12 1 900,000 900,000 90 90 B shares outstanding Outstanding 1/1 6,398,292 6,398,292 640 640 Purchase of treasury shares 0 0 0 0 B shares outstanding 31/12 6,398,292 6,398,292 640 640 Total shares outstanding 31/12 7,298,292 7,298,292 730 730 1) A shares have been included in the calculation in units of DKK 100. Accounting policies Treasury shares Acquisition and disposal sums related to treasury shares are recognised directly in transactions with the owners. 90Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 20 Share capital – continued Treasury shares (B shares) Number of shares Nominal value (DKK million) Cost (DKK million) Percentage of share capital 2020 2019 2020 2019 2020 2019 2020 2019 Holding 1/1 61,708 447,333 6 45 24 176 0.8% 5.8% Cancellation 0 -385,625 0 -39 0 -152 0.0% -5.0% Holding 31/12 61,708 61,708 6 6 24 24 0.8% 0.8% Solar A/S's annual general meeting passed a resolution on 15 March 2019 to reduce the company's B share capital by nominally DKK 38,562,500 by cancelling treasury B shares. This corresponds to a reduction of the B share capital of 385,625 B shares of DKK 100. All treasury shares are held by the parent company. 21 Earnings per share in DKK per share outstanding for the year DKK million 2020 2019 Net profit for the year in DKK million 222 64 Average number of shares 7,360,000 7,48 5,724 Average number of treasury shares -61,708 -187,4 32 Average number of shares outstanding 7,298,292 7,298,292 Dilution eect of share options and restricted shares 9,091 22 Diluted number of shares outstanding 7,307,38 3 7,298,314 Earnings per share in DKK per share outstanding for the year 30.42 8.77 Diluted earnings per share in DKK per share outstanding for the year 30.38 8.77 Earnings per share from continuing operations in DKK per share outstanding for the year 30.42 9.04 Diluted earnings per share from continuing activities in DKK per share outstanding for the year 30.38 9.04 A shares have been included in the calculation in units of DKK 100. 91Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 22 Interest-bearing liabilities and maturity statement DKK million Interest rate 2020 2019 Debt to mortgage credit institutions Fixed 1 155 165 Debt to credit institutions Fixed 0 135 Debt to credit institutions Floating 53 107 Lease liabilities Calculated 292 344 Bank loans and overdras Floating 31 226 Interest-bearing liabilities 531 977 Trade payables 1,693 1,814 Other payables 576 491 Financial liabilities 2,800 3,282 Cash at bank and in hand 404 56 Trade receivables 1,271 1,428 Other receivables 62 84 Financial assets 1,737 1,568 Total, net 1,063 1,714 1) Interest swaps have been used to hedge floating-rate loans, converting these loans to fixed-rate loans. 2020 2019 Debt to mortgage and credit institutions and lease liabilities 1/1 752 418 Raising of debt to mortgage and credit instututions 53 0 Lease liability recognised as at 1 January 2019 on implementation of IFRS 16 - 289 Lease liability raised during the year 68 173 Repayment of debt to mortgage and credit institutions -252 -9 Instalment on lease liabilities -121 -117 Foreign currency translation adjustment 0 -2 Debt to mortgage and credit institutions and lease liabilities 31/12 500 752 Accounting policies Financial liabilities Debt to credit institutions is recognised initially at the proceeds received net of transaction costs incurred. In subsequent periods, the financial liabilities are measured at amortised cost using the eective interest method, meaning that the dierence between the proceeds and the nominal value is recognised in the income statement under financials for the term of the loan. Financial risks Interest rate risk Solar monitors and adjusts interest-bearing liabilities on an ongoing basis. Loans are only raised in the currencies of the countries where Solar operates. Of total interest- bearing liabilities, Solar endeavours to ensure that a maximum of half is based on variable payment of interest fixed in accordance with current money market rates. The remaining interest-bearing liabilities are fixed-rate. Solar Group has no significant non-current interest-bearing assets. As a result of Solar’s policies, a certain interest rate risk exists. Reconciliation of development in interest-bearing debt to mortgage and credit institutions and lease liabilities to financing activities in the cash flow statement: 92Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 22 Interest-bearing liabilities and maturity statement – continued DKK million 2020 2019 Maturity < 1 year Debt to mortgage credit institutions 9 9 Debt to credit institutions 0 242 Lease liabilities 103 113 Bank loans and overdras 32 226 Current interest-bearing liabilities 144 590 Other financial liabilities 2,269 2,305 Financial liabilities 2,413 2,895 Financial assets 1,737 1,568 Total, net 676 1,327 Maturity 1-5 year(s) Debt to mortgage credit institutions 36 36 Debt to credit institutions 53 0 Lease liabilities 161 171 Total 250 207 Maturity > 5 years Debt to mortgage credit institutions 110 120 Lease liabilities 28 60 Total 138 180 Total non-current liabilities 388 387 Maturity, until year 2037 2037 The carrying amount of financial liabilities corresponds to fair value. Financial risks – continued Currency risk Solar is exposed to currency risks in the form of translation risks since a substantial proportion of revenue derives from foreign subsidiaries which apply other currencies than Danish kroner. The currencies used are euro, Danish kroner, Swedish kroner, Norwegian kroner and, to a lesser extent, Polish zloty, Swiss Franc, US dollar and British pound. The individual subsidiaries are not significantly aected by exchange rate fluctuations since revenue and costs in subsidiaries are mainly in the same currencies. Solar has a number of investments in foreign subsidiaries, where the translation of equity into Danish kroner depends on exchange rates. Investments in subsidiaries are not hedged as such investments are regarded as long-term and because hedging is seen as unlikely to create any long-term value. Liquidity risks Solar has an objective of substantial self-financing to minimise dependence on lenders and thus gain greater freedom of action. Financing is primarily controlled centrally based on the individual subsidiary’s operating and investment cash requirements. Solar ensures that there are always sucient and flexible cash reserves and diversification of maturities of both non-current and current credit facilities. Eect on recognition of subsidiaries of any change in foreign exchange rates of 10% Profit of the year Equity DKK million 2020 2019 2020 2019 NOK 8.2 4.0 39.4 35.7 SEK -7.0 3.7 29.3 38.0 PLN 1.3 0.8 6.7 6.4 Total 2.4 8.5 75.4 80.1 93Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 22 Interest-bearing liabilities and maturity statement – continued DKK million 2020 2019 Interest-bearing liabilities and maturity statement for expected interest expense for the period < 1 year 12 15 1-5 year(s) 32 36 > 5 years 37 46 Total 81 97 Outstanding interest swaps made for hedging floating-rate loans Principal amount 164 192 Interest rate in % for outstanding interest swaps 5.2 5.2 Fair value recognised as other payables under current liabilities -77 -84 Maturity for interest swaps follows the maturity for debt to mortgage credit institutions as stated on previous page. Amounts recognised in other comprehensive income Adjustment to fair value for the year -10 -18 Realised during the year, recognised as financial income/expenses 17 8 Total 7 -10 Eect of a 1% interest rate increase Eect on equity 15 22 Of this, earnings impact is 0 -3 Undrawn credit facilities 31/12 474 383 Accounting policies Derivatives Derivatives are only used to hedge financial risks in the form of interest rate and currency risks. Derivatives are initially recognised at cost and at fair value subsequently. Both realised and unrealised gains and losses are recognised in the income statement unless the derivatives are part of hedging of future transactions. Value adjustments of derivatives for hedging of future transactions are recognised directly in other comprehensive income. As hedged transactions are realised, gains or losses are recog- nised in the hedging instrument from other comprehensive income in the same item as the hedged items. Any non-eective part of the financial instrument in question is recognised in the income statement. Derivatives are recognised under other receivables or other payables. Fair value measurement The group uses the fair value concept for recognition of certain financial instruments and in connection with some disclosure requirements. Fair value is defined as the price that can be secured when selling an asset or that must be paid to transfer a liability in a standard transaction between market participants (exit price). Fair value is a marked-based and not enterprise-specific valuation. The enterprise uses the assumptions that market participants would use when pricing an asset or liability based on existing market conditions, including assumptions relating to risks. As far as possible, fair value measurement is based on market value in active markets (level 1) or alternatively on values derived from observable market information (level 2). If such observable information is not available or cannot be used without significant modifications, recognised valuation methods and fair estimates are used as the basis of fair values (level 3). 94Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 Interest-bearing liabilities and maturity statement – continued Distribution on currencies Current liabilities Non-current liabilities DKK million 2020 2019 2020 2019 EUR 9 33 146 156 DKK 0 333 53 0 NOK 0 0 0 0 PLN 0 4 0 0 SEK 32 107 0 0 Total 41 477 199 156 Interest rate in % 1.1-5.2 1.1-5.2 1.1-5.2 1.1-5.2 Fair value of Solar’s respective interest-bearing liabilities is seen as fair value measurement at level 2. Mortgage loans are valued based on underlying securities, while bank debt is calculated based on models for discounting to net present value. Non-observable market data is primarily made up of credit risks, which are seen as insignificant in Solar’s case. The fair value of Solar’s derived financial instruments (interest rate instruments) is fixed as fair value measurement at level 2, since fair value can be determined directly based on the actual forward rates and instalments on the balance sheet date. Outstanding interest rate swaps for hedging of floating-rate loans expire over the period until 2037 (2037). The group’s enterprises have raised loans in their respective functional currencies, while the parent company has also raised loans in euro. 22 95Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 23 24 Financial income Financial expenses DKK million 2020 2019 Interest income 7 8 Foreign exchange gains 17 10 Total 24 18 Financial income, received 7 8 DKK million 2020 2019 Interest expenses 28 32 Foreign exchange losses 17 12 Interest on lease liabilities 5 5 Other financial expenses 14 4 Total 64 53 Financial expenses, settled 47 41 96Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 25 Share-based payment Share option plans DKK million Executive Board Others Total No. of share options at year-end 2020 Outstanding at the beginning of 2020 15,870 36,933 52,803 Expired -8,272 -20,126 -28,398 Outstanding at year-end 2020 7,598 16,807 24,405 No. of share options at year-end 2019 Outstanding at the beginning of 2019 27,26 4 46,036 73,300 Expired -11,394 -9,103 -20,497 Outstanding at year-end 2019 15,870 36,933 52,803 DKK million 2020 2019 Market value estimated using the Black-Scholes model, recognised under other liabilities 0 0 Conditions applying to the statement of market value using the Black-Scholes model: Expected volatility 37% 26% Expected dividends in proportion to market value 4% 5% Risk-free interest rate 0% 0% Accounting policies Share options and restricted share units are measured at fair value at the grant date and are recognised in the income statement under sta costs over the period when the final right to the options and/or the restricted share units is vested. The set-o to this is recognised under other payables, as the employees have the right to choose cash settlement. This liability is regularly adjusted to fair value and fair value adjustments are recognised in financials. The fair value of the granted share options is estimated using the Black-Scholes model. Allowance is made for the conditions and terms related to the granted share options when performing the calculation. The fair value of the granted restricted share units is estimated using the market price at closing date. 97Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 Share-based payment – continued Specification of share option plans Year of granting No. of shares 2018 2017 2016 Executive Board Granted 0 9,261 7,297 Transferred on change to the Executive Board 0 -1,663 975 Expired 0 0 -8,272 Total 0 7,598 0 Others Granted 2,322 14,457 21,101 Transferred on change to the Executive Board 0 1,663 -975 Forfeited on resignation of management employees 0 -1,635 0 Expired 0 0 -20,126 Total 2,322 14,485 0 Exercise price 1 391.80 373.84 335.21 Exercise period 10 banking days following the publication of the annual report in 2021/2022 2020/2021 2019/2020 1) Exercise price was adjusted by DKK -7.39 in 2018 as dividends distributed in 2018 exceeded years’ results. Restricted share units No. of restricted share units at year-end 2020 Executive Board Others Total Outstanding at the beginning of 2020 4,972 5,739 10,711 Granted in 2020 4,904 2,760 7,66 4 Adjustment due to dividend distribution 434 376 810 Outstanding at year-end 2020 10,310 8,875 19,185 No. of restricted share units at year-end 2019 Outstanding at the beginning of 2019 2,057 1,097 3,154 Granted in 2019 2,690 4,380 7,070 Adjustment due to dividend distribution 225 262 487 Outstanding at year-end 2019 4,972 5,739 10,711 Year of granting Specification of restricted share units, no. of shares 2020 2019 2018 Executive Board Granted 4,904 2,690 2,006 Adjustment due to dividend distribution 216 256 238 Total 5,120 2,946 2,244 Others Granted 2,760 4,380 1,333 Forefeited on resignation of management employees 0 0 -269 Exercised 0 0 0 Adjustment due to dividend distribution 121 415 135 Total 2,881 4,795 1,199 Price at time of granting 319.39 297.70 399.19 Vesting year 2023 2022 2021 25 Restricted share units In accordance with Solar’s remuneration policy and general guidelines for incentive-based remuneration, the Board of Directors decided to grant restricted shares to the Executive Board and management team in 2020 and 2019. Overall, the grant of shares is covered by the same terms as the previous grants of share options. Restricted shares are granted for no consideration and provide the holder with a right and an obligation to receive B shares at a nominal value of DKK 100. The price at the time of granting is fixed at DKK 319.39 (297.7) based on the average price on Nasdaq Copenhagen the first 10 business days aer publication of Annual Report 2019 (2018). The restricted shares vest three years aer the time of granting, meaning that this grant of shares vests in 2023 (2022). At this point, the holder may exercise the restricted share granting. The number of granted shares was adjusted by +810 (+487) shares in 2020 (2019) due to dividend distribution. General information on Solar’s incentive scheme is available on our website: https://www.solar.eu/investor/policies. 98Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 26 Contingent liabilities and other financial liabilities DKK million 2020 2019 Collateral Assets have been pledged as collateral for bank arrangements at a carrying amount of: Land and buildings 402 471 Current assets 0 78 Total 402 549 In 2013, Solar Nederland B.V. closed its defined benefit pension plan and transferred all risks that in 2013 amounted to DKK 373m to an insurance company. In 2016, Conelgro B.V. closed its defined benefit pension plan and transferred all risks that in 2016 amounted to DKK 250m to an insurance company. Solar is liable for payment of the benefit vs. the participants and has consequently a credit risk vs. the insurance company. Based on the insurance company’s current rating, this risk is determined to be limited. 27 Related parties Group and parent Solar A/S are subject to control by the Fund of 20th December (registered as a commercial foundation in Denmark), which owns 16,9% of the shares and holds 60,0 % of the voting rights. The remaining shares are owned by a widely combined group of shareholders. Other related parties include the company’s Board of Directors and Executive Board. There have been no transactions in the financial year with members of the Board of Directors and Executive Board other than those which appear from note 5 and note 25. Solar invoices the Fund of 20th December for the performance of administrative services at DKK 20,000. Balances with the Fund of 20th December total 0 on balance sheet date. 99Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 28 Auditors’ fees DKK million 2020 2019 PricewaterhouseCoopers Statutory audit 3 3 Other assurance engagements 0 0 Tax consulting 0 0 Other services 1 1 1 Total 4 4 Other auditors Statutory audit 1 1 Other services 0 0 Total 1 1 1) Other services mainly consists of IT-related services. 29 New financial reporting standards IASB has issued the following new or amended standards which are not yet eective and which are relevant for Solar: • Amendments to IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Noncurrent, eective 1 January 2023. • Amendment to IAS 37, Provisions, contingent liabilities and contingent assets: Onerous contracts, Cost of fulfilling a contract, eective 1 January 2022. • Annual improvements 2018-2020 comprising minor amendments to existing standards, eective 1 January 2022. • Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate Benchmark Reform – Phase 2, eective 1 January 2021. The amendments are eective for accounting periods beginning on or aer 1 January 2021. They are not expected to have significant impact on Solar’s accounting policies. 100Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020FINANCIAL STATEMENTS SEPARATE FINANCIAL STATEMENTS 101Solar – Annual Report 2020 FINANCIAL STATEMENTS NOTES TO THE SEPARATE FINANCIAL STATEMENTS Basis for preparation 1 General accounting policies 107 2 Significant accounting estimates and assessments 107 Notes to the income statement 3 Sta costs 108 4 Loss on trade receivables 109 5 Depreciation, write-down and amortisation 109 6 Income tax 110 7 Net profit for the year 113 Invested capital 8 Intangible assets 114 9 Property, plant and equipment 116 10 Leases 118 11 Investments measured at equity value and other non-current assets 121 12 Inventories 123 13 Trade receivables 124 14 Other provisions 125 15 Other payables 126 Capital structure and financing costs 16 Share capital 127 17 Interest-bearing liabilities and maturity statement 129 18 Financial income 133 19 Financial expenses 133 Other notes 20 Contingent liabilities and other financial liabilities 134 21 Related parties 135 22 Auditors’ fees 135 CONTENTS Statement of comprehensive income 102 Balance sheet 103 Cash flow statement 104 Statement of changes in equity 105 Notes 107 102Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 STATEMENT OF COMPREHENSIVE INCOME Income statement Note DKK million 2020 2019 Revenue 3,642 3,489 Cost of sales -2,785 -2,679 Gross profit 857 810 Other operating income and costs 37 35 21 External operating costs -31 -29 3 Sta costs -527 -504 4 Loss on trade receivables -8 -5 Earnings before interest, tax, depreciation and amortisation (EBITDA) 328 307 5 Depreciation and write-down on property, plant and equipment -46 -45 Earnings before interest, tax and amortisation (EBITA) 282 262 5 Amortisation and impairment of intangible assets -75 -69 Earnings before interest and tax (EBIT) 207 193 Profit from subsidiaries -12 33 Write-down of subsidiaries held for sale 0 0 Share of net profit from associates -12 -19 Impairment and gain from divestment of associates 104 -86 18 Financial income 16 13 19 Financial expenses -41 -30 Earnings before tax (EBT) 262 104 6 Income tax -40 -40 7 Net profit for the year 222 64 Other comprehensive income DKK million 2020 2019 Net profit for the year 222 64 Other income and costs recognised: Items that can be reclassified for the income statement Foreign currency translation adjustments of foreign subsidiaries -22 0 Fair value adjustments of hedging instruments before tax, parent company 7 -10 Tax on fair value adjustments of hedging instruments, parent company -1 2 Other income and costs recognised aer tax -16 -8 Total comprehensive income for the year 206 56 103Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 BALANCE SHEET Notes DKK million 2020 2019 Assets 8 Intangible assets 154 181 9 Property, plant and equipment 242 253 10 Right-of-use assets 72 74 11 Investments measured at equity value 1,219 1,457 11 Other non-current assets 69 78 Non-current assets 1,756 2,043 12 Inventories 533 506 13 Trade receivables 345 373 Receivables from subsidiaries 386 379 Income tax receivable 3 3 Other receivables 3 4 Prepayments 16 27 Cash at bank and in hand 323 0 Current assets 1,609 1,292 Total assets 3,365 3,335 Notes DKK million 2020 2019 Equity and liabilities 16 Share capital 736 736 Reserves -80 -51 Retained earnings 836 805 Proposed dividends for the financial year 204 102 Equity 1,696 1,592 17 Interest-bearing liabilities 199 156 10 Lease liabilities 51 51 6 Provision for deferred tax 72 79 14 Other provisions 1 2 Non-current liabilities 323 288 17 Interest-bearing liabilities 41 342 10 Lease liabilities 22 23 Trade payables 738 699 Amounts owed to subsidiaries 282 157 15 Other payables 261 233 Prepayments 1 1 14 Other provisions 1 0 Current liabilities 1,346 1,455 Liabilities 1,669 1,743 Total equity and liabilities 3,365 3,335 as at 31 December 104Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 CASH FLOW STATEMENT Notes DKK million 2020 2019 Net profit for the year 222 64 5 Depreciation, write-down and amortisation 121 114 Impairment and gain from divestment of associates -104 86 Changes to provisions and other adjustments 1 -2 Profit from subsidiaries 12 -33 Share of net profit from associates 12 19 17, 18 Financials, net 25 17 Income tax 40 40 17 Financial income, received 9 10 18 Financial expenses, settled -35 -26 Income tax, settled -49 -46 Cash flow before working capital changes 254 243 Working capital changes Inventory changes -27 26 Receivables changes 48 18 Non-interest-bearing liabilities changes 73 -91 Cash flow from operating activities 348 196 Investing activities 8 Purchase of intangible assets -47 -30 Purchase of property, plant and equipment -9 -24 Purchase/capital increase subsidiaries 0 -15 Divestment of subsidiary 0 5 Divestment of associates 1 240 0 Other financial investments -1 -14 Cash flow from investing activities 183 -78 1) DKK 237m relates to the divestment of our shareholding in BIMobject. Notes DKK million 2020 2019 Financing activities Repayment of non-current interest-bearing debt -145 -9 Raising of non-current interest-bearing liabilities 53 0 Change in current interest-bearing liabilities -167 127 Instalment on lease liabilities -26 -27 Changes to loans to subsidaries 119 -132 Dividends from subsidiaries 60 25 Dividends distributed -102 -102 Cash flow from financing activities, continuing operations -208 -118 Total cash flow 323 0 Cash at bank and in hand at the beginning of the year 0 0 Cash at bank and in hand at the end of the year 323 0 Cash at bank and in hand at the end of the year Cash at bank and in hand 323 0 Cash at bank and in hand at the end of the year 323 0 105Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 DKK million Share capital Reserves for hedging transactions 1 Reserves for foreign currency translation adjustments 1 Reserves for development costs 1 Retained earnings Proposed dividends Total 2020 Equity as at 1 January 736 -66 -113 128 805 102 1,592 Foreign currency translation adjustments of foreign subsidiaries -22 -22 Fair value adjustments of hedging instruments before tax 7 7 Tax on fair value adjustments -1 -1 Net income recognised in equity via other comprehensive income in the statement of comprehensive income 0 6 -22 0 0 0 -16 Net profit for the year -13 31 204 222 Comprehensive income 0 6 -22 -13 31 204 206 Distribution of dividends (DKK 14.00 per share) -102 -102 Transactions with the owners 0 0 0 0 0 -102 -102 Equity as at 31 December 736 -60 -135 115 836 204 1,696 1) Reserves for hedging transactions, reserves for foreign currency translation adjustments and reserves for development costs are recognised in the balance sheet as a total amount under reserves. STATEMENT OF CHANGES IN EQUITY 106Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 STATEMENT OF CHANGES IN EQUITY – continued DKK million Share capital Reserves for hedging transactions 1 Reserves for foreign currency translation adjustments 1 Reserves for development costs 1 Retained earnings Proposed dividends Total 2019 Equity as at 1 January 775 -58 -113 141 791 102 1,638 Foreign currency translation adjustments of foreign subsidiaries 0 Fair value adjustments of hedging instruments before tax -10 -10 Tax on fair value adjustments 2 2 Net income recognised in equity via other comprehensive income in the statement of comprehensive income 0 -8 0 0 0 0 -8 Net profit for the year -13 -25 102 64 Comprehensive income 0 -8 0 -13 -25 102 56 Distribution of dividends (DKK 14.00 per share) -102 -102 Reduction in share capital -39 39 0 Transactions with the owners -39 0 0 0 39 -102 -102 Equity as at 31 December 736 -66 -113 128 805 102 1,592 1) Reserves for hedging transactions, reserves for foreign currency translation adjustments and reserves for development costs are recognised in the balance sheet as a total amount under reserves. 107Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 1 2 General accounting policies A general description of accounting policies can be found in the consolidated financial statements on pages 58-60, note 1, Accounting policies. Descriptions of accounting policies in notes Descriptions of accounting policies in the notes form part of the overall description of accounting policies. Parent-specific descriptions are found in the following notes: Note 6 Income tax Note 7 Net profit for the year Note 8 Intangible assets Note 9 Property, plant and equipment Note 10 Leases Note 11 Investments measured at equity value and other non-current assets Note 12 Inventories Note 13 Trade receivables Note 14 Other provisions Note 16 Share capital Note 17 Interest-bearing liabilities Note 20 Contingent liabilities and other financial liabilities Significant accounting estimates and assessments When preparing the annual report in accordance with generally applicable principles, management make estimates and assumptions that aect the reported assets and liabilities. Management base their estimates on historic experience and expectations for future events. Therefore, actual results may dier from these estimates. The following estimates and accompanying assessments are deemed material for the preparation of the finan- cial statements: • Impairment test for goodwill and equity investments • Impairment test of soware • Inventory write-down • Write-down for meeting of loss on doubtful receivables These estimates and assessments are described in the following notes: Note 8 Intangible assets Note 12 Inventories Note 13 Trade receivables 108Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 3 Sta costs Terms of notice for members of the Executive Board is 12 months. When stepping down, the CEO is entitled to 6 months’ remuneration. DKK million 2020 2019 Salaries and wages etc. 1 480 462 Pensions, defined contribution 34 30 Costs related to social security 11 11 Share-based payment 2 1 Total 527 504 Average number of employees (FTEs) 760 765 Number of employees at year-end (FTEs) 766 775 Remuneration of Board of Directors Remuneration of Board of Directors 3 3 Remuneration of Executive Board Remuneration and bonus 18 16 Share-based payment 1 1 Total 19 17 1) In 2020, Solar received DKK 5m from furlough schemes due to COVID-19 which is included in salaries and wages. 109Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 4 5 Loss on trade receivables Depreciation, write-down and amortisation DKK million 2020 2019 Recognised losses 5 5 Received on trade receivables previously written o 0 0 5 5 Change in write-down for bad and doubtful debts 3 0 Total 8 5 Relevant accounting policies are described in note 13, trade receivables. DKK million 2020 2019 Buildings 11 10 Plant, operating equipment, tools and equipment 8 8 Leasehold improvements 1 0 Tenancy, lease 11 11 Cars, lease 9 10 IT equipment, lease 6 6 Total depreciation and write-down on property, plant and equipment 46 45 Customer-related assets 1 1 Soware 64 68 Impairment of intangible assets 10 0 Total amortisation and impairment of intangible assets 75 69 Relevant accounting policies are described in note 8, intangible assets, and note 9, property, plant and equipment and note 10, leases. 110Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 6 Income tax Accounting policies Tax for the year is recognised with the share attributable to results for the year in the income statement and with the share attributable to other recognised income and costs in the statement of comprehensive income. Tax consists of current tax and changes to deferred tax. DKK million 2020 2019 Current tax 49 47 Deferred tax -9 -7 Tax on profit or loss for the year 40 40 Tax on taxable profit previous year 0 0 Total 40 40 Statement of eective tax rate: Danish income tax rate 22.0% 22.0% Profit from subsidiaries 1.2% -6.9% Impairment on / gain from sale of / reversal of impairment on associates -8.9% 18.1% Non-taxable/deductible items in parent 1.0% 5.1% Tax regarding prevoius year 0.0% 0.2% Eective tax rate 15.3% 38.5% 111Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 6 Income tax – continued Accounting policies Current tax liabilities and current tax receivables are recognised in the balance sheet as calculated tax on the year’s taxable income, adjusted for tax on previous year’s taxable income and for tax paid on account. Deferred tax is measured in accordance with the balance sheet liability method of all temporary dierentials between accounting and tax-related amounts and provisions. Deferred tax is recognised at the local tax rate that any temporary dierentials are expected to be realised at based on the adopted or expected adopted tax legislation on the balance sheet date. Deferred tax assets, including the tax value of tax loss allowed for carryforward, are measured at the value at which the asset is expected to be realised, either by elimination in tax of future earnings or by osetting against deferred tax liabilities. Deferred tax assets are assessed annually and only recognised to the extent that it is probable that they will be utilised. Deferred tax is also recognised for the covering of retaxation of losses in former foreign subsidiaries participating in joint taxation assessed as becoming current. DKK million 2020 2019 1/1 79 88 Recognised in other comprehensive income 1 -2 Ordinary tax recognised in income statement -9 -7 Other items 1 - Total 31/12 72 79 Specified as follows: Deferred tax 72 79 Deferred tax assets 0 0 Total deferred tax, net 72 79 Further specified as follows: Expected use within 1 year 0 0 Expected use aer 1 year 72 79 Total, net 72 79 112Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 6 Income tax – continued Specification by balance sheet items DKK million 1/1 Other adjustments 2020 2019 Property, plant and equipment 20 0 20 20 Inventories 0 0 0 0 Provisions for loss on receivables 0 0 0 0 Other items 1 59 -7 52 59 Total, net 79 -7 72 79 1) Other items cover intangible assets, loss balances in jointly taxed entities. 113Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 7 Net profit for the year Accounting policies Dividends Proposed dividends are recognised as a liability at the time of adoption of the general meeting. DKK million 2020 2019 Proposed distribution of net profit for the year: Proposed dividends, parent 204 102 Reserves for development costs -13 -13 Retained earnings 31 -25 Net profit for the year 222 64 Dividends in DKK per share of DKK 100 1 28.00 14.00 1) Calculations are based on proposed dividends. 114Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 8 Intangible assets Accounting policies Customer-related intangible assets Customer-related intangible assets acquired in connection with business combinations are measured at cost less accumulated amortisation and impairment loss. Customer-related intangible assets are amortised using the straight-line principle over the expected useful life. Typically, the amortisation period is 5-7 years. Goodwill Goodwill is initially recognised in the balance sheet as the positive balance between the acquisition consideration of an enterprise on one side and the fair value of the assets, liabilities and contingent liabilities acquired on the other side. In cases of measurement uncertainty, the goodwill amount can be adjusted until 12 months aer the date of the acquisition. Goodwill is not amortised but an impairment test is done annually. The first impairment test is done by the end of the year of acquisition. Subsequently, goodwill is measured at this value less accumulated impairment losses. On acquisition, goodwill is assigned to the cashgenerating units that form the basis of the impairment test subsequently. The determination of cashgenerating units follows the managerial structure and management control. Soware Soware is measured at cost less accumulated amortisation and write-down. Cost includes both direct internal and external costs. Soware is amortised using the straight-line principle over 4-8 years. The basis of amortisation is reduced by any write-down. DKK million Goodwill Customer- related assets Soware Total 2020 Cost 1/1 9 46 606 661 Additions during the year 0 0 48 48 Disposals during the year -9 0 -1 -10 Cost 31/12 0 46 653 699 Amortisation and impairment 1/1 9 42 429 480 Amortisation during the year 0 1 64 65 Impairment during the year 0 0 10 10 Amortisation of abandoned assets -9 0 -1 -10 Amortisation and impairment 31/12 0 43 502 545 Carrying amount 31/12 0 3 151 154 Remaining amortisation period in number of years - 5 1-8 - 8 115Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 Accounting policies – continued Impairment of intangible assets The carrying amount of intangible assets is assessed annually to determine whether there is any indication of impairment. When such an indication is present, the asset’s recoverable amount is calculated, which is the highest of the asset’s fair value less expected costs of disposal or value in use. Value in use is calculated as the present value of expected cash flow from the smallest cash flow-generating unit to which the asset belongs. Impairment loss is recognised when the carrying amount of an asset exceeds the asset’s recoverable amount. Impairment loss is recognised in the income statement. Impairment loss on intangible assets is reversed if changes have been made to the assumptions and estimates that led to the impairment loss. 8 Intangible assets – continued Accounting estimates and assesments Soware Soware is evaluated annually for indicators of a need for impairment. If a need to perform impairment is identified, an impairment test is performed for the soware. The impairment test is made on the basis of dierent factors, including the soware’s future application, the present value of the expected cost saving as well as interest and risks. DKK million Goodwill Customer- related assets Soware Total 2019 Cost 1/1 9 46 576 631 Additions during the year 0 0 30 30 Acquired during the year 0 0 0 0 Disposals during the year 0 0 0 0 Cost 31/12 9 46 606 661 Amortisation and impairment 1/1 9 41 361 411 Amortisation during the year 0 1 68 69 Impairment during the year 0 0 0 0 Amortisation of abandoned assets 0 0 0 0 Amortisation and impairment 31/12 9 42 429 480 Carrying amount 31/12 0 4 177 181 Remaining amortisation period in number of years - 6 1-8 - 116Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 9 Property, plant and equipment Accounting policies Property, plant and equipment Land and buildings as well as other plant, operating equipment, and tools and equipment are measured at cost less accumulated depreciation and write-down. Cost includes the purchase price and costs directly attributable to the acquisition until the time when the asset is ready for use. Cost of a combined asset is disaggregated into separate components which are depreciated separately if the useful lives of the individual components dier. Subsequent expenditure, for example in connection with the replacement of components of property, plant or equipment, is recognised in the carrying amount of the relevant asset when it is probable that the incurrence will result in future economic benefits for the group. The replaced components cease to be recognised in the balance sheet and the carrying amount is transferred to the income statement. All other general repair and maintenance costs are recognised in the income statement when these are incurred. Property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives which are: • Buildings 40 years • Technical installations 20 years • Plant, operating equipment, and tools and equipment 2-5 years. There are a few dierences from the mentioned depreciation periods in which useful life is estimated as shorter. Leasehold improvements are depreciated over the lease term, however, maximum 5 years. Land is not depreciated. DKK million Land and buildings Plant, operating equipment, tools and equipment Leasehold improvements Total 2020 Cost 1/1 409 245 12 666 Additions during the year 1 13 0 14 Disposals during the year 0 -9 -2 -11 Cost 31/12 410 249 10 669 Write-down and depreciation 1/1 183 224 6 413 Write-down and depreciation during the year 11 8 1 20 Write-down and depreciation of abandoned assets 0 -4 -2 -6 Write-down and depreciation 31/12 194 228 5 427 Carrying amount 31/12 216 21 5 242 117Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 9 Property, plant and equipment – continued Accounting policies – continued The basis of depreciation is determined in consideration of the asset’s residual value and reduced by any impairment. Residual value is determined at the time of acquisition and reassessed annually. If residual value exceeds the asset’s carrying amount, depreciation will cease. By changing the depreciation period or residual value, the eect of future depreciation is recognised as a change to accounting estimates. Impairment of property, plant and equipment The carrying amount of property, plant and equipment is assessed annually to determine whether there is any indication of impairment. When such an indication is present, the asset’s recoverable amount is calculated, which is the highest of the asset’s fair value less expected costs of disposal or value in use. Value in use is calculated as the present value of expected cash flow from the smallest cash flow-generating unit to which the asset belongs. Impairment loss is recognised when the carrying amount of an asset exceeds the asset’s recoverable amount. Impairment loss is recognised in the income statement. Write-down on property, plant and equipment is reversed to the extent that changes have been made to the assumptions and estimates that led to the write-down. DKK million Land and buildings Plant, operating equipment, tools and equipment Leasehold improvements Total 2019 Cost 1/1 404 256 7 667 Additions during the year 5 13 6 24 Disposals during the year 0 -24 -1 -25 Cost 31/12 409 245 12 666 Write-down and depreciation 1/1 173 240 7 420 Write-down and depreciation during the year 10 8 0 18 Write-down and depreciation of abandoned assets 0 -24 -1 -25 Write-down and depreciation 31/12 183 224 6 413 Carrying amount 31/12 226 21 6 253 118Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 10 Leases Right-of-use assets DKK million Tenancy Cars IT equipment Total 2020 Cost 1/1 59 25 16 100 Additions during the year 5 7 14 26 Disposals during the year 1 0 -4 -9 -13 Cost 31/12 64 28 21 113 Write-down and depreciation 1/1 11 9 6 26 Write-down and depreciation during the year 11 9 6 26 Write-down and depreciation of abandoned assets 0 -4 -7 -11 Write-down and depreciation 31/12 22 14 5 41 Carrying amount 31/12 42 14 16 72 1) Disposals relate to expiration and renewal of contracts. Accounting policies Right-of-use assets Right-of-use assets are lease assets arising from a lease agreement. Lease assets are initially measured at cost consisting of the amount of the initial measurement of the lease liability with addition of lease payments made to the lessor at or before the commencement date less any lease incentives received. Three dierent types of leases have been identified: • Tenancy • Cars • IT equipment The lease assets are depreciated on a straight-line basis over the lease term. The carrying amount of the right-of- use asset can be adjusted due to modifications to the lease agreement or in special cases reassessment of the lease term. Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in the income statement. Short-term leases are leases with a term of 12 months or less. Low-value assets comprise IT-equipment and small items of oce furniture of a value below DKK 37,000. 119Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 10 Leases – continued Right-of-use assets DKK million Tenancy Cars IT equipment Total 2019 Cost 1/1 30 15 16 61 Additions during the year 29 11 0 40 Disposals during the year 0 -1 0 -1 Cost 31/12 59 25 16 100 Write-down and depreciation 1/1 0 0 0 0 Write-down and depreciation during the year 11 10 6 27 Write-down and depreciation of abandoned assets 0 -1 0 -1 Write-down and depreciation 31/12 11 9 6 26 Carrying amount 31/12 48 16 10 74 120Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 Leases – continued Long-term lease liabilities DKK Million 2020 2019 Maturity > 1 year < 5 years, undiscounted 40 35 Maturity > 5 years, undiscounted 13 18 Long-term lease liabilities 31/12, undiscounted 53 53 Discounting on lease liabilities > 1 year < 5 years -1 -1 Discounting on lease liabilities > 5 years -1 -1 Long-term lease liabilities 31/12 51 51 Amounts recognized in the Profit & Loss statement Depreciation of right-of-use assets 26 27 Interest expense on lease liabilities 1 1 Expense relating to short-term leases 0 0 Expense relating to leases of low-value items 0 0 Expense relating to variable lease payments not included in the measurement of lease liabilities 2 2 Total 29 30 Cash outflows for leases Instalment on lease liabilities -26 -27 Interest payments -1 -1 Total cash outflows for leases -27 -28 10 Accounting policies Lease liabilities Lease liabilities arise from a lease agreement. Lease liabilities are initially measured at the present value of the lease payments during the non-cancellable lease period with addition of periods covered by an option to extend the lease if exercise of the option is considered reasonably certain on inception of the lease. At initial recognition, each contract is assessed individually to assess the likelihood of exercising a potential extension option in the contract. The option to extend the contract period will be included in measuring the lease liability if it is reasonably certain that Solar will exercise the option. When calculating the net present value, a discount rate corresponding to Solar’s incremental borrowing rate has been used. The weighted average lessee’s incremental borrowing rate applied to the lease liabilities on January 1 2020 are between 1.3% (0.6%) and 4.0% ( 3.66%) depending among other things on the term and the currency in which the contracts are denominated. The lease liability will be remeasured when changes occur due to modifications to the contract (extension, termination etc.), indexation or in special cases reassessment of the lease term. 121Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 Investments measured at equity value an other non-current assets DKK million Equity investments Investments in associates Other investments Other receivables Total 2020 Cost 1/1 2,624 273 53 49 2,999 Foreign currency translation adjustments 0 0 -1 0 -1 Additions during the year 0 0 0 1 1 Fair value adjustment recognised under financial income 0 0 0 0 0 Transferred from associates to other investments 0 -3 3 0 0 Disposals during the year 0 -256 0 -30 -286 Cost 31/12 2,624 14 55 20 2,713 Value adjustment 1/1 -1,313 -127 -2 -22 -1,464 Foreign currency translation adjustments -22 0 0 0 -22 Dividends from subsidiaries -60 0 0 0 -60 Profit from subsidiaries -12 -12 0 0 -24 Fair value adjustment recognised under impairment on associates 0 81 0 0 81 Fair value adjustment recognised under financial expenses 0 0 0 -2 -2 Transferred from associates to other investments 0 2 -2 0 0 Other adjustments 2 42 0 22 66 Value adjustment 31/12 -1,405 -14 -4 -2 -1,425 Carrying amount 31/12 1,219 0 51 18 1,288 11 Accounting policies Under the equity method of accounting, the investments are initially recognised at cost and adjusted thereaer to recognise the parent company’s share of the post- acquisition profits or losses of the subsdiary in profit or loss statement, and the parent company’s share of movements in other comprehensive income of the investee in other comprehensive income. Dividends received or receivable from subsidiaries are recognised as a reduction in the carrying amount of the investment. Unrealised gains on transactions between the parent company and its subsidiaries are eliminated to the extent of the parent company’s interest in these entities. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of equity accounted investees have been changed where necessary to ensure consistency with the policies adopted by the parent company. The carrying amount of equity-accounted investments is tested for impairment. Other investments are measured at fair value. 122Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 Investments measured at equity value and other non-current assets – continued 11 DKK million Equity investments Investments in associates Other investments Other receivables Total 2019 Cost 1/1 2,609 273 48 36 2,966 Additions during the year 15 0 5 9 29 Transferred from investments held for sale 0 0 0 4 4 Disposals during the year 0 0 0 0 0 Cost 31/12 2,624 273 53 49 2,999 Value adjustment 1/1 -1,321 -22 -2 -22 -1,367 Dividends from subsidiaries -25 0 0 0 -25 Profit from subsidiaries 33 -19 0 0 14 Fair value adjustment recognised under impairment on associates 0 -86 0 0 -86 Other adjustments 0 0 0 0 0 Value adjustment 31/12 -1,313 -127 -2 -22 -1,464 Carrying amount 31/12 1,311 146 51 27 1,535 123Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 12 Inventories Accounting policies Inventories are measured at cost according to the FIFO method or at net realisable value, if this is lower. Cost of inventories includes purchase price with addition of delivery costs. The net realisable value of inventories is determined as selling price less costs incurred to make the sale and is determined in consideration of marketability, obsolescence and development of expected selling price. DKK million 2020 2019 End products 533 506 Recognised write-down 3 -1 The main reasons for the recognised write-downs is an increase in write-down articles. Accounting estimates and assesments Write-down of inventories Write-down of inventories is made due to the obsolescence of products. Management specifically assess inventories, including the products’ turnover rate, current economic trends and product development when deciding whether the write-down is sucient. 124Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 Accounting policies Trade receivables are measured at fair value at acquisition and at amortised cost subsequently. Based on an individual assessment of the loss risk, write-down to amortised cost less expected credit losses is made, if this is lower. Accounting estimates and assesments Write-down for meeting of loss on doubtful trade receivables The IFRS 9 simplified approach is applied to measure expected credit losses, which uses a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the day past invoicing. As the vast majority of our companies generally takes out insurance to hedge against loss to the extent possible, the write-down based on age distribution amounts to less than 0.3% (0.8%) of gross trade receivables. Individual assessment of write-down is performed by management specifically analysing trade receivables, including the customers’ credit rating and current economic trends to ensure that write-down is sucient. Write-down based on individual assessment amounts to 1.7% (0.3%) of gross trade receivables. As the total write-down on trade receivables amounts to 2% (1%) of gross trade receivables, no maturity statement of the write- down is included. However, the majority of the provision relates to receivables overdue by more than 31 days (31 days). 13 Trade receivables DKK million 2020 2019 Maturity statement, trade receivables Not due 344 320 Past due for 1-30 day(s) 4 39 Past due for 31-90 days 3 15 Past due for 91+ days 1 3 352 377 Write-down -7 -4 Total 345 373 Write-down based on: Age distribution 1 3 Individual assessment 6 1 Total 7 4 Write-down 1/1 4 4 Write-down for the year 5 1 Losses realised during the year 0 0 Reversed for the year -2 -1 Write-down 31/12 7 4 We refer to the consolidated accounts, note 15, trade receivables, for information on credit risk. 125Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 14 Other provisions Accounting policies Provisions are measured in accordance with management’s best estimate of the amount required to settle a liability. Restructuring expenses are recognised as liabilities when a detailed ocial plan for the restructuring has been published to the parties aected by the plan on the balance sheet date at the latest. DKK million 2020 2019 Non-current Others 1 2 Total 31/12 1 2 Specification, non-current 1/1 2 2 Reversed during the year -1 0 Provisions of the year 0 0 Total 31/12 1 2 Current Restructuring costs 1 0 Total 31/12 1 0 Specification, current 1/1 0 0 Reversed during the year 0 0 Provisions of the year 1 0 Total 31/12 1 0 126Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 15 Other payables DKK million 2020 2019 Sta costs 105 115 Taxes and charges 48 14 Hedging instruments 77 84 Other payables and amounts payable 31 20 Total 261 233 Accounting policies for hedging instruments are described in note 17 on interest-bearing liabilities and maturity statement. 127Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 16 Share capital DKK million 2020 2019 Share capital 1/1 736 775 Reduction in share capital 0 -39 Share capital 31/12 736 736 Share capital is fully paid in and divided into the following classes: A shares, 40 shares at DKK 10,000 0 0 A shares, 2,240 shares at DKK 40,000 90 90 A shares total 90 90 B shares 6,460,000 at DKK 100 646 646 Total 736 736 In 2019 the share capital was reduced by 385,625 B shares. Number of shares Nominal value 2020 2019 2020 2019 A shares outstanding 31/12 1 900,000 900,000 90 90 B shares outstanding Outstanding 1/1 6,398,292 6,398,292 640 640 Purchase of treasury shares 0 0 0 0 B shares outstanding 31/12 6,398,292 6,398,292 640 640 Total shares outstanding 31/12 7,298,292 7,298,292 730 730 1) A shares have been included in the calculation in units of DKK 100. Accounting policies Treasury shares Acquisition and disposal sums related to treasury shares are recognised directly in transactions with the owners. 128Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 16 Share capital – continued Treasury shares (B shares) Number of shares Nominal value (DKK million) Cost (DKK million) Percentage of share capital 2020 2019 2020 2019 2020 2019 2020 2019 Holding 1/1 61,708 447,333 6 45 24 176 0.8% 5.8% Cancellation 0 -385,625 0 -39 0 -152 0.0% -5.0% Holding 31/12 61,708 61,708 6 6 24 24 0.8% 0.8% Solar A/S’s annual general meeting passed a resolution on 15 March 2019 to reduce the company’s B share capital by nominally DKK 38,562,500 by cancelling treasury B shares. This corresponds to a reduction of the B share capital of 385,625 B shares of DKK 100. All treasury shares are held by the parent company. 129Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 17 Interest-bearing liabilities and maturity statement DKK million Interest rate 2020 2019 Debt to mortgage credit institutions 1 Fixed 155 165 Debt to credit institutions Floating/Fixed 1 53 135 Lease liabilities Calculated 73 74 Bank loans and overdras Floating 31 198 Interest-bearing liabilities 312 572 Trade payables 738 699 Other payables 545 391 Financial liabilities 1,595 1,662 Cash at bank and in hand 323 0 Trade receivables 345 373 Other receivables 408 413 Financial assets 1,076 786 Total, net 519 876 1) Interest swaps have been used to hedge floating-rate loans, converting these loans to fixed-rate loans. Reconciliation of development in interest-bearing debt to mortgage and credit institutions to finanacing acitivites in the cash flow statement: DKK million 2020 2019 Debt to mortgage and credit institutions and lease liabilities 1/1 374 309 Raising of non-current interest-bearing liabilities 53 0 Lease liability recognised as at 1 January 2019 on implementation of IFRS 16 - 61 Lease liability raised during the year 25 40 Repayment of debt to mortgage and credit institutions -145 -9 Instalment on lease liabilities -26 -27 Debt to mortgage and credit institutions and lease liabilities 31/12 281 374 Accounting policies Financial liabilities Debt to credit institutions is recognised initially at the proceeds received net of transaction costs incurred. In subsequent periods, the financial liabilities are measured at amortised cost using the eective interest method, meaning that the dierence between the proceeds and the nominal value is recognised in the income statement under financials for the term of the loan. 130Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 17 Interest-bearing liabilities and maturity statement – continued DKK million 2020 2019 Current interest-bearing liabilities Maturity < 1 year Debt to mortgage credit institutions 9 9 Debt to credit institutions 0 135 Lease liabilities 22 23 Bank loans and overdras 31 198 Current interest-bearing liabilities 62 365 Other financial liabilities 1,283 1,090 Financial liabilities 1,345 1,455 Financial assets 1,076 786 Total, net 269 669 Maturity 1-5 year(s) Debt to mortgage credit institutions 36 36 Debt to credit institutions 53 0 Lease liabilities 39 34 Total 128 70 Maturity > 5 years Debt to mortgage credit institutions 110 120 Lease liabilities 12 17 Total 122 137 Total non-current liabilities 250 207 Maturity, until year 2037 2037 The carrying amount of financial liabilities corresponds to fair value. 131Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 17 Interest-bearing liabilities and maturity statement – continued DKK million 2020 2019 Interest-bearing liabilities and maturity statement for expected interest expense for the period < 1 year 9 11 1-5 year(s) 29 31 > 5 years 36 42 Total 74 84 Outstanding interest swaps made for hedging floating-rate loans Principal amount 164 192 Interest rate in % for outstanding swaps 5.2 5.2 Fair value -77 -84 Maturity for interest swaps follows the maturity for debt to mortgage credit institutions as stated on previous page. Amounts recognised in other comprehensive income Adjustment to fair value for the year -10 -18 Realised during the year, recognised as financial income/expenses 17 8 Total 7 -10 Eect of a 1% interest rate increase Eect on equity 15 23 Of this, earnings impact is 0 -2 Undrawn credit facilities 31/12 380 309 Accounting policies Derivatives Derivatives are only used to hedge financial risks in the form of interest rate and currency risks. Derivatives are initially recognised at cost and at fair value subsequently. Both realised and unrealised gains and losses are recognised in the income statement unless the derivatives are part of hedging of future transactions. Value adjustments of derivatives for hedging of future transactions are recognised directly in other comprehensive income. As hedged transactions are realised, gains or losses are recognised in the hedging instrument from other comprehensive income in the same item as the hedged items. Any non-eective part of the financial instrument in question is recognised in the income statement. Derivatives are recognised under other receivables or other payables. Fair value measurement The group uses the fair value concept for recognition of certain financial instruments and in connection with some disclosure requirements. Fair value is defined as the price that can be secured when selling an asset or that must be paid to transfer a liability in a standard transaction between market participants (exit price). Fair value is a market-based and not enterprise-specific valuation. The enterprise uses the assumptions that market participants would use when pricing an asset or liability based on existing market conditions, including assumptions relating to risks. As far as possible, fair value measurement is based on market value in active markets (level 1) or alternatively on values derived from observable market information (level 2). If such observable information is not available or cannot be used without significant modifications, recognised valuation methods and fair estimates are used as the basis of fair values (level 3). 132Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 17 Interest-bearing liabilities and maturity statement – continued Distribution on currencies Current liabilities Non-current liabilities DKK million 2020 2019 2020 2019 EUR 9 18 146 156 DKK 0 324 53 0 SEK 32 0 0 0 Total 41 342 199 156 Interest rate in % 1.1-5.2 1.1-5.2 1.1-5.2 1.1- 5.2 Fair value of Solar’s respective interest-bearing liabilities is seen as fair value measurement at level 2. Mortgage loans are valued based on underlying securities, while bank debt is calculated based on models for discounting to net present value. Non-observable market data is primarily made up of credit risks, which are seen as insignificant in Solar’s case. The fair value of Solar’s derived financial instruments (interest rate instruments) is fixed as fair value measurement at level 2, since fair value can be determined directly based on the actual forward rates and instalments on the balance sheet date. Outstanding interest rate swaps for hedging of floating-rate loans expire over the period until 2037 (2037). The parent company has raised loans in Danish kroner and euro. We refer to the consolidated accounts, note 22, interest- bearing liabilities and maturity statement, for more information on liquidity risk, interest rate and currency risk management. 133Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 18 19 Financial income Financial expenses DKK million 2020 2019 Interest revenue 4 5 Foreign exchange gains 7 3 Other financial income 1 5 5 Total 16 13 Financial income, received 9 10 DKK million 2020 2019 Interest expenses 20 23 Foreign exchange losses 6 4 Interest on lease liabilities 1 1 Other financial expenses 14 2 Total 41 30 Financial expenses, settled 35 26 134Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 20 Contingent liabilities and other financial liabilities DKK million 2020 2019 Collateral Assets have been pledged as collateral for bank arrangements at a carrying amount of: Land and buildings 218 227 Current assets 0 0 Total 218 227 Mortgaging and guarantees As security of subsidiaires’ bank arrangements, guarantees have been issued for: Total 95 333 As security of subsidiaires’ liabilities, guarantees have been issued for: Total 433 482 135Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 21 Related parties Group and parent Solar A/S are subject to control by the Fund of 20th December (registered as a commercial foundation in Denmark), which owns 16.9% of the shares and holds 60% of the voting rights. The remaining shares are owned by a widely combined group of shareholders. Other related parties include the company’s Board of Directors and Executive Board. There have been no transactions in the financial year with members of the Board of Directors and Executive Board other than those which appear from note 3. The parent company has had the following significant transactions with related parties: DKK million 2020 2019 Sale of services to subsidiaries 148 157 Sale of goods to subsidiaries 99 83 Interest income from subsidiaries 5 5 Interest expense from subsidiaries 1 1 On the balance sheet date, the usual product balances derived from these transactions exist. These appear from the parent company’s balance sheet. Solar also invoices the Fund of 20th December for the performance of administrative services at DKK 20,000. Balances with the Fund of 20th December total 0 on balance sheet date. 22 Auditors’ fees DKK million 2020 2019 PricewaterhouseCoopers Statutory audit 1 1 Other services 1 1 1 Total 2 2 Other auditors Other services 0 0 Total 0 0 1) Other services mainly consists of IT-related services (IT-related services and services related to business combinations). 136Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 136Solar – Annual Report 2020 FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEW 137Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 Group companies overview Companies fully owned by Solar A/S Companies fully owned by Solar A/S – continued Name Reg. no. Currency Share capital Country Solar A/S 15908416 DKK 736,000,000 DK Solar Sverige AB 5562410406 SEK 100,000,000 SE Solar Norge AS 980672891 NOK 70,000,000 NO Solar Nederland B.V. 09013687 € 67,000,500 NL Eltechna B.V. KvK 23066336 € 18,151 NL MAG45 Holding B.V. 17213145 € 28,544 NL MAG45 B.V. 17168649 € 18,000 NL MAG45 Sp.z.oo 277409 PLN 50,000 PL MAG45 GmbH 18354 € 25,000 DE MAG45 Ltd 311859 € 152 IE MAG45 (UK) Ltd 4092664 £ 301 UK MAG45 S.a.r.l. CHE-265,557,14 8 CHF 20,000 CH MAG45 INC 123858292 $ 1,500 USA MAG45 S.R.O 27697690 CZK 200,000 CZ MAG45 Iss Co. Ltd 91320594693364287L $ 80,000 CN MAG45 Ltd 39740334 $ 1 HK MAG45 Pte Ltd. 201709959H SG$ 100,000 SG MAG45 K 01-09-300892 HUF 3,000,000 HU MAG45 Srl 10053890967 € 20,000 IT Solar Polska Sp.z.oo 0000003924 PLN 65,050,000 PL Claessen Holding N.V 04 37.191.965 € 65,094 BE Claessen ELGB NV 0436.564.831 € 5 ,697,10 0 BE Name Reg. no. Currency Share capital Country P/F Solar Føroyar P/F 10 4 DKK 12,000,000 FO SD of 16 March GmbH HRB 516 NM € 51,400,000 DE SD of 17 March Gesellscha für Vermögensverwaltung mbH HRB 16642 KI € 25,000 DE SD of 16 March Gesellscha für Vermögensverwaltung mbH HRB 16638 KI € 2,556,500 DE SD of 16 March Immobilienverwaltung GmbH HRB 16616 KI € 25,000 DE Solar Invest A/S 73316111 DKK 500,000 DK Solar Polaris A/S 38378171 DKK 5,000,000 DK Name, equity interest Reg. no. Currency Share capital Country LetsBuild Holding SA, 8.07% 0656.613.388 EUR 20,769,243 BE Viva Labs AS, 7.89% 898 444 392 NOK 105,534 NO Minuba ApS, 19.98% 33259336 DKK 100,542 DK Zolw AS, 24.40% 925 003 328 NOK 41,280 NO HomeBob A/S, 44.46% 38832840 DKK 4,512,636 DK Monterra AB, 30.00% 559103-4847 SEK 50,000 SE Companies, where Solar’s equity interest is less than 50% 138Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020FINANCIAL STATEMENTS Solar – Annual Report 2020 138 STATEMENTS AND REPORTS 139Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 STATEMENT BY THE EXECUTIVE BOARD AND THE BOARD OF DIRECTORS The group’s Board of Directors and Executive Board have today discussed and approved Annual Report for the financial year 1 January – 31 December 2020. The consolidated financial statements and the separate financial statements have been presented in accordance with International Financial Reporting Standards as approved by the EU. Moreover, the consolidated financial statements and the separate financial statements have been prepared in accor - dance with additional Danish disclosure requirements of listed companies. Management’s review was also prepared in accordance with Danish disclosure requirements of listed companies. In our opinion, the consolidated financial statements and the separate financial statements give a fair presentation of the group and parent company’s assets, liabilities and equity, and financial position as at 31 December 2020 as well as the results of the group and parent company’s activities and cash flow for the financial year 1 January – 31 December 2020. Further, in our opinion, Management review gives a true and fair statement of the development of the group and parent company’s activities and financial situation, net profit for the year and of the group and parent company’s financial positions and describes the most significant risks and uncertainties pertaining to the group and parent company. In our opinion, the annual report of Solar A/S for the financial year 1 January to 31 December 2020 with the file name SOLA-2020-12-31.zip is prepared, in all material respects, in compliance with the ESEF Regulation. The annual report is recommended for approval by the annual general meeting. Vejen, 11 February 2021 EXECUTIVE BOARD Jens E. Andersen Hugo Dorph Michael H. Jeppesen CEO CCO CFO BOARD OF DIRECTORS Jens Borum Jesper Dalsgaard Lars Lange Andersen Chairman Vice-chairman Peter Bang Morten Chrone Ulrik Damgaard Bent H. Frisk Louise Knauer Jens Peter To 140Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 INDEPENDENT AUDITORS’ REPORT To the shareholders of Solar A/S Report on the audit of the Financial Statements Our opinion In our opinion, the Consolidated Financial Statements and the Parent Company Financial Statements give a true and fair view of the Group’s and the Parent Company’s financial position at 31 December 2020 and of the results of the Group’s and the Parent Company’s operations and cash flows for the financial year 1 January to 31 December 2020 in accordance with International Financial Reporting Standards as adopted by the EU and further requirements in the Danish Financial Statements Act. Our opinion is consistent with our Auditor’s Long-form Report to the Audit Committee and the Board of Directors. What we have audited The Consolidated Financial Statements and Parent Company Financial Statements of Solar A/S for the financial year 1 January to 31 December 2020 comprise statement of comprehensive income, balance sheet, cash flow statement, statement of changes in equity and notes, including summary of signifi- cant accounting policies for the Group as well as for the Parent Company. Collectively referred to as the “Financial Statements”. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) and the additional requirements applicable in Denmark. Our responsibilities under those standards and requirements are further described in the Auditor’s responsibilities for the audit of the Financial Statements section of our report. We believe that the audit evidence we have obtained is sucient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) and the additional requirements applicable in Denmark. We have also fulfilled our other ethical responsibilities in accordance with the IESBA Code. To the best of our knowledge and belief, prohibited non-audit services referred to in Article 5(1) of Regulation (EU) No 537/2014 were not provided. Appointment We were first appointed auditors of Solar A/S before 1995 and are therefore required to resign as auditors of the Company at the General Meeting in 2021. We have been reappointed annually by shareholder resolution for a total period of uninterrupted engagement of more than 25 years including the financial year 2020. 141Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Statements for 2020. These matters were addressed in the context of our au- dit of the Financial Statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Statement on Management’s Review Management is responsible for Management’s Review. Our opinion on the Financial Statements does not cover Management’s Review, and we do not express any form of assurance conclusion thereon. In connection with our audit of the Financial Statements, our responsibility is to read Manage- ment’s Review and, in doing so, consider whether Management’s Review is materially inconsistent with the Financial Statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. Moreover, we considered whether Management’s Review includes the disclosures required by the Danish Financial Statements Act. Based on the work we have performed, in our view, Management’s Review is in accordance with the Consolidated Financial Statements and the Parent Company Financial Statements and has been prepared in accordance with the requirements of the Danish Financial Statements Act. We did not identify any material misstatement in Management’s Review. Management’s responsibilities for the Financial Statements Management is responsible for the preparation of consolidated financial statements and parent company financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the EU and further requirements in the Danish Financial Statements Act, and for such internal control as Management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the Financial Statements, Management is responsible for assessing the Group’s and the Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless Management either intends to liquidate the Group or the Parent Company or to cease operations, or has no realistic alternative but to do so. Key audit matter Goodwill Goodwill is tested for impairment annually. The Group has written o the entire carrying amount of Goodwill in 2020, amounting to DKK 129 million. Goodwill amounts to DKK 0 at December 31, 2020. The assessment of the carrying values of goodwill is dependent on future cash flows and if these are below initial expectations, there is a risk that goodwill will be impaired. The reviews of carrying values performed by the Group contain a number of significant assumptions and estimates such as revenue growth, profit margins, cash-generating units and discount rates. We focused on this area because the impairment assessments of goodwill are dependent on complex and subjective judgements by Management. Refer to note 10 for detailed information of intangible assets and specification of the year-end impairment charge. How our audit addressed the key audit matter We discussed with Management and evaluated the process for preparing the budget supporting the impairment test. In particular: • We assessed whether the models applied by Management to calculate the value in use of the individual cash-gener- ating unit comply with the requirements of IFRS. We recalculated the model to ensure mathematical accuracy; • We assessed the appropriateness of the discount rates applied and underlying significant assumptions and chal- lenged Management judgement, as relevant. We used PwC valuation specialist to assess the discount rates used by Management; • We performed our own sensitivity analysis around the significant assumptions to ascertain the extent of change in those assumptions that either individually or collectively would be required for goodwill not to be impaired. As a result of our procedures we did not propose any adjustments to the amount of impairment recognized in 2020. For goodwill where management determined that impairment was required, we found that the assessments made by management were based upon reasonable assumptions, consistently applied. 142Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 Auditor’s responsibilities for the audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guar- antee that an audit conducted in accordance with ISAs and the additional requirements applicable in Denmark will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these Financial Statements. As part of an audit in accordance with ISAs and the additional requirements applicable in Denmark, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the Financial Statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sucient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit proce- dures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the eectiveness of the Group’s and the Parent Company’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management. • Conclude on the appropriateness of Management’s use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s and the Parent Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the Financial Statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group or the Parent Company to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the Financial Statements, including the disclosures, and whether the Financial Statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sucient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the Consolidated Financial State- ments. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relation- ships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the Financial Statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse conse- quences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on compliance with the ESEF Regulation As part of our audit of the Financial Statements we performed procedures to express an opinion on whether the annual report of Solar A/S for the financial year 1 January to 31 December 2020 with the filename SOLA-2020-12-31.zip is prepared, in all material respects, in compliance with the Commission Delegated Regulation (EU) 2019/815 on the European Single Electronic Format (ESEF Regulation) which includes requirements related to the preparation of the annual report in XHTML format and iXBRL tagging of the Consolidated Financial Statements. Management is responsible for preparing an annual report that complies with the ESEF Regulation. This responsibility includes: ● The preparing of the annual report in XHTML format; ● The selection and application of appropriate iXBRL tags, including extensions to the ESEF taxonomy and the anchoring thereof to elements in the taxonomy, for all financial information required to be tagged using judgement where necessary; 143Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 ● Ensuring consistency between iXBRL tagged data and the Consolidated Financial Statements pre- sented in human-readable format; and ● For such internal control as Management determines necessary to enable the preparation of an annual report that is compliant with the ESEF Regulation. Our responsibility is to obtain reasonable assurance on whether the annual report is prepared, in all material respects, in compliance with the ESEF Regulation based on the evidence we have obtained, and to issue a report that includes our opinion. The nature, timing and extent of procedures select- ed depend on the auditor’s judgement, including the assessment of the risks of material departures from the requirements set out in the ESEF Regulation, whether due to fraud or error. The procedures include: ● Testing whether the annual report is prepared in XHTML format; ● Obtaining an understanding of the company’s iXBRL tagging process and of internal control over the tagging process; ● Evaluating the completeness of the iXBRL tagging of the Consolidated Financial Statements; ● Evaluating the appropriateness of the company’s use of iXBRL elements selected from the ESEF taxonomy and the creation of extension elements where no suitable element in the ESEF taxonomy has been identified; ● Evaluating the use of anchoring of extension elements to elements in the ESEF taxonomy; and ● Reconciling the iXBRL tagged data with the audited Consolidated Financial Statements. In our opinion, the annual report of Solar A/S for the financial year 1 January to 31 December 2020 with the file name SOLA-2020-12-31.zip is prepared, in all material respects, in compliance with the ESEF Regulation. Trekantområdet, 11 February 2021 PricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab CVR no. 3377 1231 Lars Almskou Ohmeyer Henrik Fortho Lind State Authorised Public Accountant State Authorised Public Accountant mne24817 mne34169 144Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020FINANCIAL STATEMENTS Solar – Annual Report 2020 144 Q4 2020 Quarterly information The quarterly information has neither been audited nor reviewed 145Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 QUARTERLY FIGURES Consolidated Q1 Q2 Q3 Q4 Income statement (DKK million) 2020 2019 2020 2019 2020 2019 2020 2019 Revenue 3,045 2,957 2,745 2,868 2,618 2,777 3,057 3,077 Earnings before interest, tax, depreciation and amortisation (EBITDA) 142 121 127 104 177 152 191 161 Earnings before interest, tax and amortisation (EBITA) 97 80 81 60 132 105 145 115 Earnings before interest and tax (EBIT) 82 62 65 41 115 82 -14 75 Financials, net -8 -7 -6 -9 -10 -9 -16 -10 Earnings before tax (EBT) 45 -7 153 56 109 -2 -7 73 Net profit or loss for the quarter 30 -20 141 48 83 -22 -32 58 Balance sheet (DKK million) Non-current assets 1,636 1,739 1,735 1,792 1,695 1,691 1,339 1,756 Current assets 3,349 3,425 3,267 3,451 3,227 3,460 3,268 3,234 Balance sheet total 4,985 5,164 5,002 5,243 4,922 5,151 4,607 4,990 Equity 1,441 1,515 1,614 1,552 1,688 1,512 1,696 1,592 Non-current liabilities 455 713 457 713 497 707 498 503 Current liabilities 3,089 2,936 2,931 2,978 2,737 2,932 2,413 2,895 Interest-bearing liabilities, net 1,077 1,032 845 1,182 726 1,089 128 921 Invested capital 2,332 2,302 2,178 2,461 2,132 2,395 1,760 2,297 Net working capital, end of period 1,432 1,331 1,383 1,466 1,363 1,467 1,109 1,280 Net working capital, average 1,411 1,230 1,391 1,299 1,365 1,339 1,322 1,386 146Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 QUARTERLY FIGURES Consolidated – continued Q1 Q2 Q3 Q4 Cash flows (DKK million) 2020 2019 2020 2019 2020 2019 2020 2019 Cash flow from operating activities, continuing operations -43 -132 282 -17 142 144 432 305 Cash flow from investing activities, continuing operations -25 -28 -18 -78 -8 -40 213 -48 Cash flow from financing activities, continuing operations 84 160 -198 82 -116 -88 -397 -264 Net investments in intangible assets -12 -10 -12 -8 -12 -8 -14 -9 Net investments in property, plant and equipment -13 -21 -4 -25 1 -25 -9 -39 Acquisition and disposal of subsidiaries, net 0 5 0 -40 0 0 0 0 Financial ratios (% unless otherwise stated) Revenue growth 3.0 5.0 -4.3 4.9 -5.7 9.4 -0.6 2.3 Organic growth 2.6 6.0 -1.7 4.2 -4.8 7.9 0.0 1.6 Organic growth adjusted for number of working days 1.4 5.8 -1.6 5.6 -4.8 6.3 -2.1 2.6 Gross profit margin 20.5 20.1 20.5 20.2 21.5 19.7 21.5 20.5 EBITDA margin 4.7 4.1 4.6 3.6 6.8 5.5 6.2 5.2 EBITA margin 3.2 2.7 3.0 2.1 5.0 3.8 4.7 3.7 EBIT margin 2.7 2.1 2.4 1.4 4.4 3.0 -0.5 2.4 Net working capital (NWC end of period)/revenue (LTM) 12.2 11.8 11.9 12.9 11.9 12.6 9.7 11.0 Net working capital (NWC average)/revenue (LTM) 12.0 10.9 11.9 11.4 11.9 11.5 11.5 11.9 Gearing (interest-bearing liabilities,net/EBITDA), no. of times 1.9 2.5 1.5 2.6 1.2 2.2 0.2 1.7 Return on equity (ROE) 7.5 2.0 13.6 5.7 18.9 1.0 13.1 4.1 Return on invested capital (ROIC) 9.0 8.1 10.2 7.9 11.7 8.3 13.8 8.3 Adjusted enterprise value/earnings before interest, tax and amortisation (EV/EBITA) 6.3 8.5 6.0 8.9 6.2 8.1 5.8 7.9 Equity ratio 28.9 29.3 32.3 29.6 34.3 29.4 36.8 31.9 147Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 QUARTERLY FIGURES Consolidated – continued Q1 Q2 Q3 Q4 Share ratios (DKK unless otherwise stated) 2020 2019 2020 2019 2020 2019 2020 2019 Earnings per share outstanding (EPS) 4.11 -2.74 19.32 6.82 11.37 -3.18 -4.38 7.95 Intrinsic value per share outstanding 197.44 20 7.5 8 221.15 224.52 231.29 218.73 232.38 218.13 Share price 204.50 286.68 255.05 312.60 301.43 289.41 353.70 297.31 Share price/intrinsic value 1.04 1.38 1.15 1.39 1.30 1.32 1.52 1.36 Employees Average number of employees (FTE’s) continuing operations 3,057 2,951 3,024 2,984 2,979 3,018 2,935 3,039 Definitions Organic growth Revenue growth adjusted for enterprises acquired and divested and any exchange rate changes. No adjustments have been made for number of working days. Net working capital Inventories and trade receivables less trade payables. ROIC Return on invested capital calculated on the basis of operating profit exclusive impairment on goodwill less tax calculated using the eective tax rate. In general, financial ratios are calculated in accordance with the Danish Finance Society’s “Recommendations & Financial Ratios 2019”. 148Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 Q4 EBITA exceeded our expec- tations. We delivered an EBITA increase of more than 25% despite an adjusted organic revenue growth of -2.1% (2.6%). The EBITA increase of DKK 30m was driven by an improved gross profit margin, eciency gains and cost contain- ment. Q4 2020 REVENUE Solar’s overall adjusted organic growth for Installation amounted to around -4%. The Better Business project focuses on supplying the right products to the right customers. Part of this project involves product pruning of low-margin business, which is one of the drivers of negative growth. Solar Danmark and Solar Norge also saw positive growth in the industry segment, while the other entities saw negative growth. Overall, organic growth within the Industry segment amounted to around 3%. The trade segment delivered negative organic growth in Q4. In Q4, adjusted organic growth at group level amounted to -2.1% (2.6%). Revenue was un- changed at DKK 3.1bn. Core business delivered adjusted organic growth of -2.7% (3.3%). Solar Danmark and Solar Norge saw positive adjusted organic growth. GROSS PROFIT Revenue was almost unchanged in Q4 while gross profit increased by DKK 25m. We saw continuous improvement in the gross profit margin, which increased to 21.5% (20.5%). The gross profit margin was positively aected by the Better Business project initiatives, such as product pruning, and by the increased sale of Solar’s concepts. In addition, extraordinary price increases – mainly in Solar Norge - led to one-o income of approx. DKK 8m, corresponding to 0.3% on group level. EXTERNAL OPERATING COSTS AND STAFF COSTS As expected, costs in general were gradually nor- malised during Q4 as COVID-19 restrictions were partly lied. External operating costs and sta costs were down by DKK 14m compared to last year. Of this, foreign exchange translation adjustments accounted for DKK 1m, cost savings for DKK 15m and furlough for DKK 2m. In addition, SAP eWM rollout costs amounted to approx. DKK 4m. Financial review Q4 EBITA INCREASED BY MORE THAN 25% TO DKK 145M (Figures in brackets are figures from the corresponding period in 2019) LOSS ON TRADE RECEIVABLES Solar conducts ecient credit management at all times. In March, we tightened our credit policy due to the COVID-19 pandemic. Furthermore, we have taken out insurance to hedge against poten- tial losses on trade receivables. However, impacts from COVID-19 have increased risks on trade receivables. Thus, provisions for loss on trade receivables increased slightly to 0.3% (0.0%) in Q4. EBITA EBITA increased to DKK 145m (DKK 115m) and exceeded our expectations. The EBITA margin increased to 4.7% (3.7%). We succeeded in increasing EBITA by DKK 30m due to an improved gross profit margin, eciency gains and cost containment despite a revenue decrease of DKK 20m. EBITA from core business was up at DKK 144m (DKK 121m) corresponding to an EBITA margin of 5.0% (4.1%). As expected, Solar Nederland’s financial perfor- mance was negatively aected by roll-out costs for SAP eWM of approx. DKK 4m. 149Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 The results from the individual countries are given on page 154. AMORTISATION AND IMPAIRMENT Amortisation totalled DKK 159m (DKK 40m). Review of intangible assets resulted in an im- pairment loss of DKK 139m in total. Of this, DKK 129m related to goodwill obtained when Solar Sverige acquired Alvesta V.V.S-Material AB in 2007. In addition is a DKK 10m soware impairment which mainly relates to Axapta soware acquired in 2015 and deployed in Solar Polska. In Q4 2019, a review of goodwill, customer lists and other intangible assets resulted in an impair- ment loss in MAG45 regarding soware of DKK 21m. IMPAIRMENT ON ASSOCIATES Impairment on associates amounted to DKK 24m (DKK 12m). This mainly relates to the divestment of our shareholding in BIMobject for a total cash con- sideration of SEK 333m (DKK 237m). Profits from the divestment amounted to DKK 23m based on a book value of DKK 214m as at 30 September 2020. In Q4 2019, write-down of DKK 12m relating to BIMobject was reversed. EARNINGS BEFORE TAX Earnings before tax amounted to DKK -7m (DKK 73m) and when adjusted, earnings before tax were up at DKK 108m (DKK 82m), as illustrated in the following table. DKK million Q4 2020 Q4 2019 Earnings before tax -7 73 Impairment on associates -24 -12 Earnings before tax, adjusted for impact from associates -31 61 Impairment loss, other intangible assets 10 21 Impairment loss, goodwill and customer lists 129 0 Adjusted earnings before tax 108 82 NET PROFIT Profit from continuing operations came to DKK -32m (DKK 58m). CASH FLOWS Net working capital calculated as an average of the previous four quarters amounted to 11.5% (11.9%) of revenue. Net working capital at the end of 2020 amounted to 9.7% (11.0%). Cash flow from operating activities totalled DKK 432m (DKK 305m). Changes in inventories and changes in receivables had a DKK 35m (DKK -33m) and a DKK 235m (DKK 269m) impact on cash flow respectively, while changes in non-interest-bear- ing liabilities had an impact of DKK 26m (DKK -34m). Total cash flow from investing activities amount- ed to DKK 213m (DKK -48m) mainly impacted by the divestment of our shareholding in BIMobject for DKK 237m. Cash flow from financing activities amounted to DKK -397m (DKK -264m), mainly due to repayment of non-current interest-bearing debt and change in current interest-bearing liabilities. Consequently, total cash flow amounted to DKK 248m (DKK -7m). Net interest-bearing liabilities amounted to DKK 128m (DKK 921m). As at 31 December 2020, gearing was 0.2 (1.7) times EBITDA. Calculated as an average, our gearing was 1.1 (2.0) times EBITDA. Our gearing target is 1.5-3.0 times EBITDA. As at 31 December 2019, Solar had undrawn cred- it facilities of DKK 474m (DKK 383m). Invested capital for the Solar Group totalled DKK 1,760m (DKK 2,297). ROIC amounted to 13.8% (8.3%). ROIC for core business amounted to 15.1%. Activities with a Solar equity interest of less than 50% and discontinued activities are not included in the ROIC calculation. Invested capital only includes operating assets and liabilities. FINANCIAL REVIEW 150Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 STATEMENT OF COMPREHENSIVE INCOME Income statement Q4 DKK million 2020 2019 Revenue 3,057 3,077 Cost of sales -2,400 -2,445 Gross profit 657 632 Other operating income and costs -2 0 External operating costs -75 -80 Sta costs -381 -390 Loss on trade receivables -8 -1 Earnings before interest, tax, depreciation and amortisation (EBITDA) 191 161 Depreciation and write-down on property, plant and equipment -46 -46 Earnings before interest, tax and amortisation (EBITA) 145 115 Amortisation and impairment of intangible assets -159 -40 Earnings before interest and tax (EBIT) -14 75 Share of net profit from associates -1 -4 Impairment and gain from divestment of associates 24 12 Financial income 5 5 Financial expenses -21 -15 Earnings before tax (EBT) -7 73 Income tax -25 -15 Profit of continuing operations -32 58 Profit of discontinued operations 0 0 Net profit for the period -32 58 Earnings in DKK per share outstanding (EPS) -4.38 7.95 Diluted earnings in DKK per share outstanding (EPS-D) -4.38 7.95 Earnings in DKK per share outstanding (EPS) from continuing operations -4.38 7.95 Diluted earnings in DKK per share outstanding (EPS-D) from continuing operations -4.38 7.95 Other comprehensive income Q4 DKK million 2020 2019 Net profit for the period -32 58 Other income and costs recognised: Items that can be reclassified for the income statement Foreign currency translation adjustment of foreign subsidiaries 30 14 Fair value adjustment of hedging instruments before tax 12 11 Tax on fair value adjustments of hedging instruments -2 -3 Other income and costs recognised aer tax 40 22 Total comprehensive income for the period 8 80 151Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 BALANCE SHEET 31.12 DKK million 2020 2019 ASSETS Intangible assets 157 315 Property, plant and equipment 818 865 Right-of-use assets 288 341 Deferred tax assets 3 10 Investments in associates 2 146 Other non-current assets 71 79 Non-current assets 1,339 1,756 Inventories 1,531 1,666 Trade receivables 1,271 1,428 Income tax receivable 13 14 Other receivables 8 8 Prepayments 41 62 Cash at bank and in hand 404 56 Current assets 3,268 3,234 Total assets 4,607 4,990 31.12 DKK million 2020 2019 EQUITY AND LIABILITIES Share capital 736 736 Reserves -195 -179 Retained earnings 951 933 Proposed dividend for the financial year 204 102 Equity 1,696 1,592 Interest-bearing liabilities 199 156 Lease liabilities 189 231 Provision for deferred tax 98 103 Other provisions 12 13 Non-current liabilities 498 503 Interest-bearing liabilities 41 477 Lease liabilities 103 113 Trade payables 1,693 1,814 Income tax payable 21 10 Other payables 544 464 Prepayments 2 4 Other provisions 9 13 Current liabilities 2,413 2,895 Liabilities 2,911 3,398 Total equity and liabilities 4,607 4,990 Consolidated 152Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 CASH FLOW STATEMENT Q4 DKK million 2020 2019 Net profit for the period from continuing operations -32 58 Depreciation, write-down and amortisation 205 86 Impairment and gain from divestment of associates -24 -12 Changes to provisions and other adjustments 9 -16 Share of net profit from associates 1 4 Financials, net 16 10 Income tax 25 15 Financial income, received 2 2 Financial expenses, settled -17 -13 Income tax, settled -49 -31 Cash flow before working capital changes 136 103 Working capital changes Inventory changes 35 -33 Receivables changes 235 269 Non-interest-bearing liabilities changes 26 -34 Cash flow from operating activities, continuing operations 432 305 Cash flow from operating activities, discontinued operations 0 0 Cash flow from operating activities 432 305 Investing activities Purchase of intangible assets -14 -9 Purchase of property, plant and equipment -9 -39 Disposal of property, plant and equipment 0 0 Acquisition of subsidaries and activities 0 0 Divestment of associates 237 0 Other financial investments -1 0 Cash flow from investing activities, continuing operations 213 -48 Cash flow from investing activities, discontinued operations 0 0 Cash flow from investing activities 213 -48 Q4 DKK million 2020 2019 Financing activities Repayment of non-current, interest-bearing debt -245 -2 Raising non-current interest-bearing liabilities 0 0 Change in current interest-bearing debt -121 -232 Instalment on lease liabilities -31 -30 Cash flow from financing activities, continuing operations -397 -264 Cash flow from financing activities, discontinued operations 0 0 Cash flow from financing activities -397 -264 Total cash flow 248 -7 Cash at bank and in hand at the beginning of period 155 61 Assumed on acquisition of subsidaries 0 0 Foreign currency translation adjustments 1 2 Cash at bank and in hand at the end of period 404 56 Cash at bank and in hand 404 56 Cash at bank and in hand at the end of period 404 56 Consolidated 153Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 SEGMENT INFORMATION Solar’s business segments are Installation, Industry and Other and are based on the customers’ aliation with the segments. Installation covers installation of electrical, and heating and plumbing products, while Industry covers industry, oshore and marine, and utility and infrastructure. Other covers special sales and other small areas. The three main segments have been identified without aggregation of operating segments. Segment income and costs include any items that are directly attributable to the individual segment and any items that can be reliably allocated to the individual segment. Non-allocated costs refer to income and costs related to joint group functions. Assets and liabilities are not included in segment reporting. DKK million Installation Industry Trade Total Q4 2020 Revenue 1,894 937 226 3,057 Cost of sales -1,509 -714 -177 -2,400 Gross profit 385 223 49 657 Direct costs -58 -26 -5 -89 Earnings before indirect costs 327 197 44 568 Indirect costs -145 -45 -14 -204 Segment profit 182 152 30 364 Non-allocated costs -173 Earnings before interest, tax, depreciation and amortisation (EBITDA) 191 Depreciation and amortisation -205 Earnings before interst and tax (EBIT) -14 Financials, net including share of net profit from associates and impairment on associates 7 Earnings before tax (EBT) -7 DKK million Installation Industry Trade Total Q4 2019 Revenue 1,931 895 251 3,077 Cost of sales -1,566 -686 -193 -2,445 Gross profit 365 209 58 632 Direct costs -67 -29 -5 -101 Earnings before indirect costs 298 180 53 531 Indirect costs -145 -42 -12 -199 Segment profit 153 138 41 332 Non-allocated costs -171 Earnings before interest, tax, depreciation and amortisation (EBITDA) 161 Depreciation and amortisation -86 Earnings before interst and tax (EBIT) 75 Financials, net including share of net profit from associates and impairment on associates -2 Earnings before tax (EBT) 73 154Solar – Annual Report 2020 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS GROUP COMPANIES OVERVIEWSEPARATE FINANCIAL STATEMENTS STATEMENTS AND REPORTS Q4 2020 SEGMENT INFORMATION Geographical information Solar A/S primarily operates on the Danish, Swedish, Norwegian and Dutch markets. In the below table, Other markets covers the remaining markets, which can be seen in the companies overview available on page 137. The below allocation has been made based on the products’ place of sale. Geographical information as well as information on core business and related related business should be regarded as supplementary information. Q4 DKK million Revenue Adjusted organic growth EBITA EBITA margin Non-current assets 2020 Denmark 959 4.6 62 6.5 1,757 Sweden 669 -8.9 24 3.6 198 Norway 483 4.5 37 7.7 171 The Netherlands 763 -8.8 16 2.1 350 Poland 96 -12.8 3 3.1 27 Other markets 13 18.8 2 15.4 5 Eliminations -77 - 0 0.0 -1,220 Core business 2,906 -2.7 144 5.0 1,288 Several markets (MAG45) 148 13.6 1 0.7 51 Other markets 3 -38.3 0 0.0 0 Related business 151 11.7 1 0.7 51 Solar Group 3,057 -2.1 145 4.7 1,339 Q4 DKK million Revenue Adjusted organic growth EBITA EBITA margin Non-current assets 2019 Denmark 902 0.9 67 7. 4 2,053 Sweden 680 -0.8 13 1.9 346 Norway 481 2.3 16 3.3 198 The Netherlands 824 10.5 22 2.7 360 Poland 107 -1.6 2 1.9 33 Other markets 10 45.9 1 10.0 5 Eliminations -60 - 0 0.0 -1,315 Core business 2,944 3.3 121 4.1 1,680 Several markets (MAG45) 128 -7.7 -6 -4.7 75 Other markets 5 -49.7 0 0.0 1 Related business 133 -10.4 -6 -4.5 76 Solar Group 3,077 2.6 115 3.7 1,756 – continued Solar A/S Industrivej Vest 43 DK-6600 Vejen Tel. +45 79 30 00 00 CVR no. 15908416 www.solar.eu http://www.linkedin.com/company/solar-as 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A/SDenmarkAktieselskabDenmarkIndustrivej Vest 43, 6600 VejenEuropeSourcing and services company within electrical, heating and plumbing, ventilation, and climate and energy solutionsFonden af 20 DecemberFonden af 20 DecemberN/AAnnual reportAuditor's report on audited financial statementsParsePort XBRL Converter12020-01-012020-12-312019-01-012019-12-3121380031XTLI9X5MTY92Solar A/SReporting class D15908416Industrivej Vest436600VejenDenmarkDK1955-03-25Denmark+4579300000www.solar.eusolar@solar.euSolar Danmark A/Shttp://www.solar.eu/investor/corporate-governancehttp://www.solar.eu/our-company/csrhttp://www.solar.eu/our-company/csrhttp.//www.solar.eu/our-company/csr2,9353039760765Vejen2021-02-11Jens E. AndersenCEOHugo DorphCCOMichael H. JeppesenCFOJens BorumChairmanJesper DalsgaardVice-chairmanLars Lange AndersenPeter BangMorten ChroneUlrik DamgaardBent H. FriskLouise KnauerJens Peter Toft21380031XTLI9X5MTY9215908416Solar A/SIndustrivej Vest 436600 VejenOpinionBasis for OpinionTrekantområdet2021-02-11Lars Almskou OhmeyerState Authorised Public Accountantmne2481733771231PricewaterhouseCoopers Statsautoriseret RevisionspartnerselskabHerredsvej327100VejleDenmarkDK+4579212700Henrik Forthoft LindState Authorised Public Accountantmne3416933771231PricewaterhouseCoopers Statsautoriseret RevisionspartnerselskabHerredsvej327100VejleDenmarkDK+4579212700