Quarterly Report Q2 2017

Audio webcast and teleconference today The presentation of the Quarterly Report Q2 2017 will be made in English on 10 August 2017 at 11:00 CET. The pr...

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Solar A/S ■ Executive Board Industrivej Vest 43 ■ DK-6600 Vejen ■ Denmark Tel. +45 79 30 00 00 ■ CVR no. 15 90 84 16 ■ Web: www.solar.eu

LEI: 21380031XTLI9X5MTY92 10 August 2017

Announcement no. 16 2017 Quarterly Report Q2 2017 Q2 EBITA was on par with expectations and we reconfirm our EBITA guidance for the full year. Revenue and results for the quarter were negatively impacted by the timing of Easter compared to Q2 2016, but when taking the number of working days into consideration, Solar’s business experienced solid growth.

CEO Anders Wilhjelm says: "The main business improved performance in H1. Our key markets, Denmark, Sweden, Norway, and the Netherlands generated both growth and earnings significantly above last year, and performance was good in both installation and industry. However, as we are investing in new business, such as MAG45 and Solar Polaris, earnings were diluted as expected."

Financial highlights (DKK million)

Q2 2017

Q2 2016

H1 2017

H1 2016

Revenue EBITA Net financials* Earnings before tax Cash flow from operating activities Financial ratios (%) Organic growth adj. for number of working days EBITA margin Net working capital, periodend/revenue (LTM) Net working capital, average/revenue (LTM)** Gearing (NIBD/EBITDA), no. of times Return on invested capital (ROIC)

2,861 43 -31 -5 -197

2,811 57 -6 37 40

5,857 99 64 129 -293

5,467 109 -17 65 -211

7.4

-1.8

5.9

-0.2

1.5 11.4

2.0 11.1

1.7 11.4

2.0 11.1

10.4

11.2

10.4

11.2

2.2

0.6

2.2

0.6

6.5

8.4

6.5

8.4

* Fair value adjustment of BIMobject AB is recognised in the income statement as financial income. ** Calculated as an average of the past four quarters’ inventories, trade receivables and trade payables.

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Solar A/S ■ Executive Board Industrivej Vest 43 ■ DK-6600 Vejen ■ Denmark Tel. +45 79 30 00 00 ■ CVR no. 15 90 84 16 ■ Web: www.solar.eu

Q2 2017 revenue • Organic growth increased to 7.4% from -1.8% in Q2 2016 adjusted for the number of working days. Q2 2017 EBITA • EBITA was on par with expectations. • Compared to Q2 2016, there has been an increase in external operating costs and staff costs, which was primarily related to MAG45’s growth-related initiatives, the effect of the acquisitions of STI and Solar Polaris in 2016 and 2017, and necessary structural changes. • In H1, approx. DKK 30m of the expected 2017 costs related to innovation and business development as well as to the necessary structural changes were included. Hence, operational EBITA increased to approx. DKK 130m from approx. DKK 115m in H12016. 2017 outlook

Audio webcast and teleconference today The presentation of the Quarterly Report Q2 2017 will be made in English on 10 August 2017 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 a teleconference. Teleconference call-in numbers: DK: tel. +45 354 455 83 UK: tel. +44 203 194 0544 US: tel. +1 855 269 2604 Yours faithfully Solar A/S Anders Wilhjelm Contacts: CEO Anders Wilhjelm - tel. +45 79 30 02 01 CFO Michael H. Jeppesen - tel. +45 79 30 02 62

• We expect revenue above DKK 11.4bn, corresponding to organic growth above 3%. • For 2017, we expect to spend approx. DKK 25m in innovation and business development and approx. DKK 20m on structural changes. • We reconfirm our expectations for EBITA of approx. DKK 300m.

Director, Stakeholder Relations Charlotte Risskov Kræfting tel. +45 40 34 29 08 Enclosure: Quarterly Report Q2 2017, pages 1-33.

EBITA overview DKK million Operational EBITA Innovation and business development Non-recurring costs Positive one-offs EBITA

Guidance 2017 345 -25 -20 0 300

Actual 2016 302 -20 -15 11 278 2 of 3

Solar A/S ■ Executive Board Industrivej Vest 43 ■ DK-6600 Vejen ■ Denmark Tel. +45 79 30 00 00 ■ CVR no. 15 90 84 16 ■ Web: www.solar.eu

Facts about Solar Solar Group is a leading sourcing and services company. Our core business centres on product sourcing, value-adding services and optimisation of our customers’ businesses. Being a sourcing and services company, we focus on each individual customer. We always strive to understand our customers’ unique and genuine needs in order to provide relevant, personal and valueadding services, turning our customers into winners.

under the short designation SOLAR B. For more information, please visit www.solar.eu. Disclaimer This announcement was published in English and Danish today via Nasdaq Copenhagen. In the event of any inconsistency between the two versions, the English version shall prevail.

Solar Group is headquartered in Denmark, generated revenue of approximately DKK 11.1bn in 2016 and has more than 3,000 employees. Solar is listed on Nasdaq Copenhagen and operates

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Solar A/S CVR NO.: 15 90 84 16

Quarterly Report Q2 2017

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Solar Quarterly Report Q2 2017 Contents

MANAGEMENT’S REVIEW

FINANCIAL STATEMENTS

Contents Management’s review

Financial statements

03 Financial highlights 04 Business update 06 Segments 08 Financial review 12 Outlook 2017 14 Shareholder information

16 Statement of comprehensive income 17 Balance sheet 18 Cash flow statement 19 Statement of changes in equity 21 Notes 29 Quarterly figures 32 Statement by the Executive Board and the Board of Directors

CONTENTS

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Solar Quarterly Report Q2 2017 Financial highlights

MANAGEMENT’S REVIEW

FINANCIAL STATEMENTS

CONTENTS

Financial highlights Q2 Consolidated (DKK million) Revenue

H1

Year

2017

2016

2017

2016

2016

2,861

2,811

5,857

5,467

11,072

Earnings before interest, tax, depreciation and amortisation (EBITDA)

57

72

127

139

330

Earnings before interest, tax and amortisation (EBITA)

43

57

99

109

278

Earnings before interest and tax (EBIT)

26

43

65

82

222

Earnings before tax (EBT)

-5

37

129

65

188

-12

27

111

48

125

Balance sheet total

4,903

4,537

4,903

4,537

4,506

Equity

1,696

1,740

1,696

1,740

1,683

712

231

712

231

43

-197

40

-293

-211

219

-3

-9

-17

23

56

Net profit for the period

Interest-bearing liabilities, net Cash flow from operating activities Net investments in property, plant and equipment

Q2 Financial ratios (% unless otherwise stated) Organic growth adjusted for number of working days Gross profit

Average number of employees (FTEs)

3,080

3,024

3,071

2,996

3,032

H1 2016

2017

Year 2016

2016

7.4

-1.8

5.9

-0.2

1.8

20.5

20.5

20.8

20.7

20.8

EBITDA margin

2.0

2.6

2.2

2.5

3.0

EBITA margin

1.5

2.0

1.7

2.0

2.5

11.4

11.1

11.4

11.1

9.0

2.2

0.6

2.2

0.6

0.1

11.0

7.3

11.0

7.3

7.1

Net working capital (NWC at end of period)/ revenue (LTM) Gearing (net interest-bearing liabilities/EBITDA), no. of times Return on equity (ROE) Return on invested capital (ROIC) Equity ratio

6.5

8.4

6.5

8.4

7.5

34.6

38.4

34.6

38.4

37.4

Share ratios (DKK unless otherwise stated) Earnings per share outstanding (EPS)

Employees

2017

-1.64

3.51

15.21

6.21

Overall, financial ratios are calculated in accordance with the Danish Finance Society’s ”Recommendations & Financial Ratios 2015”.

16.50

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Solar Quarterly Report Q2 2017 Business update

MANAGEMENT’S REVIEW

FINANCIAL STATEMENTS

CONTENTS

Business update

Our approach to sourcing and services pays off Our approach to sourcing and services appeals to an increasing number of customers. Consequently, we are working to build strong and valuecreating customer relationships. As an example, we have agreed a renewal of the major framework agreement with Norwegian Telenor, a long-standing Solar customer. The agreement includes the establishment of new customer logistics services in line with our sourcing and services strategy. We welcome the fact that Norway’s second largest company and the world’s fifth largest telecommunications company has once again selected Solar as a partner. Solar will continue to supply and distribute telecom installation equipment for Telenor as we have done for many years. In addition, Telenor will move two project warehouses to Solar to enable us to handle the stock on their behalf. Furthermore, the agreement includes an option for other services and opportunities. The new agreement runs for several years and will potentially generate sales of more than NOK 1 billion.

Customers are looking to improve efficiency We always strive to meet our customers’ requirements. Doing business with Solar should be the easiest and most obvious choice.

In Denmark, our expertise in logistics, consistency of supply, day-to-day delivery and ability to enhance our customers’ efficiency were the reasons behind an important agreement with the fibre network company, Fibia. As Fibia wants to focus on their core business – the operation and expansion of the fibre network – they chose Solar as a partner and supplier of a comprehensive stock and logistics solution. We have now established a strong, technical and cost-effective partnership to ensure the expansion of Fibia’s fibre optic connections. The agreement also means that Fibia has moved two warehouses to Solar to enable us to handle all stock and logistics.

Taking advantage of sharing economy We continue our strong growth in Fastbox, the just-intime delivery service, as more and more customers can see the opportunity for reducing costs, inventory and workload while increasing productivity. In Denmark, the increasing Fastbox activity has led to a strategic cooperation with Mover, a sharing economy start-up focused on short-haul transportation of goods. Mover offers a transport platform, which conveniently connects Solar with available drivers and cars. This offers our customers increased availability and provides Solar with a high-quality and cost-efficient alternative to conventional logistics providers.

Strengthening our sales organisation As part of our continued focus on profitable growth, we are strengthening the sales organisation. A new executive will join our team and be responsible for industry sales in all the Nordic countries. Cross-country responsibility is ideally suited to Industry because most of our industry customers are active in several countries. Solar will, thus, ensure that they encounter the same professionalism and that their requirements are consistently met irrespective of location.

Digital investments and activities We continue our digital investments and improvements to strengthen the leading position of our main business. Understanding our customers’ preferences, buying patterns and behaviours enables Solar to make interactions more relevant, simple and convenient for our customers. As part of our digital strategy, we are now rolling out new web shops across several of our companies with significantly better functionality and ease of use.

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Solar Quarterly Report Q2 2017 Business update

As our customers become increasingly digital and require less physical presence, we are increasing our digital presence and reducing our local footprint. In H1 2017, we closed or announced the closure of 12 branches, while our digital business share continues to grow to well above 50% in terms of both orders and revenue. In May, our network company, MAG45, launched their new e-commerce solution with strong search capabilities focused specifically on industrial supply requirements.

Our networked development strategy in practice We continue to support the development of our associated businesses in order to create synergies. We work innovatively and openly with our business partners to increase our customers’ productivity and profitability through digitalisation and networked development. When making digital business developments we scan the market for new or improved ways of adding value through digital solutions and our expertise. We have identified a number of digital technologies that mature quickly and have the potential to increase the productivity of our construction and industry customers. We have selected a few areas that we believe can contribute greatly to an acceleration of this development. Whether the issue for the customer is a lack of skilled labour, cost of production, a wish to reduce waste and complexity or reduced capital employment, we see vast opportunities for addressing this through technology.

MANAGEMENT’S REVIEW

Delivering results through strategic cooperation Solar has increased its equity interest in BIMobject AB to more than 20%, which means that the company is reclassified as an associate going forward. We jointly seek out common commercial opportunities in the interface between BIMobject and Solar, and the first results have already materialised. The team has developed parametric BIM objects of Solar’s entire range of Thermrad* radiators, which have been placed in BIMobject’s cloud database – the world’s biggest and fastest growing digital system for content management of BIM objects. This is to facilitate the opportunity to digitally design and dimension a heating solution using our products. At the same time, we have succeeded in factoring in delivery during the design phase. For instance, when modelling a building, Thermrad products can be selected based on availability via Solar Fastbox. Furthermore, Solar supported BIMobject in the recent introduction of the international ETIM classification standard to the digital content platform BIMobject Cloud. The ETIM classification standardises product information and streamlines its usage across systems, effectively making it easier for products to be searched, procured and integrated into the supply chain. Viva Labs, another associate, secured a major commercial milestone by signing a deal with a large European telecommunications provider to launch a smart home solution based on Viva’s solution in several European markets. * Thermrad is a registered trademark of the Solar Group.

FINANCIAL STATEMENTS

CONTENTS

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Solar Quarterly Report Q2 2017 Segments

MANAGEMENT’S REVIEW

FINANCIAL STATEMENTS

CONTENTS

Segments

Trends in Installation and Industry In Q2 2017, organic growth* amounted to 7.4%, accelerating towards the end of the quarter. We have not identified any major changes to the market conditions than those mentioned in the quarterly report for Q1 2017.

In Scandinavia and the Netherlands we saw growth within all major sub-segments. In particular, we saw increased sales to large key customers in Scandinavia.

The installation sector

Compared to Q2 2016, the segment profit margin was down mainly due to a less favorable product mix in combination with more project deliveries.

Construction activity saw ongoing improvement in a number of our markets in Q2, which had an overall positive effect on the installation sector’s results. The construction activity in Scandinavia and the Netherlands is healthy, whereas the Polish construction sector is performing significantly below market expectations. In Scandinavia and the Netherlands, the strengthened construction activity is mainly driven by the residential housing market, whereas commercial housing is growing at a lower rate. Solar’s overall organic growth for Installation amounted to around 7% for Q2. As in Q1 2017, we continue to see growth in Denmark, Sweden, Norway, the Netherlands and Austria, whereas Poland and Belgium remained negative. *Organic growth adjusted for the number of working days.

The industry sector In Q2, we saw moderate industrial activity in our markets, resulting in organic growth, especially in Denmark and Sweden where we saw double-digit growth. In Denmark, growth was supported by our agreement with Fibia, see page 4. Sweden also saw strong growth within Utility. Norway, the Netherlands and Poland also delivered growth in Q2. In Norway, the North Sea offshore industry and related industries continue to improve by double-digit growth rates, albeit from a low level. Growth in the Netherlands was broadly based in all major sub-segments.

Revenue

Segment profit

DKK million

Q2 2017

Q2 2016

Q2 2017

Installation

1,862

1,858

133

143

7.1%

7.7%

812

780

119

108

14.7%

13.8%

Industry Other Total

Q2 2017

Q2 2016

187

173

31

17

16.6%

9.8%

2,861

2,811

283

268

9.9%

9.5%

Segment profit

Revenue DKK million

Q2 2016

Segment margin

H1 2017

H1 2016

H1 2017

H1 2016

Segment margin H1 2017

H1 2016

Installation

3,811

3,613

292

283

7.7%

7.8%

Industry

1,636

1,484

243

211

14.9%

14.2%

410

370

64

32

15.6%

8.6%

5,857

5,467

599

526

10.2%

9.6%

Other Total

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Solar Quarterly Report Q2 2017 Segments

The growth initiatives of MAG45 continue to deliver results and we saw strong growth throughout the quarter. MAG45 continues to broaden its customer base and signed a pan-European agreement with Teva, the world’s largest generic pharmaceutical company, in Q2. Once implemented, the agreement involves a number of Teva sites, and as a consequence of this, MAG45 will open an office in Hungary. MAG45 delivered double-digit growth in H1. Solar’s overall organic growth in the industry sector amounted to around 10% in Q2. Compared to Q2 2016, the segment margin in Q2 was positively influenced by a more favorable product and customer mix.

Other The acquisition of Scandinavian Technology Institute (STI) and Solar Polaris delivered revenue of DKK 15m, corresponding to approx. 8% of the segment revenue. If adjusted for the impact from STI and Solar Polaris, the segment margin would have been at approximately the same level as in Q2 2016. STI and Solar Polaris have similar impacts on the segment profit.

MANAGEMENT’S REVIEW

Revenue

H1 2017 In H1, we saw organic growth in all segments. For installation, the segment margin was down compared to last year, whereas the other segments managed to increase the segment margin. All segments saw an increased segment profit, where the improvement in Other was mainly structural. If we adjust for the impact from STI and Solar Polaris, the segment margin and the segment profit for the Other segment would have been at approximately the same level as in H1 2016. The improvement within industry was driven by growth and improved efficiency combined with improved gross profit margin. Our earnings before tax are impacted by non-allocated costs, which increased by DKK 85m to DKK 472m compared to H1 2016. The increase was primarily related to MAG45’s growth initiatives, the effect of the acquisitions of STI and Solar Polaris, and necessary structural changes.

FINANCIAL STATEMENTS

DKK million

CONTENTS

Adjusted organic growth in %

Q2 2017

Q2 2016

Q2 2017

Q2 2016

Denmark

787

739

11.4

3.1

Sweden

644

664

9.2

-3.0

Norway

462

471

3.1

5.4

Benelux

682

668

4.1

-8.4

Other markets

307

285

9.7

-4.3

-21

-16

2,861

2,811

7.4

-1.8

Eliminations Total

Revenue DKK million

Adjusted organic growth in %

H1 2017

H1 2016

H1 2017

H1 2016

Denmark

1,625

1,456

10.3

4.2

Sweden

1,306

1,264

6.3

0.7

Norway

989

888

5.9

0.5

Benelux

1,389

1,370

1.0

-5.9

588

520

4.5

2.2

5.9

-0.2

Other markets Eliminations Total

-40

-31

5,857

5,467

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Solar Quarterly Report Q2 2017 Financial review

MANAGEMENT’S REVIEW

FINANCIAL STATEMENTS

CONTENTS

Financial review

Positive trend in organic growth and EBITA on par with expectations Organic growth adjusted for the number of working days increased to 7.4% in Q2 and to 5.9% in H1. EBITA was in line with expectations and amounted to DKK 43m in Q2 and DKK 99m in H1. Revenue and results for the quarter were negatively impacted by the timing of Easter compared to Q2 2016.

In H1, approx. DKK 30m of the expected 2017 costs related to innovation and business development as well as to the necessary structural changes were included.

Our main business improved performance in H1 compared to H1 2016. Overall, Denmark, Sweden, Norway and the Netherlands generated both growth and earnings significantly above H1 2016 level.

Fair value adjustment of BIMobject AB amounted to DKK -24m at the end of May and total fair value adjustment for H1 amounted to DKK 79m. The amount is recognised in the income statement as financial income.

As expected, our new entities, MAG45 and Solar Polaris, diluted earnings as we invest in future growth. However, we see the dilution as a short-term matter and expect the two subsidiaries to be margin accretive in the longer term.

Thus, net profit amounted to DKK -12m in Q2 against DKK 27m in Q2 2016 and DKK 111m in H1 against DKK 48m H1 2016.

In Belgium, Solar has been hurt by a required transition of the business into a more central structure. We saw delivery problems from the central warehouse in the beginning of the year, which has resulted in unsatisfactory performance also in Q2. The integration of Solar School into STI and the planned upgrade of the e-learning platform have required more resources than originally estimated. This has resulted in additional costs and revenue being delayed, leading to a negative EBITA in H1. Our initiatives relating to innovation and business development as well as the necessary structural changes are proceeding as planned.

Hence, operational EBITA increased to approx. DKK 130m from approx. DKK 115m in H1 2016.

By the end of May, we acquired additional shares in BIMobject and now hold 20.01% of the shares, cf. company announcement no. 15 2017. Consequently, at the end of May, BIMobject became an associate of Solar. Going forward, our share of BIMobject’s earnings after tax will be recognised in the income statement on a separate line together with our share of earnings after tax from other associates. Our share of earnings from associates will be recognised in the income statement when the information has been published, meaning with a delay of one quarter.

Organic growth in % (adjusted for the number of working days)

8% 6% 4% 2% 0% -2%

Q1 2016

Q2

Q3

Q4

2017

EBITA margin in %

4% 3% 2% 1% 0%

Q1 2016

Q2 2017

Q3

Q4

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Solar Quarterly Report Q2 2017 Financial review

Q2 2017

Revenue Revenue amounted to DKK 2,861m, up from DKK 2,811m in Q2 2016. Taking the number of working days into consideration, our main markets experienced growth in Q2. Actual organic growth increased to 7.4% from -1.8% in Q2 2016 adjusted for the number of working days. Gross profit margin As in Q2 2016, the gross profit margin amounted to 20.5%. However, there was a positive impact on the margin from STI and when adjusted for this, the margin decreased slightly. EBITA EBITA amounted to 1.5% of revenue or DKK 43m in Q2 2017, down from 2.0% of revenue or DKK 57m in Q2 2016. Compared to Q2 2016, there has been an increase in external operating costs and staff costs, which was primarily related to MAG45’s growth initiatives, the effect of the acquisitions of STI and Solar Polaris in 2016 and 2017, and necessary structural changes. Loss on trade receivables made up 0.1% of revenue, unchanged from Q2 2016. EBITA was on par with expectations. Financials Net financials were impacted by the fair value adjustment of BIMobject at the end of May, which amounted to DKK -24m. Thus, net financials totalled DKK -31m against DKK -6m in Q2 2016. In Q2 2016, a closed tax matter had a positive impact of DKK 4m on financial income. Also, in connection with the payment of a loan, a value adjustment of a hedging instrument of DKK -2m was reclassified from other comprehensive income to financial costs.

MANAGEMENT’S REVIEW

Net profit for the period Net profit ended at DKK -12m, down from DKK 27m in Q2 2016. However, adjusted for the fair value adjustment of associated businesses, net profit amounted to DKK 12m in Q2 2017.

FINANCIAL STATEMENTS

CONTENTS

Return on invested capital (ROIC) in %

12% 10% 8%

H1 2017

Revenue Revenue totalled DKK 5,857m, up from DKK 5,467m in H1 2016. Actual organic growth was 5.9% against -0.2% in H1 2016 adjusted for the number of working days. Overall, Denmark, Sweden, Norway and the Netherlands generated growth significantly above H1 2016 level.

6% 4% 2% 0% Q1 2016

Gross profit margin The gross profit margin amounted to 20.8%, slightly up from 20.7% in H1 2016. However, there was a positive impact on the margin from STI and when adjusted for this, the margin decreased slightly. EBITA EBITA amounted to 1.7% of revenue or DKK 99m in H1 2017 compared to DKK 109m in H1 2016. Overall, Denmark, Sweden, Norway and the Netherlands generated earnings significantly above H1 2016 level. The growth plan for MAG45 and our initiatives relating to innovation and business development, as well as the necessary structural changes are proceeding as planned. Thus, approx. DKK 30m of the expected 2017 costs related to innovation and business development as well as to the necessary structural changes were included in H1. In Belgium, Solar has been hurt by a required transition of the business into a more central structure. We saw delivery problems from the central warehouse in the beginning of the year, which has resulted in unsatisfactory performance in H1.

Q2 2016

ROIC

Q3 2016

Q4 2016

Q1 2017

Q2 2017

Long-term objective above

Gearing, no. of times (interest-bearing liabilities, net / EBITDA)

3.0

2.0

1.0

0.0 Q1 2016

Q2 2016 Gearing

Q3 2016

Objective low

Q4 2016 Objective high

Q1 2017

Q2 2017

10

Solar Quarterly Report Q2 2017 Financial review

The integration of Solar School into STI and the planned upgrade of the e-learning platform have required more resources than originally estimated. This has resulted in additional costs and revenue being delayed, leading to a negative EBITA in H1. Write-down and depreciation on property, plant and equipment amounted to DKK 28m in H1 2017 compared to DKK 30m in H1 2016. In H1 2016, Solar sold four properties and a property was written down to fair value. The net impact of the capital gain and subsequent write-down to fair value in H1 2016 was insignificant. Hence, operational EBITA increased to approx. DKK 130m from approx. DKK 115m in H1 2016. Amortisation As part of our focus on digital improvement projects and networked development we have made investments in software and new entities. Thus, amortisation is up to DKK 34m against DKK 27m in H1 2016. Financials Net financials were impacted by the fair value adjustment of BIMobject totalling DKK 79m. Thus, net financials totalled DKK 64m against DKK -17m in H1 2016. Share capital Following approval at the Annual General Meeting on 17 March 2017, Solar reduced its B share capital mid-April 2017 by nominally DKK 17,498,200 from nominally DKK 792,060,700 to nominally DKK 774,562,500, corresponding to a reduction of the B share capital of 174,982 B shares of DKK 100 by cancelling treasury B shares. Solar now holds 447,333 treasury B shares, corresponding to 5.8% of Solar’s total share capital and 2.8% of votes.

MANAGEMENT’S REVIEW

FINANCIAL STATEMENTS

CONTENTS

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Solar Quarterly Report Q2 2017 Financial review

Investments in associates In Q2 2017, we increased our investments in BIMobject and other associates. Thus at the end of June 2017, investments in associates totalled DKK 265m. Cash flows We retain our focus on improving net working capital, which fell to 10.4% of revenue from 11.2% in Q2 2016 calculated as an average of the last four quarters. Net working capital at 30 June amounted to 11.4% of revenue and was slightly up from 11.1% at the end of Q2 2016. Cash flow from operating activities amounted to DKK -293m against DKK -211m in H1 2016. In H1 2017, changes to inventories had a DKK -118m impact on cash flow from operating activities, while changes to receivables had an impact of DKK -330m. The negative changes to inventories were partly due to the handingover of inventories from Fibia, see page 4. We expect inventories to be normalised in H2 2017. The negative changes to receivables were due to the usual seasonal fluctuations and higher level of activity. Cash flow from investing activities saw a DKK 208m negative impact from the investment in BIMobject and other associated businesses. Investments in intangible assets were up by DKK 25m to DKK 56m, mainly due to digital improvement projects such as our new web shop, see page 4. In H1 2016, cash flow from investing activities saw a DKK 53m negative impact from the acquisition of MAG45 and a DKK 38m positive impact from the sale of properties. Thus in H1 2017, total cash flow from investing activities came to DKK -281m against DKK -61m in H1 2016.

MANAGEMENT’S REVIEW

Cash flow from financing activities was impacted by the distribution of DKK 88m in dividend against DKK 77m in H1 2016. In H1 2016, cash flow from financing activities saw a DKK -47m impact from Solar’s share buy-back programme and a DKK -65m impact from the repayment of a loan in connection with the sale of property in Denmark and the repayment of a loan in Norway. Overall, cash flow from financing activities totalled DKK -100m against DKK -217m in H1 2016. Consequently, total cash flow in H1 2017 amounted to DKK -674m against DKK -489m in H1 2016. Compared to H1 2016, net interest-bearing liabilities increased by DKK 481m to DKK 712m. During this period, purchase of treasury shares and distributed dividend amounted to DKK 238m and we invested DKK 270m in subsidiaries and associated businesses. Gearing increased to 2.2 times EBITDA from 0.6 in H1 2016. Our gearing objective is 1.5-2.5 times EBITDA. As at 30 June 2017, Solar had undrawn credit facilities of DKK 381m. We aim to deliver long-term return on invested capital (ROIC) of more than 10%. As at 30 June 2017, ROIC was 6.5% compared to 7.5% at 31 December 2016. Invested capital totalled DKK 2,129m at the end of H1 2017, up from DKK 1,986m at the end of H1 2016. Activities where our equity interest is < 50% are not included in the ROIC calculation. Invested capital includes operating assets and liabilities only.

FINANCIAL STATEMENTS

CONTENTS

Remuneration of Executive Board and management team In February 2017, Solar’s Executive Board and management team were granted 23,718 additional share options to be exercised 10 banking days after the publication of the annual reports in 2020 or 2021. In addition, 18,114 and 4,306 share options were exercised from 2013 and 2014, respectively. For more information, please see company announcements nos. 5 and 6 of 24 February 2017 and this report’s note on share options. The share option plan is in line with Solar’s general guidelines for incentive programmes. These guidelines are available from Solar’s website at www.solar.eu/ investor/policies/

Key risks Solar’s Annual Report 2016 details the commercial and financial risks related to our activities. The key risks remain that Solar, like other international companies, is affected by both global trends and local conditions in the markets where we operate.

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Solar Quarterly Report Q2 2017 Outlook 2017

MANAGEMENT’S REVIEW

FINANCIAL STATEMENTS

CONTENTS

Outlook 2017

We reconfirm EBITA guidance

Outlook for Solar’s business areas Installation Overall, we expect Installation growth in 2017 to match or slightly exceed the 2016 level.

Other We expect continued growth within the other segment.

Financial outlook For 2017, we expect revenue above DKK 11.4bn corresponding to organic growth above 3%.

We expect to see growth in the Swedish market but at a lower level than in 2016.

In 2016, our spend on innovation and business developments amounted to approx. DKK 20m and non-recurring costs relating to structural changes amounted to approx. DKK 15m. The strong focus on innovation and business development continues in 2017, and we have initiated the necessary structural changes made possible by our digital investments and our ongoing investment in new developments.

The positive trends in the Dutch market are expected to continue. We therefore expect to see continuous, but modest improvement. Overall, our outlook for 2017 is for moderate, positive market growth. Industry Our outlook for Industry is for positive growth. We maintain our outlook for a slightly positive trend in all major markets and major growth in MAG45’s global market niche.

Guidance 2017

Actual 2016

345

302

Innovation and business development

-25

-20

Non-recurring costs

-20

-15

0

11

300

278

Operational EBITA

In the Danish market, new construction and renovation activities are expected to improve compared to 2016.

In Norway, we expect the installation segment to generate modest growth.

DKK million

For 2017, we expect to spend approx. DKK 25m on innovation and business development and approx. DKK 20m on structural changes. This amounts to approx. DKK 45m, leading to an operational EBITA of DKK 345m.

Positive one-offs EBITA

For 2017, we reconfirm our expectations for an EBITA of approx. DKK 300m. Focus on reducing investments in net working capital will continue in 2017. We will continue to focus on investing in digital solutions, whereas investments in property, plant and equipment will remain low throughout 2017.

13

Solar Quarterly Report Q2 2017 Outlook 2017

MANAGEMENT’S REVIEW

FINANCIAL STATEMENTS

CONTENTS

Outlook 2017

Financial targets The creation of long-term value for our customers and shareholders is our main driver. Our strategy of generating profitable growth remains our key focus and our financial targets underpin the strategy. As part of our networked development activities, we are now an involved shareholder in a number of companies, where our equity interest is < 50%. The value of these shareholdings, and any adjustments to the fair value, will neither be included in the basis for the payout ratio nor in the ROIC calculation where the invested capital only includes operating assets and liabilities.

Financial ratios

Financial targets

Growth

We aim to generate profitable growth above market levels

ROIC (incl. amortisation and tax)

We aim to deliver long-term returns on invested capital of more than 10%

Equity ratio

35 - 40%

Gearing (NIBD/EBITDA)

1.5 - 2.5

Payout ratio (of earnings after tax, but adjusted for any fair value adjustment of investments)

35 - 45%

14

Solar Quarterly Report Q2 2017 Shareholder information

MANAGEMENT’S REVIEW

FINANCIAL STATEMENTS

Shareholder information

Share and webcast information Solar’s shares

Audio webcast

Solar’s share capital is divided into nominal value DKK 90 million A shares and nominal value DKK 685 million B shares.

The presentation of the Quarterly Report Q2 2017 will be made in English on 10 August 2017 at 11:00 CET. The presentation will be transmitted as an audio webcast and will be available at www.solar.eu.

The A shares are not listed. The B shares are listed on Nasdaq Copenhagen under the ID code DK0010274844, with the short designation SOLAR B, and form part of the MidCap index and MidCap on Nasdaq Nordic. The share capital includes 900,000 A shares and 6,845,625 B shares. Solar’s portfolio of treasury shares totalled 447,333 B shares or 5.8% of share capital as at 30 June 2017. A shares have 10 votes per share amount of DKK 100, while B shares have 1 vote per share amount of DKK 100.

Financial calendar 2017

Distribution of share capital and votes as at 30 June 2017 in % Holdings of 5% or more of share capital

Share capital

Votes

The Fund of 20 th December, Kolding, Denmark

16.0%

58.1%

RWC Asset Management LLP, London, England

11.2%

5.5%

Chr. Augustinus Fabrikker A/S, Copenhagen, Denmark

10.6%

5.2%

Nordea Funds Oy, Danish Branch, Copenhagen, Denmark

9.2%

4.5%

Solar A/S, Vejen, Denmark

5.8%

2.8%

10 October - 26 October

IR quiet period

26 October

Quarterly Report Q3

CONTENTS

15

Solar Quarterly Report Q2 2017 Consolidated financial statements

MANAGEMENT’S REVIEW

FINANCIAL STATEMENTS

Consolidated financial statements

CONTENTS

16

Solar Quarterly Report Q2 2017 Statement of comprehensive income

MANAGEMENT’S REVIEW

FINANCIAL STATEMENTS

CONTENTS

Statement of comprehensive income Income statement

Other comprehensive income Q2

DKK million

H1

Year

Q2

2017

2016

2017

2016

2016

Revenue

2,861

2,811

5,857

5,467

11,072

Net profit for the period

Cost of sales

Other income and costs recognised:

-2,274

-2,234

-4,638

-4,333

-8,764

Gross profit

587

577

1,219

1,134

2,308

External operating costs

-133

-127

-286

-252

-492

Staff costs

-394

-376

-798

-736

-1,469

Loss on trade receivables

-3

-2

-8

-7

-17

Earnings before interest, tax, depreciation and amortisation (EBITDA)

57

72

127

139

330

Depreciation and write-down on property, plant and equipment

-14

-15

-28

-30

-52

Earnings before interest, tax and amortisation (EBITA)

43

57

99

109

278

Amortisation of intangible assets

-17

-14

-34

-27

-56

Earnings before interest and tax (EBIT)

26

43

65

82

222

Share of net profit of associates

0

0

0

0

0

Financial income

-21

10

85

15

26

Financial costs

-10

-16

-21

-32

-60

-5

37

129

65

188

Earnings before tax (EBT) Income tax

-7

-10

-18

-17

-63

-12

27

111

48

125

Earnings in DKK per share outstanding (EPS)

-1.64

3.51

15.21

6.21

16.50

Diluted earnings in DKK per share outstanding (EPS-D)

-1.64

3.50

15.19

6.21

16.49

Net profit for the period

DKK million

H1

Year

2017

2016

2017

2016

2016

-12

27

111

48

125

Items that cannot be reclassified for the income statement Actuarial gains / losses on defined benefit plans

0

0

0

0

-9

Tax on actuarial gains/losses on defined benefit plans

0

0

0

0

2

-19

-8

-20

-5

2

5

-1

13

-12

8

Items that can be reclassified for the income statement Foreign currency translation adjustments of foreign subsidiaries Value adjustments of hedging instruments before tax Tax on value adjustments of hedging instruments

-1

0

-3

2

-2

Other income and costs recognised after tax

-15

-9

-10

-15

1

Total comprehensive income for the period

-27

18

101

33

126

17

Solar Quarterly Report Q2 2017 Balance sheet

MANAGEMENT’S REVIEW

FINANCIAL STATEMENTS

CONTENTS

Balance sheet as at 30 June 30.06 DKK million

31.12

2017

2016

2016

Intangible assets

500

426

475

Property, plant and equipment

849

855

865

10

28

10

Investments in associates

265

0

0

Other non-current assets

57

7

47

1,681

1,316

1,397

ASSETS

Deferred tax assets

Non-current assets

30.06 DKK million

Share capital Reserves Retained earnings Proposed dividend for the year Equity

Inventories

1,430

1,325

1,321

Provision for pension obligations

Trade receivables

1,691

1,550

1,404

Provision for deferred tax

13

14

5

Other provisions

1

-

-

Non-current liabilities

Other receivables

13

30

10

Prepayments

55

40

26

Cash at bank and in hand

19

200

343

Receivables from construction contracts

Assets held for sale

2016

2016

775

792

792

-145

-158

-135

1,066

1,106

938

EQUITY AND LIABILITIES

Interest-bearing liabilities

Income tax receivable

31.12

2017

0

62

0

Current assets

3,222

3,221

3,109

Total assets

4,903

4,537

4,506

Interest-bearing liabilities Trade payables Income tax payable Payables from construction contracts Other payables Prepayments Other provisions

0

0

88

1,696

1,740

1,683

183

209

194

15

15

18

126

125

122

42

38

41

366

387

375

548

222

192

1,812

1,679

1,727

12

9

16

2

-

-

452

479

495

1

0

0

14

21

18

Current liabilities

2,841

2,410

2,448

Liabilities

3,207

2,797

2,823

Total equity and liabilities

4,903

4,537

4,506

18

Solar Quarterly Report Q2 2017 Cash flow statement

MANAGEMENT’S REVIEW

FINANCIAL STATEMENTS

CONTENTS

Cash flow statement Q2 DKK million

2017

H1

Year

2016

2017

2016

2016

Q2 DKK million

H1

Year

2017

2016

2017

2016

2016

-7

-46

-12

-93

-114

Net profit for the period

-12

27

111

48

125

Financing activities

Write-down, depreciation and amortisation

31

29

62

57

108

Repayment of non-current interest-bearing debt

Changes to provisions and other adjustments

-4

-5

-7

-5

4

Treasury share purchase and sales

0

-14

0

-47

-197

Financials, net

31

6

-64

17

34

Dividends distributed

0

-77

-88

-77

-77

Income tax

7

10

18

17

63

Cash flow from financing activities

-7

-137

-100

-217

-388

Financial income, received

1

5

3

6

10 -254

-125

-674

-489

-316

-99

272

321

639

639

Financial expenses, settled

-7

-11

-16

-33

-52

Total cash flow

Income tax, settled

-9

-9

-28

-31

-54

Cash flow before working capital changes

38

52

79

76

238

Cash at bank and in hand at the beginning of the period

Working capital changes Inventory changes

-40

5

-118

1

5

Receivables changes

-27

-72

-330

-256

-63

Non-interest-bearing liabilities changes

-168

55

76

-32

39

Cash flow from operating activities

-197

40

-293

-211

219

-28

-19

-56

-31

-88

Purchase of property, plant and equipment

-4

-9

-18

-15

-46

Disposal of property, plant and equipment

1

0

1

38

102

Acquisition of associates 1 Acquisition of subsidaries and activities2 Other financial investments Cash flow from investing activities

Cash at bank and in hand at the end of the period

-10

0

-10

0

0

0

0

-10

-53

-97

-9

-

-188

-

-18

-50

-28

-281

-61

-147

0

-

0

-3

-2

-10

1

-10

1

0

-363

148

-363

148

321

19

200

19

200

343

-382

-52

-382

-52

-22

-363

148

-363

148

321

Cash at bank and in hand at the end of the period Cash at bank and in hand Current interest-bearing liabilities

Investing activities Purchase of intangible assets

Assumed on acquisition of subsidaries Foreign currency translation adjustments

3

Cash at bank and in hand at the end of the period

1. Relates to the acquisition of additional shares in BIMobject AB and other associates. 2. Relates to the acquisition of activities in Solar Polaris A/S in Denmark in Q1 2017. 3. Not including the short-term part of long-term liabilities that falls due in 2017.

19

Solar Quarterly Report Q2 2017 Statement of changes in equity

MANAGEMENT’S REVIEW

FINANCIAL STATEMENTS

CONTENTS

Statement of changes in equity DKK million

Share capital

Reserves for hedging transactions

Reserves for foreign currency translation adjustments

792

-73

-62

Retained earnings

Proposed dividends

Total

938

88

1,683

2017 Equity as at 1 January

Foreign currency translation adjustments of foreign subsidiaries

-20

-20

Value adjustments of hedging instruments before tax

13

13

Tax on value adjustments

-3

-3

Net income recognised in equity via other comprehensive income in the statement of comprehensive income

0

10

-20

Net profit for the period Comprehensive income

0

0

111 0

10

-20

111

Distribution of dividends

-10 111

0

101

-88

-88

Reduction in share capital

-17

Transactions with the owners

-17

0

0

17

-88

-88

775

-63

-82

1,066

0

1,696

Equity as at 30 June

17

0

20

Solar Quarterly Report Q2 2017 Statement of changes in equity

MANAGEMENT’S REVIEW

FINANCIAL STATEMENTS

CONTENTS

Statement of changes in equity – continued

DKK million

Share capital

Reserves for hedging transactions

Reserves for foreign currency translation adjustments

792

-79

-64

Retained earnings

Proposed dividends

Total

1,104

78

1,831

2016 Equity as at 1 January

Foreign currency translation adjustments of foreign subsidiaries

-5

Value adjustments of hedging instruments before tax Tax on value adjustments Net income recognised in equity via other comprehensive income in the statement of comprehensive income

0

-12

2

2

-10

-5

Net profit for the period Comprehensive income

-5

-12

0

0

-10

-5

48

Distribution of dividends Buy-back of treasury shares Transactions with the owners

Equity as at 30 June

0

48

-15 48

0

33

-77

-77

-46

-1

-47

0

0

0

-46

-78

-124

792

-89

-69

1,106

0

1,740

21

Solar Quarterly Report Q2 2017 Notes

MANAGEMENT’S REVIEW

FINANCIAL STATEMENTS

CONTENTS

Notes Segment information

Solar’s business segments are Installation, Industry and Other and are based on the customers’ affiliation with the segments. Installation covers installation of electrical, and heating and plumbing products, while Industry covers industry, offshore and marine, and utility and infrastructure. Other covers 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 and other costs that cannot be reliably allocated to the individual segment. Assets and liabilities are not included in segment reporting.

DKK million

Installation

Industry

Other

Total

Revenue

1,862

812

187

2,861

Cost of sales

-1,511

-624

-139

-2,274

351

188

48

587

Gross profit

Q2 2017

Gross profit

DKK million

Installation

Industry

Other

Total

Revenue

1,858

780

173

2,811

Cost of sales

-1,492

-604

-138

-2,234

366

176

35

577

Q2 2016

Direct costs

-72

-26

-5

-103

Direct costs

-77

-24

-5

-106

Earnings before indirect costs

279

162

43

484

Earnings before indirect costs

289

152

30

471

Indirect costs

-146

-43

-12

-201

Indirect costs

-146

-44

-13

-203

Segment profit

133

119

31

283

Segment profit

143

108

17

268

-226

Non-allocated costs

Non-allocated costs

-196

57

Earnings before interest, tax, depreciation and amortisation (EBITDA)

72

-31

Depreciation and amortisation

-29

Earnings before interest and tax (EBIT)

26

Earnings before interest and tax (EBIT)

43

Financials, net

-31

Financials, net

-6

Earnings before tax (EBT)

37

Earnings before interest, tax, depreciation and amortisation (EBITDA) Depreciation and amortisation

Earnings before tax (EBT)

-5

22

Solar Quarterly Report Q2 2017 Notes

MANAGEMENT’S REVIEW

FINANCIAL STATEMENTS

CONTENTS

Notes Segment information - continued

DKK million

Installation

Industry

Other

Total

3,811

1,636

410

5,857

H1 2017 Revenue Cost of sales

DKK million

Installation

Industry

Other

Total

3,613

1,484

370

5,467

H1 2016 Revenue

-3,079

-1,253

-306

-4,638

Cost of sales

-2,889

-1,141

-303

-4,333

Gross profit

732

383

104

1,219

Gross profit

724

343

67

1,134

Direct costs

-146

-51

-14

-211

Direct costs

-152

-48

-9

-209

Earnings before indirect costs

586

332

90

1,008

Earnings before indirect costs

572

295

58

925

Indirect costs

-294

-89

-26

-409

Indirect costs

-289

-84

-26

-399

Segment profit

292

243

64

599

Segment profit

283

211

32

526

Non-allocated costs Earnings before interest, tax, depreciation and amortisation (EBITDA) Depreciation and amortisation

-472

Non-allocated costs

-387

127

Earnings before interest, tax, depreciation and amortisation (EBITDA)

139

-62

Depreciation and amortisation

-57

Earnings before interest and tax (EBIT)

65

Earnings before interest and tax (EBIT)

82

Financials, net

64

Financials, net

-17

Earnings before tax (EBT)

65

Earnings before tax (EBT)

129

23

Solar Quarterly Report Q2 2017 Notes

MANAGEMENT’S REVIEW

Notes Segment information – continued

Geographical information Solar A/S primarily operates on the Danish, Swedish, Norwegian and Benelux markets. In the below table, Other markets covers the remaining markets, which can be seen in the group structure available on page 21 of Annual Report 2016 or on www.solar.eu. The below allocation has been made based on the products’ place of sale. Q2

H1

Revenue

Adjusted organic growth

Revenue

Adjusted organic growth

Non-current assets

Denmark

787

11.4

1,625

10.3

2,163

Sweden

644

9.2

1,306

6.3

283

Norway

462

3.1

989

5.9

194

Benelux

682

4.1

1,389

1.0

280

Other markets

307

9.7

588

4.5

105

-21

-

-40

-

-1,344

2,861

7.4

5,857

5.9

1,681

Denmark

739

3.1

1,456

4.2

1,764

Sweden

664

-3.0

1,264

0.7

267

Norway

471

5.4

888

0.5

140

Benelux

668

-8.4

1,370

-5.9

309

Other markets

285

-4.3

520

2.2

138

DKK million 2017

Eliminations Total

2016

Eliminations Total

-16

-

-31

-

-1,302

2,811

-1.8

5,467

-0.2

1,316

FINANCIAL STATEMENTS

CONTENTS

24

Solar Quarterly Annual Report Report 2016 Q2—2017 Management’s review Results and outlook: Financial review Notes

MANAGEMENT’S REVIEW

FINANCIAL STATEMENTS

CONTENTS

Notes Acquisitions of subsidiaries

On 1 February 2016, Solar A/S acquired the shares of MAG45 B.V. The acquisition price of 100% of the MAG45 shares on a net debt-free basis is made up of a fixed amount of DKK 60m and a variable amount (earn-out) which is expected to be DKK 0. The earn-out amount depends on the results in 2016, 2017 and 2018. At closing, DKK 53m was paid for 100% of the shares of MAG45 B.V., equalling DKK 59m on a net debt-free basis (normalised approx. DKK 64m). The acquisition had no significant impact on revenue or EBITA in 2016. Transaction costs related to the acquisition totalled DKK 2m. Goodwill has been identified with DKK 22m and is attributable to synergies as MAG45 fits well with both our sourcing and services focus and our interest in increasing our industrial exposure. The key rationale behind the acquisition of MAG45 is growth.

Fair value at the date of acquisition (DKK million) Property, plant and equipment

3

Inventories

30

Trade receivables

41

Other receivables Cash Provision for deferred tax

1 17 -6

Other non-current liabilities, interest-bearing

-21

Current liabilities

-91

Net assets acquired

-26

Goodwill

22

Customer-related intangible assets

30

Other intangible assets

5

Acquisition cost

31

Of this, net cash

3

Other interest-bearing liabilities, net

20

Acquisition price on net debt-free basis

54

Hereof expected earn-out Acquisition price on net debt-free basis

0 54

25

Solar Quarterly Annual Report Report 2016 Q2—2017 Management’s review Results and outlook: Financial review Notes

MANAGEMENT’S REVIEW

FINANCIAL STATEMENTS

CONTENTS

Notes Acquisitions of subsidiaries - continued On 11 August 2016, Solar A/S acquired the shares of Scandinavian Technology Institute. The acquisition price of 100% of the Scandinavian Technology Institute shares on a net debt-free basis is made up of a fixed amount of DKK 43m and variable amount (earn-out) expected to total DKK 15m. The earn-out amount depends on the achievement of set financial results by 2021 with payment to be made in 2022. At closing, DKK 43m was paid for 100% of the shares of Scandinavian Technology Institute. Including expected earn-out of DKK 15m this equals DKK 58m on a net debt-free basis (normalised approx. DKK 58m). The expected earn-out is included in other provisions, non-current. The acquisition had no significant impact on revenue or EBITA in 2016. Transaction costs related to the acquisition totalled DKK 1m. Goodwill has been identified with DKK 52m and is attributable to synergies as the acquisition reinforces Solar’s focus on growing our service business. It provides us with expert competences, professional training tools, and increases critical mass. This will facilitate the process of growing training as a business for Solar Group.

Fair value at the date of acquisition (DKK million) Property, plant and equipment

2

Trade receivables

7

Other receivables

3

Cash

1

Provision for deferred tax

2

Other non-current liabilities

-8

Current liabilities

-4

Net assets acquired Goodwill Other intangible assets Acquisition cost

3 52 4 59

Of this, net cash

-1

Acquisition price on net debt-free basis

58

Hereof expected earnout

-15

Acquisition price on net debt-free basis excl. expected earn-out

43

Total acquisition price for MAG45 and STI

95

Of this, net cash Total acquisition price for MAG45 and STI recognised in the cash flow statement

2 97

26

Solar Quarterly Annual Report Report 2016 Q2—2017 Management’s review Results and outlook: Financial review Notes

MANAGEMENT’S REVIEW

Notes Share option plans Description and specification of Solar’s share option plans are found in Annual Report 2016 and at https://www.solar.eu/investor/policies/. In February 2017, Solar granted 23,718 additional share options (March 2016: 28,398 share options) to the Executive Board and senior management employees. In addition, 18,114 share options from the 2013 granting and 4,306 share options from the 2014 granting, respectively, were exercised. So, outstanding share options now total 110,274.

2017 granting

Number of share options

Executive Board

9,261

Other

14,457

Total

23,718

Exercise period: 10 banking days following publication of the annual report in

2020/2021

DKK million Market value estimated at the time of granting using the Black-Scholes model

1.5

Conditions applying to the statement of market value at the time of granting using the Black-Scholes model: Average share price

381.23

Exercise price

381.23

Expected volatility

30.6%

Expected dividend in proportion to market value

2.6%

Risk-free interest rate

0.1%

Average share price is calculated based on the average price on Nasdaq Copenhagen over the first 10 business days following publication of Annual Report 2016.

FINANCIAL STATEMENTS

CONTENTS

27

Solar Quarterly Annual Report Report 2016 Q2—2017 Management’s review Results and outlook: Financial review Notes

MANAGEMENT’S REVIEW

FINANCIAL STATEMENTS

CONTENTS

Notes Accounting policies The quarterly report for Solar A/S has been prepared in accordance with IAS 34 “Presentation of interim reports” as approved by the EU and additional Danish disclosure requirements for quarterly reports of listed companies. Apart from the effect of new IAS/IFRS standards implemented during the period and the additional accounting policies mentioned below, the accounting policies remain unchanged from the Annual Report 2016, which contains a full description of these on pages 47-48 as well as of relevant, supplementary notes.

Translation of foreign currency items When translating investments in associates with a functional currency other than Danish kroner in the consolidated 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.

In the quarterly report, income tax has been calculated on the basis of pre-tax profits at the expected average tax rate. No calculations of taxable income for the period have been made.

The exchange rate difference resulting from the translation of the share of foreign associates’ equity at the beginning of the year at the exchange rate on the balance sheet date and the translation of the share of comprehensive 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.

Additional accounting policies applied

Statement of comprehensive income

As a consequence of additional investments and activities acquired in H1 2017, the following accounting policies have been applied:

Construction contracts If the outcome of a construction contract can be reliably estimated, revenue and contract expenses will be included in the profit based on the stage of completion of the contract at the balance sheet date (the percentage of completion method).

Key items in the accounts are based on annual contracts etc. A prudent assessment of the current year’s activities was undertaken during the preparation of this quarterly report.

Consolidated financial statements 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%. The group’s share of the associates’ earnings after 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 accounted 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.

If a sufficiently reliable estimation of the outcome of a construction contract cannot be made, revenue corresponding to the contract expenses incurred during the period will be included if these expenses are likely to be recovered.

Balance sheet Investments 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.

28

Solar Quarterly Annual Report Report 2016 Q2—2017 Management’s review Results and outlook: Financial review Notes

MANAGEMENT’S REVIEW

FINANCIAL STATEMENTS

CONTENTS

Notes Accounting policies - continued Investments in associates are tested for impairment when there is any indication of impairment.

New accounting standards implemented during the period

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.

No additional standards have been implemented in the period, only amendments and improvements to existing standards. These changes have no impact on Solar.

Other non-current assets Equity investments with no controlling or significant influence are measured at fair value.

New accounting standards to be implemented in coming accounting periods

The fair value is determined corresponding to the market price of the listed equity investments and at an estimated fair value determined on the market information and recognised valuation methods for other equity investments.

For information on new accounting standards, reference is made to note 28 on page 88 in the Annual Report 2016. No new or amended standards have been issued in 2017 other than those stated in the annual report.

Value adjustments of equity investments in relation to which ongoing monitoring of the fair value development is carried out are included in the statement of comprehensive income under financial income and expenses, net.

On audit

Equity interests that are not traded in an active market and for which the fair value cannot be reliably determined are measured at cost price. Construction contracts When the outcome of a construction contract can be reliably estimated, the construction contract is measured at the selling price of the work performed up until the balance sheet date (percentage of completion method) less the on account invoicing and write-down made to parry expected losses. The selling price is measured on the basis of the stage of completion at the balance sheet date and the total expected revenue on the individual construction contract. The stage of completion of the individual project is usually calculated as the proportion of actually consumed resources compared to the total estimated consumption of resources. For individual projects where the consumption of resources cannot be used as a basis, the proportion of the finalised sub-activities compared to the total project is used. The individual ongoing construction contract is included in the balance sheet under receivables or liabilities, depending on whether the net value is a receivable or a liability.

This quarterly report has not been audited or reviewed.

29

Solar Quarterly Report Q2 2017 Quarterly figures

MANAGEMENT’S REVIEW

FINANCIAL STATEMENTS

CONTENTS

Quarterly figures Q1 Income statement (DKK million) Revenue

Q2

Q3

Q4

2017

2016

2017

2016

2016

2015

2016

2015

2,996

2,656

2,861

2,811

2,595

2,449

3,010

2,819

Earnings before interest, tax, depreciation and amortisation (EBITDA)

70

67

57

72

74

104

117

117

Earnings before interest, tax and amortisation (EBITA)

56

52

43

57

67

89

102

99

Earnings before interest and tax (EBIT)

39

39

26

43

53

77

87

87

95

-11

-31

-6

-9

-12

-8

-21

Earnings before tax (EBT)

Financials, net

134

28

-5

37

44

65

79

66

Net profit or loss for the quarter

123

21

-12

27

29

48

48

34

Non-current assets

1,698

1,324

1,681

1,316

1,399

1,281

1,397

1,250

Current assets

3,217

3,285

3,222

3,221

3,172

3,201

3,109

3,421

Balance sheet total

4,915

4,609

4,903

4,537

4,571

4,482

4,506

4,671

Equity

1,723

1,813

1,696

1,740

1,631

1,812

1,683

1,831

371

394

366

387

407

623

375

592

2,821

2,402

2,841

2,410

2,533

2,047

2,448

2,248

458

156

712

231

476

294

43

-184

1,899

1,984

2,129

1,986

2,122

2,219

1,744

1,662

Balance sheet (DKK million)

Non-current liabilities Current liabilities Interest-bearing liabilities, net Invested capital Net working capital, end of period

1,132

1,232

1,309

1,196

1,323

1,403

998

989

Net working capital, average

1,162

1,233

1,191

1,205

1,185

1,282

1,187

1,252

30

Solar Quarterly Report Q2 2017 Quarterly figures

MANAGEMENT’S REVIEW

FINANCIAL STATEMENTS

CONTENTS

Quarterly figures - continued

Q1 Cash flows (DKK million)

Q2

Q3

Q4

2017

2016

2017

2016

2016

2015

2016

2015

Cash flow from operating activities

-96

-251

-197

40

-7

-68

437

524

Cash flow from investing activities

-231

-33

-50

-28

-83

-17

-3

-19

Cash flow from financing activities

-93

-80

-7

-137

-159

-12

-12

-30

Net investments in intangible assets

-28

-12

-28

-19

-22

-10

-35

-10

Net investments in property, plant and equipment

-14

32

-3

-9

-4

-7

37

-9

Acquisition and disposal of subsidiaries, net

-10

-53

0

0

-44

0

0

0

Revenue growth

12.8

0.4

1.8

5.1

6.0

1.3

6.8

1.6

Organic growth

10.7

-0.3

2.3

3.8

3.0

3.8

4.4

3.2

4.6

1.2

7.4

-1.8

3.1

3.8

4.3

1.5

21.1

21.0

20.5

20.5

20.8

20.8

21.1

20.5

2.3

2.5

2.0

2.6

2.9

4.2

3.9

4.2

EBITA margin

1.9

2.0

1.5

2.0

2.6

3.6

3.4

3.5

EBIT margin

1.3

1.5

0.9

1.5

2.0

3.1

2.9

3.1

Financial ratios (% unless otherwise stated)

Organic growth adjusted for number of working days Gross profit margin EBITDA margin

Net working capital (NWC end of period)/revenue (LTM) Net working capital (NWC average)/revenue (LTM) Gearing (interest-bearing liabilities, net/EBITDA), no. of times Return on equity (ROE) Return on invested capital (ROIC)

9.9

11.6

11.4

11.1

12.2

13.3

9.0

9.3

10.2

11.6

10.4

11.2

10.9

12.2

10.7

11.8

1.4

0.4

2.2

0.6

1.4

1.0

0.1

-0.5

13.3

6.9

11.0

7.3

6.6

-5.0

7.5

9.2

7.4

8.2

6.5

8.4

7.5

2.0

7.5

8.5

Adjusted enterprise value/earnings before interest, tax and amortisation (EV/EBITA)

10.3

9.3

11.7

8.6

11.8

17.8

9.4

10.6

Equity ratio

35.1

39.3

34.6

38.4

35.7

40.4

37.4

39.2

31

Solar Quarterly Report Q2 2017 Quarterly figures

MANAGEMENT’S REVIEW

FINANCIAL STATEMENTS

CONTENTS

Quarterly figures - continued

Q1 Share ratios (DKK)

2017

Q2 2016

2017

Q3 2016

2016

Q4 2015

2016

2015

Earnings in DKK per share outstanding (EPS)

16.85

2.71

-1.64

3.51

3.84

6.11

6.58

4.33

Intrinsic value in DKK per share outstanding

236.08

233.91

232.38

225.93

216.10

230.81

230.60

234.43

Share price in DKK

383

329

377

307

374

409

362

432

Share price/intrinsic value

1.62

1.41

1.62

1.36

1.73

1.77

1.57

1.84

3,062

2,968

3,080

3,024

3,051

2,840

3,083

2,864

Employees Average number of employees (FTE)

Definitions Organic growth

Revenue growth adjusted for enterprises acquired and sold off 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 or loss less tax calculated using the effective tax rate. Activities where our equity interest is <50% are not included in the ROIC calculation. The invested capital only includes operating assets and liabilities.

Overall, financial ratios are calculated in accordance with the Danish Finance Society’s “Recommendations & Financial Ratios 2015”.

32

Solar Quarterly Report Q2 2017 Statement by the Executlve Board and the Board of Directors

FINANCIAL STATEMENTS

Statement by the Executive Board and the Board of Directors Today, the group's Board of Directors and Executive Board have discussed and approved the Q2 2017 quarterly report of Solar A/S. The quarterly report, which has not been audited or reviewed by the company's auditor, is presented in accordance with IAS 34 "Interim Financial Reporting" as approved by the EU and additional Danish disclosure requirements for quarterly reports of listed companies. In our opinion, the quarterly report gives a fair presentation of the group's assets, equity and liabilities and financial position as at 30 June 2017 as well as of the results of the group's activities and cash flow for Q2 2017. Further, in our opinion, the management's review gives a true and fair statement of the development of the group's activities and financial situation, net profit or loss for the period and of the group's overall financial position and describes the most significant risks and uncertainties that the group faces.

Vejen, 10 August 2017

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