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Earnings Transcript for ROCK-B.CO - Q1 Fiscal Year 2022

Thomas Harder: Ladies and gentlemen, welcome to the Rockwool A/S Conference Call regarding the results for the First Quarter of 2022. My name is Thomas Harder, I'm Director of Group Treasury and Investor Relations of Rockwool A/S. Today, I'm pleased to present CEO, Jens Birgersson and CFO, Kim Junge Andersen. For the first part of this call, all participants will be in a listen-only mode. As a reminder, this conference call is being recorded. First Jens Birgersson will go through our presentation and give you an update on the results for the first quarter of 2022. Afterwards, we’ll be ready to answer all your good questions. Before I hand over the words to Jens Birgersson, I must ask you to notice Slide number two, which is the forward-looking statement. Please be aware that this presentation contains uncertainties. Now we can go to the next slide, which is Slide number three. Jens Birgersson, I will now hand over the words to you.
Jens Birgersson: So good morning, everyone. Just move to the quarter highlights. To start with summing up the quarter, and this will generally, I'm very happy with how our local teams have taken this quarter on, it was quite challenging and I think the outcome is quite good. Starting with the top line, 36% growth that should be seen in light of that -- there are logistic challenges, supply chain challenges, challenges to get people to the factories. On top of that, we had the Russian invasion of Ukraine, that quite a lot of attention and all these factors made a little bit more difficult to produce for many, many, many, many businesses. And as -- and we delivered that 36% growth where half this price -- roughly half this price and half is volume. So I'm happy with that and I come back later to in what markets, but little bit simplified, I would say it has grown everywhere with exception maybe of China. And again, China is less than 1% of our business, so it's not very important. Then we go to the bottom line it takes us five, six weeks, say six weeks plus or minus a couple of weeks in most of our businesses to change the pricing. We have some OEM businesses with longer contracts we’ve changed those contracts, but if we look at the inflation impact and inflation here I’d say raw material cost, cost of goods sold, energy, all of it are basically production cost. Then it’s quite dramatic what happened, so from fourth quarter 2021 to Q1, across the board on average, it increased 20% and energy increased close to 40%. If we compare Q1 2021 with Q1 2022, it all increased more than 60% and entity is 2.5 times, up with gas taking in the lead that maybe be 3.5 times up. But so what we bought for a EUR100 last year in Q1, we paid EUR250 for today. Maybe did our cost forecast, remember we are not very much hedged, when we made our cost for forecast for Q1 and we decided on what prices we will have in Q1, we knew there were inflation and we went out with quite significant price increases, but of course, we didn't predict that there would be a war, we didn't predict that there would be more or less an energy crisis and all of that. So we missed a little bit on that, that explains why we slipped down to 11% margin instead of 13% that we will normally have. So a miss, but is a forecast must be executed on our pricing plan. We exceeded our pricing plan a little bit and we already have new prices launched for second quarter and we’re halfway through it and we’re executing on those also. So that's the background to that quarter. And therefore obviously, we don't have the full operational leverage, but if you look at more than EUR100 million of cost increases in a quarter and that we still delivered 11% I'm quite happy with that, and it's of course bigger than the year before. If you then go into sales on the segments, it's not so much to comment that other than that insulation did really well and as I said only negative growth in China part or maybe there are some countries somewhere, but couple of notable things is that Ukraine actually declined less than 10%, and we didn't even have an ambition to sell, we told our staff you don't need to sell just keep yourself safe. It's not a big business, but it's a bit surprising. Systems haven't had the same strong quarter, the reason for that is a couple of items, so basically we have some of the businesses like Rockpanel and Rockfon doing really, really well. Then, we have the business into -- and as a small business into car manufacturing, although automotive business, where we haven't seen much growth. And the reason is that they don't grow, due to material shortages. Demand is super high actually as you all know. And then we have had one business that is impacted negatively and that's the growth on business where destocking of the supply chain in North America has impacted us quite a lot. Move to next slide, the region on sales development, Western Europe, 20% and above everywhere, and you see the countries that were particularly strong, so ever strong everywhere. In Eastern Europe, Russia still continuing, but we expect it to deteriorate economy is getting worse, but you haven't seen much of that yet in the construction activity, but and I think that's natural, because you finish projects you have started. But we expect that business to not start to declining going forward. And then Poland, Hungary, some other markets really taking the lead in terms growth, so sold all very strong performance in Eastern Europe. Going into the rest of the business North America, Asia both Canada and the U.S. very strong, we see maybe a certain leveling out of the market there on the new build, it’s not quite as frantic as it was. But the demand for stone wool is very good and be our basic to selling as much as we can ramp up the capacity. And we have capacity left, it’s just a matter of getting the shifts on board and the new factory and ran, we are not on full shifts yet, it takes time to train and so we can grow more. In Asia, India stands out as a very big or not very big, but it's very big growth. Also good pricing actually there, we’ve good business. And generally the markets are not back after COVID with exception for China that is single-digit negative. I think also we will see generally in some of these markets in Western and Eastern Europe, that some of the commercial businesses and new built will decline, that's what we predict with all this cost increase, so price increases that will probably impact the market, but that could also be a hope then that there will be a bit more labor available to do renovation and energy efficiency improvement. And yesterday, you saw I'm sure you all read it, we power EU that came out yesterday, they have the first principle and the first call they’ve put before is to save energy. So we like that, you know, use less comes before everything else and the commission in the document that was issued yesterday then increased energy efficiency targets to 2030 from 9% to 13% and it's also binding target. So it's the binding energy efficiency of target, which we haven't really sit -- seen before. So they up -- they fit for 55 package. Okay, move on to the cost curve. Yes, you see the natural gas is the crisis of the mall, it’s extreme. So energy year-on-year up 2.5 times, but it's everything. And then of course, looking forward, we also see that the inflation or pressure start reach salaries, we have the higher salary increases here than last year. So it's kind of spreading and it's not news to, but in terms of pricing power, we haven't had problems with putting the prices out and actually the dialogue with the customers has been very good, because we announced we have stocked it, we have explained it and I think we have been helped by that some other materials started already, they had a different cost structure to be impacted by different things. So they increased building material prices already in Q2 last year. For example the full plastic form installations, so I think maybe the -- lot of the work they are on realizing something drastic is happening on the cost structures. I think our customers had had seen that. On the customer side, I would say that the customers that sit with normal consumer and customers, some of them sit in a very tight position. Now obviously, they call it on the don't guarantee prices and the raised prices, but generally in distribution, I think distribution has been relatively strong and passing on the prices. Move to the next. To avoid the discussion about how much is price a mix on that, we will not go too much into the details of the mix, but it's is a quite impact in the system division, the mix effect and the price effect. But we did increased prices in Q1 over Q1 last year with bit about 17% and but margins obviously EBITDA leverage has not -- is not enough to composite there. And there, I would say the normal rule would be that you keep gross margins and preserve EBITDA margins more. But at the moment we steer a little bit more towards maintaining the EBIT margin, because we feel the price increases from -- we need to pass on basically double to the inflationary increases in absolute terms to protect that the price increases become so incredibly extreme that we kind of put it somewhere in between there. But we are working back to margin and I think we are back on the 13% EBIT margin relatively soon. Move on to Slide eight, only thing I read, I want to comment here is that first of all more is coming, we're talking double-digit price increase or something like that already in place above what you've seen in Q1. So that's coming into play it’s a little bit of transition time coming. And then on the system division, but you see that drop obviously very difficult, compared both last year right after Corona very strong quarter, very good mix, very low cost. So the 17.6% is probably not reference, but I would say we have about 2% on the mix, the rest is missing price on the margin there for us. Now Q1 investment activities, we have kept the green part relatively -- so the green part, the green investment 26, 25, so same number and there we have like melting conversions, billing efficiency improvement, health and safety and then other products like waste handling emissions, lightning projects, other things. But we keep doing that, that's progressing. And I guess the big one we are starting up now is really the Flumroc Rock project in Switzerland. Where we're talking quite a substantial investment that we would do, we haven't spend and offer lot yet, but it has been launched. Next slide free cash flow, not I really don't have much to say on that, because the networking working capital percentage is stable and with this extreme growth it obviously -- it always impacted seasonal cash flow. We always are negative in Q1, but with this extreme growth obviously, I think, we should be happy that we just kept roughly the same networking capital percentage. Next, yes, we have done one partnership here with One Ocean Foundation and this obviously fits into our effort with our SailGP exercise where we get a very good chance to expose our brand and be in the leading, kind of race or could that really wants to be a sustainable race, I guess, but there is also not the thought about behind this partnership with One Ocean Foundation, you can Google it, it is a very, very serious foundation with quite academic work supported by the Bocconi University and some PhDs. It’s quite a serious quantitative approach to the Ocean, and we are looking into that and the reason we feel this one is important one of the reasons is that we feel there is a need to increased accountability from companies for what happens in the ocean. Today, for example, if you look at all the plastic waste that goes into the ocean is explained by that is the people around five to seven rivers that needs to be trained to not throw it there. But I think there is a case for that there should be greater accountability in all countries and all companies for the ocean. And this shared element of the ocean is clearly seen in the UN STDs that very few companies have an ocean STD that are driving. And we think that needs to change and now when we have our sports undertaking here, it fits in to have a partnership like this and start to drive that, because if you going to save the planet we also need to save the ocean. And to save the ocean, we can't have it as a kind of garbage pool that no one takes responsibility for us. So might be one day that we put -- we need to figure out our link to it, but we put the target for our ourselves on how we can improve the ocean and we will also launch on progress in that field. Next outlook starting with investments are first with assumptions, we haven't assumed in this that there would be a downturn, I don't exclude the risk, we haven’t seen it yet, but with this high material prices with the war with the interest going up, you can expect that some sort of reaction would come. And we have seen that in the GDP forecast now the growth rate has been lowered from maybe 6% to 3.6% global GDP. You see China not coming out of their situation, even though they have maybe GDP forecast of 5%. But nevertheless we suspect that something will happen to GDP due to all this. That said for the construction industry, yes, new bit might decline a bit, but they're also very manufactures working for energy efficiency, saving the climate to 40% CO2 from buildings, the EU directors and now from yesterday, they repower EU would even tougher targets, where we make ourselves energy independent. So that's all good for us, but we have assumed that we won't have drop off this year, it won't be the same growth as now, we see a normalization of the volume growth, because we balance -- we have a more better pricing and we also see that activity levels should not be quite the size, what we experienced in terms of demand in Q1, might also be in a certain level of hoarding in Q1. So that's the basis for the forecast. On the inflation, we have basically said we keep having the inflation, but we fundamentally, believe that now with the prices and the fact that it won't jump up $80 million between one quarter to the next, I feel we have that in hand to bring the margins back maybe not going forward, so we should be able to deliver around 13%. Top line then with these prices is volumes and what already done. We opted to 2025, which means is a bit higher, but is a combination of the price and what we have seen volumes and certain assumption second half. And then on the investments, obviously, one impact is that we stop -- we hadn't really start to spend serious on it, but we had forecast to start spending on the Russian project, we canceled that investment that impact, but the bigger impact on the lower CapEx outlook is that with a very high load and we have of the factories, we have reduced certain upgrades, change of equipment, and we just minimized make sure we can produce absolutely uninterrupted, if you can avoid those stops, so we’re postponing some CapEx that we planned smaller CapEx. Okay, that was my last comments. With that I hand over for questions.
Operator: [Operator Instructions] Our first question comes from the line of Yves Bromehead from Exane. Please go ahead. Your line is open.
Yves Bromehead: Good morning, gentlemen. Thank you for taking my questions. The first, one is I just wanted to get a bit of color on the volume story for the rest of the year given your comments of increased sequential prices going forward. I would imagine that you -- as you mentioned, demand is normalizing? Are there any sort of hotspots where you expect that to be more pronounced? Are you seeing any evidence of either cancellation or delays? But also on your comment regarding renovation, I mean, at the end of the day, do you think the consumer still has enough discretionary spending to pursue some of the renovation projects in countries where they need to actually tap into their own wallet? Or do you see a risk here? And my second and last question, on the CapEx front, you pulled the cord on the Russian expansions, so can you maybe give us clear guidance as to what other products you're pursuing and also any current development of the French and Swedish expansion pipeline here? How is that getting along would be really helpful? Thank you.
Jens Birgersson: Yes. Okay, so tapering off, we have taken down the volume growth, you know, it's positive growth, we have assumed that, but not what we saw in the first quarter. So going down on single-digit no particular big markets, we have seen if you take for example of the Nordics, still very high activity, but obviously, you can see in our new projects talk about postponing not doing cancelling. So I think there are signs of that and I flagged that new build with this cost level probably will taper off. Then we look into renovation, I think you're absolutely right. If you -- with what's happening in our regional gas prices or petrol prices doubling and that I think discretionary spending going to be under pressure in large parts of societies. So I think to get the renovation going is the Italian model otherwise, it won't really happen in this with food going up and all the rest. I absolutely think that's the risk. And therefore, I wouldn't exclude that you have a dip -- a bit of a dip after this happens and then as a similar and in line with the energy efficiency directive and now the repower EU, et cetera, that the money is there in the year that they push it in and then how countries implement it. So I think it needs that to really take off and therefore, definitely risk that there is a gap between those. Personally, I don't see it a big problem for us, if we have a year or a year and a half with less growth in our growth, but that might likely be the situation. Then when it comes to capacity expansions, the Swedish one, we haven't taken a good decision on yet, because we had a good decision on Russia and we have a good decision on Soissons. And in France Soissons, we have been stuck now for a while with some permits and some hearings and some legal disputes. People just has taking time, but I would envision that by September, we could start with groundbreaking and then two years after that so say, Q4 2024, we probably should be able to start, but that dependent and that we get our clearances and that we get okay to start and we hope that will come here during July. And Yes, I think, I’ve answered your questions, Yves.
Yves Bromehead: Yes, you did, sorry just one little specific question on the CapEx in Russia. Did you already commit and spend some CapEx there, that is let's say lost for the time being? And can you bring cash back to and mark from Russia?
Jens Birgersson: So first of all, if you read our report you come to an item with exchange rate losses deep time there as a comment. So we have until the war started run and joint cash pools actually, we have the cash out of Russia up to that point. And that, that's Junge Kim can explain that more details, so we visit on that cash from all of last year in the central cash pool. But on that project, we have started with some limited work and kind of design of the plant, we can take a lot of that engineering and use for the other plants. So it's not -- you don't need to worry about the right offer anything, it’s all already in our numbers as you see now the small, small impacts were out of that. But I'm not saying they've weren't any, but it's just normal operations for us, we are not bought any equipment or anything like that. Should be said also that if we buy equipment, many of this equipment we can just redirect to another plant, so no big risk or no risk there, I’d say serious risk.
Yves Bromehead: Thank you much, Jens.
Operator: Thank you. Our next question comes from the line of Brijesh Siya of HSBC. Please go ahead. Your line is open.
Brijesh Kumar Siya: Hi. Good morning, Jens. So I have two as well, so the first one is on your volume, if you could just give us a little more flavor about how the Q1 set up in terms of underlying demand? And how much of that is pre-buying or a comp effect? And if you could give us how the current order book looks like just to get a flavor of how the Q2 is setting off as you speak? Now the second question is on the pricing, so you've done 17% in Q1 and now the comment you made about that the plastic foam pricing did help you. But looking at this point, how far you are or how much ahead of plastic foam you are or you are at level with them? So if you can give little more color to just understand how much lever you have to raise for the price increase before any market that is kind of things come to the picture?
Jens Birgersson: Okay. On the volumes, I mean you can calculate the volumes in Q1. And I'm not sure it is very hard to judge so shortly after quarter what was the amount and what was, because people started to pre-buy on the world about future price increases. So it could -- let me try to avoid that, because we don't like to over fill the supply chain. And it charged the new price for everything we deliver within the pricing period so to say. So you can't buy today and have a delivery in six months and keep today's price is not how we work. So I think that underlying demand was lower than this double-digit volume growth we had, and that's because people predict the prices would go up. I think we are really in a market with a couple of percentage point growth and then you have the case, but the new build done in three quarters, four quarters, who knows we’ll start to decline, if this continues like this. Order book and activity, we don't have a long order book, but we have a visibility on what's happening, it’s strong, okay? And then on the pricing with foam, we don't, I mean, I can't sit and say that I have this much room left, we’d priced here a steer towards our margins and we look at our cost. So I can't say, you, room left. Generally, I don't feel except for the flat roof segment and some countries is not the main competition with EPS of course, they always cheap, but they now increased. But on the PIR and the PUR software specification work that makes the difference. And big projects might be impacted in flat roof, but at this stage, we don't see that -- we actually see that availability of stone wool is -- might be the constraint to that, it put grow even more. We have been able to deliver, but to step up and output this quickly in what is normally low season is a little bit tough to do. So we probably could have sold a little bit more if we could deliver more, but we couldn't deliver more, because we didn't expect quite this volume growth in Q1. Okay.
Brijesh Kumar Siya: All right Thank you.
Operator: Thank you. Next question comes from the line of Arnold Clemente of Bank of America. Please go ahead. Your line is open.
Arnold Clemente: Thank you very much. Good morning, gentlemen. Two questions on my side, firstly, I guess the slightly obvious question on margins, you were at 11% in the first quarter. You still confirming your prior guidance of 13%, which means you were hoping to do more than 13% in the coming quarter. So the question is, are you already back at 13% margin following the April or May price increases? And are you considering that you can exceed 13% margin in the second half of the year, that's the first question. And the second question is on your Russian operations, I believe you're one of the few companies in the sector that have decided to keep your Russian operations open and under your ownership? Are you still comfortable with this decision? And do you see any political pressure to change that? Or do you see any risk to the Rockwool brand of taking the decision? Thank you very much.
Jens Birgersson: Okay. Good question. Thank you, Arnold. Are you in the U.S. or in Europe?
Arnold Clemente: I am in London.
Jens Birgersson: Okay in London. Okay, no so on the margin, I'm not going to comment on the margins in the months now. But unless something happens in the market, something drastic, then I'm confident on the margins, okay. The margin we got in Q1 is simply the fact of that, that’s the price we put out there and then the cost due to the war and then in the crisis just went, even higher than we expected. So if you would have known that it would have been on this level and put another price we would have had the margin, okay. So -- and I don't think that was a good thing we did that way, it ended up that way, because some of our customers, you know, the distribution might find this relatively easy, but some other customer segment really have battled and we need to have a certain understanding on that side. So I think that worked out fine and I’m under something else happened, I'm confident about the margin. And you are right some quarters need to be on a higher margin to get to the 13%, so agreed to that. Then in terms of Russia just to recap the arguments, we run -- your decision for Russia runs very much on what business model you have and what business have. So you could have me as a CEO for another company, where I would absolutely take a decision just about. So it's not a principal decision, it’s a decision based on where we are. And if you look at Rockwool, we have been in this business now for more than eight years, we have done a number of the announced developments, we are running plants that we design, we also have third-party plants. In a way that no one else can and we have equipped and proprietary equipment and processes, that means that we do this really, really well and we are four or five times bigger than number two in terms of capacity in the world. But let's assume that four times. You can't buy, it’s not like a beer factory or something, you can't buy a Rockwool plant, you can't get the knowledge out there and our plants and the way we run the business is better, okay? That's our market leadership. Then we look at the business model from a perspective of how we set up, where we put the factories? Local material 95%, 92% system division slightly different. But the installation business very local supplies on the incoming material side, local people they have no single expert in Russia. We don't run a matrix, full competence in the local team. And on average we ship, I think the last time we put the number 300 kilometer maybe now it's 350 kilometer, but 300 kilometers to 400 kilometers local people, local business, but the key thing is that we put in our best IP, our best green technology, best everything in our factories. And that means that when we get to the conclusion on why we stay fundamental with three arguments. Today we get the cash out to Russia steel, that could change. But giving away that cash flow locally is wrong by losing control or giving and actually analyzing or selling it for ruble. Second thing is, we feel it is the wrong incentive to take this asset at this worth. Depends how you look at it, but if you were to what it cost to build or what you would get for it? If you sold it in the -- out in the open market is big billions of Danish krone, but is very significant value in the asset. And then the third argument is the IP, we don't win -- want give away the best green tech in Stone Wool that exist. We don't want to give that away. And then you could said okay, why it also stopped it. Our plants in Russia will not be allowed to stop, the people there can run them, it was just beyond the new ownership. So for that reason, we have stayed. And that also means that, when you look Saint-Gobain for example, The French and the German competitor, they come to the same conclusion, but they -- because they probably have the same situation. So it's not the case that we don't have competitor all exiting. And then finally, we haven't received any political pressure, you know, adhere to all the sanctions. Every sanction, now we’re on section package five, six is being discussed, seven is may be moving. There could be a sanction in Russia or the use sanctions maybe more like this, that you have to drop it out to hand over the key, that could happen. And we live with that, and there are many cases where we could be, we have to hand over the key, but it would be wrong as we see it. So the political pressure on us is not there. But then of course, in Denmark you have certain newspapers and public opinion that want us to exit and they write about this relatively calm now actually. On the other hand, when I sit and discuss it with customers, I explain the situation and then I said, what decision would you take? Why asking employee? To take the same decision as we have taken. So we are not frozen on it, but we’re convinced as the best thing to do and our competitors are staying. There are some that they're exiting, but you look at them typically very small is not worth the effort to stand up like we have done and explain this whole rationale if you are doing $10 million or $50 million in the country then. Just drop it and get out to there as much easier and focus on the rest of the business, okay. Does that, okay, answer Arnold?
Arnold Clemente: Yes, that's excellent very helpful. Thank you so much.
Operator: Thank you. And our next question comes from the line of Manish Beria of Societe Generale. Please go ahead. Your line is open.
Manish Beria: Yes, so good morning. My first question is in your guidance, so what we have built for the remaining nine month volume growth? So this is my first question. The second one is on what sort of price inflation we see in the cost of goods sold, so in the first quarter, I think it was something like 55% to 60%. So do you think in Q2, it moves up little bit sequentially also Y-o-Y? The third question I will take later.
Jens Birgersson: Okay, so on the volume and the guidance, I've already answered that previously. Then if we look on the input cost inflation and we had 20% between Q1 and Q4, we are expecting the rate to decline a little bit going forward. So we don't believe it will be beyond 20% every quarter going forward. And yes, I think those you had the third question, Manish?
Manish Beria: Yes. So -- yes, so in the press release, we have mentioned that the margin recovery is necessary to continue a high level of investment. So how should we think about it that, due to inflation maybe our maintenance CapEx, growth CapEx and working capital needs will be on a higher trajectory versus passed in absolute euro. So in that sense, I mean, this high inflation of course, lift up your EBIT, but does that necessarily means higher free cash flow generation, because of the higher investment needs? So this is how you think about, I mean, this inflation, margins and investment needs?
Jens Birgersson: Yes. I mean, the higher investment level just to be clear on that the drivers is energy efficiency, reducing the 40% CO2 that comes from buildings, safety climate. And then we have now the re-power EU on top energy independency. And then we have, of course, a high energy prices. So long-term, we said that we had another re-power EU as an argument. On top of that, we have our rock cycle or circularity approach where we do also drive the demand. So medium-term, we believe in good demand growth for our products. And that means that we like to sit on about 13% EBIT margin or a bit above that, because we need to invest a lot to build capacity. And now so that's the reason, but then if you run the spreadsheet, if we have 11%, 12, 13% or 14% you probably don't get too different investment decision. So it's not like it's a trigger level, but we feel that with the current climate of very high inflation of steel and all the rest is obviously important that we stay on a sound margin. It doesn't work that we operate the business on 5% margin and then we built factories that now costs 30% more due to inflation. So we need to keep the margin on and pass on this. Otherwise, the sustainability is not there. But if it's 11%, 13%, 14%, 15%, you know, that's not the key item.
Manish Beria: Yes. Okay thank you.
Operator: Thank you. Our next question comes from the line of Zaim Beekawa of JPMorgan. Please go ahead. Your line is open.
Zaim Beekawa: Good morning, Jens. Thank you for taking my question. And just coming back for the decrease in the CapEx guidance, can you think about -- how you think about that moment may impact growth in H2 and indeed 2023? And second question just on sort of the Russian natural gas supply, if that works have stopped, how much of your business would be a direct impact? And what, sort of, mitigating measures could you take how easy would they be to implement? Thank you.
Jens Birgersson: Zaim, I hand that over to CFO, because he has worked more actively with our CapEx breakdown. So Kim take that one.
Kim Junge Andersen: Yes. Thank you very much, Zaim. We have in the annual report mentioned a little bit about our CapEx expectations for the coming sort of mid-term without sort of disclosing this specific number of years. This as Jens said an expectation that demand will continue to grow for our products and we do need to invest in more capacity. Our business model is fueled by organic growth primarily and we need the capacity -- available capacity in order to grow. So we will see a CapEx amount going up in the coming years, previously, and in the annual the report we have said it will go up to a CapEx ratio of up to 13%, of course, that was before these very significant pricing increases, but it will be higher than the EUR300 million, EUR400 million that we have spent in the last few years, that's for sure. And next year I'm sure there will be capacity projects next year that we will announce that will keep up a high CapEx level.
Zaim Beekawa: Thank you. And on the natural gas number?
Jens Birgersson: What was the question there Zaim?
Zaim Beekawa: So just boats boss, natural gas supplies. If that were to stop, how much of your business would see a direct impact and what are the mitigated measures you can take within your plants and how easy are they to implement?
Jens Birgersson: Absolutely a direct impact, so we use gas in some other the places in melting, we use it in abatement, abatement is a fancy bar for cleaning filters and things like that. And then we use it quite a lot for curing. And when you look at those processes, if the gas stops, first of all there’s obviously not all countries, as if the Russian gas was to be shut off now, there are about five countries that would be very severely impacted, there is gas sharing law across Europe, we have analyzed that. There are also some assumptions on whether you belong to the industries are being cut off or not. So for example in one country, we are not on the list, we’re on the list of the people all the companies that will be cut off, because we are not the hospital this and that at the same time they say us cutting off wouldn't be good, because at least unemployment, so you will get 50%, but we can't put that in writing. So you have this type of deliberations, but if take the worst case of that, we need -- we have about five countries, where basically production would stop. I wouldn’t bankrupt us, but it will stop. We are busy investing in a mitigation plan, because we don't believe if the gas is being shutdown, we believe you would go into technical recession across all of Europe. So we don't believe we need the demand and therefore, we are working on mitigation plan that is relatively CapEx effective, where we can keep the level of production up that, that market demand we have estimate in that situation. And the reason we don't invest in a mitigation factor for -- be able to deliver on this level is that we simply don’t believe the demand will be there. And we also don't believe that, for example, replacement processes like LPG are relatively cheap to invest. But when we speak to three, four suppliers and that is obvious that they cannot replace all the natural gas. We have to make this assumption on what is realistic that they can supply. So we work on that, so I would just sum it up it will have an impact, but I think the biggest, biggest impact of switching off the gas will be a severe recession, okay?
Zaim Beekawa: Great, thank you.
Operator: Thank you. Our next question comes from the line of Claus Almer of Nordea. Please go ahead. Your line is open.
Claus Almer: Thanks, also a few questions on my side. Yes, the first question goes to the very strong performance you had in Eastern Europe. Can you put a more color to what was actually is the main drivers behind the 70% plus growth in Q1?
Jens Birgersson: If I just look at the countries, I mean, the growth rates are super high everywhere with Poland leading, Czech Republic also very high. But it's high, everywhere. And it's light industry, Sandwich panels, flat roofs, this whole logistic that segment maybe some manufacturing, but it's basically light industry buildings that is driving it.
Claus Almer: So it's more in the business segment and not the private houses renovation of houses?
Jens Birgersson: That’s right.
Claus Almer: And, you know, compared to -- sorry?
Jens Birgersson: Yes, that's alright.
Claus Almer: Okay. And then, you know, so compared to Q4 for instance, have you seen any -- why this drastic change from last year?
Jens Birgersson: We have seen this happen in Eastern Europe all the time. Basically that it was very good activity in Q4. Was not bad, it has been growing all the time. But we see this in Eastern Europe, it fluctuates a bit up and down. And when it's good, then it's good all over so to say, and then the next quarter can be a little bit lower. So let's see what happens in the next. My prediction is that we're going to see strong development going forward too, and then the question is how long this wave of this extreme growth in Eastern Europe will continue.
Claus Almer: Okay. Then the second question goes to Russia. You said that you expect a more activity level against at one point into the future. As the world looks today, how much lower do we expect or where do see Russia to stabilize?
Jens Birgersson: I can't say. I mean, Russia from a top line perspective is less than 10% of our turnover. And I just look at it, the GDP is down, they totally isolated is just getting worse and worse. I would just predict will start to decline. And we have seen some of it, but it's still too early, you know, the war started what in end of February some time. And so it's not so many weeks into it actually. So I think it takes a while to get through. And then I also think there is a certain effect of uncertain times, if you sit on cash put it in something real. I'm putting it also into your residential house for normal people, not business, but residential also makes sense. So you see we have seen that happen also so, but I'm pretty sure that we will see a decline in Russia.
Claus Almer: Okay. And then just a final question about the ASP or the price increases you have done or the industry you have implemented. Do you see a capture how much you can actually raise prices? Is there a cap where you are, you start to get concerned to what extent the end users will have to be exceptionally these price increases?
Jens Birgersson: The end users going to be a result of all materials, the whole cost for the project not installation or standalone. So I think we will see that and I think just looking at yourself buying a new house and suddenly pay 30% more that would change the mind in some segments. So I think we are there and we will see it. I think it is very high, but again, I have never lived in anything like this, you know, I've never seen this type of increases before, could maybe also have the opposite effect that people believe this will continue. They will invest more, but if it tapers off now and normalize that some people say, maybe we get through it. Maybe we get through it, because I don't think as such at 30% or 25% whatever it is on building material will make all this project on viable, because also salaries will follow along now, we will see salary inflation. So maybe it keeps going. So I don't think it's only the stone wool, but I don't think for stone wool that the 30%, price increase will be impossible to build, because it costs 30% more, I don't believe that.
Claus Almer: Okay. Yes, thank you so much for your answers.
Operator: Thank you. Our next question comes from the line of Yassine Touahri of On Field Research. Please go ahead. Your line is open.
Yassine Touahri: Yes. Good morning, couple of questions, firstly could you give us an update of your sales breakdown between residential construction, non-residential construction, renovation and new builds, that would be very helpful. Second if possible, could you give us a little bit of color on what you've seen in terms of volume, any update on that? Are you seeing the same kind of growth as in the first quarter? Or is it pretty slower? And then the last question on -- are you seeing any new measures since the beginning of the war, like tangible measure, that will boost energy revolution, for Example like tax cuts in countries like Germany, Poland, Netherlands, France? And do you expect any of the vision to have a meaningful impact on that like six to 12-months.
Jens Birgersson: The last question you need to recap, but if we come renovation and new at to moment certainly morning you. We don't give these details, but I say something at least. So there is more new than renovation and there is a little bit more and this varies by market, some markets are absolutely of the opposite. There is a bit more non-residential than residential. So if you go from 50, 50, 50, it's slanted towards more new build and more -- and especially multi unit and industrial and then more non-residential if you make the four by four metrics. Okay? The second question, what was that, Yassine?
Yassine Touahri: Could you guys, could you give us a little bit of color on your volume growth in April and May versus what you experienced in the first quarter?
Jens Birgersson: Okay, so we don’t comment the current quarter on volume, but I said in the previous question that obviously we made -- we published our outlook yesterday. We see continued sound volumes, but we have told you that with the price increases we do, we believe and we forecast that volumes -- volume growth will be single-digit and that for the rest of the year, I’m not saying April, April might be different. But we see an activity where you're talking single-digit growth. And but we had this Q1 effect, you know, whether that is in April also I don't want to talk about that. But we see over time that it should go down to lower single-digit volume growth going forward. But it's still very high activities, okay.
Yassine Touahri: My last question was about the subsidiaries that you see for insulation. Are you seeing any evidence of either cancellation, you’re looking from trades coming in the next six to 12-months? Are you seeing, for example, a new tax cuts going for happening, in France, in Germany, in the UK, Benelux in Poland?
Jens Birgersson: You are very hard to hear, Yassine. But I think you talk about governmental subsidy schemes for renovation.
Yassine Touahri: Yes, sir.
Jens Birgersson: Okay. We -- I mean, we see some things going, we see some things progressing. So nothing dramatic has been launched like in Italy, but you have in the recovery and resilience fund EUR225 billion, that is for renovation and other metric to recover that's already going. Many countries have something. And then we have not the repower EU on top that I just talked about today. So we don't see any dramatic changes, but the activity is not bad, but it certainly with the announcement yesterday from the EU it needs to be higher, okay?
Yassine Touahri: Thank you much.
Operator: Thank you. And our next question comes from the line of Yuri Serov of Redburn. Please go ahead. Your line is open.
Yuri Serov: Hi, I have just one question please, you talk about the fact that your utilization is very high and you're actually trying not to disrupting our production with CapEx projects, because of that. Does that suggest that we cannot really grow, if your utilization is very high, I mean, your all the comments about the underlying market door for instance, but when we model what will -- should we just assume that your volume growth is going to progress in line with your plants launch, [Technical Difficulty]
Jens Birgersson: Yes, so we are running at very high capacity utilization today. But we have the seasonality of the market, so it -- the full capacity is very much the term and by how much we produced during the low season. And so yes, we can grow more.
Yuri Serov: Like grow more is that 3% or 15%?
Jens Birgersson: It depends without price, but we can grow more let's say that and it's more than 3% that's for sure.
Yuri Serov: Okay.
Jens Birgersson: One more comment on that, we started up Ranson in North America, the Ranson factory in West Virginia. Obviously, we are not on full capacity on that one yet. We still have some more capacity there. We start to drop the one a sudden Germany last year is not on full capacity and we have several factories, where we can put on more shifts, but we can also do a lot by producing more during the losses. So is not single-digit, I mean, we can grow definitely more than 3% right, okay. And our forecast for this year on volume growth, even though Q1 is big, we don't expect this year to be super big volume growth year. We saw that Q1 came in a little bit different for various reasons. But we think a single-digit growth of the absolute number of storm will be delivered. That’s what we forecast for the year, okay.
Yuri Serov: Yes, understand. But Q1 is the lower season and you're talking single-digit growth for the rest of the year?
Jens Birgersson: That's right.
Yuri Serov: That's. But the way that it sounds is that and you're saying that you can grow by more than 3%, well that means that you're going to do all of that during this year. And next year, you start growing or?
Jens Birgersson: We can grow next year also, yes.
Yuri Serov: A little bit.
Jens Birgersson: No, we can grow next year. Okay.
Operator: Thank you. And our next question comes from the line of Cedar Ekblom at Morgan Stanley. Please go ahead. Your line is open.
Cedar Ekblom: Thanks, very much, two follow-up questions, please gentlemen. Can give us the percentage of revenues that are generated at assets, which specifically run on Russian gas, so we can get an understanding of where the imminent revenue risk could be, if there was a shuttle and lastly as that maybe? And then secondly, do we need to worry about production stability on your assets? And I ask that because you have delayed what we would call more of the sort of maintenance standard upgrade CapEx now for two years. These are big capital intensive assets, do we need to worry about an unexpected outages? Thank you.
Jens Birgersson: Yes, okay. So we start with the last question. No we don't mismanage our plants, you know, some of these investments is to change your future, it can run three years of the lining of an oven, it can run another two years. No, you shouldn't see it on that, we take we take care of our plants. But some of the investments are just you schedule and you bundle a few from the future and now you might take a short to stop when you do the important things and others you say for the next year. So no it's not abusing the plants in anyway, that doesn't exclude with our plants, we have probably once a year, once every second year something breaks, even though it's according to the maintenance schedule. So that can happen, but we don't -- we have more capacity and it's so far it's never been a problem. So don't worry about that. The percentage of Russian gas is not, you know, their mitigation efforts are very complicated country schemes, it does not possible to give that number. But like I can you're following, there are about five countries after the countries, we believe would be impacted, if it happens, okay.
Cedar Ekblom: The question is in terms of what do you think will be impacted? But the question is what percentage of your revenues today or assets or generated at assets that run on Russian gas. I appreciate all the comments around mitigation, which can make the real world impact, if we get a shuffle to be very different from the assets just being turned off, but it's useful to understand what your exposure is? What percentage of revenue potentially needs to get mitigated?
Jens Birgersson: I don't have a percent for you Cedar, sorry.
Cedar Ekblom: Okay. Thank you.
Operator: Thank you. Our next question comes from the line of Joe George at Berenberg. Please go ahead. Your line is open.
Joe George: Yes. Hi, Jens, thanks for taking my question. And just one for me on the insulation division specifically and some of your peers are seeing as this flat volume growth and year-on-year throughout Q1 and you guys are seeing you've experienced good volumes at the group level, roughly half of the 36% growth was volume, so a different, so my question is what is the price points split within the insulation division specifically? And is there a feel across any certain regions that you're taking market share at all?
Jens Birgersson: Yes. I think it goes back to a little bit how we were pretty good last year after Corona, so I need to go back to 2021. We went into last year and thought we would have a lower year, and then we produced we had lower capacity. And then somewhere February, March, it was mid-March just crave started. And we've a very quick to ramp up, even it was better we went up on very high volumes. So when you see this volume growth, it has to do with what your comparable is, so I don't think our competitors have a very different perspective still such we had the lower quarter last year. But if you look at Q4 and Q1 this year, we have kept running. So I think it mostly a comparable game, and some of them might be out of capacity, because they won one factory, but we have fundamentally just keep going in Q4 is normally good quarter and now we got to Q1 that is like Q4. So that's the only thing that has happened, it just keeps running, okay.
Joe George: Perfect. Thanks.
Operator: Thank you. And our final question comes from the line of Yves Bromehead at Exane. Please go ahead. Your line is open.
Yves Bromehead: Thanks. Just a quick assuming the cost actually come back down at some point towards more normal and sustainable levels. What would be the strategy is it to hold prices constant? Or would you actually be giving back some of those let's say lower cost back to the customer?
Jens Birgersson: Yes, it’s a question that we haven't done on surcharges, we haven't done much of that at all we have put reprices in place. And the normal situation will probably that when it ramps up this quickly at the beginning you get that back at the end if it goes back, right? And I should also say that we have quite a way to go before we have preserved our gross margins. And so if prices go down, is probably because to volume and the market go down, and we would probably aim to try to then get our gross margins up again when we have less or absorption and protect the bottom line margin. So we wouldn't like to you now just passes down immediately, because we still need to recover gross margin and especially if the volume goes down, we need to get back up on the gross margin.
Yves Bromehead: Very clear. Thank you, Jens. Bye-bye.
Operator: Thank you. As we have no further questions, I'll hand back to our speakers for the closing comments.
Thomas Harder: Thank you. Ladies and gentlemen, we would like to thank the equity analyst for all your good questions. And the audience for listening in on today's call. We appreciate your interest in Rockwool A/S. If you have further questions, please feel to reach out to me Thomas Harder, you know my contact details or you may find them in the Investor Section on our corporate website. Jens, Kim and I thank you for joining today's earnings call. Have a great day.