Earnings Transcript for ROCK-B.CO - Q3 Fiscal Year 2024

Operator:

Kim Junge Andersen: Good day to everyone and welcome to Rockwool A/S Conference Call regarding the Result for the First Nine Months of 2024. My name is Kim Junge Andersen, I'm the CFO of Rockwool A/S. Today I'm pleased to present CEO, Jes Munk Hansen. 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, Jes will go through our presentation and give you the updates on the results for the first nine months and third quarter of 2024. Afterwards, we'll be ready to answer all your questions. Please keep this at the maximum of two questions at a time, allowing us to go through the entire participants of -- all the questions from the participants. Before I hand over to -- the word to Jes, 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. Jes, I now hand over the word to you.

Jes Munk Hansen: Thank you, Kim. My name is Jes Munk Hansen, I am the new CEO here at Rockwool. It's a pleasure for me to take you through the Q3 earnings call and I will focus my comments, the next 20 minutes, on Q3 so we have ample of time for Q&A afterwards. I'll start out on slide three. And as you can see, our sales over the last nine months increased 7%, both in local currencies and in reported figures. Sales was mainly driven by volume and notably, our sales prices overall remained stable, of course, a few slight downwards trends in some markets to preserve market share. Our marketing increased mainly driven by volume, but we also had high productivity and lower-than-expected input cost, which also of course contributed to driving the margin. Overall, a margin expansion of 3.5 percentage points leading to this first nine months margin of 17.8%. Let me dive into Q3 highlights a little bit more and add some flavor here. We grew in local currencies 5%, 6% in reported figures. When I look at the sales increase in local currencies, approximately 3% was driven by volume and 2% by price. We note, again, very strong performance in North America and Central Europe. I'll get back to the regions in a minute. I'm very pleased with the development here in Q3 when it comes to sales as also remind ourselves that we have harder comparisons on the top line. We had a strong EBIT for the quarter which, I must say, also was impacted with EUR5 million for extraordinary write-downs on adjustments and due to useful life from some customer relationships. Overall, we were up 1.9 percentage points, ending with an 18.1% EBIT margin. If I add back these extraordinary write-offs and adjustments, we would have landed on 181 in EBIT equaling 18.9% margin. To slide number five, just briefly for the year-to-date sales. As you know, the macroeconomic environment this year is challenging, particularly in Europe where growth in the residential and new building activities is subdued. Having said that, we are strong in the renovation market, which makes us more resilient for the current environment. So overall, very pleased with year-to-date sales, particularly the insulation segment with a 9% growth whereas we had a slower start to Wille, to the systems segment. However, there we had a divestiture that influenced the first nine months with 2% growth or it would have been 2% growth had we not divested it. A little bit more flavor to Q3 and now I'm on slide six. As again, the 5% quarter-over-quarter gain, very much driven by North America and Central Europe, and some more positive signs from our systems segments. In the quarter alone, this Wille divestment would have ended up -- us up at 4% growth if we not had that in the quarter. But some positive notes from the system segments segmented across the units in that segment with more modest development in Grodan. I move to slide number seven, just to talk a little bit about our regions. First, Europe, where sales increased in several markets, notably Germany, where we are doing well, and in Spain, whereas in France we have a stagnating development. East Europe, again, also a very differentiated picture where we see a couple of countries with double-digit growth, this includes Russia and other countries such as Poland and Hungary with decreasing or flat growth. Poland, Hungary, when I look at the comparable’s to last year this -- or the last few quarters, it is really almost a flattish development. Very strong performance continues in North America, as I mentioned, with double-digit sales growth. And again a mixed picture in Asia where India and Japan stands out as our top performers. There's a lot of speculations on the elections for us how in the U.S. and the consequences of the new administration. But we believe that the underlying macros are important, more important to our business and therefore, we are still investing into the North American market. Yesterday in our Board meeting, we just approved another investment of around EUR100 million into a new production line in our technical insulation. I'm on slide eight, a few comments on the quarter's profitability. Our EBITDA remained solid at 25.2% and this is driven by strong profitability, sorry, strong productivity that of course drives our profitability. Input costs were slightly lower-than-expected in Q3 though we do see some tendencies to some of the input cost, particularly gas, to increase. So overall EBIT in the quarter year-over-year, up 18% and EBITDA 10%. Yes, I mentioned the stable sales prices, again, there have of course an influence. Next slide, that is slide number nine, profitability by segments where there is a difference between our reporting segments. Very strong profitability in our insulation segment, up 29% whereas a little bit more disappointing in the systems segment where we are challenged. However, as I mentioned, system segment has some one-offs re-evaluations, particularly about the use of life of some customer relationships. And then also there was a little bit of a product mix shift towards -- in the Grodan business towards more European, more traditional markets instead of the cannabis market in the North American market. And our Grodan business just has lower margins in the European sub-segments. Let's jump to slide number 10, our investments activities. We invested in total EUR73 million in the quarter. As you know, we have basically three categories we invest into and divide them also up here by the three categories of new capacity, our own reduction of carbon generation, and of course acquisitions. And we have continued investing into both capacity and our conversion, mainly this last period into our Flumroc E-melter in Switzerland and new coming melting technology in our very large factory in Roermond in Holland. In Holland or Netherlands, sorry, we have also invested in new capacities for Rockpanel. So we keep on investing in this expansion. On the acquisition side, you probably have seen in our press releases that we have made two acquisitions in the quarter. One is a stone wool producer in Vietnam and a systems holder in the United Kingdom called Wetherby. The two of them put together represent approximately EUR60 million in sales and EUR12 million EBIT. Just a few comments on our cash flow. Net working capital decreased EUR41 million compared to last year. And then we have continuing executing on our share buy-back programs as announced and planned. So overall a very strong cash flow during the quarter at EUR197 million and this is of course mainly driven by the operational performance at hand. And we continue having a very strong cash position that of course enables us also to invest into the future. I've selected two subjects just to talk a little bit about here in the Q3 call when we look into opportunities in the future. The U.K. market is a market that we see as a strong opportunity for us. We see a growing demand for non-combustible insulation and therefore, we have both invested in additional land where we intend to build a new factory that is in Birmingham, and then we have acquired this Wetherby Building Systems company, I just told you about, and that is a system holder, we call it ETICS, it's basically external facades, and we have acquired that to strengthen our overall offerings in the market. Of course, this market also is looking at energy efficiencies and how -- which technologies can support that. But -- and that we play into, of course. But there's also a very strong agenda on the fire safety. The huge tragedy that happened a few years ago in the Grenfell Tower accident has again lifted the attention to fire safety and non-combustible insulation material. And there, we have an absolute stronghold. So very optimistic on the future of opportunities in the U.K. market. Then if you turn to slide 13, the slide starts with an abbreviation. For those of you who don't know what that means, the EPBD, it stands for the Energy Performance of Buildings Directives. That is a new complex of laws and regulations coming out of Brussels. This will be something that we will report on ongoingly, because it will have a significant impact on our business in Europe over the next decade. The regulation really subscribes what -- prescribes a significant renovation wave the next decade and we put in some numbers here. They are very specific in their target setting, both on the residential side and the public building side. And as you can see, the numbers that of buildings that need to be renovated already before 2033 is staggering. We have mentioned here the 25 million amounts of buildings -- homes, sorry, that needs to be done here over the next nine years. And that is really what constitutes this new law, more than the previous laws, that they are much more specific on their target setting and they are much more short-term in nature than previous legislations. What happens now is after Brussels approved this in May, now each country is obligated to set targets locally and we are working through that with our public affairs activities and other marketing activities, of course, to form these local plans as much as we can with our offerings. Good. I'm jumping all the way to Outlook, page 15, and in short, I can confirm that we maintain our outlook for the year. I think most of you will know since it is a confirmation. But just to repeat it EBIT around 17% and an investment level around EUR375 million for the full-year. And this of course also takes into account that we always see a decline in activity in the construction industry in December, where many of our main markets close down, both for the holidays, but also weather-related. Those was my main comments for the material at hand and we will open up for questions now.

Operator: [Operator instructions] Our first question comes from Kristian Tornoe and SEB. Please go ahead.

Kristian Tornoe: Yes, thank you. I have two questions. First one is about the Eastern Europe and the slowdown you're seeing in growth. So obviously very strong growth in the first half as I understood it, driven very much by the commercial new building. So can you just speak a bit about whether this is sort of a reflection of weaker demand, whether this increased price competition and if any, of market shares play into the segment or what's driving this slowdown? And whether it should stick to the coming quarters as well.

Jes Munk Hansen: Yes. There was only one question, but okay…

Kristian Tornoe: Yes. That's fine.

Kim Junge Andersen: But that's okay, Kristian. So I was just sitting and waiting for...

Kristian Tornoe: I'll do the next one afterwards.

Jes Munk Hansen: That's fine. Yes, but a little bit of mix of things, but I think it is important to state that it's fairly stable if I look quarter-to-quarter. So it's been a little bit up and then a little bit down, and it is way different from market-to-market. Kim and I have just been visiting both Poland and Romania lately. So it's very, very nuanced. It's hard to make one headline for all of it. But there is some slowdowns in building activities, absolutely, in some of the markets and we do see in select markets, Poland for instance, a very heavy price, you can say, pressure, particularly from the foam side, the PIR and PUR, as we call them, so hard to press on the prices. But we hold our prices. I mean, that is what we believe is the right thing.

Kristian Tornoe: Okay, understood. And then my second question here is exactly on pricing, because I don't know if I'm confused, but at least I sense a bit mixed signals, because you do flag this downward trend in some markets, yet you start your presentation by saying that you are seeing 2% growth from prices in Q3. So can you maybe sort of break it down whether -- or what markets where you're seeing a downward pressure and whether that really impacts the overall group or if you can compensate by increasing prices in other sectors?

Jes Munk Hansen: Yes. But it is a very mixed picture around and I'm very pleased that our organization is very good at adapting to the tactical environment that they are in. So I understand that it's hard to, on an aggregate level to fully understand. But just to give you some flavor, we are under price pressure in East Europe. And also by market, our main market like France, we see very difficult price situations. And also a market like Germany, I would say, where we have held our prices, but have been tactical in applications, certain applications. I don't want to elaborate on that level, but where certain applications have decided to lower prices slightly to gain volume. So yes, in an aggregate, that is the picture.

Kim Junge Andersen: And the main -- this is Kim here. The main movements on prices in Q3 obviously was the 8% price increase introduced in North America. The rest of the market, by and large, as Jes said, are more flat on prices, but North America made that 8% price increase 1st of July.

Kristian Tornoe: And if I may just follow-up. So when you then say you are starting to discuss price increases with your customers for next year, what level of price increase should we be expecting?

Jes Munk Hansen: In the range of 1% to 2%. But again, very differentiated -- sorry, 2% to 3% on average. But again, very differentiated market-by-market.

Kristian Tornoe: So 2% to 3% for the Group give or take?

Jes Munk Hansen: Correct, 2% to 3%.

Kristian Tornoe: Excellent. All right, that was all for me. Thank you so much.

Operator: Our next question comes from Claus Almer and Nordea. Please go ahead.

Claus Almer: Thank you. First of all, congratulations with your job, and good to hear you on the call. I will also do two questions one by one. The first is about the pipeline of larger projects. How do you see this has developed over the recent months. That will be the first one.

Kim Junge Andersen: Yes. Maybe I will take that because, of course, Jes doesn't have a lot of history in this. As you rightly know, Claus, we do not have a pipeline of any large orders sitting there. We are very much dependent on the daily dispersed sales, which is a majority part of our PUR business. So we don't have these pipeline tracking’s because it doesn't make a lot of sense for us in understanding the overall content of business. So in that sense, we don't have a lot of data points leading into 2025 at the present moment.

Claus Almer: Yes, Kim, I know there was more about -- I guess you are in discussions with architects and so on, more trying to figure out whether building new data warehouses, et cetera, et cetera. How that is moving in these days? Is that indicating a slowdown?

Jes Munk Hansen: But again -- No, I mean, we were just been going through all our markets with our leadership, and there was not a signal that there would be a material change on that.

Claus Almer: Okay. Then my second question goes to this, as also Kristian about this price discussion. In the past at least and Jes, I know this is before your time, but one helping factor when you're out discussing your pricing with customers was low margins during -- a few years back during the COVID years. Now the margin is 17%, 18%, I guess that will be a more difficult discussion having with the dealers. So what is the initial thought or takeaway from the discussions? Do they -- the pushback is, yeah, you might have the inflation, but you're also making a lot of high margin in these days.

Jes Munk Hansen: But we -- again, it's very differentiated. But there is an understanding of that we have to follow up with price increases when we see input costs coming up. And I do, in general, see that our customers understand also our price positioning and the value that our products generate. So for me, it's more a steady drumbeat of 2% to 3% of price increases is a normal thing to walk into next year with.

Claus Almer: Okay, so not a major pushback from the dealers?

Jes Munk Hansen: We don't expect that in general.

Claus Almer: Okay. All right, that was all for me. Thank you so much.

Operator: The next question comes from Brijesh Siya and HSBC. Please go ahead.

Brijesh Siya: Hi, good morning, gents and congrats, Jes. So two questions from my side as well. Firstly, on the margin for Q4. You clearly indicated that December is something -- is kind of seasonally will be a weaker one, but given the strong margin you had up to nine months and including Q3, if we take out those one-offs, what other factors that could have led to kind of maintaining that guidance or rather than upgrading the guidance? So just looking at Q4 as such, do you see any incremental change from Q2 that is leading to kind of being cautious on that margin guidance? And the second one is more of a strategic one. I know it's kind of around only one months since you have kind of got into it. But any early thoughts of what Rockwool suit are they looking into the future? Is it -- how the growth you are looking at it? And you've highlighted the U.K. and EPBD. But yes, EPBD is certainly a long-sorting thing. We don't know the -- how the funding is going to come. But looking at the Rockwool business as such, what do you think is kind of missing in this piece? Are you looking to the adjacencies with the previously you talked about when you left? But is that something you look to kind of enlarge so that your product offerings are broadening, hence, your margin profile could continue to remain healthy?

Jes Munk Hansen: I'll take them one after each other. Yes, of course, the margins in Q4, October, November are fairly normal months. It's only the December month that is connected with great uncertainty. And -- so we're fairly firm on the outlook that we will land on what I just articulated before. When it comes to strategies, yes, I think the one I want to highlight here is our opportunities in North America. I talked a bit about the European market, but the North American market is driven by a slightly different logic. Two things I want to highlight here. One is that there is a category shift going on in North America, where stone wool well today is a very low percentage points of total insulation market, and the appreciation for non-combustible insulation is on the rise. So that is one factor. And then a general appreciation of energy efficiency in the North American market. So in addition to the two other ones I mentioned, that would be the one I would point to today.

Brijesh Siya: Okay, fair enough. Okay, great. Thank you very much.

Operator: The next question comes from Zaim Beekawa and JPMorgan. Please go ahead.

Zaim Beekawa: Good morning, Jes. Good morning, Kim. And best of luck, Jes, for the -- your career at Rockwool. Just two for me is one on volumes. After quite a decent ‘24 in terms of the volume growth, how much do you think the business can grow in ‘25 if the market is supportive? Maybe in other words, how much more can you do before you become capacity-constrained? And the second question on the cost side. I think you gave some commentary on inputs rising such as gas. Can you speak about the other inputs and also on your hedging strategy for next year? Thank you.

Jes Munk Hansen: Yes. The capacity question is again very local. As you might know, our products travel, depending a little bit what type of product 500, 600 kilometers and not much more. So capacity discussions are very, very local and therefore, also a tactical matter and not always something that, of course, for commercial reasons we want to open up about. But having said that, in Europe, we have capacity available also for next year. And then, of course, we have announced for -- a row of new factories to support our growth. I just mentioned North America, where we have already announced a very large investment up in state of Washington. I think I mentioned here before, we have also just announced today -- yesterday, decided on a capacity expansion in Southern U.S. And then notable countries such as Romania, Sweden, and of course, India, where we also are investing in additional capacity. So I feel that we have the capacity we need for our growth.

Kim Junge Andersen: Hi Zaim, with regards to input cost, what I can say is that currently, we have covered for electricity and gas, about 40% of our consumption leading into 2025, a bit more at the first two quarters and a bit less at the end of the year. That comes especially for gas at a cost that is higher than what we have this year. But that has been taken into whole planning with this pricing drumbeat that Jes had mentioned. On the foundry coke, which is still our largest energy source, we have seen more stable development. And I don't expect there will be much movement in the coming quarters. We are negotiating quarter-by-quarter, so we don't even have as of yet the quarter one costs, but I don't expect any big movements either up or down on the foundry coke side.

Zaim Beekawa: Okay, thank you both.

Operator: The next question comes from Casper Blom and Danske Bank. Please go ahead.

Casper Blom: Thank you. Actually just a follow-up on the question regarding your guidance and the sort of implied guidance that you gave for Q4. Obviously, sort of depending on how you read mid-single-digit revenue growth at around 17%. But if you sort of put in 5% growth for the full-year and 17% margin, you're sort of implicitly guiding for a margin of 14.5% in Q4 2024. That's sort of flat, compared to what you reported in Q4 last year. But I think underlying, you were above 16% in Q4 last year. Is there sort of any other reasons than wanting to take into account that December can be unpredictable or why you're guiding that margin underlying down in Q4?

Jes Munk Hansen: No, there's no -- none of significance. It is just a cautious statement on then.

Kim Junge Andersen: On the December, yes.

Jes Munk Hansen: Yes, on the December.

Casper Blom: So entirely cautious. Yes, thank you. And then just following up a bit on your comments regarding Germany and France, where you talked a bit about some prices here, I think, in both countries. Can you talk a bit to sort of the development of this? Is there sort of an increasing price pressure that you're seeing in France and Germany? Or is it sort of a little bit of a continuation of what we've also seen in the last couple of quarters? And if you have any view sort of on whether or not you're sort of starting to see the trough of market activity in those markets. Thank you.

Jes Munk Hansen: The pricing pressure is not as such increasing. I mean it is a difficult market in Central Europe. As you look at the housing starts and overall economic activity that drives our business, I mean, it's basically inflation gross domestic product and interest rates. So we don't see an additional price pressure. But what I talked about before was more tactical changes to price. And we are strongest in the renovation market, as I said. So when we see opportunities there, of course, we are tactical about that as well. But France and Germany are participating in the pricing drumbeat next year, the 2%, 3%, and that is after a few years of fairly stable prices that will return to a more normalized pricing drumbeat.

Casper Blom: And any view on sort of the market outlook for those two specific countries next year?

Jes Munk Hansen: I've read the same market reports you have about housing starts, and I don't think I can add flavor to it other than what you can read in those reports. The slight optimism I see in some of them, just to remind everyone that it's from a low level of activity that they're talking at.

Casper Blom: Understood. Thanks a lot, gents, Jes.

Operator: The next question comes from Alexander Craeymeersch with Kepler Cheuvreux. Please go ahead.

Alexander Craeymeersch: Hey, good morning. So two questions from me. I am Alexander from Kepler Cheuvreux. So one would be on the sales volumes. It's already partially answered. You mentioned sales volumes increase continued, but at a lower pace. What segment do you refer to specifically? And is this a capacity constraint or a demand constraint? And if it is a demand constraint, which regions are you referring there specifically? The second question would be on the fire safety. So it's quite visible in your presentation that you mentioned it as one of the first drivers. Could you maybe explain a bit how that contributes to your top line at the moment? And how would this evidenced in your pricing power in the insulation segment? And maybe also give us a bit of an indication of how big the market is here for you today and maybe in the future as well. Thank you.

Jes Munk Hansen: I'll take the second one first. Maybe that will also then hit the other one. Fire safety, I cannot put specific numbers to it, but it is a major differentiator for us and is a major driver also in some of the markets that are down right now. And the one I will highlight here is to give you a flavor for Germany, where we're doing well. And it's driven -- there's a particular application in Germany on flat roofs. When you put in PV, so solar cells on flat roofs, there's a heightened risk of fire. These PV panels, I don't know if you know this, but they have a tendency to start fires. So if you have a large industrial building, you want to put in some noncombustible material on your roof before you put PV panels in. So that's an application where we have very strong products and where we see an uptick even in a depressed market from a, you could say it's both a renovation because people then insulate at the same time but also from a fire safety perspective. But I also -- I mean there's a whole row here I can dive into. Of course, I talked about the U.K. and the Grenfell Tower. But there's been similar disasters in Spain, for instance, in Valencia that now drives a lot of political and legislative, not just like discussions but specific things coming out. Kim and I were just in Romania. I'm just giving you a few ideas of how this looks like in Europe. In Romania, where they arguably have one of the strongest fire regulations in all of Europe, I don't know if you've been to Romania lately, but many of their medium to high-rise buildings will need to be insulated from the outside. And of course, they are concerned about fire safety, where they historically have used plastic foam types. Now the regulatives prescribe a non-combustible material, and that is -- that is, of course, giving us tailwinds in these applications. So...

Alexander Craeymeersch: And maybe if -- maybe just to -- so how much of this market have you recaptured? And how much do you see as a potential in the future?

Jes Munk Hansen: I don't have specific numbers on that. I don't.

Kim Junge Andersen: But for sure, Alexander, the markets where we do see a strengthening of legislation, there is an impact for sure on the demand after noncombustible insulation material. We have seen that in the U.K. We have seen that whenever we have a market where there is a tightening of legislation. But we cannot quantify it as such.

Alexander Craeymeersch: Okay, thank you.

Operator: We continue with a question from Peter Sehested with ABG. Mr. Sehested, your line is open. We don't have Mr. Sehested. We continue with the question from Arnaud Lehmann and Bank of America. Please go ahead.

Arnaud Lehmann: Thank you very much. Good morning, gentlemen, and thank you for the presentation. I have two questions. The first one is on different types of insulation. I know you mentioned fire safety as a factor. But my understanding is that the pricing in foam and wood fiber has gone down while you guys and the other stone wool and glass wool manufacturers have kept pricing more stable. So now there's a little bit of a price gap between the different types of insulation. Is there a reason that the market share start to shift towards, let's say, cheaper type of insulation back to foam or back to wood fiber versus stone wool? That's my first question. And the second question is on the Systems margin. You highlighted a product mix shift and also you're selling more in Europe, less in the U.S. Do you think this is a structural change? Or this is -- this was a little bit of a one-off for Q3? So should we consider the System margins to be a little bit lower going forward? Thank you.

Jes Munk Hansen: Let me start by the first question about different insulation materials. There's always been a pricing difference between the different insulation materials, the plastic, the foams, and also -- and between us. But there's so much more to your price positioning than that. And I've mentioned fire quite a few times. But there's also quite a few other things. If I look at -- the totally different dimension is durability of the products and of course, also the chemical compound of our products or the acoustics of the products all play an important role when an architect or designer choose the product. So you can't really just -- you can't compare the products. It's a very, very different offering to install with foam and with stone wool, and that justifies a significantly higher price point in most applications. So -- but the fire one is the easiest one to understand, but don't underestimate the other ones. One we see, of course, also growing is circularity. And that is, in some markets, becoming more and more important. We are, to my best knowledge, the only one who really can really can -- true circularity to take our products back and remelt them, and that's simply because of the raw materials we use in our technologies in general. So it's different things that drives that price differentiation, not just one thing. And to the margin. No, we don't see that as a structural change that the System division's margins should be at that level. So no. No to that.

Arnaud Lehmann: Thank you very much.

Operator: The next question comes from Yassine Touahri with On Field Investment Research. Please go ahead.

Yassine Touahri: Yes, good morning, and thank you very much for taking my questions. Firstly, I'm a little bit confused by your message on pricing in the third quarter. You said that pricing were relatively stable quarter-on-quarter, but that price is up 3% year-on-year in Q3. I'm a little bit confused because I thought that prices was relatively stable in H1. So if it's up 3% in Q3, it would suggest that there is a controlled price increase between Q3 and Q2. But maybe I misunderstood something, that would be my first question.

Kim Junge Andersen: Yes. Thanks, Yassine. The pricing compared to quarter three last year is around 2% plus. And this -- the quarter sequentially, the only change we really have made is the price increase in North America, which is a positive thing for the group.

Yassine Touahri: So I could imagine -- I could understand that there's a big increase sequentially in the U.S., which is more than offsetting the small sequential increase in Eastern Europe [Multiple Speakers]

Kim Junge Andersen: Yes, absolutely. They did an 8% sort of percent increase in North America and that was quite positive also for the entire group.

Yassine Touahri: And the second question, which is more on the capital allocation in the long-term. I know it's a little bit early, but you're now heading a group which is -- which has no debt, which is quite -- which is generating a lot of free cash flow. Do you have a view of the level of debt or the level of leverage you'd be comfortable with? I think Rockwool historically was mentioning a 60% equity ratio. It seems that you could fire-power to spend more than EUR1 billion and EUR1.5 billion on acquisition or expansion or share buyback. Would love to understand how you're thinking about it, especially, in a context where we see a lot of your competitors like now, Saint-Gobain, Kingspan, thinking to move into Systems. In an environment where you've got a lot of labor shortage, trying to offer a solution like ETICS or really like rather than just offering products, offering a solution to address the problem of your customer. How do you think about the cash that you're going to spend on the capital allocation?

Jes Munk Hansen: I think I'll start with the cover of, you can say, more business-related considerations, and then I'll let Kim also talk to the balance sheet. But of course, as a CEO, it's a pleasure to have a balance sheet that looks the way it does. It gives us opportunities to invest in capacity and in our own conversion and then in acquisitions. Yes. And I've also said that to the press. I see us also both investing organically and inorganic more into a system thinking. We are a stone wool player, but we already have a systems segment, as you know, that we report on where we take stone wool and, for instance, make what we had called Rockfon, which is an acoustic product. We take stone wool and make Grodan, which is a growth media for different agricultural applications. And we have more opportunities with doing that. This is also about, you can say, modernizing the construction sites. Construction sites are inherently old fashioned and labor shortage is an issue. So the more value we can pack around our stone wool or include into our stone wool, the better offering we deliver to the installer. So I think there will be plenty of opportunity to invest in all these three, four categories of capital expenditures.

Yassine Touahri: And on the leverage target, if you look at the medium term.

Kim Junge Andersen: Yes. I mean, we don't have -- I mean, you could say the distribution policy has really not changed. So I think the Board will be quite cautious about having a stable dividend payout. And then as you know, this year, we're doing the share buyback as a result of the excess cash we accumulated. We have talked with the Board of how to -- what to do going forward, but it's clear that CapEx -- the capital expenditures over the coming years will increase. That's simply a fact of the number of factories that we are starting up with constructing. So I think we'll be cautious on the balance sheet side and on the capital structure and then use, as we've done this year, if there is a chance to do some share buyback, we will do that on an ad hoc basis.

Yassine Touahri: Thank you very much.

Operator: The next question comes from Marcus Cole and UBS. Please go ahead.

Marcus Cole: Hi, good morning. Yes, thanks for taking my questions. The first one is just to be clear on the pricing strategy. Is your strategy to maintain price cost in 2025? And then the second one is as we think about sort of where the CapEx has been and fire safety and where margins currently [Technical Difficulty]

Jes Munk Hansen: [Technical Difficulty] We will continue that. And also, if we can, of course, drive price harder than cost. If we see an opportunity for that, we'll definitely do that. So yes, if that is an indication of. Can you remind me of your second question?

Marcus Cole: Yes. The second question was just on where do you think the sustainable margin is on maybe a three to five-year view, given your comments on CapEx, acoustic and fire safety that are driving a higher margin and where we sit today. I'm just thinking where should we expect the margins to normalize out to?

Jes Munk Hansen: I did -- that's -- I can't guide on that now.

Marcus Cole: Okay, thank you.

Operator: The next question comes from Harry Goad and Berenberg. Please go ahead.

Harry Goad: Yes, hi, good morning. Two, please. First one, relatively similar, but quite different to the last question about the margin. I mean, obviously, the full-year '24 group operating margin will end up quite materially higher than where you've been in recent years. I mean, is it right to think about this as the new normal in terms of profitability for the group? And then the second question, can you just remind me in terms of new capacity you're building, not plant extensions, but totally new capacity. How many plants are underway? And a reminder of the total CapEx cost on average per plant, please. Thanks.

Jes Munk Hansen: But margins. Again, I'm not guiding on margins for the next few years but as I think I've talked about pricing and being -- keep on driving pricing wherever we can and I think I've told you about our positioning in the market. There's of course another very important vector that we invest a lot in and that is productivity. We have significant programs running, also CapEx programs on automation of our factories and there we see quite a few opportunities for operational efficiencies which is of course also a major contributor to margin expansion. So that is equally important as looking at pricing, yes.

Harry Goad: Okay, thanks.

Kim Junge Andersen: And then on the capacity, I just want to have a few words on that. And then as you know, the announced factories that we are building right now, Romania, Sweden, US, and India, they vary in size and vary in cost. So it's very difficult to put one number to it. They go from EUR60 million to EUR360 million each but with the most expensive one in North America and the cheapest one in India. So that's what we said. But what I have guided for before is that our CapEx ratio to net sales will increase from the level of about 9%, 10% to about 13% to 14% for the coming years. So you will have -- you will see an increase in sort of CapEx need to expand the capacity over the coming years.

Harry Goad: Thanks very much.

Operator: The next question comes from Peter Sehested with ABG. Please go ahead.

Peter Sehested: Yes, can you hear me now?

Jes Munk Hansen: Yes, we hear you, Peter.

Peter Sehested: I've been joining in and off of the call, so I might have a repeat of a question that you have to bear in mind but I was off. So it's regarding the guidance on growth where you are sticking to the mid-single-digits and we're very strict that is 5% so that implies relatively low growth in Q4. So just to understand whether you are just being cautious as usual and/or whether we should actually see a dramatic drop in growth in Q4. And then with a run rate into Q4 -- into Q -- sorry, into 2025, which is very, very low.

Jes Munk Hansen: Yes. We did talk about it while you were -- then were offline a little bit. And again, the dynamics here is two normal months, if you wish, October, November, and then December, which is very unpredictable, because of weather and applications are of course predictable but the weather side. But all in all, a small growth in Q4 is reasonable to assume. Yes, if you still think that's prudent, but a small growth.

Peter Sehested: All right. And then just coming back to, let's say, the pricing discussion. I mean, you also raised these prices last year, you also will raise prices next year, but you are sort of more firm on getting those prices through across the board on an in-market basis. So my question is this, in terms of internal KPIs for your country managers, is it -- I assume -- that it's fair to assume that they are more heavily incentivized on getting in-market prices through in 2025 than they were in 2024? Is that a correct assumption?

Jes Munk Hansen: The incentive models have not changed, but I can tell you that we have a great deal of attention to pricing. We have very strong mechanisms in the organization and I actually personally lead these meetings, our so-called pricing calls, where we gather the sales leadership globally and give them a high degree of transparency of how prices have evolved and where we make the necessary discussions about the way forward. And then of course also in our monthly operating meetings, we guide and follow-up on that. So we have a very strong mechanism on that. But incentive models are unchanged.

Peter Sehested: But do you confirm that you have more of a focus on that from HQ level next year than you had this year? That's what it sounds like.

Jes Munk Hansen: Yes. Sorry, that is unchanged. I mean it's a process that was instilled when I came in, but I have fully adapted it.

Peter Sehested: Okay, fine. Thank you.

Operator: Our next question is a follow-up from Kristian Tornoe with SEB. Please go ahead.

Kristian Tornoe: Yes, thank you. Two follow-ups here. So first on Grodan, you've highlighted the impact for Q3, so just want to understand whether this sort of negative mix impact is assumed to continue in Q4. And then secondly, we've talked about December a number of times here, but maybe just a useful reminder, how was December last year? So what comparison do we have? How bad was the weather impact last year?

Kim Junge Andersen: Yes. Hi, Kris and Kim here. We don't see the same pattern repeating itself in Q4 for the Grodan. And of course, that said, Grodan has had some very heavy sales months in December as well, a bit unusual compared to the. The larger insulation business. So it's still to be seen. But I don't expect it'll be the same. December last year in terms of top line compared to our normal months, we are typically losing five, six sales days. The construction market will typically close down between Christmas and New Year, and that is a 25% to 30% lower sales in a normal December month without any snowfall. So that's sort of the expected impact.

Kristian Tornoe: Just to make sure I understand. So you're saying December last year was a normal December give or take?

Kim Junge Andersen: Yes, it was.

Kristian Tornoe: Excellent. Thank you.

Operator: Our last question comes from Alexander Craeymeersch with Kepler Cheuvreux. Please go ahead.

Alexander Craeymeersch: Hey. Hello, back again. I think one question of me wasn't answered, which was on the slowing pace of the volume increases. I was just wondering whether this was a capacity or a demand constraint? And if there are any regions where you were working at full capacity? And maybe if I can just sneak in one more, which is directed to the CEO, Jes Munk Hansen. What are your first priorities now that you have been recently installed? Thank you.

Jes Munk Hansen: There are no capacity constraints that holds us back from volume growth. And I just remind you that it's the tougher comparables that we're looking into right now. Could you repeat the second question? I couldn't hear you.

Alexander Craeymeersch: The second question would be what are your first priorities now as CEO?

Jes Munk Hansen: My first priority is, of course, you said the basics of continuing running a very successful company and build on top of what we have. So most of our strategies and approaches will continue, particularly defending our margins and our prices in the market. But then there are big subjects. One of them I talked about before that my focus area strategically, it is really what value we can create around this European renovation wave we call it. The next decade, it will have a significant impact on our business. And I think you can appreciate that that takes a lot of orchestration both from you can say sales marketing, public affairs, and then ensuring that we have the right factories and capacities in the countries where we see the development. So that is a very, very important point. Then of course with that is also linked to the overall capacity discussion and our own decarbonization. But as I also see developments in North America as an absolute key focus area for us, both leadership and in operations, and India, we have mentioned a few times as a very interesting market for us.

Alexander Craeymeersch: Thank you very much. Congrats.

Operator: Our last question is a follow-up from Peter Sehested with ABG. Please go ahead.

Peter Sehested: Yes. I would just follow-up on the comment in the Q3 announcement from yesterday, where you not only say the joint discussions with -- on price but also highlight your increased CapEx. Is that also one of the reasons why you are trying to get price increases through, is that you want to convince suppliers, et cetera, that without additional capacity from Rockwool in Europe, there could be a squeeze on supply, and therefore, potential even higher price for suppliers that they would expect in the future?

Jes Munk Hansen: No, no, there's no link between the two. That's not.

Peter Sehested: Okay. Thank you.

Operator: Ladies and gentlemen, this was our last question. I will now hand over back to the management for any closing remarks.

Kim Junge Andersen: Thank you very much. Jes and I thank you for today's earning calls and we would like to thank you for all the questions and the very good discipline you had there. And then appreciate your interest in Rockwool A/S. If you have further questions, you are welcome to reach out to me. You might find the details in the Investor section in our corporate website. Have a very nice day. Thank you very much, everybody.