Earnings Transcript for ROCK-B.CO - Q4 Fiscal Year 2022

Thomas Harder: Good day to everyone. Welcome to the Rockwool AS Conference Call regarding the results for the full year 2022. My name is Thomas Harder. I am the director of Group Treasury and Investors Relations of Rockwool AS. 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 full year and fourth quarter of 2022. Afterwards we will 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: Thank you, Thomas. Good morning, everyone. If you look at the full year, it was the third unusual year in a row. We have had, but when we look at the outcome we are quite satisfied result from the Rockwool. 3.9 billion top line up 23%, 400 million EBIT and if we set aside to Ukraine provision 10.6% EBIT margin. So considering where we were on slide four please. And we look into Q4, the background to that was a Q3 where we only had 6.2% EBIT margin and surging energy prices when we looked at our forecast in Q3, our challenge was to get the balance between the price and the surge in energy prices. Energy price did come down a little bit in Q4. We got successfully pricing up. And that gave us an a top line of about a billion or 955 million Euro and an EBIT of 101 and more normalized EBIT margin around 10.5. Obviously not up on the 12%. But considering the very extreme, very extreme energy cost increases, and that we reached 12%. If we set aside Ukraine provision, are happy with that. I suspect we haven’t, I haven’t checked the numbers, but we probably haven’t delivered more EBIT in Q4, actually, I’m definitely not for the full year. What also happened in that quarter was that we saw how the construction market started to get impacted by the very high material prices and enterprise interest rate and the general macro economy climate. So while we had very good growth, starting 2022, a little bit less in Q2, and Q3 and Q4 we went into negative territory. So while we were delivering that fourth quarter under profitability, we pulled down our factory capacity and actually in Q4, we reduced about 500 jobs in manufacturing and we pulled the capacity down to more normal levels. Remember in Q2 and beginning of Q3, we were on extremely high capacity utilization. Should be said also that that reduction of 500 factory jobs we have that kind of as part of our system, where we mix permanent employees with temporary employees. So it’s something we can do. It’s not easy but relatively easy and we have done it many times over the last years. So outcome was good. But again, we saw a slight slowdown and when we spoke last end of February, we were quite open with that. We see that why the construction industry especially new bid started to decline in not every market obviously at the same time we saw Asia. Waking up saw Canada and US in a pattern where during the autumn us was done quite a lot and Canada stayed growing and not switching in between them different months. If we go to slide five, full year sales not much to say about that, but that full year, the growth was driven by insulation up 29% more than 3 billion sides. And the majority of that growth comes out of improved price. Slide six looking into the quarter most of the insulation or the insulation growth in that quarter is solely referring to price because we had volumes down under slow down. December was okay, not a disaster. Not special in any way. But also okay December but as always a low month. If we look into the system division, where the growth stepped up a little bit, we saw basically a rock panel Europe, North America doing quite well, especially North America. Rock Panel generally had a good year straight through with good top line grow down from net negative growth earlier in the year, mainly driven by the situation in the US. Came back to slight positive growth in Q3 and then in Q4 it was up in double digit. I still would say that’s too early to say whether we have turned a corner but at least we had not two quarters for quite a long time where we had growth and growth on. Slide seven. If we look into the regional development in Western Europe, it was quite a uniform pattern with declining volumes but good, healthy price realization. So we basically had the growth across Western Europe, but obviously less Q3. Eastern Europe did quite well in Q4, but Russia was down double digit, not triple digit, but double digit, and that to Eastern Europe and Russia down to 2%. North America up single digit around the 5% mark. There during the autumn, we saw US quite stagnant or flattish and Canada still moving forward quite well. Asia, very good development outside China, but China down some 20%-30% and that we expect that to continue a bit more but the Chinese economy and the construction market has not recovered. Again, the size of China in Rockwool should be prospectively. We are small in China. So it doesn’t really make it have a big impact. Slide eight energy pricing. Q4 energy prices, if you take gas with electricity, we take coke higher than last year, but we experienced an easing compared to Q3. So that was very welcome. In Q-et depending if you look on the on the forward price, or the spot price, we would expect it to continue down for now slightly. But let’s see what really happens as the quarter plays out. Slide nine. Profitability. Nothing much to say about that. Basically the margins came back in Q4 due to price compared to Q3 and we are back on the same level that we were a year back. So that was good progress. Price increases from the beginning of the year in most businesses has been around 25% to 30% year-on-year. It’s a little bit more because Q4 one year back we had slightly lower prices and we brought to end of the year. Q4 profitability same effect in the two businesses recovery back to a more normal level and it’s basically due to price. Investments; we invested 93, million, 22 million into the sustainability investments. I come back soon to some of the results out of that. The big ones we are doing here is flume rock in Switzerland. We’ll be putting in a green melter and electrical melter. We also added some growth and capacity Canada and Rockwool capacity in Poland. We plan to continue investing not only in the green transition, but also in capacity and sustainability. Whatever happens this year in the market in terms of in terms of turbulence and challenges, we will remain positive about outlook for Rockwool. So we are not easing off, does not apply. We will continue to invest in new capacity. Q3 cash flow, no comments slide 12, no comments to that really other than saying that there is not an increase in overdue payments or anything like that. The slight differences here working capital that’s basically inflationary, driven. It’s the value of the stock and not the amount of the stock. So we have actually kept quite tight control of not building up too much stock when the volume drops. So that was worked well. Slide 13, sustainability goal achievement, back in 2016, before we had define the science based target, we set some sustainability goals up to 2030 and then we put in a halfway house goal. In most of the cases, we divided the goal 2030 by two and put that as a midterm goal. This slide represents what we achieved on that. So if you look at for example, the Co2. This is not Co2 equivalent, this is just Co2 emitted per ton or per unit stonewall produce. We have managed to reduce that by 17% already since 2016. That’s very good progress on it’s quite far beyond the target we had and I will say as we have moved along, we have learned quite a lot. And we have developed quite a few technology, done quite a few technology developments that are helping us here. And for example, if you look at 2022 we took our Marshall plant from US from coal to gas, that also reduced the cost. And we did the same in Poland where we transition one big line from coal to gas. That was at a higher cost because gas and of course went very expensive after we have done that, but for the sake of Co2, we still did it. And I remind you for example of what we did in Denmark, where we went to biogas where we dropped Co2 emissions with almost 90%. So good progress on the Co2 intensity. Reclaimed material Rock cycle is to concept. We call it Rock Cycle we have now launched out in 19 countries. And we had the goal to launch it in 15 by 2022. Generally, I would say that program has gone from strength to strength. There is quite a lot of enthusiasm about that, for obvious reasons. Energy efficiency in our own offices. Since we don’t have so many white collar stuff, it’s not a massive impact on the environment but we have traditionally not been great at insulating our own buildings. We have done about 17 offices now. Typically the reduction is about 80% when we do it and we are on 39% reduction. So well on track to achieve that goal. We got a little bit delayed due to Corona because it was very hard to renovate offices. We do this office renovation with quite a deep engagement of our own staff. So we lost almost a year during Corona. And in spite of that, we are ahead of the plan. And part of the reason is that the energy savings are a bit better than we expected. So quite happy about that development. Water, this is not or is almost a free good. Water doesn’t cost very much anywhere. But we have said, we will reduce our water intensity. We are putting in closed loop system, rainwater collection and all the rest. Most of these projects are in a way, I wouldn’t say that they’re near to loss making because water is so cheap still. On the other hand, some of these projects have already helped us keep production running, where notices come out that there’s water shortage and all the rest. We become less and less dependent on the municipal water line into our plants. And obviously, when a big consumer like we don’t need to consume as much it helps the community around us. So the 14% I’m very happy with that number. Landfill waste and that is what we don’t manage to get through production re-circulate in the systems and the landfill from our factory sides. We have cut that by 50% so far, and I think we should continue to get to 85% reduction. Obviously, we don’t mind getting there before 2030. And then on the say health and safety, we put that red. Yes, the lost time incident ratio is down. Also are the type of incidents are down. But we had we had a fatality so we still mark that red. We had a fatality in Poland last year. So although the overall statistics has improved, it’s overshadowed by that person lost, lost his life on one of our lines. We have analyzed that very carefully. And we are taking learnings from that. But we also have very big machines. And in this case, we have an employee that climbed into machines that wasn’t stopped. It shouldn’t happen. But we are taking a long and hard think about how can we ensure that no one climbs into one of these machines because it’s obviously super dangerous. Then a little bit after 2016, we did recover committed to the science based target and the science based target just to remind you of the differences. That’s an absolute dimension gold. It doesn’t matter how much we grow. And it’s also Co2 equivalents. So if it’s another gas, for example, pure Co2, you have a multiplier on it, all about that. But we have set the goal to reduce scope one and two. So that’s everything inside the factory fans plus the electricity with 38%. And then by while we do this, we believe automatically a lot of the scope three everything outside the fans will follow. But basically, it doesn’t look like much progress now. But if you go down and see what we are doing there, and the fact that we have been growing quite a lot, I’m quite happy with those 4%. And we have also had the chance now to test some of the technologies in terms of achieving this goal. Basically every green field that we do now needs to come with more or less a zero Co2 emission footprint. So we need to put absolutely emission free technology or close to it in all the new build. And we need to convert the plants we have. So the most recent one is flume rock where we have started a project to replace at melter is quite a substantial project that’s happening as we speak. And that will drop the footprint because we feed the electrical melter with green electricity. Another example that we take in action we did relocation of the factory in China that wasn’t really a relocation but we got a big grant from the Chinese government to move almost 40 million Euro and while we move we then of course replaced all the equipment and put in electrical melters. So that has been done. And when we look at the next Greenfield where we wait instead for the building permit in France, obviously, we are putting in an electrical melter that is running off green electricity. So that will reduce the footprint compared to if you do a traditional plan. So this work will have to continue. And obviously, we will just stay on course for this and you’ll see the green part of the CAPEX that we’ll have to continue. And we’ll probably talk, I haven’t announced specific figures, but it’s not cheap. You need to be planned for spending those 100 million a year roughly and keep doing that for 10 years at least. And it will take even longer than that before we are done. But we are aiming for our sustainability goals. And I’m very happy with the technology we have in place now. And the fact that we can make large scale conversions. So all good about that. Then we get to the outlook, I guess the main focus of today among some of you, we have said, we have flagged that we see the construction market go down that is it is impacted by interest, inflation and war in Ukraine and what have you. So we have seen a softening. So therefore we have put the range up to about up to 10% drop from a very high level of the top line. Obviously, it’s very hard to forecast. And they have also allowed ourselves to play a bit with price. So volume is down. Price to work this so that we roughly maintain market share and this downturn that we see now. It hasn’t at all changed our optimistic outlook. We see Germany putting money to renovation now as a plan of 30 billion in this year, not all insulation, obviously. We see France doing it, Italy doing it and there is list of countries, but it’s not happening very quickly. But the cooling off of the new bid market might help us. It frees up labor. So mix of ability to respond on price and balance and capacity, price and margin. That will impact that 10%. And just because we say down to 10%, it’s not that minus 10% is the more likely, I’m just saying it’s a very, very hard to predict here. And we have seen already during the autumn slowdown. And we had a record first half year last year. So I think those are the main reasons for that up to 10%. Then on the EBIT we sit now with the situation that energy prices are down. They are lower in Q1. That’s our prediction than in Q4. And they’re also lower potentially they could be lower than Q1 2022. So that’s all good news. But we see a risk in that that when China wakes up again, that energy prices will increase. If China’s economic activity stays as low as it is now, then the risk of that is smaller. But fundamentally how long can China be on the extremely low economic activity level that we see now. Other impact on the margin would be that we are, we have reduced capacity 500 jobs, we have reset the business on the current run rate. That’s done. That was very quickly done, swiftly done. But on the white collar side we see a more moderate adaption to the downturn we see now. And the reason for that is that fundamentally we want to be ready for increased renovation rate and a market that gets into growth mode again, and we can’t exactly say where it is but our position now is to be a little bit careful with overreacting to the downturn in our muscle, our engineering muscle we will keep building and all the rest and then maybe have a volume drop, not fully adapted at an average cost, but get ready for the upturn and keep investing. And then on the investment side, as I said 400 million Euro. Keep it on that level. The first greenfield that does see construction work start on is most likely the one in France in the coming two, three months or something like that. With that, I would like to hand over for questions.

Operator: [Operator Instructions] We have a question from Kristian Johansen with SEB. Please go ahead, sir.

Kristian Johansen: Thank you. So probably not so surprising. My first question is on your margin guidance. Can you maybe just clarify exactly these 8% to 10 what’s the assumption on prices and energy costs? So, have you assumed your prices up or down year-on-year the same on entity classes that assumed to be up or down in your guidance range.

Jens Birgersson: So, at the moment, obviously there are three impacts on the modernist absorption, so to say the amount of absorption in the factories depending on the volume, and then as the price and versus the energy prices. So what we have assumed now is kind of a picture of what we said that we match roughly the price effect and the energy effect and that we see an absorption impact and then we don’t have an accurate approach to when the price increase if we will be, the energy price if it increase that will be late again. So we are kind of not, it’s not our intention to dilute if energy prices go down our product pricing will go down but we see also that we have a certain homework to just give ourselves a little bit of room to protect market share if it’s needed. At the moment, we sit with high or slightly increasing prices in January. But we need to balance this with the volumes and absorption. So it’s between there, but I would say energy price and price, they should go a little bit hand in hand with obviously, in some segment. We do less some regions, it’s less, but there is some price element there adjusting with energy price.

Kristian Johansen: Just to clarify, so what are you saying is the same gross margin 2023 as you had in 2022?

Jens Birgersson: That’s a hard one because we had so many different gross margins in 2022.

Kim Junge Andersen: I mean, gross margin is assumed to go up a little bit. The thing is that, as Jens said, we were holding back a little on the white collared staff. So we will have a, you could say, more fixed cost balanced than the volume would allow for.

Kristian Johansen: It’s primarily the negative operating leverage, which takes the market down the end of what you are saying.

Jens Birgersson: That’s the idea and that could be a competitive effect if we get with this volume declines in selected market that we need to defend market share. And then I want to have some strength for that in case that’s needed.

Kristian Johansen: And that was actually just my other question here. Because I mean, what have you seen specifically, which make you mentioned, the need to defend market share so specifically? Have you already seen competitors be aggressive on price?

Kim Junge Andersen: I mean, there are so many competitive dimensions here. You have pricing now into plastic foams, certain segments, some of their raw material prices going down, that has been very high. So that might increase the competitive environment there. Then if you have a volume drop in some markets, you have some more suppliers that then want to keep capacity. I mean, we cut capacity immediately when we saw this and adapted it to what we feel is a good level. But I mean, basically, in every year, we see a little bit of that all over the place. But if the volumes go down, we certainly see it and it can vary by segment, for example, in the new build segment, at the moment, single family houses new built, where it’s not our main-main segment, but obviously the competition in there is tougher now, because that is one of the main segments for glass wall, and they lose a lot of volume in some countries, and then it also wraps over on us. So we see a mixed bag of that. And I guess my approach would be to say, we will, as always, we believe we should keep pricing sound in relation to the costs position, and for the product we sell, but that will also be react when needed. And that’s the approach. And yes, we see in some segments that it’s happening, but it’s hard to also saw early in the game to see exactly what the reason is, because for example, we have had years or in Poland, where without the market changing that much destocking can impact two quarters. So it takes a while to understand what actually happened on the end customer side and we are in that process now. I give an example in the U.S. there we had a couple of months last autumn but we had very low business volumes. We just talked to price because we were convinced the business volume was down but that it was a destocking with their stock and now the business is back up again and we are doing further price increases because it was just a massive destocking that looked like a massive market decline but it wasn’t as dramatic as one would judge by the production volume. So we have this we just need to navigate through and it’s not one recipe everywhere but one thing is for sure. I will not sit with a high price and have a competitor that keep capacity up and just going to take my volume then I will respond. Okay.

Operator: We will take our next question from Brijesh Kumar with HSBC. Please go ahead.

Brijesh Kumar: Hello, good morning, everyone. I will go back to that 8% to 10% margin guidance again. If you could explain to us what is changing between q4 ‘22, to 2023, to suggest that 11.9% margin comes down to 8% to 9%? Because I’m coming from a point that the residential end market was remarkably weak in q4 and that possibly improving as we speak, not that it’s coming back to the original level, but it’s still down. But nevertheless, the sequence of improvement, and if you could just give, what’s your volume assumptions within that by end market there?

Jens Birgersson: So Brijesh, I don’t give specific volumes, as you know, but I can give a flavor. I agree with you that the residential market came down in many markets, I mean, Denmark, and Sweden being prime examples, which really stopped. So that we saw, but what I’ve seen now is the project pipeline where we look into safe flat roofs, you have the example of some of the data centers, projects canceled, you have a famous example, in Denmark. You have Amazon, where they had the expansion plans, and they were not public in that respect, but we knew about them. And when you talk about 4.5 million square meter of projects, flat roofs, that kind of our postponed or not happening or cancel. And then you look into say we take a country like Poland, has been in extreme-extreme high activity level. And what we look into now in Q2 is just fewer projects. So, I would say you will see a bit of decline also in other segments happening, because the economic outlook is uncertain commercial business, non residential business. And then some of it if you look into Eastern Europe and Russia, you see, maybe Russia not improving either is not a huge effect, but it is a negative effect. So I would say you can add few more segments on top of the residential. And then on the product side. Products needs to be completed, but then you need new products to come. So I look at the pipeline and the start of new products and it looks to be lower.

Brijesh Kumar: So what you are suggesting is that the 15% to 20% volume decline you had in Q4 that is a residential is majorly in Q4. But when we look into ‘23, would you say that the residential will be down double digit and non-residential also?

Jens Birgersson: I’m not sure I said 15% to 20% Brijesh but I think we will have a mixed bag going forward of that you have a bit tougher competition on flat roof. You have a bit more capacity, and you have new projects not coming to the same extent because the economic outlook, it does not fit into the pipeline. And there’s just less in the pipeline. I should say at the moment, it’s not still on a level where we have sound production, but we definitely see that it has come down. But that’s I think, a short term effect that we see now. We then want to bridge this into the next stage, which is where this labor capacity used for renovation and that some countries will use renovation and the green agenda to provide a bit of stimuli or reach the goals that the EU now has mandated for the countries. And so I think we are talking about, I don’t know if this is a gap year or gap half year or gap one and a half year but this some sort of gap we are looking at but overall little bit long term you just take the next box in your spreadsheet or two boxes down your spreadsheet I’m very confident about the growth.

Brijesh Kumar: Sorry to press on this. Would you say that your guidance for up to 10% is the most berries you could have and if anything you could beat that.

Jens Birgersson: We always have the spirit to beating. We looked at each other in this team. And you looked at what we did between Q3 and Q4 in all the countries and price realization that was well done. We know we add the aisle, and we know we can manage here we are creating room to what’s driven by the construction decline, whatever that number is, I’m fine with it. I’m fine with that you have a decline. But I need to balance our muscle for the future here if this is relatively short lived with capacity reductions. Sure, we will reduce also fixed cost overheads on that. But we will not go extreme on it because we are so optimistic about the future when this starts to grow again. So I think that’s the main item that the market size will define how much it is. And then there are some short effect that an extreme peak in energy pricing again can lead to a challenging quarter for us. So we need to keep in mind that if we have one of these 6% margin quarters, again, because the energy market explodes, that can also be a case that we know, because we have decided, again, we are hedging on the fraction, because we haven’t found one year hedges. There are some countries where we have really good schemes in place, and we are much better position than last year. But on aggregate, we see that it hasn’t made sense, again, for us to hedge very much. And that means that we have that risk also. So we have been making a wide window so that we have covered most of them. And then as we move through the years, of course, we hope to improve the situation.

Brijesh Kumar: Fine, then I guess you answered my first question about 8% to 10% margin versus 11.9. Because you are alluding to the fact that you will, you are allowing a margin for a 6% EBIT margin quarter as well.

Jens Birgersson: And then also to sum up I mean, we go into Q1 is one thing, what happens in Q1, we are in a way in a good place in a market that is declining. But then the rest of the year is just incredibly hard to predict. It’s not like a 2% to 3% year that we had before 2018 and ‘17. It’s another one of these turbulent years we have ahead and we have reflected that in the outlook.

Brijesh Kumar: Alright. Thank you. I have a long list of questions. But I’ll jump into the queue. Thank you very much.

Operator: We will take our next question from Claus Almer with Nordea. Please go ahead.

Claus Almer: Thank you. And also a few questions from my side. As you said several times that you want to protect your market shares. If you look at the low end of your revenue growth guidance, does that imply a loss of market share or is stable market share? That will be the first question.

Jens Birgersson: Stable market share.

Claus Almer: As you said form products are enjoying, cost deflation. So what would happen if they started to lower their prices? As you said in previous calls, there’s a certain no difference between Stone world and [Indiscernible] one technology over the other.

Jens Birgersson: We have analyzed that. And actually the vast majority of for example, flat roof that we get, that has a fire component to it, non-combustibility components. So it’s not the direct competition. There are buildings where both can work. But the segment we play most of that the majority of that is with the fire components. So and it can vary between countries. In Netherlands, no one cares about fire properties, Germany, they do. Denmark, they do, etc. So it is a very-very scattered picture. But the just because raw material prices go down on [Indiscernible] it doesn’t mean that big become crazy competition everywhere where it’s just price and what because we are positioned differently and we still adhere to that when we have the right product in the right segment it should have a sound profit margin. And that’s how we drive the business. I just created room in case we need it. And this stable market share it’s incredibly different, difficult to measure precise market share and all the segments we are in. But roughly-roughly speaking, that’s the approach.

Claus Almer: And then you said you expect or fear that energy costs could go up again, when China picks up. So what about your hedging strategy? Have you started to hedge energy or you’re still running on the spot mark?

Jens Birgersson: We have run, obviously, we are working on a strategy with PPAs power purchase agreement, we have made some, for example, in France, the government came with a great approach. And we tried that up for two years. Then on gas, we don’t like hedging with the way the market done. But we have done a fair amount to just make sure that if it goes crazy on gas that we numb the feeling. But our analysis at the moment is that when we may simulate different for example, last autumn, we didn’t hedge because our conclusion was, it would have cost us maybe 40 million in the quarter. It turned out that we were right on that. So it’s still the cost of a hedge with this one year perspective, as we see, it now still comes with a very high risk premium. When we run hedging policies the last 10 years, and you go a little bit longer hedging policy or rolling longer hedging policy, it seems that the market works, it’s no difference in the cost, actually. You just have more stability. But we haven’t found that sweet spot yet. And therefore we have largely left it except for some gas to just numb. Because we see that if the gas goes crazy with China LNG in the autumn, we at least have numbed the effect of a portion of it.

Operator: We will take our next question from Yuri Serov with Redburn. Please go ahead.

Yuri Serov: Listen going back to your revenue guidance, people are questioning you about your price assumptions and from your answers. My feeling is that it’s not really clear what prices will be for next year. So I presume that’s…

Jens Birgersson: Yuri we can’t hear you on the side. You’re breaking up.

Yuri Serov: Hold on a second. Can you hear me now?

Jens Birgersson: Yes, it’s better. I think I got you.

Yuri Serov: I was saying that there was questioning about the prices and also you’ve given just to me that you’re not quite clear what is going to happen to the price. So let’s assume that at zero. So that suggests to me that minus 10% revenue guidance, the majority of that you think is going to come from volume. Is that correct?

Jens Birgersson: Yes. I think it’s fair assessment. I believe that there is a good chance that energy prices are lower this year than last year. But you have to, there might be other factors too. But you have the main one is the China effect, that they open up and you have Asia pull on energy. So that’s the main one that we have allowed us a bit of room for but fundamentally, I believe that if that doesn’t happen energy prices should be lower. And then we said we hope our goal is that we match pricing with energy cost somehow. And the rest is the absorption effect and maybe some competitive elements down there. But the absorption effect is the main one.

Yuri Serov : Yes. Thanks. And then going back to what you said that you agree that the majority of minus 10 is from volume to me that there’s quite extreme because in previous conversations, you said that during the global financial crisis, your total drop in volumes was minus 10%. And we are talking about a significantly milder recession now and most people are actually not used to seeing recession charts even in Europe. I’m just surprised that this is what you’re assuming.

Jens Birgersson: I think that different mild recession, the house builders, we might have, we don’t even have a recession in Denmark. But you have a super drastic negative impact on construction in Denmark, you talking about some house suppliers, I have a friend holds a house supplier, thousands houses a year it’s not Denmark. It’s in Sweden. He has sold one house in six months. So the recession and GDP are linked to the construction market and certain segment. It’s not the same levers. So I agree with you. Let’s hope for a mild recession, if any recession the German numbers now came up a little bit. So I may have even said Russia would be on flat this year. That might be the case. It that could be worse. But in the construction market, I see something slightly different. And how long that will be it’s hard to judge.

Yuri Serov : Well, that’s still surprising because the global financial crisis was a construction led recession. And we saw how huge the impact was. And you’re effectively describing something similar now. But I hear you. Listen, the other thing about prices and competition. You have hinted a few times that competition is acute, especially in some segments, but overall, it feels like [Indiscernible]. Again, I remember previously, when you were telling us about price evolution in 2022, you were expecting that from the beginning until the end of the year, the prices would go up by 35%. But today, you just said that they actually went up by 25% to 30%. That means that in Q4, you couldn’t really raise the prices. So can you just talk to us about that? And why insulation is a good industry. The capacity utilization is quite good. I mean, it’s fallen, but it’s high. And the competition seems to be quite acute.

Jens Birgersson: Yes. I mean, Q4, we delivered all the price we wanted. And here, it’s more a matter of comparison, Q4 ‘21 average versus the end year. So the price. So the end of the year last year, we had increased prices compared to the first of January with more than 30%. But compared to the average of the end of the year before it was 23%. So this is semantics on how you do it. Because the quarter when you ramp, the average will be different to the endpoint. So price realization was not a problem in Q4, not at all. What I see now is that we have a situation where you have in some segment a volume drop of now, we’re talking more than 10%. Seeing it family houses in Denmark, I’m still curious to see what happens in Q4, but I predicted to be something like -70% or something like that, maybe even worse. And when you have that, plus you have distribution, destocking that’s something different as opposed to steady, slightly growing market. So I think you’re mixing two modes, a transitionary mode with a more stable growing market. And we expect this more transient market condition to happen this year. And we saw it starting in Q4, but we realized prices we did it but looking forward now last year, once we got into midyear, we knew energy prices would be crazy. So it was relatively easy to take a decision three months forward. But now real prices now go down and then up on energy or what will it be. It is a less clear picture. So it’s a different dynamics.

Yuri Serov : Can I just clarify, you just said that the average price went up by 33%. I presume this was --

Jens Birgersson: No, I didn’t say. This is today, when you put it because I said the price compared to first of January to 30th of December. You draw a curve between them. But I don’t explain how that curve goes. I didn’t speak about averages.

Yuri Serov : I just wanted to figure out what the volume did in 2022 overall it wasn’t like -3%, -4%.

Jens Birgersson: I don’t respond to that because we mix volumes in all segment. We don’t give that.

Yuri Serov : Can I just ask one last question about your margin? Previously you’re saying that’s your aspiration for the long term margin is 13%. Is that still your aspiration?

Jens Birgersson: Absolutely.

Operator: We’ll take our next question from Casper Blom with Danske Bank, please go ahead.

Casper Blom: Thank you very much. I would like to ask another question. You announced or said yesterday that you sort of still intend to build the factory in France. So, first of all, hoping you could just give an update on the timeline there? And secondly, should we also expect additional factories on top of that? I mean, you didn’t really get about building what you wanted to build last year. That’s my third question. Thank you.

Jens Birgersson: So on France, where it stands now is the legal case where the central government and the local municipality was involved. That’s settled. And the verdict is very clear. So now it’s a time of issuing the building permit and uncertainty of issuing that building permit is that the French legal system doesn’t have defined response times. You should do it in a reasonable time. And we don’t know exactly what that reasonable time is. But we be predict that it’s going to be towards the end of Q1 or first half of Q3, and then we start building. So that’s France. And that’s where it stands. And then the timeline for that will be, we will, of course, see if we can shorten the delivery of that. But if you start in ‘23, ‘24. ‘25, you hope to be ready. But we’d come back with a timeline. Obviously, we have worked, we continue to work on the engineering on the plant and all the rest, but we need to reassess the timeline when we have the building permit in hand. The environmental permit we have already. So that’s clear there. Permit, all of that is in place. And then in terms of other factories, I haven’t announced any other factory products, but there will be other factory products because I’m confident in the demand for [Indiscernible] be talking about the transient kind of intermediate, low or slightly lower downturn of construction. And maybe that’s not a bad thing to get renovation started. But we will come with more factory product, and we are not going to, obviously now we have a little bit more time due to the market contraction, but we still want to do it, is still going to be needed. And we will not miss, we will not miss this slowdown to push forward. And when you look at some of the absorption issues we have, we want to keep our engineering capacity and keep working through this. And some of that is reflected in our margin numbers. The other thing we do, for example, we used to time now is that be putting solar panels in quite a few places. And we have engineering for that. We keep investing in that. So yes, we’re going to come with greenification. And we’re going to come up with more new bids.

Casper Blom: And just to make sure I understand correctly, let’s say that you announced another factory here during 2023. That would not be included in the 400 million CapEx guidance. Is that correct?

Jens Birgersson: Yes. It’s included, we have included it. And the reason is, when you start the project, you have a, you need to buy a piece of land. You need to do a whole lot of engineering to get an app permit or environmental permit. You need to do in most places, a lot of engineering to get the building permit. It varies a little bit and you do a whole lot of other things. But of course it’s not the main equipment spent that comes in the first year. So it’s more engineering hours is expensive, but just not near placing equipment orders for 80 million Euro. So therefore it doesn’t really impact the forecast. We have allowed for those projects in our forecast 400 million.

Casper Blom: And then just as a follow up to all of the many questions regarding prices. I mean, you’ve heard it talked about the competitive dynamics here; the glasswool, and home producers. But what is happening on the customer side right now? Are you getting calls from customers that stop complaining about their volumes and say, listen, I can see the energy prices down, you need to lower the price or roll back the price increases that you did last year, is that starting to happen already?

Jens Birgersson: I mean, it happened a whole last year, our focus last year was that we tried to have a very open dialogue about the cost with our customer. I mean, it’s not an open book. But we tried to say we believe this happening, our energy prices, and I guess are resolved in Q3 underline that we were not doing this just for the fun of it. It was a need. And when we look at our net promoter score from our customer, in installation, for example, actually increase last year. So we did it in with a really-really open intent on the sell, and it was reality, and they suffered on the way out the materials that went up much more than we did. So we do that. And now you have the other situation that energy prices come down and then people ask for lower prices. And they’re again, we’re going to have a dialogue with them. And we need to understand the situation and then we need to weed out also market declines that are distribution destocking from and set it on that level. But you have that discussion. But that discussion is there all the time every year. You always going to talk about that with your customer. So it’s nothing unusual in it.

Operator: We will take our next question from Cedar Ekblom with Morgan Stanley. Please go ahead.

Cedar Ekblom: Thanks very much. Good morning, gentlemen. I have a couple of follow up questions. The first one is quite simple. Could you just confirm what your rollover pricing is at the start of ‘23 and if the price increases that you spoke about at the Q3 results of the 17% incremental price increase from Jan, has been successful. And the reason I’m asking this is this obviously gives us the starting point to then think about where prices might go as we move through ‘23 and the discussions on market share. That’s the first question. I don’t know if I should give you the rest or if you just want to answer that one as a starting point.

Jens Birgersson: So the price increases we talked about in Q4, when we discussed Q3 that happened, okay. And then the roll over price is what 10%, 15%, but it varies by region and etc. Prices going forward, I think is very much dependent, we be launched price increases for Q1, but if the energy prices go down, we will not be needing that in every market. And again, it varies by market. So I think the energy in generally general inflation will rule how much we do. And to some extent, also competitive environment. So that’s where we stand. And it’s very hard to give any numbers to that. These are linked together. And we need to navigate it. But without sitting and said, all these assumptions for every month on this, this is the pricing strategy. Our approach to it is your not to look at it now quite frequently and manage it by market and really be, tried to understand what’s going on. So it’s hard to put it in. And we never do it anyhow in just a percentage point and up a nominee to buy the whole picture.

Cedar Ekblom: And then the second question is a very simple one. You talk about the risk of prices falling in the market and your incentive to gain market share, which makes a lot of things. Are you actually seeing any prices going down today? I mean, it doesn’t sound like you’re cutting your prices right now. I know you flag risk in the future, which makes a lot of sense, but you’re not cutting prices is my take, and I don’t hear from any competitors that they’re actually cutting prices yet. So I just wanted to get a sense for the feeling on the ground today taking into account obviously the risks on the more medium term.

Jens Birgersson: I give an example we bought an order for 300,000 square meter a big factory, that price we went down on price to get that, due to energy cost and all the rest, and we still got the price that was 20% above the second highest bidder, and they bid credibly low price, but we got to order. So you have those effects in markets where for something [Indiscernible] pipeline, you need to choose what project you take. And then we typically have a premium. And we adapt a bit and it’s a different energy situation now than it was in the previous quarter. So we do that altogether. But overall, you see, of course, much higher price level than we had this quarter last year. And it’s not like we sit and just lower prices all over. This is done bid thinking of cost and what orders we bought. And then it’s very different also in distribution. The diffuse sites and projects and we just need to weigh this and it’s too early in the year to say exactly when that will land. But it’s not that we have gone out and say we lower oil prices 10% Definitely not. Energy prices are still very, very high. We should separate try to make sure we have underlying gross margin in the business. And that’s our goal.

Cedar Ekblom: So I’ll take that as in some markets, and in some products prices in say January and February are lower than they were in November, December. That’s on balance, the backside.

Jens Birgersson: And in some markets is higher. And we all always have that. I mean, it’s a fluid thing, but the price quality is high. But there is going to be segments obviously if we have a product in the residential market now general building insulation. There we have to lower price to keep our share and then a different situation and another segment. Yes.

Cedar Ekblom: And then just on gross margins in the last two years ‘21, ‘22 it’s been more than 1000 basis points of gross margin compression. And I understand the points that you’re making on being focused on market share and wanting to match price and cost development. But why are we not actually thinking about trying to recapture gross margins, right, because effectively if you’re saying we want to match price and cost, you’re basically saying we’re not going to try and increase the gross margin, which I find surprising, considering the level of gross margin compression in the last years. And the windfall that we’re now seeing, I would assume that the whole industry has seen a lot of gross margin compression in the last years and the whole industry is hoping to see gross margins improve. So I’m just trying to square your comments with the broader industry backdrop, which has been tricky, why not find the gross margin improvement?

Jens Birgersson: Yes. I think we absolutely want to keep the gross margin percentage and improve it. Okay. What you had, what you have now, was that you had this extreme-extreme inflation where it turned if you had your energy costs increase with 60% in a quarter you need to increase the top line with 60 and if you want to increase the gross margin, you need to do increase the price with maybe 70%. With that extreme dynamics we had in 2024 I mean we lost masses of gross margin because we could not react quick enough and then towards the end of the year we had gotten it back up to at least a reasonable level. So the gross margin issue we need to sort out but then we have an idea that we need to improve it because we are investing in engineering, digital and green technologies. So our goal is to get the gross margin back and get that back what you mentioned and also improve it so that we can finance and get back to 30% EBIT margin and have a business where we can find our source investments, we’re doing green technologies, etc. So you and I have no different view on that. I don’t have a different view to what you want me to have. I’m pretty sure.

Cedar Ekblom: Just to push you on that why are you saying you want to match cost and price? I mean, that’s effectively --

Jens Birgersson: About match no, no, no, no, that’s obviously not if the cost goes out 20 and that the price needs to go up 20. No. It’s still in the spirit of the gross margin, of course, to maintain the gross margin or improve it, Yes, always.

Cedar Ekblom: And then sorry, just one last one, should you have higher EBIT margins in Q1 because you’ve got the benefits of all that road, I mean, sequentially, versus Q4, you’ve got the benefits of all that rollover pricing. And I know you flagged the risk of pricing as we move into the rest of the year. But ultimately, Q1 should still have pretty good pricing. I know volumes will be really weak, but you’ve also got quite a bit tailwind on energy costs. But how do we think about it the Q1 margin sequentially?

Jens Birgersson: We typically I’m not going to guide. We are still fresh in the quarter. But it’s not uncommon that we have good margins in Q1.

Operator: We’ll move next [Indiscernible]. Please go ahead.

Unidentified Analyst: Just I would have a question again, on your midterm target. So your gross margin was closer to 50% in the past five years, would you is it fair to assume that you want to go back to this event? And would you try to achieve a margin of like, 30% or more than 30% medium term? That would be my first question.

Jens Birgersson: We don’t guide for that. But if you look at it, if you start to really, you’re talking EBIT margin, and when we start to put if we need to grow more, EBIT we will be impacted on the depreciation and we are being quite firm. And so let’s say one year, we build three new plants and we add all that depreciation, maybe then we need to start to talk EBITDA margins and see what’s happening there because EBIT margin can be impacted by some of these non-cash effects. Now we haven’t done anything really drastic there. So 13%, but I will say the spirit is we are absolutely fine at 13% and growing, and we want to grow. We have had 5%, 6% CAGR for eight years. And then now that we have this dip with pure organic growth it’s pretty hard on average, to get above that, that really requires bid a lot of factories. But I don’t mind a higher EBIT margin at all. It’s just that when you start to grow more, and you build more factories, and when you build them, you don’t fill them up experiences that it’s hard to keep. You could have a really good year with a really good EBIT margin. But if you keep building all the time, I think that 13% is a pretty, 12%, 13% is pretty okay level to be at provided you grow. Then the EBITDA discussion we can do some other time, because they are you might want to step up a little bit over time, but we do a lot of investment at the moment in marketing, digital development, we are not holding back on any of that and that needs to be financed and it needs to come from the gross margin.

Unidentified Analyst: And then on the competitive landscape. For example, we understand that will face they will probably face a higher energy price in 2024, in 2023 because they were higher last year. When we look at [Indiscernible] they just make a big, big acquisition in Glasgow, and they probably have to repay the debt so they probably need to generate cash. Do you see those big player which I understand probably like, open once more than 60%, 70% of the capacity. Do you see the big player being disciplined in price and trying to hold prices? Or do you see also like the large player being a little bit more nervous and trying to undervalue on project?

Jens Birgersson: I don’t want to comment that now. I think the bigger you are the more important that you have a steady cash flow to finance a big operation. You can’t swing it around up and down but commenting individual players I don’t want to do that. But if you want to run on a sound big business, of course you cannot drive as a market leader, I can speak for ourselves. I mean, it’s obviously we need to have an acceptable price level and generate cash all the time to feed our growth. So that’s our view on it.

Unidentified Analyst: Then last question on the energy price. Just can you energy price are all actively low today? You mentioned that you had a little bit. Could you mention like, what percentage of your gas is hedged in 2023. Or just give her give us a rough order of magnitude?

Jens Birgersson: Let’s say like this of our total energy, we do very little is hedged. But then the specific hedge with Europe is one thing, U.S. one thing, Asia one thing. So I don’t want to venture into that, because I probably gave you the wrong number when you put it as a global number. But they have hedged a bit in Europe to make sure that we, we make ourselves a little bit more resilient. But we came to the conclusion that and I want to emphasize that for our energy types, we came to the conclusion that we couldn’t find a good hedge to hedge 80% or 50%. of all our energy in Europe. We couldn’t find a good point so far that has proven wrong. But then, of course, if China steps in at the end of the year, we might sit and say we wish we had that hedge. But up to now, I just feel every time we look at it, it seems expensive to hedge. So that’s as much as I would like to share about that. So it is pretty insignificant what we have hedged. I will express it that way.

Operator: Well, we’ll take our last question from Zaim Beekawa with J.P. Morgan. Please go ahead.

Zaim Beekawa: So my first question is just the clarification. You mentioned the majority of the guidance is on volumes of 10%, which kind of implies flat pricing. And that was compared to kind of the previous commentary on pricing being around 15% on the carryover. So that implies some quite strong cuts. But I’m getting a sense that’s not exactly what you’re saying. So what am I missing there? And the second question is Rockwool seems to always have a pricing premium compared to the competitors, would you think that the volume decline that you face be more pronounced as spending comes under pressure? Thank you.

Jens Birgersson: So first of all, we have allowed for a bit of price reduction in the outlook and then I say it’s up to 10% decline. So let’s assume we work and so we have a, we do it’s not like it’s one calculation, and we get to the guidance, we play around with the numbers and we said okay, within this we can navigate. So it means that the then numbers are not always matched. It’s like different streams. So what I said on price is that depending on the energy price and inflation, it may well be absolutely that the prices are lower during this year than at the beginning of the year. And that’s fine as long as we can protect fundamental gross margin. So energy prices keep going down and we don’t get the spike at the end of the year. We are fine with lower prices because our goal is not to just sits stuck on that and then see energy prices go down to 200 million odd share and have that you know bear and the market won’t allow it because other will go down but of course we don’t. So we have allowed in the calculation price, but we haven’t allowed a massive dilution of profitability with price. So that’s that part. And then if we then have 10% to 20% volume drop in the market in that descended more bigger effect on the bottom line. And that’s the link and the fact that if we don’t hire any people in the office as to on the white collar side, on the blue collar side, we adapt to the capacity that we deliver that they have to and that’s the vast majority or two thirds or something more of our employees are obviously in the factories. We have deep-deep manufacturing. And then on the office side, the white collar side, seen as we’re going to do engineering of new plants, this green investments, all the rest we have said that we don’t want to make a cut exactly with the volume decline temporarily in the construction market and you pay a little price for that. And that’s reflected in the outlook. And then you could argue, okay, that’s bad management. But if you like I and our team believed that the green agenda will come up. It will work. It will kick in, then it’s better to bridge because we have a really good crew in this company that knows a lot about. So we don’t want to damage that muscle. But of course, if we sit in one year’s time, and the business is down 20% in volume, and it’s looking to be stuck there. We haven’t seen that in the history of construction. But let’s assume that’s the case. Then of course, we will have to look into the fixed cost and do something deeper. But we have never seen that in the history of the company. And one of the lessons was maybe that sometimes it’s better to be more measured in those situations. We saw during Corona. I will say that second quarter we had be probably took a bit too much cost out in that one what we did. And here we see so many macro speaking for us that we need to be a little bit cool in this one. Does that make sense?

Operator: Ladies and gentlemen we will now close the Q&A session. I will now turn the call over to your host for final remarks. Please begin.

Thomas Harder: Thank you. Jens, Kim and I, Thomas Harder thank you for joining today’s earnings call. We would like to thank you for your good questions and the audience for listening in on today’s call. We appreciate your interest in Rockwool AS. Please be informed that on the second March, the Rockwool group will hold the next investor conference call dedicated to ESG topics. If you have further questions, please feel free to reach out to me. My contact details or you may find them on the investor section on our corporate website. Have a great day.