Earnings Transcript for ROCK-B.CO - Q4 Fiscal Year 2023

Kim Andersen: Good day to everyone, and welcome to ROCKWOOL's conference call regarding the results for full year 2023. My name is Kim Andersen. I'm the CFO of ROCKWOOL A/S. Today, I'm pleased to present CEO, Jens Birgersson. [Operator Instructions] 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 2023. Afterwards, we will be ready to answer all your questions. Before I hand over the word to Jens Birgersson, I must ask you to notice Slide 2, 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 3. Jens Birgersson, I will now hand over the word to you.

Jens Birgersson: Good morning. I would just say a few words to this slide before we move on to the quarter. So when we went into this year, we were a little bit more pessimistic about the outlook. There was a lot of macroeconomic factors and quite big uncertainties. We started off with guiding at a decline of up to 10% on the top line and margins around 10% to 12%. And as we have progressed through the years, we have kind of improved the quarters versus the previous year. And this last quarter was the strongest quarter of the year compared to the previous year and we ended up then on minus 4% top line for the whole year. And around 14% – or 14.3% EBIT margin for the full year. So we are satisfied with that. Let's look into the next slide Q4. Going through the numbers here is the first quarter of 2024, where we actually had a bit of growth like-for-like currencies we were up 2%. We have quite a few negative currency effects. But – and happy to see that every month of the quarter had growth both in volumes and sales. So that's nice. Comparing weather, there were some – some weather differences in different regions in some places where they might have played into December. But if you look at the overall temperature where the chart aggregated, it was pretty much the same weather 2022 and 2023 at the end of the year. The EBIT margin in Q4 landed at 14.4% obviously, significantly up from the previous year, where we still have that race between raising prices and the energy shock that started in Q3 last year or the previous year 2022. That said, considering that we had quite a big one-off in Q4 factory, the biggest one being the factory closure of that factory. We acquired a few years back in Sweden. The profitability was good in Q4. Looking at net profit that is only basically flat, that's greatly impacted by the unrealized exchange rate losses. But underlyingly on the EBITDA, EBIT, et cetera it's all good. Kim can answer more questions on that later. Let's move on to – I think we skip Slide 5, full year and we go to Slide 6. Looking at the quarter, we have had 2% growth and basically in both businesses more or less the same so marginal difference 4%, exchange rate difference. The growth in systems came in at slightly lower than insulation. And the reason for that are basically two main contributing factors. The one is ROCKWOOL North America, where we have quite well on insulation in North America that continues but on the ROCKWOOL side we have softened a little bit and not had a really good top line quarter. And then overall rock panel hasn't had a great quarter in terms of top line. It hasn't been anything in terms of market share or anything like that. It's more that their segments are suffering from the current downturn in residential and their type of projects. So, it's just that they are a little bit more exposed. Both of them experienced and they have significant businesses, more than double-digit declines in Q4. If we look into the regions, Western Europe, minus 4%. There you have some countries that are doing well. Spain, Norway, UK. But obviously, countries like Germany, the whole of Nordics, Denmark, Sweden, Finland down quite a lot. So generally, Western Europe didn't do well with a few exceptions. On the other hand, there wasn't anything surprising. When we looked at the quarter before the quarter, pretty much what we expected to happen or a little bit better played out. So, no, surprises on that. In Eastern Europe, a whole lot of countries were doing quite well in Q4. Part of that is that it was a very challenging quarter last year, where you had destocking slowdown in the market energy prices. And so part of that is because of the comparable. Also, some of these markets have different winter pattern compared to last year. But anyhow, Eastern Europe positive up 22%. North America and Asia summed up, China as a normal to say is small, but China is not doing well. And if you read the financial press, we see that China is still in a bit of trouble. It's so small for us, it doesn't really matter. Asia, overall healthy double-digit development and GDP and looks fine. And then in North America, we had quite equal Canada, US growth, but we were capacity constrained. After the strike, we have been a bit of back -- on the back foot. We have a backlog, we need to work through and we could not deliver as much as we wanted. And so it wasn't the market constraint. It was a delivery constraint that kept that single digit. Slide 8, profitability. We experienced, a quarter where compared to Q3 energy prices remained stable. There were some differences. Some of the energy tax went up a little bit, some went down. But in aggregate they were stable. And then on pricing compared to Q3 pricing was stable. We didn't shift pricing up, not down roughly stable. And then with a stable cost position and then made -- improve the profitability. The comparable to last year, if you go back to Q3 2022 and Q4 2022 those margins especially in Q3 that's where the energy shot kicked in, and we were incorrectly priced to deal with that no chance to adapt so quickly and then we started to get it right in Q4 last year, still on a lower level. And then throughout the year, we have then got a better balance between cost and price although, pricing this year, you could say marginally up or flattish. Slide 9, nothing really to comment there except for that we have the €60 million system division of one-offs. And as you know, we very seldom talk about one-offs. But when it's this magnitude, we need to kind of make it visible to you. So it's not that the business has deteriorated apart from that, it is a one-off. We also see that in our new small business segments for example, we have two incubation businesses, one is, prefab houses and the other is, a rainwater systems. When times are tough especially the prefab houses, that go mainly into residential, that suffers a little bit extra margin bad times. So, we see that we lose a little bit of margin by having those businesses. It doesn't mean we're going to stop doing them. We keep working, but it does impact the margins a little bit. Slide 10. Investment activities, we just keep going, no real changes or no projects there you don't recognize. The main one is the Flumroc one and also in France, we now have the temper lifting of the legal blockages of the building permit. So we could on the paper proceed fully, but we have opted not to do that. We just on light the construction work, put up defense. We pulled in electricity on the site for the construction, cubicles also the construction huts. And we leave it at that and then we are waiting during Q3 to tidy up those final up Q1, sorry. Thanks Kim. So in Q1, we then foresee that the legal system will work through this and make that formalized loss decisions that we predict will happen. So at this stage we see a lower risk for -- that will not be cleared up. But I should also say the French legal system doesn't have clearly defined timelines for when things should come up in court. We have some estimates today, but our assessment at this moment is that it will be done in Q1. Slide 11. Cash flow. Nothing much to say about that. It's fundamentally more EBITDA and satisfactory network and capital management. So that contributes to the cash flow. And I think now Kim knows the precise number of €239 million negative debt. So we have come out of that. We had a little debt for a while, but now we are net cash positive. And we felt in light of that that the dividend and the share back program, especially share back program was logical things. So, on the next slide 12, you see the share back program. We have put out a stock announcement on that. But with my mathematics, if you add those two up you end up at about 5% total yield on the share. It's better than the normal, 2% we normally keep. Move on to the next slide. A little bit of feedback on sustainability. We have issued a sustainability report second year. We do that in February together with our annual report. Europe, one could say has maybe lost a little bit of pace on this now with all the macroeconomic and political -- geopolitical turbulence. We haven't lost focus on this. We have kept going. And if you look at the goals, you see here our two sets of goals. We did one set of goals back in 2016 for 2030. They were SDG related goals and we had a midpoint target level 2022, between 2015 and 2030. We put a milestone in the middle. We are ahead on everything there and thus progressing well. What will be important here with Scope 1 and 2 emission reductions will be that the market supports us, so that we can sell products and that there is an appreciation for products that have lower CO2 intensity. So we try to put those investments where we see the market is more right coming to it. And then below baseline year 2019, there you see the science-based targets that's also progressing, and that target is challenging because it's an absolute value. So when we grow organically we make it worse for ourselves. If we acquire companies we can add it to the target and the baseline, but not for the organic growth. And as we primarily grow organically that's a little bit of a challenge, but we have the means to achieve this. On the one hand, we are working on energy efficiency and production. We also work on the technology innovation, where we've got them very far on the electrical melting technologies and also gas melting, biogas as an intermediate step. So that's the conversion thing, where you see we now are going to do the conversions in Switzerland for the Flumroc business. We also now launched quite a big program in the Netherlands launched. But we also have other innovations we need to work on for example the binder, where we are putting in more -- I would say natural binders that will reduce emissions and reduce the CO2 and the greenhouse gases. Then obviously, circularity plays a role. All in all, so we are driving our circularity agenda that improves the situation. Overall at this stage, we have committed to spend about €100 million a year on the green part. Later on it might be more as we grow, but €100 million we keep going on that. And then, we have also added one new commitment, next slide and that this is net zero greenhouse gas goal by 2050. How that works is that you take Scope 1, 2 and 3 and in our case, the baseline year is 2019. And then basically, we need to reduce that with 90% and the rest we can deal with offsetting measures. So that's what that goal means. And we haven't committed to that before. And the reason we didn't commit was that we did not understand what the definition was. And now we were seeing that, if you get to 90% and you can do some offsetting measures on top, we as engineers, our engineers can see way through. And therefore we committed. We didn't want to commit before the definition were clear. Should be said though that, even more important of that commitment is that we deliver on our 2030 and 2034 goals and not leave all the work to the next management to take care of. So, we are working hard on that. And you may also have seen that the EU has now talked about the 2040 goal. Personally to move the 2050 goal to 2040 doesn't change much. I think, it's more important to put the goal that is within the mandate period of the people taking the decisions. So, one would have hoped, maybe that they put tougher goals in the next four or five or six years and then that we progress towards them. Let's go to the outlook. Next slide. We'll start with the top line. What is it we are seeing? We have said at this stage obviously, we don't have any backlog for the second half of the year. We don't have any better reports on market development than you have. And we have continued political macroeconomic what have you turbulence. So, we cannot foresee that. So things can happen along the way. But basically, we see two effects on the top line. We see industry hospitals, education leisure offices. We also see a age factor business. We see the heavy density [indiscernible] business. We see that business kind of picking up. And I think that is because there have been investments that have been frozen. And now some of the businesses on onshoring and near-shoring, they see that okay if you're going to have a recession or a continued slowdown. By the time, we now have built that we're going to build and we get into 2025 and on, the situation will improve and I also think that people have stopped worrying about that the interest will increase. So now they can calculate with an interest rate and then as I said along the way, probably the interest rate would be the same or lower, probably lower. And that means that, some of that backlog of stock products, have started to move a bit. On the other side, on the residential side, both the new build and on the renovation side, we see almost the opposite trend, especially on the new bid. There we are at very low backlog levels, very little financing of new bid projects. And energy efficiency money, we see in Germany for example €16 billion or €17 billion committed hasn't really started to take effect. So those two effects are playing out. So we have said, we can't exactly decide which one will win. And with the energy renovation came around, so we just put our forecast straight in the middle there, and then we monitor that as we move it on. On the profitability mix change a little bit of a heavier mix in our outlook, due to those factors I described. And therefore we put that on around 13%. And again, as we move through the year we see how that mix swings. We haven't assumed any significant price increases. We say we're going to basically manage price and cost. And at this stage, we see relatively stable costs. But again there is aspect of the salary pressures in Europe exactly where that will land. Will that be 4% 5% 6% 3.5% that will become increasingly clear during the spring. At the moment, I guess a fair assumption is say 4%, 5% salary increases and personnel expense increases with some regions doing much more. If you look at North America has been on the severe salary pressure and the job data now in the US is again very, very – yes, there's a lot of job creation and it's tight to get people to work. So that would probably speak for even higher salaries in the US. On the other hand, we don't see much of a challenge in passing that through on price. So we can balance that out. So it's nothing we are too concerned about. With that, I would like to hand over for questions.

Operator: We will now begin the question-and-answer session [Operator Instructions] The first question comes from the line of Alexander Craeymeersch with Kepler Cheuvreux. Please go ahead.

Alexander Craeymeersch: Hi. Good morning. Congratulations on the nice set of results. Just wanted to confirm you hear me correctly?

Jens Birgersson: Yeah, I hear you it was a bit

Kim Andersen: Yes, we hear you.

Alexander Craeymeersch: Fantastic. Okay. So the first question would be on the capacity utilization rate. I know you don't typically state those, but of course according to our calculations that capacity utilization rates should be around 75%. And despite this low utilization rate your margins came in really high which was a bit of an outlier. So I wonder if this can be explained by some capacity out of the market from markets like Russia that are inaccessible, or the maintenance in German plants. I was just wondering, how we can square this and how you see the capacity utilization going into 2024? And then the second question would be, if you could maybe give an update on your pricing strategy versus competition I mean in 2024. Because we read that phone players are increasing their prices with 8% to 10% in Europe -- Western Europe, whereas we see stone players just like yourself maybe increasing prices with 3% to 4%. Is that correct? And whether and how should we see then the competitive placing of ROCKWOOL in the market? Thank you for that.

Jens Birgersson: Protect the capacity -- thanks for the good questions. And as you know, I'm a little bit constrained in answering them. But I can say, like this loading or capacity utilization in North America and Asia is high okay? And our Asian business is small. So you have a situation there where we will need more capacity. It doesn't mean, we don't have capacity in the US. It's just that the way our business works is it doesn't matter if we are on high full capacity during the high season. If we have wasted the capacity during the low season, then the capacity is gone. So we have some more capacity but we are running on a very high utilization at the moment to catch up on delivery times and all the rest. So there you don't have absorption issues. Then you look in Europe what we did and that we did already at 2022 in the autumn. We did a very deep cut of capacity then. So we basically pulled it down. And then I won't say, if it's 70, 80, 65 whatever it is. But we took a deep cut on capacity and we have also taken the odd line we are not producing. We use short-term work in Germany. We do all of these measures, but this is something we have practiced quite a lot. So the -- so we pretty much set the business for this volume level. It's not perfectly optimized because we don't want to, especially, on the white collar side cut more than we have done if we can avoid it because as you see the profitability is fine. And if you go back to say 2014, we had 11,500, 12,000 people and that's what we have today too. So we have had a big productivity improvement across the company during the last nine years. So we take a little bit of beating on productivity consciously. But we have learned a lot about how to make a lot of the cost variable and also to operate the factories efficiently when you go down in ships so maybe only produce Monday to Friday 7/24 or some factories even less. So we have learned a lot about how to do that without getting into massive underabsorption. On the pricing then, I would say the following, it's a little bit of a wait and see. Obviously, North America, Asia a different story normal markets. We have to do it. Should be said though we have a good business in North America but with the delivery issues we have our priority is to make sure we can deliver to customers. So maybe we are a little bit more careful in the pricing strategy there. In Europe, I would say the fundamental view would be with the current inflation outlook that ground beat pricing 1% to 3% would be in place, but it varies between the segments. On the residential side depending on what Glassware does we have to adapt because we don't want to lose massive amount of market share. So that's a bit determined by how they do. But -- so I could see prices maybe go down there in some markets. But overall we would like to say small price increases single-digit this year but again being conscious about where the inflation goes and where competition goes. So I will say, my best outlook at the moment would be couple of percentage points up for the whole group. But at the moment with what we did in Q4 we sit at a quite good level -- a reasonable level in relation to the inflation.

Alexander Craeymeersch: Okay. Thank you for that. I will the floor to my colleagues.

Operator: The next question is from Zaim Beekawa with JPMorgan. Please go ahead.

Zaim Beekawa: Good morning. Thank you for taking my question. Just two for me. I was hoping you could provide the latest developments with regards to your hedging strategy? And then secondly, you kind of mentioned the shift for flat [indiscernible] facade insulation that traditionally have lower margin. I was just curious to know how materially lower these margins are versus kind of the other products? Thank you.

Jens Birgersson: I hand that question over to Kim because the hedging he's doing that.

Kim Andersen: Thank you very much. Hi, Zaim. We have entered two, sort of, midterm contracts one in France and one in Norway for our consumption of electricity and they continue throughout 2024 as well and even into 2025. So those are sort of a major sort of hedging because they are both electrical plants site. On the gas and short-term hedging for electricity we have covered quarter one and we are sort of taking a view that we do this quarter by quarter. So that's where we stand right now. We are still not decided to fully cover into the two years. So we are just monitoring it. As I said there's no big drama on the energy side right now. So we just take it a quarter at a time.

Jens Birgersson: And then on the margins when you get a bit of growth on the flat roof side and I think, that is right. Also the lowest priced products per unit input so to say. So the gross margin is lower per unit to produce. On the other hand, the projects are more -- they're bigger and you tend to run longer. So you have different setup costs. Some of those projects you can also produce to stock instead produced orders. So there is a difference, but what determines is if you have a bit of volume growth and do the heavy density then we do pretty okay. Constant volume growth we will earn less. But we're talking a couple of percentage points. But again it depends on country this and that. So it's very hard to say. Sometimes the difference between the two segments in one country could be outweighed by a country with a higher price on a flat roof growth instead. So, there's all sorts of mixes, but generally said a slight negative mix. But if you get volume growth, you can make up for it.

Zaim Beekawa: Thanks for taking the questions.

Operator: The next question comes from the line of Marcus Cole with UBS. Please go ahead.

Marcus Cole: Good morning. Thanks for taking my questions. Just on pricing, I think, you previously mentioned you're a bit more sensitive to pricing and project work. I just wonder if you could update us on your latest thoughts there? And then on the Energy Performance directive I just wondered if we have your thoughts again on that? And then in terms of the plant you're converting from coal, how many have you actually done to-date? Thank you.

Jens Birgersson : Two questions. Which ones do you want me to take Marcus?

Marcus Cole: All of them I hope.

Jens Birgersson: Okay. So we start with -- what was the first one?

Kim Andersen : Project pricing.

Jens Birgersson: Project pricing. I would say the situation pretty much continues. So, we have been very successful on the big ones. And we put quite a big focus to get in them. But what we have seen now lately is that the project backlog has -- they are more out there to quote on. They are more realization. And the competition is tougher on the smaller projects than the bigger one. And we also have more competition from peer and peer depending on the type of factory or box building, they are building. So I won't say anything have changed. But obviously, if there will be a higher number of projects released, the pressure will ease a little bit. So I don't think it will get worse. It might ease a little bit but the most likely is that it will continue roughly as we added last year. On the energy performance building directive, there are two aspects to it. One is all of these renovation targets and all the rest. And the other is are the goals on solar PV installations on old roofs and new roofs. And both of those in its current forms are very positive very positive. So now we predict that the parliament would decide on that when is something right up, cube [ph].

Kim Andersen : No, no. It's in effect now, but the member states now…

Jens Birgersson: The member states has to get around to do it. So we need to see how the members states. So our focus now is to work locally on those and see what they actually do about it. And for example, in Germany energy efficiency is the €16 billion, €17 billion. What we need to see what they actually decide in the member states. And then when we understand that better, we're going to redo our calculation of how much business that gives us. My prediction though is that we will find that the calculation will give a tremendous business projection, and then we get back to the normal constraint of where are we to do the work. And quite frankly, I don't think it's a good situation now where you have such a super low energy renovation, and new bid residential happening, but actually construction workers leaving the industry, and this is a very bad timing. So I hope governments will do something to take care of the 930,000 construction workers in Germany, and make sure no one leaves. Because when that starts to hit the ground, you're going to need more of them. So I think the constraint would be there. So we do both ways. We're going to calculate what goals do the country set and then we try to estimate what do we actually believe going to happen. So I think we have reason to be very optimistic about that. But again, the timing, we haven't factored in a step-up this year, that's not what's in our outlook. So maybe we can see something next year. Maybe some countries start already this year. Then on the PV, the solar panel part of that, there we definitely see something happening in our market. And there I just want to clarify that the EU doesn't put requirements on safety for that. They don't say what should be under the solar PV, but we definitely see a market coming our way because when you put a big PV installation on a concrete building, steel building whatever building, it makes a lot of sense if you're an insurance company or you own the building to put stone wool underneath to make sure you don't have fire spreading in the solar plant so to say between the panels, when some of them short circuit. So we see already quite a significant impact in those segments. So I think it's fair to say, now is getting quite exciting quite exciting to see when this volume will start to hit. Again, I haven't factored that in for this year. Yes, a question on conversion. I mean from my memory we have done -- we did Denmark on biogas. We did Germany, US to gas. We have done Poland one to gas. So Denmark, Poland to melters. We have done electrical in Norway, China. We are doing on in Switzerland. We have one in Germany. And then we have approved another set of projects. We will do two in Netherlands in the coming years so we will do -- and we will continue -- so basically, what we have we keep doing at the pace we have done and then we need to decide where we actually do that.

Marcus Cole: Okay. Thank you very much.

Operator: The next question is from Yves Bromehead with Societe Generale. Please go ahead.

Yves Bromehead: Hi. Good morning. Thank you for taking my question. The first one is on margin guidance of 13%. I mean, clearly, you're talking about price up in 2024, which is the marginal improvement from what you've been saying over the last few months. On your volume outlook, I appreciate it's too early in the year, but it looks like it's at least flat and then your cost curve is declining at a quite fast pace now into the first two months of the year. So just making a rough math on the 13% looks very conservative. So I guess, I'm wondering what is it today that sort of makes you a bit more worried as we go into the second half of the year, which is presumably where you don't have much visibility at this point? My second question is on capacity. You're obviously adding a new plant in France and you've got some projects in Romania. But you keep on talking about how fast the US is growing and appreciate also the UK has been phenomenally strong for ROCKWOOL over the last five years and presumably in the next five years. So what's the situation there in terms of time line of adding capacity in the UK and the US? Thank you.

Jens Birgersson: Yeah. Very good question, Yves. So I think you explained the outlook quite well, but I wouldn't say it's conservative. You have logistics, road tax, your toll tax, you have salaries. Those costs are going up. And you have a competitive environment also. So there are also some negative factors. And you are right. And coke for example is not going down, it's actually going up. So we have some costs going up, salary being one of them. And then no visibility in the second half of the year. I mean, in terms of backlog macroeconomics. Will Germany worsen even more? Will there be how much with residential worse? So that's pretty much is. So 13% feels like a reasonable forecast. I won't call it conservative I'll just say with what we know and then you do simulations up and down fair assumption. Then you are right on the UK and US. We are – in terms of the US, as I said before, we are well over, we have high appreciation for our product. We are positioned it well. We have a very good growing business. So you're right, we need to build something and we haven't set that we want. It's just a question of getting the last pieces in place and then we come back and announce that in due course. So we are working on that we are securing all the pieces. So you are right. UK is a little bit further out. We have three lines in the UK. We still have some capacity. But again the market is good. And in UK for U.K. it's a very good strategy. I think the biggest challenge to expanding in the UK is probably to find land. And we always keep a look out for land. But you are right, if we keep growing like this in the UK we will need more capacity. And I – it's a big market. So I agree with all of what you say. So it's more a matter of us now coming around to announcing a couple of things. Should be said though, we have ample capacity in mainland Europe. We still need more capacity in France and that project you know – same in Romania, keep expanding into that corner of Europe. We want to continue that. So that's basically the summary. So it's up to me and Kim to come back with some investments but it's not today.

Yves Bromehead: Great. Thank you, guys.

Operator: The next question is from Arnaud Lehmann with Bank of America. Please go ahead.

Arnaud Lehmann: Thank you very much. Good morning, gentlemen. Three quick questions, if that's okay. Just – I mean if we back at 2023 on pricing, right and margin trends obviously very favorable. You talk about lower input costs and stable pricing. To which extent do you think that is sustainable into 2024, when we shift from variable cost, fixed cost inflation. So your variable cost for energy. It looks like they're going to be really going to be low but in the meantime, your fixed cost inflation that remains on the logistics salary, etc cetera. Although that work with your customer base and then the competitive environment in terms of the pricing outlook and the price adjustment. That's my first question. My second question is on the CapEx. The 375, is it a good guide as a steady state? Or do you have some catch up effects in there? I think you mentioned you couldn't spend as much as you planned in 2023. So is 375 the right level for the medium-term? Or you think that that could come down a bit? And lastly, if you could just remind us of your end market exposure. I have in my notes 50-50 between resi and non-resi. I was just wondering is that still broadly valid? Thank you.

Jens Birgersson: Could you just recap the last questions. I couldn't hear that one.

Arnaud Lehmann: Yes, your end market exposure, is it still 50-50 between residential and non-residential?

Jens Birgersson: Okay. So I start – thanks for the questions, Arnaud. So on the price our – we generally have never applied surcharge pricing. There could be some exceptions but we fundamentally see it does we need a sustainable EBIT margin so we can do all this conversions. We can keep investing in the business and supply the market. So there is a market minus pricing approach. So we don't say that because the salary and not the coke or the energy and this and that, they are sometimes easier to argue but fundamentally we want to keep a healthy margin. And what the sustainable level is one can discuss. But our ambition is to regardless, as a sustainable level. And then it's for us to prove it. So that's on the pricing. And then where the costs come from as long as we are productive, competitive and all the rest in my mind doesn't make, such a big difference. Then we come on the CapEx. In the CapEx, now the 375 you are right. If we don't start a new product, we don't get a project, greenfield or brownfield. It won't happen. So we have factored in here obviously the France, the project that we get clearance so we can start to work on that. Obviously not all the CapEx come in one year spread over three years. And then, we also factored into our factor. And there we need just to decide whether it is, another greenfield starting up somewhere. And Romania is also moving into a heavier phase. So it's a mix of those through. Romania is getting into the higher CapEx spend portion of the project, France hopefully get the greenlight now to really get going. And then, in the year here we plan to startup another project that we haven't announced and that Kim and I would just need to, to decide where we do that and then we come back on that. So that's fundamentally it. And again, Estimation. And then the end-to-end market, the 50-50 quite honestly, I don't look at it in that way. So I don't have that number in the same way, as we don't have a central sales manager for the company. We look at each market. So it will vary by market. So I -- to be honest, if it's 40, 50 or 60 in a market we can discuss that. We won't go into those details, but it is in that range back and forth. And if the global average is 50-50, depends also where you put renovation. Residential renovation, Multi-unit or single house we are very different in those two segments. So I can't say anything, but clearly it's that the residential portion is lower now, in our business, because new build and renovation in that segment is lower. Historically, it's very normal, okay?

Arnaud Lehmann: Very good. Thank you so much.

Operator: The next question is from George Speak with BNP Paribas. Please go ahead.

George Speak: Hi gentlemen. Thanks for taking my question. So I just take two actually. Can you remind us what the lag is between declines in construction permits and group volumes? I just thought there would have been more volume pain to come given the 20% drop-off in European permits last year. That's the first question. And then, on pricing, sorry to keep coming back on this, but I guess last year a lot of us expected pricing to come under pressure, given volumes were at very depressed levels but that didn't really happen. So I'm just wondering whether there's actually more risk on pricing going into this year now that end-markets are improving and you're competing for a share of the volume recovery. So maybe just a bit, of color on the pricing risk this year versus last year?

Jens Birgersson: The lag on permits to constructions, I -- there might be a pattern there, but it's very hard to -- to figure it out. Because if you look at the low volume in 2023, there were huge amount of permits around Germany, but then everyone stops or no one does anything. So I -- it doesn't work that way to see it. If the macroeconomic changes, they stop the project even though they have the permit. Where I would maybe think that the number of permits will have an effect and where there's a lag effect is, Residential Building Permits now, in some countries that are on a low level. And they are simply not there. So there isn't a permit backlog to execute. And so there is a lag. And that would indicate that that market doesn't turn around. That's as far as I dare to say on that. Of course, for every market we have, we follow with whatever data frequency. There is in a country number of permits, number of build and we do all of that. But quite frankly, when the market changed you can't say much. But one thing is for sure, if there are no permits in the market, it won't jump start immediately and build. Then on the price, we tried to be extremely disciplined last year. We have monitored market share. We have avoided to, overreact. And when you have that type of cost position, we needed to get back on the EBIT margin. So, that's pretty much how we have navigated the year. And I'm sure there will be some segments this year where you might have a bit of a tussle in the market here and there. But I don't see from our perspective that we should behave any differently. There -- if you could navigate last year, my basic assumption is that we should be able to navigate this year too. So, that because we have done it now so many years and we have pulled it off in extraordinary difficult year like autumn 2022 and also in 2023. So, I'm optimistic that we get through also this year.

George Speak: Okay. Thank you.

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

Yassine Touahri: Yes, good morning. I would have three questions. My first question would be on the what happened in terms of volume and prices in 2023. I think you mentioned that the organic growth is down 4%. Is it fair to assume that you had prices up let's say mid-single-digit, 5% with an increase at the beginning of the year and then turning relatively stable in the first quarter? That would be my first question the split between volume and prices in 2023. Then my second question would be on the outlook for 2024. So, you're mentioning stable sales with prices up a little bit. This suggests that volume could be down. Could you give us a bit of more color on what do you see in different countries? Do you see growth in Eastern Europe, growth in the US, and maybe a bit of decline in France, Germany, and the Nordics? That would be my second question. And then my third question would be on your plan to invest. Could you give us a bit more color on the return on capital employed that you expect to generate on your new plants? Any color that you could give on the cost of a new plant and the amount of sales that you generate would be very, very helpful.

Jens Birgersson: Kim will take the first question I'll take--

Kim Andersen: First, again, just a reminder to everybody on the call, we try to make this as efficient as possible, so it doesn't take too long to conduct. So, please limit yourself to two questions. On the 2023, price and volume development and again, we normally do not go into a level of details but there was a positive pricing high single-digit in 2023. And then obviously we have both a volume impact and also mix both countries and product mix. So, there will be a negative volume impact for 2023. But I think that's as much as we can say. So high single-digit pricing and a negative volume impact for 2023. I will leave 2024 to you Jens.

Jens Birgersson: Yes. So, 2024, you are right that there is a mix aspect. But -- so we will probably at this stage assume that with the mix we have prices in that that you have basically flat volume or slightly volume up. So, that's how I see it. So, moderately up or flat. That's high hope to come out of the year but saying that on the light side in the general building installation and nothing happened there you see a decline and this can vary massively between countries. North America has a completely different trend and also in Asia. And then on the heavy solar projects, [indiscernible] normal energy renovation that seems to be coming factory buildings those investments. And that draws a lot of volume. So, I would say slightly up there. Then regionally I've covered with you but you are right. France, Germany is -- we had a good development in Eastern Europe compared to a very bad comparable in Q4. But I think you are right France, France is probably a little bit more on pressure this year as we see it. I saw one big distributor is doing quite a lot of personnel reductions, maybe not forced but they're drawing down on people. So I think France and Germany, generally, at the moment doesn't look great. But again, we have seen France before when that happens of the take action and they manage to get maybe energy efficiency initiatives in place quicker than anyone else. So the main market at the moment certainly doesn't look -- they look more like a further decline. Then we go into the UK, there our experience, it matters but probably not so much what the market does, because we have this underlying growth in the non-combustible segment. In terms of plants, when you invest in your plant and when you look at return on invested capital, capital employed. I mean our threshold is somewhere on our page is 15%, and that we would like to meet in these plants. But with all the depreciation, even though a plant will be good at generating cash, we want to plant that is not too accretive at the beginning, because we need to fill it over two, three, four, five years. Otherwise we built a small one. So generally, the return on capital employed is, if we can get 15% or more and then we keep running our old plants really well, the average works out fine.

Yassine Touahri: Thank you very much for the detail.

Operator: The next question is from Brijesh Siya with HSBC. Please go ahead.

Brijesh Siya: Hi. Good afternoon, gents. I have two questions. The first one is on your CapEx one. So given that you are guiding for €375 million, you don't see that demand is recovering in Europe. Would you say that you will have more cash and the shareholders should expect that the buybacks of 2023 should continue in the near-term at least given the market scenario and your utilization is low? So you can pretty much use the same plant capacity to run for three, four years. That's my first one. And the second one is on the insulation on the roof, especially with the solar panel you talked about. Is there something Rockwool can do kind of to -- are you kind of looking at it providing roofing solutions maybe built stone wool roofing system. Is that something in management's mind to think of expanding given that you're stressing so much and what we could see in future [indiscernible] enabled proofing system everywhere?

Jens Birgersson: Brijesh, hi. Two very clever questions. Good, good questions. On the CapEx and the buyback, I mean we have a very good cash flow. And even if we keep investing like that we have money and our equity ratio is high. But again, we cannot sit here and promise what happened next year. This goes year-by-year and it depends on how much we invest and our Board's view on uncertainties in the market and all the rest, but we definitely felt that it was a very good time now to do share buyback. But Kim and I cannot commit to that we do that every year, okay? Then on the installation of roof, there are a couple of things we can do on that. I mean we have not -- we have never said we will do membrane or anything else. But there certainly what we have started to do, we have developed some new products. For example, in Germany, we have a product called Solar Rock that is incredibly hard and good. So it's a product with a hard shell on it that fits. And it is a very interesting topic to say should we then deliver more on a flat roof. But I'm sorry to disappoint you so far we haven't made the decision to do that. But it's a very interesting question that's worth thinking about. And you see a trend in the market for the some companies are trying to get into that business. And we observe it. We see how they do it and we certainly look at it, but we have not decided to do that, okay?

Brijesh Siya: Okay. Understood. Jens, thank you.

Operator: The next question is from Casper Blom with Danske Bank. Please go ahead.

Casper Blom: Thank you very much, and I have two questions also. First of all, I was hoping if you could elaborate a little bit on the Polish acquisition that you announced just before Christmas. When is this expected to close? What impact do you see on your revenue from this? And what was the price of it? And also if the impact from this acquisition is part of the revenue guidance of -- flattish guidance on -- in local currencies? And then my second question is regarding your initiation of a buyback program today. Has there been any statement regarding what positioned, the Rockwool Foundation and your other main shareholders will take in connection with that buyback. Will they be participating prorata? Thank you.

Jens Birgersson: Okay. So I'll leave the second question to Kim. I'll take your first question. Thank you Casper. So the Polish acquisition, just to outline the space. There was a law made in Poland under the previous government that sanction the owners of this factory in Poland. In that law, our read is that there are two ways to buy it, because it has been decided by the Polish government that this should be solved. There are two ways. The one way is to make an agreement, buy the shares from the owners, but the money you pay will go into an escrow controlled by the Polish government. The other way is the Polish government under an administrator that now control the web page, the factory, et cetera I'm not sure if they are producing, sells the assets to someone a bidder. And that is the main part of this thing. These two owners have not -- they're not on a sanction list according to the EU or the US. It's a Polish sanction list. So our view on this was if you go with the first method, you make an agreement, then you agree a price. I will not reveal the price now. And then the Polish government -- and all of this is subject to the tax authority proving and after the tax authority a whole lot of other Polish authorities. I think there are four that needs to approve and it starts with the first one. And antitrust approval is one of them, but that's in a way later because nothing would happen on any of that before the Polish government has decided to do. So how I see this acquisition is from our side, we don't like to be involved in legal problems. So we will not participate in an auction of asset where the ownership of the assets are unclear. So we don't want to participate in that asset thing, because we are not quite sure that is sufficient that someone in the previous Polish government says that they have a law that can do this. So that's one. Therefore, we opted for the first version. And the first version is something that is fully politically determined. And that means that the Polish new government and is mixed up with the old government and there are different parties, I see this an acquisition that is fully determined by politics in Poland. And politics in Poland or in any other country is probably not our -- that's not our expertise. So we have taken the approach for this that a thing like this can go either way, it's politics and we haven't factored anything into our forecast, nothing. It is just one of these things that we saw it come up. We felt we don't want to be involved in 10 years lawsuits along the line with the second. So we try the first part of the process and then we see what happens. So that's my view on that. I hope that explains a bit. And again the end result of the two ways of doing it, it's always the Polish government deciding where the money goes. I also want to make that very clear. There's no difference between these as we understand it okay? Over to Kim.

Kim Andersen: Thank you. And the last one, we have in connection with the share buyback program, not had any interaction with the foundation or other main shareholders. So, I do -- at this point, do not know whether they want to participate. Compared to last time in 2020, when the ROCKWOOL Foundation participated with a pro rata, sort of sale of shares, we have now also the option for them to do a conversion of A shares to B shares. But as I said, we have no not yet any indication. That of course, will just be part of the weekly update or weekly announcement, if there will be a participation. Thank you.

Casper Blom: Very clear. Thanks a lot

Jens Birgersson: So, we have three people who want to ask questions and we are over time, but we will do it. But limit to two questions and we try to work this three through.

Operator: Okay. The next question is from Kristian Tornøe with SEB. Please go ahead.

Q – Kristian Tornøe: Thank you. I will actually just do one question and it's about the margins and sort of the bridge from your 2023 results to your guidance. So in 2023, you reported 14.3% but you've also had some nonrecurring costs. So you had the €27 million for the Ukrainian rebuild fund. In Q3, you had some goodwill write-downs. It was around €12 million. And then you have these €16 million in restructuring for ROCKWOOL in Q4. So, when I add that up that's roughly €55 million of nonrecurring items. So if you adjust for that your margin would actually have been 15.8. So when you are guiding for 13% on an unchanged top line, you're guiding the margin down almost three percentage points or roughly €100 million. So is that -- I mean €100 million -- is that really the inflation level you are expecting?

Jens Birgersson: Kim, can go through some more one-offs here. So I hand over to him. We have also have some one-off costs in the year, and we have also done some impairments in the business and other things but -- and new things can happen. But I hand over to Kim.

Kim Andersen: I will not Kristian, go into too many details. It is true that there has been some of these one-off costs during 2023. We will also in 2024, make a donation to the Ukraine reconstruction fund. Probably, yes. So that is included in the forecast. Whether we're going to have more one-off during 2024? We do not know. But as Jen said, there has been both positive oneoffs, but has always been a negative one-off. So, we don't sort of specify it out, because I don't think it has a meaningful impact on the result.

Q – Kristian Tornøe: Okay. So just to clarify in your guidance, have you assumed another €27 million donation then.

Kim Andersen: No. We have assumed a donation, but it's up to the Board to announce that at the AGM.

Q – Kristian Tornøe: But you don't want to quantify, how much you assume?

Kim Andersen: At the AGM, you will get the number. So that's a Board decision, but we have included a donation in 2024.

Q – Kristian Tornøe: Understood. Thank you.

Operator: The next question is from Claus Almer with Nordea. Please go ahead.

Q – Claus Almer: Thank you. Coming back to Kristian's question about this donation to Ukraine, I think it's kind of important to understand your guidance, what the -- did you say round numbers that could be. So you can't help us get a better understanding on what it could be? That would be the first one.

Kim Andersen: I think you just have to be patient until April, Claus at the AGM, because again this is a shareholder decision support, recommendation to the shareholders that will be approved at the AGM.

Q – Claus Almer: Okay. And then the second question, if you go one quarter back and think about your market view at that point. Do you think for ROCKWOOL that the outlook has improved, getting worse or is more or less the same? And they're both talking about pricing environment and the volume outlook.

Jens Birgersson: It's a good question. What has changed? I mean in Q3, we worried about the construction markets in residential and also the renovation that we don't see. I mean it was frozen more or less. And you know the market here in Denmark how bad it is, seeking family houses and all the rest. So I think what has happened since is that we didn't hope for that that would turn around. We didn't predict it, but I would say that, it gotten worse. On the other hand, when it gets worse it also becomes more urgent for government to do something. It is -- you have these 18,000 names in Sweden where they handed them into government construction workers, who said, we don't have jobs. You need to do something. And so I think that on the residential it gotten worse but the fact that we do get worse also would encourage people to -- countries to do something on energy efficiency not only because they need to bring the CO2 emissions down, but they need to secure jobs because it's not a good idea to lose these few building workers we have. So -- and then the change from what last time, we spoke Claus on the outlook, I think that we predicted that the interest rate would probably max out and start to decline and that inflation would improve and that central banks in Europe would start to discuss when they lowered the interest rate. I think what's more positive on that front is that, the backlog of projects that were not started we now -- I predict that it's better now. Because with this anticipated recession the most anticipated recession or downturn whatever I think there is a slightly bigger belief in Europe never mind US, North America, and Asia that this is as is. I think there is a bigger hope in businesses that it's time defined the downturn and therefore, I think it's a little bit better. And I think we have seen that in our volumes here in month one, two and three of the fourth quarter. And I think we have a good opportunity to see that in the coming months on heavy density more industrial applications. If that continues, later on in the year that's too early to judge. It's too early to judge. But definitely, I think it looks a little bit better short term on the industrial side.

Claus Almer: That makes a lot of sense. Thank you so much for the color. That was all for me.

Operator: The last question comes from the line of Pierre de Fraguier with Goldman Sachs. Please go ahead.

Pierre de Fraguier: Thank you and sorry for running over. A question would be on the competitive landscape. I mean,0 you've been very successful to variabilize your cost base in, in recent years. I was wondering, how do you think your competitors have adjusted to the current environment? Have you seen a number of lines being shut down as well? And what it means in terms of your market shares? I'm just wondering, if some of these lines if they were to come back when would that be in your view? That's the first question. And second question quickly can you remind us your energy bill or sort of energy exposure as of 2023? Thank you.

Jens Birgersson: The energy I give to Kim, because he is the custodian of how much we share on that. I have the numbers in front of me. But -- so the trends on energy we have already covered. I -- I can only answer for myself on the capacity. With what's coming up in the market in energy efficiency was actually needed in Europe. I don't see on the stool and the glass wall, if this energy efficiency drive comes that they're going to be enough -- the capacity will be used. So I think it's a matter of being very disciplined now. And I can only speak for myself. We've been super disciplined on monitoring our market share. And yes, in some segments, we lose a little bit of share and we are fine with that, because it's impossible to keep everything perfect everywhere. But we are super disciplined on it and we cut capacity, we just try to navigate that, because we know one thing with our business, we cannot -- we don't want to reposition stone wool before an up market, where we don't get a sustainable business, so that we can keep investing in these plants that just going to cost more and more to build in the environment here. So that's how we do it. And how the others do it, I cannot swear. But as you saw last year, net-net, there has at least we haven't seen big market share moves around in very many, many countries. That's my observation. And -- but of course, we look at our own situation and that's what we manage.

Pierre de Fraguier: And can you precise how much capacity you've adjusted actually?

Jens Birgersson: I gave a number and it's not an absolute, but just to give an example, 2022 in the autumn. And we have done other things since that. But at the time, I mentioned it in rough numbers, but we took out over six months shift and we have this, it doesn't fit with the headcount. It doesn't fit with the headcount you see, because we have set up the lines with a lot of temporary workers and contractors that don't show up. But in the autumn 2022, we pulled down like 800 manufacturing jobs around. And that capacity took out and exactly, but we're talking 10% to 20% capacity take out -- it's fair to say.

Pierre de Fraguier: Thanks a lot.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Kim for any closing remarks.

Kim Andersen: Yes. Sorry about the last one. Just on the energy bill, we would not of course disclose exactly what is the proportion, but coke is still our largest energy cost. And then I would say not only we gave us sort of that energy combined with raw material is about half of our input cost. So it is quite a significant one. So with that, I would like to thank you for today's call. And for all the good questions it took a bit longer than usual. So please remind yourself to keep it for two questions. You're always welcome to give me a call or send me questions afterwards. And then at the very latest, I want to inform you that on March 8, we have a ESG investor call, where we also have [indiscernible] presenting the ROCKWOOL Sustainability Report for 2023. Thank you very much, and have a very nice day.