Ladies and gentlemen, welcome to the conference call regarding ROCKWOOL International's results for the full year 2021. My name is Thomas Harder. I'm Director of Group Treasury and Investor Relations of ROCKWOOL International. 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 Q4 of 2021. Afterwards, we will be ready to answer all your good questions. Before I hand over to Jens Birgersson, I must ask you to notice slide number 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 number 3. Jens Birgersson, I will now hand over the words to you.
Good morning, everyone. It's Jens here. Looking at the full year, we reached a top line of EUR 3.1 billion, and we are quite happy with that. It's a good growth, mostly volume growth we achieved 2021 and Q4 with almost an explosion in an energy crisis and explosion in inflation and raw material. The cost increases was quite a challenge. We are quite happy with that we could bring that home. I will come back to the quarter in a bit, but we saw raw material, the energy prices increase with close to EUR 100 million in a quarter, and it jumped up very quickly. We had a lower number. We thought it was accurate, but it just kept increasing. Extremely volatile.
When we look at the full year also on the EBIT margin 13%, that's impacted by the two new full-size plants. We have the Neuburg one in Germany and the Ranson in West Virginia, U.S. The impact of those plants in the year is about half a percentage point of EBIT margin. Should be said, though, that they have started up really well, and they are producing a lot already. So we are very happy with them, and the timing was good, but it has still had a slight negative impact due to the startup. We will see that disappear during 2022 this year. If you move to the next slide number 4, I just wanna spend some time on sustainability goals and our progress in that area.
In 2015, we started to think about how to set goals that made sense from a sustainability perspective. In 2016, we announced the goals that you see on this chart. The goals had two kind of milestones. One was an intermediate goal, 2022, and one 2030. At this stage, we did not know about science-based targets, and therefore, the CO2 emission goal is CO2 emissions per ton produced. While on the next page, I come back to the goals we published later that are the science-based targets.
If I were to sum up how we are doing on this, I'm very, very happy with the progress, and we are ahead on most goals, and we will hit all goals 2022 with maybe the exception of the safety goal, where I will come back to that and discuss it a bit. We start from the top left corner, the emission intensity. The goal by 2030 was to reduce the CO2 emissions per ton produced stone wool by 20% and 10% by 2022. Last year, we reached already 16% reduction, and that has happened with quite a few actions on primarily the melting technology and how we melt stone wool.
To give you an example, in Denmark, where we went, we started to use biogas after quite some work to get that technology to work. It works really well now. In the last say 5-6 years in Denmark, we have increased production with 30%. At the same time, we have reduced the emissions of CO2 per ton produced with more than 80%. Just in Denmark, we have saved 100,000 tons, that's nice. We will keep investing in this, but we feel increasingly confident that we have the technology. If we go down to water consumption, we use a lot of water, and we had a goal for saving 20% by 2030.
In most of the countries or all the countries we are, water is very, very cheap. When you look at the investment case for saving water, it is not so good because it's cheap to buy. We have anyhow decided that we're gonna save water, fresh water, because we use a lot of it. Also here we are ahead of the plan, 15% reduction in 2021, and the intermediate goal was 10%. This has been done in two ways. One, on the one side is discipline, making sure you don't waste it, and on the other side, it's circular investments and collecting rainwater and other things. Good progress also there. 2016, we decided that circularity is a key metric for a building material company.
The background to that is that a third of all waste on the planet is from the construction industry, and in terms of per individual, the biggest amount of material we use is fundamentally our houses. We defined a scheme that we now call Rockcycle. We didn't have a brand back in the day, and we defined how many countries we're gonna launch this in. Now we just recently launched in Croatia, Russia, and Spain. It involves quite a lot of work to put this scheme in place. It's not just to issue paper that we're gonna do it. You need to be ready to take it back, and you need to know how to run the factories with a high recycled content.
Basically, I think we are leading the way in construction, in the construction industry and the insulation industry with this, and I should also say that although it required a bit of investment and effort, this has been quite rewarding for the customers. This is a nice one. Landfill waste was another one. We put ourselves a goal to really reduce the amount of waste from a factory we put in a landfill. We have managed to halve that so far, and this is mainly a matter of being disciplined, increasing yields, and whenever we have cutoffs and other ways that we feed it back into the new product. That has been progressing well. On energy efficiency, if you look to the right there, it may look like we are far behind the goal.
We have this is our own buildings basically to live as we learn. We have so far improved our energy efficiency with 90%, reduced the consumption kilowatt hour per square meter by 19%. The goal is to reach 35% by next year, and that looks like a big gap, but we actually have projects being constructed now, so we have a very good chance of hitting that. It has been very good to see, for example, how we renovated some very old offices in Gladbeck, Germany, and we got a very high and good energy rating, and we managed to reduce the energy demand with 83%, and that's a good result. It should also be said that we use this to learn how to do renovation.
Yes, we get help from the outside, but we use our own product, and we involve our local teams deeply into getting the renovations planned and executed on. It doesn't mean we are there putting in the installation with our people in the office, but we are thinking it through on how we design the offices. Safety, lost time incident ratio, that's lost time incidents per million man-hours. Here, I probably made a mistake. I put a target to improve 10% by year, and we missed that last year, and it's fundamentally two operational entities. We had a very big ramp-up of people, and we haven't managed to bring down the amount of lost time incidents.
We have also brought on board last year a lot of new people, and that have had some impact also. Next slide, please. If we then look at the science-based target, and here the goal and the metric is slightly different. You have a base here, and then you have an absolute emission reduction, and that's CO₂ equivalent, so methane and other 25 or 27 gases or emissions are also included here, so they're weighted with the greenhouse gas potential they have. This is a very challenging goal because we need to compensate for the growth we have, and we need to reduce it. We have set the goal to reduce on Scope 1 and 2 with 38% by 2034 and 20% on the part of the business that we are not in control of, the Scope 3.
You see a -1 there, and you see a 0 above, that may look like we are not making a lot of progress, but another way of looking at it is that we grew 19% last year. Obviously, not all of that sum was price, but considering that we increased the top line by 19%, and we basically kept the emissions stable, that's very encouraging because it's a lot of emissions that we would have generated with that growth with ROCKWOOL if we'd just taken 19% more, that 19% more out. Yeah. Slide, can't see the number here. If you go into the quarter. A record quarter in many respects, but the EBIT margin a little bit depressed.
We have a difficult comparison because Q4 last year in 2020 had a very favorable mix, and it had also low inflationary impact, deflation, I would even say. That was a very good quarter. The 11.2 is below where we would like to have a quarter. If we look at it, we can see that the EUR 90 million-EUR 100 million inflation raw material energy, it just came too quickly. We had a price increase in place that we started to move into. It started in Q3. We were aiming to balance this out with the forecast we have for Q4, but then basically the inflation and energy crisis kicked in, and it more than doubled the number we expected.
I should anyhow say with efficiency improvements, really big ones in the operations, overabsorption, fixed cost absorption, we have managed to compensate a lot, so we didn't at all let that EUR 90 million-EUR 100 million inflation pass through to the bottom line. I'm happy with it. I still see that going forward, we expect another step up in energy prices, raw material cost, et cetera, in Q1 and early of the year, and we keep increasing prices and have given us about two quarters to get back thereabouts to get back to good margins. We have reflected that in our outlook. On another comment there is the free cash flow. Very happy with the output from the factories in Q4's record output. We have invoiced a lot in December.
It was a big December, no winter storms, and that means that has impacted our net working capital. We are not worried about that. That's a good thing, and a very good thing is that we managed also to build seasonal stock. We managed to build finished goods inventory. If we look at the price in the quarter, we raised prices towards the end of the quarter, we were up about 10%, but with the volumes, we also got impacted by the maximum volume volume rebates from customers, so that kind of ate away a bit. But generally, the pricing actions worked well. It's just that there's a lead time from when you know the inflation, what we have assumed, so that hurt us a bit.
The work continues, and we already have more increases coming in January in Q1 and Q2. Moving to slide 7. Sales, the majority of sales in growth is from volume this year because the pricing action started in the H2 of the year, and the majority of the pricing has been done in Q4. Both businesses grew really, really well when you look over the whole year, and I should say that on the Systems Division, the growth is quite evenly spread out across the businesses. If we look more in depth into Q4, nothing special about it, but you probably have a question on the lower Systems Division growth.
There we had the destocking a portion of the business where we had some very, very strong Q4 business the year before, Q1, Q2 in 2021 also, and then destocking happened. In North America, Grodan had not at all the same development. That will come back. There was also some other businesses or one more business, Rockfon North America, had a little bit of a slow quarter and it's all back again. No worries about that. Slide 9. Going through the regional development, obviously Eastern Europe and Russia, tremendously strong. Nordic, strong. Fundamentally quite pleasing that Asia is back with quite good growth, but that's from a low level.
In North America, the insulation business and all businesses, with those exceptions I had, they grew really well. Here and there is a country that maybe only grew single-digit. There's really not many countries. It's normally because we prioritize capacity in some places. We have not planned the deliveries and we couldn't deliver, but generally fantastic growth everywhere. Energy prices, you see this, you could call this an energy crisis, I think. We have talked about that. We sit without being really hedged. We want to price it in, and of course, when it jumps up like this, it's hard to change the prices that quick.
It changed a little bit on our contractual model, so we can be quicker now. We have increased the frequency of price adjustments, and my expectation is that the volatility on the energy will continue, now at the beginning of the year, we see a further step up on inflation, and then perhaps after that, it should taper off a little bit, and we are then back to some sort of permanent inflation that might not be quite as extreme as what we've seen here. We are not too worried, or we aren't worried about that because we just need to price it in. Of course, life is a bit easier if it doesn't jump in steps on EUR 40 million, EUR 50 million, and EUR 100 million.
I think you see smaller steps now, but it's still not to a level where we can say it's 5% or 6%. It's across the board, you know. It's binder, it's logistics, it's all the energy types, basically everything. There might be some exceptions. I think wood pallets have come down. Yeah, it hasn't really. It's just leveled off on a high level. Move to slide 11. Difficult comparable because Q4, as I said, was very, very good. The margins here have been impacted by the inflation. We didn't cover all, but generally, I think we did a good job with the time we have. Next slide. Profitability by business segment.
For those of you who do the math, we've never had the opportunity to discuss that these margins are also including internal sales. It doesn't, you can't kind of tally it with the total margin of the company so easily. Here, system division has obviously pricing inflation same as I've already described. But on system division, we have also had the mix issue that impacted profitability quite a lot. That's what we think is a short-term effect, but the mix in addition to the price made the system division have a lower margin quarter. Next one is the CapEx. We spent about EUR 300 million, and we have now gotten into the drumbeat of showing the sustainability investments.
To give you a little bit of a feeling, we have spent a little bit more than EUR 90 million in sustainability investments. More than half of that is related to melting. We did invest in a melter in Norway. We are doing some upgrades in some other plants. We transition four coal-based melters to gas last year. That cost a bit. We are also busy building the new plant in China, where we move to green energy. We haven't started it yet, but that has also been quite some CapEx during the year. All of that, I would say a little bit more than 50%, if you include China, is where we are improving the CO2 footprint of the business.
We have building efficiency improvement, quite a few projects, one here in Hedehusene, Poland, Czech Republic, Belgium, and we completed some other projects. Some of those are not finished yet, but that's towards that 35% building efficiency improvement that's happening. We have a number of other projects that could be safety, health, and well-being, and also smaller sustainability projects. Lighting, for example, we are changing the manufacture with the lighting system to reduce electricity consumption. Slide, the next one, please. On the cash flow, as I said, seasonal stock, we managed to build it. I'm very happy about that. Nothing to worry about the net working capital. It's just inventory and trade receivables. We are still net debt free.
Maybe with increased interest rate, we don't pay very much negative interest, but maybe we can get out of that now, at least if the rates increase a little bit. Moving to the outlook, people focus a lot on the risk I write about. You know, we have flagged that the economy could slow down due to the whole building materials industry or also energy crisis impacting the amount of new starts, renovations. You have the geopolitical obstacle course, you have potentially higher interest rate, you have a lot of things. The point with listing some of these was not to discuss when and if they would happen.
What I actually tried to say with that is that we have excluded those. Basically what we are assuming here, and what we feel confident about, is that the market will continue quite well.
We should be able to grow 15%-20% to top line. This year we'll have obviously a bigger price component and a smaller volume component in that outlook, and we need a little bit more time through Q1 to adapt to these two step-up quarters in inflation. After that we should be through and have good profitability in the business, and we are shooting to deliver around 13%. Investment level due to the announcement in mainly France and Russia and also more green investments, about EUR 500 million. That's the outlook. We keep going strong, and that's really what we forecast here. Next one. Is there one more? Yeah. We have one extra slide is the A and B share. Maybe Kim, you comment that.
Yeah. The board has decided to propose for the AGM a permanent conversion right for the As into Bs. More details about that will follow, leading up to the AGM. We are working on the technical, you could say, issues behind this. This is what is being proposed for the AGM. We're ready for questions now.
Ladies and gentlemen, if you have a question for the speakers, please press zero one. Please hold until we have the first question. We will start with a 2-question limit per participant. Please respect this. We have a first question. It's from Yves Bromehead, Exane BNP Paribas . The line is now open for you.
Good morning, gentlemen. Thanks for taking my questions. I'll have two. I guess the first one is, Jens, your last comment on the outlook was quite reassuring and optimistic in fact. Just so that we're on the same page, can you confirm? I think what you said is that your outlook excludes any volume decline scenario in H2 2022, which was one of the risks that you flagged in the annual report.
We have-
Is that correct?
We have a lower volume outlook, that should be said. You know, we haven't said it would go like it grew in Q4. But it's a positive volume development, and we haven't included that the market will slow down and stop or economic bust, so I confirm that. We see the year at the moment in quite positive light, and I just flagged the risk to demonstrate exactly what you said there.
Okay. Just as a follow-up to that first question, I guess one thing that would be really helpful would be to understand if your price cost scenario is quite optimistic, what is the actual run rate of the operational efficiencies that you're extracting? Because ROCKWOOL has been doing that now very successfully for the last few years, but you never really quantify it. Could you give us a bit of a numerical
Yeah.
... numerical, number on this?
I'm really sorry. I can just say we are really good at it, and we had a fantastic year last year. I didn't expect us to be able to save that much last year. Remember, we also factor in productivity improvements where we managed to keep everything constant and produce 15% in some of the factories, you know? We count it as cost per what we produce, and then outright cost we get rid of. I'm not willing to quantify it, but it was a very good last year. We are not aiming for the same high number this year, but I don't think we have to. It's still a substantial number, and we go after this number every year. I'm not able to give a number.
Okay.
Sorry.
My second question would be on the melting technology.
Mm-hmm.
As you shift toward electricity, can you give us some color in terms of the impact on the OpEx and the return of investments? How does taxonomy come into play when it comes to the CapEx and the OpEx of using renewable or electricity versus coal?
I mean, at the moment, you don't. As you saw in the Danish case, it's a very dramatic reduction. Yeah. We don't see the Taxonomy really impact at this stage. At this stage we still have the ETS system, we have quotas. Yes, you're gonna have the U.K. now stepping out of that, so you're gonna have a cost. Almost all our business is eligible to the Taxonomy. We have the traded goods where we are not eligible. We don't see that impact the business so much. What we see it impact is that the customers, the big construction companies, put requirements on it and increase our sales. Okay?
On the OpEx side of using electricity versus coal, given the price of electricity today, so the second-
This is of course, let's say it like this, if you took the electricity price two years back and the coal, and you average maybe over four or five years, you sharpen the technology, there is no big difference. That's of course, if you sit with a quarter where the electricity costs EUR 800 per MWh, then it will be more expensive with electricity. If I give the example of Norway, we have had reasonable electricity prices, the technology is competitive. It mustn't of course cost EUR 500 per MWh, then it's less competitive than coke.
Thank you very much.
Mm-hmm.
The next question is by Kristan Tornøe Johansen , SEB. The line is now open for you.
Yes. Thank you. Jens, when we spoke in November, you said you wanted to increase prices to recover gross margin. Now you say you need two more quarters to do that.
No, I didn't say that.
What did you then mean by your additional 2-quarter comment?
I've done one quarter. I have one quarter left.
Okay. Essentially you should be recovered by Q2.
Yes
on the gross margin?
Yeah.
When you say recovered, I mean, what level are you satisfied with? Is that sort of a level we saw in Q2 last year or?
I don't have a external number in mind perfect, but back to a sound level. It's too low now.
Okay. Understood. For Q1, should we expect the gross margin to stabilize, or is there risk for it to decline further?
The volatility at the moment, I have price increases out already for Q1. We have a higher price already, and we keep increasing it, and we keep doing so, and we keep an eye on the inflation. The market is incredibly volatile at the moment. You know, you have a further step up of inflation in Q1 compared to Q4. It's not another EUR 100 million, but our estimate is that it's quite a substantial number. We keep working it up to target price level, and then I have some volatility. That's where I leave it. I can say we are pacing well, and then we can't exactly say what the inflation will be because it's so volatile at the moment.
I haven't factored in a Russian gas effect in this. I haven't done that. I just assumed a certain level and we are pacing. It will be. It's fair to say it's not a worrying quarter, but it's a challenging quarter because it's so volatile. We are getting up there and we should hammer through and it, you know. There is some variability because we don't have hedges now. We just play. The only exception is the coke where we have our normal mechanisms. All the rest, we just buy as we go along now. Okay?
Okay. That's fairly clear. Just in terms of what you have done on prices, you mentioned you raised prices for Q1, and then you have announced price increases for Q2 as well. Is that correct? Secondly, do you need to raise prices further in Q3 and Q4?
First of all, some markets is. You know, we changed some of the contractual structures with some customers where we before had the annual price, we have now changed that, and we have a certain number of weeks to adjust it. So it's not only done by quarter. You know, some of them have a price increase in February, some have six weeks lead time. It's a little bit different, but we fundamentally move our prices now all the time. Yeah. We have announced for January, and that's ticking up. We have in many places, the price increases out for the beginning of Q1, but we also have reservations, and we say that as we move forward, we will clarify what else is coming.
We are not this year doing anything that we say is the Q2 price increase, and then it's nothing more. We keep it open this year. We could do more price increases later. You know, fair assumption would be is that we have to do that. You know, we can deal with it because now the system is up and running.
Understood. I guess it depends on inflation as well.
Yeah.
So maybe-
Very much.
Lastly for me. Yeah, you said you expect to have recovered gross margin by Q2. Should we then expect gross margin to trend flat for Q3 and Q4, or is it still an increasing profile you're looking into?
I you know wanna deliver 13% bottom line or EBIT. It's so many things flying around for Q3 and Q4. We will run the P&L in a sound way and balance you know growth and price and inflation. It's so many variables that we don't have a clear rule. We wanna have the profitability on the EBIT level solidly back in the H2 of the year.
Understood. Thank you so much. I will stop here. Thank you.
Thanks. Thanks.
The next question is by Pujarini Ghosh via Bernstein . The line is now open for you.
Hi, thank you. I have two questions as well. The first one is on the competitive landscape. Now that you have raised your prices close to double digit or even more than that as we speak, and how does that compare with the plastic foam when invariably that number could have expanded a bit between the gap between you and plastic foam? Have you seen any kind of market share shift back, which is looking unlikely given your guidance of strong volume growth still continuing in 2022? Any color on that would be helpful.
Yeah. Okay, Pujarini Ghosh. Just quick answer is we haven't seen much because the MDI pricing, one of their main raw materials and also, of course, all the other materials they use are up. We haven't seen that, PIR and PUR, for example, are more aggressive or they have pushed up price and stayed high. The question is, do they need-
What kind of
Do they need to go higher or not? I don't know their cost structure, but the MDI price is for sure on a high level still.
Yeah. I mean, certainly that number is not going up compared to your cost base, which is constantly moving up.
Yeah. I think they did increase a lot before us because they were impacted before us. You could say in one way that we are catching up. We got it a bit later.
Okay. Understood. How about the competition within stone wool market? Is there any of them not behaving the way they would have done it with this cost increases?
well we do what we do, and that we have done every year, the last six, seven years. This is a different level, and there will be some people waiting, there will be some people not doing it, there will be people doing it. Our experience is that everyone would feel this cost. You know, there's nowhere to hide. I would expect that price increases, and we have seen that in many markets, will need to follow for everyone producing stone wool because they have the cost situation. I also think that the demand situation at the moment is such that it is quite tight. Therefore, I can't really see any good reasons for not passing on this inflationary cost.
We haven't worried too much about that. We are still behind the real inflation, so we feel we do this for very good reason.
Understood. My final question is on your over the cycle targets. Previously, you were kind of mentioning that you would be growing 1 percentage point higher than the construction market.
Mm-hmm.
That number is now missing. Does that mean you will be growing higher than the 1 percentage point before?
Maybe we missed that number. At the moment, we actually have. It's tricky to define the market outlook for the construction market. We couldn't find an outlook that we could say, "Okay, this is one." Therefore we skipped the number. Our ambition is to grow, let's say like this, we wanna grow faster than the other ones with a little bit. We wanna do better than the market, and we think energy efficiency and our application should grow better than the average market. We should be growing a little bit better than competition. So that's where we still see it, but it's very hard to measure at the moment because it's in some markets, it's just growing incredibly. You wonder, is this the market or is it just our segment?
This is quite hard to get data on what's really going on. Housing starts, so it's quite high everywhere. Then we have some countries now that are good at this with energy efficiency renovation or at least starting to go get it in play.
Okay. Thank you very much.
Okay. Thank you.
The next question is by Cedar Ekblom, Morgan Stanley. The line is now open for you.
Thanks very much. Hi, guys. I'd like to dig into your CapEx and volume growth potential in the medium term. Firstly, on the French and the Russian expansion, when do we think about that capacity becoming available to the market? Is that from 2023 onwards or is it gonna be a bit later than that? Also you said in the annual report that there will probably be plans for the CapEx to be a little bit higher over the next couple of years. Would it be fair to assume that there would be further projects related to capacity growth that we need to start thinking about putting in the model? basically we put in higher CapEx, but how do we think about the organic growth potential on the other side of that? Thank you.
Yeah. Cedar, thanks for your question. The capacity, if you take the two main ones, Russia, Vyborg, and Soissons, France, you're talking real volume in the market, 2025. You might produce a little bit before that depending on the schedule, but that's when you can kind of put the chunk into the model. We have capacity and improvements, so we can grow onto them. Yes, with what we see for stone wool and what's happening to the market with circularity stone wool, we see that stone wool should be growing, and that means that we need to have an increased CapEx level for the coming years, A, to be ahead of capacity, and B, because we do this with the footprint, the energy transition, to reduce the CO2 footprint.
There we have a program, and we have. I think we have mentioned that we typically think at the moment of about EUR 100 million. You see we spent EUR 92 million. Might be a higher level, but we need to keep investing now to get capacity and also keep. We have ramped up on engineering resources to be able to do these projects. One aspect of our approach to it is that we like to build quite a lot of that capacity ourselves because we see it as intellectual property to learn how to build these plants or keep learning and building the organization. We have ramped up engineering resources, and we keep doing that because we don't like to outsource much of it.
That's really helpful. Will you just allow me one follow-up? With that, capacity hitting the market 2025, does that mean that the peak capacity for those projects is actually in 2023, and so CapEx should not really go down into 2023 at all? In fact, it could be higher.
We don't guide for CapEx in that year yet, but we have flagged several times. You know, depending on when you do the main bulk equipment purchases for a plant, you can move quite a lot of money between the years. I think the way to think of it is that I don't know how you do if you look at it really per year, because how we do is that we have a number of projects, and then we have an engineering capacity, and then we manage against that. The actual CapEx you see can jump around quite a bit. If you average it out over three years, you're gonna have a higher level on average.
I can't say whether 2023 would be X lower, X higher, because I simply don't spend time on that now. I know that the level we are working on now, we wanna continue to get ahead on the carbon footprint reduction, greenification, and capacity.
Great. Thanks very much.
Mm-hmm.
The next question is by Manish Dahiya, Macquarie . The line is now open for you.
Good morning. I have two questions. The first question is on the margins. It seems like you are guiding 13% EBIT margin despite inflation, I mean. It seems like, is it right to say this is the bottom or the new floor for the EBIT margin over the cycle because we are able to sustain despite the inflation, these type of margins? This is the first question. The second one, if you can bridge this EUR 500 million CapEx into growth, maintenance, and sustainable CapEx.
I would say for the cash, if you start with the last question, the CapEx going forward, you have quite a lot of, roughly the same split as you have 100 sustainability, 100 maintenance, and the rest capacity. It's roughly the same split as before. If it come to that margin at the bottom, we don't guide where there is the bottom. We felt that to go into this year with the ambition on delivering around 13% is a good one because our ratios work quite well, and then make sure we grow. Obviously, if you have a tougher first start of the year, the rest of the year needs to operate on a higher margin, so we get there. I wouldn't say it's a new floor.
I mean, inflation is not the reason actually to reduce margin if it doesn't happen like it did now with massive amounts in such a short time. I feel even with inflation we should be able to maintain our margin. Of course it will be the same percentage price increases as inflationary increases you need to pass on, otherwise you lose margin. You can't just pass on the amount. We need to pass on the same percentage, and that can be a challenge for some businesses, but I think we can do that.
Just a small correction. You need only half the price increase to maintain the margins because if raw mat increased by 15%, if you increase the price by 7.5-
Yeah. You're right.
Because your gross margin is 15%.
You're right. Yeah. Yeah.
There's one clarification. I mean, because you are building two plants, France and Russia. I mean, these two plants will have cost you maybe something like EUR 250 million in total. I mean, so EUR 120 million for each plant, so EUR 250 million for two plants. You are already guiding EUR 300 million in a year, and you say, I mean, maybe there will be more in 2023, 2024. How should we think about this growth CapEx?
Yeah.
Why is this growth CapEx so high at EUR 300 million?
We are also investing in the system division businesses.
Okay.
Grodan and Rockfon, it's quite a lot of investment, more than EUR 100 million. Yeah.
Okay, I see. Yeah. Thanks.
The next question is by Yuri Serov from Redburn . The line is now open.
Yes, good morning. My first question please, you already talked about the volumes. Can I please try to get some numbers out of you? I'm not looking for precise numbers, just order of magnitude, right? In 2021, your sales went up by 19%, some of that was price. I'm guessing volume was circa 15% or so. For next year, you're guiding 15%-20% sales, and higher proportion will be through price. We're talking about double-digit price increases. If I take 10% off of that suggests to me that volume is gonna be something like 5%-10%. Is this around about the right level of magnitude?
For 2021, we said by far the majority. I mean, you had two quarters with no price, and then we had the price. You will obviously have the vast majority or the majority's volume 2021. Then I can go as far to say that for this year, with this level of inflation, with that growth number we have given, the majority is gonna be price. I'm not gonna say how much the volume is, you know. You know, with those assumptions, you take half off, you get the range from that that is lower than the price. Yes, that's right. I'm not gonna go into more details than that.
Okay. The majority of it is price, but obviously.
Yeah.
Not everything is price.
That's right.
You say take half off, yeah?
Yeah. Yeah. To clarify this with margin. When I say margin, this might be sloppy. I'm talking about the percentage. I want to secure the percentage. If you go up on the gross margin, you need to increase much more than half to preserve the profit margin, I mean, as a percentage of sales. Here we also have a catch up to do because we haven't passed on all the inflation we have seen. We need to do more than half the inflation on the top line on price. Okay?
Okay, I understand.
Yeah.
Listen, the second question is on a completely different topic. Yeah? In the U.K., and it's not a huge market for you, but it's sizable, we had this famous letter from Mr. Gove to the insulation industry asking to come up with a solution for the cladding crisis, and he's looking for a monetary contribution from the industry. Okay? Now, obviously, ROCKWOOL's products did not contribute to the cladding crisis, but I am not sure whether the government actually understands that because the letter is addressed to all of the insulation industry.
Yeah.
I wonder how that is likely to impact you. How are you engaging with the government? What are you talking about?
We-
What do you think the outcome will be for you?
Yeah. I mean, the solution is quite clear. You need more ROCKWOOL and stone wool, and we are speaking with the government to explain that we did not contribute to that problem in any way. We have been fighting what was going on in the U.K. for quite a while without attacking others, just explaining this is not right. We have gotten tremendous growth because of that, because people recognize the product. I'm not worried about that. You have a point. The letter is kind of everything was sent out, but that's quite normal in politics. You know, it happens. It makes the point, but obviously we are not part of that.
Do you think you will be able to extricate yourself from this discussion and become immune from any charges that the government may impose on the whole industry?
I mean, we are discussing how you renovate the buildings and we need to work on capacity to deliver stone wool. Why should we pay for something that the foam producers and others created? That, that's not our job.
No, I entirely agree with you, but I just wonder if the government imposes a levy on the insulation industry, will they be able to exempt the likes of ROCKWOOL from the levy? I mean, is that, is that even possible?
You know, I'm not saying that's the case. For me, that would be very peculiar if that happens. No matter what you do there, the top line requirements to deliver Rockwool are gonna be there. If someone said, "Okay, we need to contribute 3% of revenue to a fund," what's gonna happen, it's gonna sit on the price, and we're gonna deliver Rockwool, but I don't think that will happen. This is more. You know, politics often goes like this.
It goes out, clear message, the point was made, and there was not a single person calling us when that went out and said, "ROCKWOOL, you have a problem with this." It's very observant that you saw that he directed to the whole industry, but all the phone calls we get is, of course, "Can you deliver all of this stone wool?" Those are the questions we get. I think it's quite widely understood, but let's see.
The last question for today is from Claus Almer, Nordea. The line is now open for you.
Thank you. A few questions from my side. The first, Jens, goes to pricing, and I know there's been a lot of questions about this, but is there any key markets, regions or sub-segments where you see a fundamentally different pricing dynamics either on a positive or a negative direction? That'll be the first question.
I think the low priced markets made bigger percentages because they were lower down, and then when these energy increases came, it kind of hurt the low price markets more, so you saw bigger percentages there. I don't really see any market. You have some segments like the steel prices went up and then down, and you actually have a price reduction, but that's very normal in the grid market that if the steel prices go down, it's kind of almost indexed. I would say markets are up. There is one market that is super tough in every respect, and it doesn't matter so much for us because we are small, and that's China. You have the Olympic Games with almost a complete lockdown. We cannot get into the country.
There is low, relatively low market activity even though it has started to grow again. I would say China is the exception.
Okay. A question regarding the 2021 performance and guidance. You know, you had a guidance saying minimum 13% EBIT margin, and you deliver 13%. I know we should not look too much into the specific details as such, but revenue really performed well, and you gave guidance mid-November, I think, as recalled. What really happened with the margin in the last one and a half months?
What happened was that I sat with a challenge maybe of EUR 40 million, or maybe EUR 30-40 million inflation, and then in a matter of weeks we have some sort almost of an energy crisis, and I see almost EUR 100. I'm quite happy, and then when it's within 0.1 percentage point of that, I felt we did well. We compensated all of that, and we managed to get the prices up quite quickly. Our original plan was a really comfortable one, but I kind of lost it, but I was still on the mark. It was a big number that came on top from the point that we spoke.
Right. Okay. It was not like you. As you had this tailwind, so to speak, from the revenue, that you did some extra investments or, and the likes, in Q4?
No. I mean, we had this. It was dual things. You had that, inflation, energy crisis, whatever we call it, that just spread and jumped. We had a jump in volumes also. You know, we were on 17, and suddenly we just have to give gas on the factories, and then we went into more volume rebates, because they were still in place, some of them. All of this led to that. You know, it was basically just a run, increase prices and run, and deliver, and make sure we did that. While we did that, by the way, our NPS score implying in spite of these very big price increases, I didn't expect that, it went from 53 to 54.
I think part of that was not because they loved that we passed on price increases, but they knew that we did it for good reasons, so they knew we were still on the back foot, because it happened so quickly. We delivered, and we started to get back to really good output. I think that was a little bit rewarded in our customer survey. That we delivered on our contracts.
Okay. Just my final question goes to your comments about the CapEx going forward, where you also are highlighting Asia to be in your focus. Where in Asia? As you said, China is a difficult market, so I guess it's not China. What are you actually going to do in Asia?
Yeah. I mean, it's relatively limited. I mean, in Asia now we have the new plant in China where we do a transition, and then we have acquired-
Sorry.
Yeah. It's not big things, Klaus, but we have the new factory in China that we should start up this year. Then we also acquired the business in Japan, and there we have it's a fantastic scheme. The government has told us that as much as we invest, they will invest. Our plan is to make use of that and upgrade that factory. In the scale of Asia, those are two quite big moves, but they're still relatively small compared to when we talk about investments in Europe because it's not jumbo factories. These are relatively small factories. Okay. We really-
Okay.
Invest in Japan.
Uh, and-
to bring that one up properly.
Is that a stone wool?
Yeah.
-country or is no very-
It is a stone wool. I mean, it's a huge economy, but it's like a niche stone wool market, so it's gonna be a long and slow road to. We have been exporting to Japan for years, but this is a long road to kind of really bring in high quality stone wool and start to establish stone wool as a bigger category. Japan is slow, but they appreciate the product already in some segment, but we need to increase it. For example, in general building insulation today, you more or less, you don't use stone wool, and we need to push into that, but it will take time. It's one of these patient games, but I'm very happy that we have a bridgehead now.
Okay, that makes sense. Thank you so much.
Okay, thank you.
I think that was the last question for today. Ladies and gentlemen, we would like to thank you for all your good questions and the audience for listening in on today's call. We appreciate your interest in ROCKWOOL International. Please be informed that on the third of 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, Thomas Harder. You know my contact details, or you may find them on the investor section on the corporate website. Jens, Kim, and I thank you for joining today's earnings call. Have a great day.