Good day to everyone, and welcome to ROCKWOOL's conference c all regarding the result for full year 2023. My name is Kim Junge Andersen. I'm the CFO of ROCKWOOL A/S. Today, I'm pleased to present CEO Jens Birgersson. For the first part of this call, all participants will be in a listening-only mode. As a reminder, this conference call is being recorded. First, Jens Birgersson will go through our presentation and give you an update on the results for the full year and fourth quarter of 2023. Afterwards, we'll be ready to answer all your questions. Before I hand over the word to Jens Birgersson, I must ask you to notice slide two, which is the forward-looking statement. Please be aware that this presentation contains uncertainties. Now, we can go to the next slide, which is slide three. Jens Birgersson, I will now hand over the word to you.
Good morning. I will 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%-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 -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. So 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 on sales. So that's nice. Comparing weather, there were some weather differences in different regions, and some places where they might have played into December. But if you look at the overall temperature and weather 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%, so it's obviously significantly up from the previous year, where we still had 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, 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, you know, 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 five, full year, and we go to slide six. Looking at the quarter, we have had 2% growth and basically in both businesses, more or less the same, so marginal difference of 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 Rockfon North America, where we have done quite well on insulation in North America. That continues, but on the Rockfon side, we have soft a little bit and not had a really good top-line quarter. And then overall, Rockpanel 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, it's, it's just that they are a little bit more exposed. Both of them experienced on their significant businesses more than double-digit declines in Q4. If you look into the regions, Western Europe, -4%, there you have some countries that are doing well, Spain, Norway, U.K., but obviously, countries like Germany, the whole of Nordics, Denmark, Sweden, Finland, down quite a lot. So generally, Western Europe didn't, didn't do well, with a few exceptions. On the other hand, there wasn't anything surprising when we looked at the quarter. Pretty much what we expected to happen or a little bit better played out, so, so no, no surprises in that.
In Eastern Europe, a whole lot of countries were doing quite well in Q4. Part of that is that it was a very, very challenging quarter last year, where you had destocking, slowdown in the market, energy prices, and so, so part of that is because of the comparable. Also, some of these markets have different, different winter pattern compared to last year. But, but anyhow, Eastern Europe, positive, up 22%. North America and Asia summed up, China, so 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, you know, GDP, and it looks, looks fine.
And then in North America, we had quite equal Canada, U.S. growth, but we were capacity constrained. After the strike, we have been a bit on the back foot. We have a backlog we need to work through, and we could not deliver as much as we wanted. So it wasn't a market constraint, it was a delivery constraint that kept that single digit. Slide eight, profitability. We experienced a quarter where, compared to Q3, energy prices remained stable. There were some differences, you know, some of the energy types 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 the stable cost position, and then made improved 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 shock 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 price in this year, you could say, are marginally up or flattish. Slide nine. Nothing really to comment there, except for that we have the EUR 60 million in system division of one-offs.
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. 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 our rainwater systems. When times are tough, especially the prefab houses that go mainly into residential, that suffers a little bit extra much in bad times. So we see that we lose a little bit of margin by having those businesses. It doesn't mean we're gonna stop doing them. We keep working, but it does impact the margins a little bit. Slide 10.
Investment activities, we just keep going, no, no real changes, so no projects you don't recognize. The main one is the Flumroc one, and also in France, where we now have the temporary 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 do some lighter construction work, put up the fence, we pulled in electricity on the side for the construction cubicles or the construction huts, and we leave it at that. And then we are waiting now during Q3 to tidy up those final, Q-Q1, sorry, sorry. Thanks, Kim. So in Q1, we then foresee that the legal system will work through this and make that formalize those decisions that we predict will happen.
So at this stage, we see a lower risk for that 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 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 fine and satisfactory working capital management. So that contributes to the cash flow, and I think now Kim knows the precise number, EUR 239 million negative debt. So we have come out of-...
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 buyback program, especially share buyback program, was a logical thing. So on the next slide, 12, you see the share buyback 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 the sustainability report, second year we do that in February, together with the 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 are 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 of 2022. Between 2015 and 2022-2030, we put milestone in the middle. We are ahead on everything there, and that's progressing well. What will be important here with scope one and two, CO2 emission reductions, will be that the market kind of 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 welcoming to it. And then below baseline year 2019, there you see the science-based targets, and that's also progressing, and that target is challenging because it's an absolute value. So when we grow organically, we kind of 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 gotten 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 gonna do the conversions in Switzerland for the Flumroc business, and we also now launched quite a big program in the Netherlands, launched it. 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, and reduce the CO2 and the greenhouse gases. Then, obviously, circularity plays a role. All in all, so we are driving our circularity agendas that improves the situation.
Overall, at this stage, we have committed to spend about EUR 100 million a year on the green part. Later on, it might be more as we grow, but EUR 100 million, and we keep going on that. And then we have alone 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've been seeing that if you get to 90%, and then you can do some offsetting measures on top, we as engineers and our engineers can see a way through, and, and therefore, we committed. We didn't want to commit before the definition were clear. Should be said, said, though, that even more important than 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 EU has now talked about the 2040 goal. Personally, to move the 2050 goal to 2040, it doesn't change much.
I think it's more important to, to put a 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, five, and 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, two effects on the top line. We see industry, hospitals, education, leisure, offices. We also see HVAC business.
We see the heavy density facade 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 nearshoring, they see that, okay, if we're gonna have a recession or a continuous slowdown, by the time we now have built whatever we're gonna 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 they say, along the way, probably the interest rate will be the same or lower, probably lower. And that means that some of that backlog of stock product 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 build. There we are at very low backlog levels, very little financing of new build projects, and energy efficiency money. We see in Germany, for example, EUR 16 billion or EUR 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 will 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, 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 gonna basically manage price and cost, and at this stage, we see relatively stable cost. But again, there is this 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 or 5% per salary increases and personnel expense increases, with some regions doing much more. If you look at North America, has been under severe salary pressure, and the job data now in the U.S. is again, very, very...
Yeah, it'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 U.S. On the other hand, we don't see much of a challenge in passing that through, on price. So we, we can balance that out, so it's nothing we are too concerned about. With that, I would like to hand over for questions.
We now begin the question and answer session. To ask a question, we have star and one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. The first question comes from the line of Alexander Craeymeersch with Kepler Cheuvreux. Please go ahead.
Hi, good morning. Congratulations on the nice set of results. Just wanted to confirm, you hear me correctly?
Yeah, I hear you. It was-
Yes, we hear you.
Fantastic. Okay. So, the first question would be on the capacity, capacity utilization rate. I know you don't typically state those, but, of course, according to our calculations, that capacity utilization rate should be around 75%. And, despite this low utilization rate, your margins came in really high, which was a bit of a, an outlier. So I wonder if, if this can be explained by some capacity out of the markets, 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, into 2024, because we read that foam players are increasing their prices with 8%-10%, in Europe, in Western Europe, whereas we see stone players just like yourself, maybe increasing prices with 3%-4%. Is that correct? And whether, and how should we see then the competitive placing of ROCKWOOL in the market? Thank you for that.
Yeah. So, we take the capacity... Thanks for the good questions. 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? 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 U.S., 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 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, you know, 70, 80, 65, whatever it is, but we took a deep cut on capacity, and we have also taken, you know, 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 we pretty much set the business for this volume level.
It's not perfectly optimized because we don't wanna, especially on the wide 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 9 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 shifts. So maybe only produce Monday to Friday, 7 by 24, or some factories, even less.
So we have learned a lot about how to do that without getting into massive under absorption. On the pricing then, I would say the following, it's a little bit of a wait and see. Obviously, North America, Asia, different story. Normal markets, you know, 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 the broad-based pricing, 1%-3%, would be in place, but it varies between the segments.
You know, on the residential side, depending on what glass wool does, we have to adapt because we don't wanna 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 a couple of percentage point 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.
Okay, thank you for that. I'll leave the floor to my colleagues.
The next question is from Zaim Beekawa with J.P. Morgan. Please go ahead.
Morning. Thank you for taking my questions, just two for me. I was hoping you could provide the latest developments with regards to your, your hedging strategy. And then secondly, you kind of mentioned the shift for flat roofs and facade insulation that traditionally have lower margins. Was just curious to know how materially lower these margins are versus kind of the, the other products. Thank you.
I hand that question over to Kim, because the hedging, he, he is doing that.
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 sites. 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 quarter two yet, 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.
And then on the margins, when you get a bit of growth on the flat roof side of the net, that is right. Also, the lowest priced products per unit input, so to say. So the gross margin is lower per unit you produce. On the other hand, the projects are more, they are bigger, and you tend to run longer, so you have different setup cost. Some of those projects you can also produce to stock instead of produce to order. So, there is a difference, but what determines this 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 point.
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.
Great. Thanks, thanks for taking the questions.
The next question comes from the line of Marcus Cole with UBS. Please go ahead.
Morning, thanks for taking my questions. Just on pricing, I think you previously mentioned you're a bit more sensitive to pricing in 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 could have your thoughts again on that. And then in terms of the plants you're converting from coal, how many have you actually done to date? Thank you.
Two questions. Which ones do you want me to take, Marcus?
All of them, I hope.
Okay, so we start with... What was the first one now?
Project.
Project.
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, you know, there are more out there to quote on, there 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're building. So I wouldn'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 it, 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 had it 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 that, Mirella? Hugo?
No, no, it, it is, it's in effect now, but the member states now have to-
The member states has to get around to do it. So we need to see how the member 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 every EUR 60-70 billion, but we need to see what they actually decide in the member states. And then when we understand that better, we're gonna 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 the people to do the work.
Quite frankly, I don't think it's a good situation now where you have such a super low energy renovation and new-build residential happening, that there are 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 gonna need more of them. So I think the constraint will be there. So we do both ways. We're gonna calculate what goals do the country set, and then we try to estimate what do we actually believe gonna 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 wanna 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, we see already quite a significant impact in those segments. So I think it's fair to say now it's getting quite exciting, quite exciting to see when this volume will start to hit. Again, I haven't factored that in for this year.
Thank you.
Yeah. Question on conversion, I mean, from my memory. We have done, we did Denmark on biogas. We did Germany, U.S. to gas. We have done Poland, one to gas. So Denmark, Poland, two melters. We have done electrical in Norway, China, we are doing one 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, and we will do, and we will continue the on, and then we need to decide where we actually do them. Yeah.
Okay, thank you very much.
The next question is from Yves Bromehead with Société Générale. Please go ahead.
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 a marginal improvement from what you've been saying over the last few months. On your volume outlook, 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, you know, just making a rough math on it, 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 U.S. is growing, and appreciate also the U.K. 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 timeline of adding capacity in the U.K. and the U.S.? Thank you.
Yeah, very good, very good question, Yves. So, I think you explained the outlook quite well, but I wouldn't say it's conservative. You know, you have logistics, road tax, CO2 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 will residential worsen? You know, so that's pretty much it. So thirteen percent feels like a reasonable forecast. I wouldn't call it conservative.
I just say with what we know, and then you do simulations up and down, fair, fair, fair assumption. Then, then you're right on the U.K. and, and U.S. You know, we, we are, in terms of the U.S., as I said before, we are, we are well loaded, we have high appreciation for our product, we position it well, and we have a very good and growing business. So you're right, we need, we need to build something, and we haven't said that we won't. It's just a question of getting the last pieces in place, and then, then we come back and announce that in due course. So we are working on that, and we are securing all the pieces. So, so, so, so you, you, you are right. U.K. is a little bit further out.
We have, we have three lines in the U.K., we still have some capacity, but again, the market is good, and in U.K., for U.K., it's a very good strategy. I think the biggest challenge to expanding in the U.K. is, is probably to find land, and we always keep a lookout for land. But you are right, if we keep growing like this in the U.K., we will need more capacity, and it's a big market. 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 product, you know, the 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.
Great. Thank you, guys.
The next question is from Arnaud, sorry, Arnaud Lehmann with Bank of America. Please go ahead.
Thank you very much. Good morning, gentlemen. Three quick questions, if that's okay. Just, I mean, if we look back at 2023 on pricing, right, and margin trends, obviously very favorable. You talk about lower input cost and stable pricing. To which extent do you think that is sustainable into 2024, when we shift from variable cost to fixed cost inflation? So your variable costs, your energy, looks like they're gonna be reasonably low, customer base, and 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 EUR 375, is it a good guide, that as a steady state, or do you have some catch-up effect in there?
I think you mentioned you couldn't spend as much as you planned in 2023. So is EUR 375 the right level for the medium term, or you think 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 if that's still broadly valid. Thank you.
Could you just, recap the last question, so I couldn't hear that one?
Yeah, your end market exposure, is it still 50/50 between residential and non-residential?
Thanks for the questions, Arnaud. So on the price, our you know, we, we generally have never applied the surcharge pricing. There could be some exceptions, but we fundamentally see it as we need a sustainable EBIT margin, so we can do all these 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, is one can discuss, but our ambition is to regard this as a sustainable level, and then it's for us to prove it. Yeah. So that's on the pricing.
Then, where the cost 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 EUR 375 million, you are right. If we don't start a new product, we don't get a project, a greenfield or a brownfield, it won't happen. So we have factored in here, obviously, the France is 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 forecast, 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 two.
Romania is getting into the higher CapEx spend portion of the project. France, hopefully, get the green light now to really get going. And then in the year here, we plan to start up another project that we haven't announced, and that Kim and I, we just need to decide where we do that, and then we come back on that. So that's fundamentally it. And again, estimations.
The balance between the two.
Yeah. And then the end-to-end market, the 50/50, quite honestly, I, I don't look at it in that way. So I, 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, it will vary by market. So I, I, to be honest, you know, if it's 40, 50, or 60, in a market, we, 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, you know, residential renovation, multi-unit or single house, we are very different in those two segments.
So I can't say anything, but clear is that the residential portion is lower now in our business because new build and renovation in that segment is lower. Historically, it's very low now. Okay?
Very good. Thank you so much.
The next question is from George Speak with BNP Paribas. Please go ahead.
Hi, gentlemen. Thanks for taking my question. So I'll 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 my 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 pricing risk this year versus last year.
The lag on permits to constructions. There might be a pattern there, but it's very hard to figure it out, because if you look at the low volume in 2023, there were a huge amount of permits around in Germany, but then everyone stops, and no one does anything. So It doesn't work that way to see it. You know, 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're simply not there, so there isn't a permit backlog to execute on.
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 the country, number of permits, number of build, and we do all of that. But quite frankly, when the market change, you can't say much. But one thing is for sure, if there are no permits in the market, it won't jumpstart immediately and build. Then on the price, I you know, 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. If you could navigate last year, my basic assumption is that we should be able to navigate this year, too. So that's because we have done it now so many years, and we have pulled it off in an extraordinarily difficult year, like autumn 2022 and also in 2023. So I'm optimistic that we get through also this year.
Okay, thank you.
The next question is from Yassine Touahri with Onfield Investment Research. Please go ahead.
Yes, good morning. I would have three questions. My first question would be on 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 digits, 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 more color on what do you see in different countries? Do you see growth in Eastern Europe, growth in the U.S., 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? And any color that you could give on the cost of a new plant, on the amount of sales that it generates would be very, very helpful.
Kim, Kim will take the first question, I'll take the...
First, again, just a gentle 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 level of details, but there was a positive pricing, you know, 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, we can say. So high single digit pricing and a negative volume impact for 2023. I will leave 2024 to you, Jens.
Yeah. So 2024, you're right that there is a mix aspect, but we would probably, at this stage, assume that with the mix, we have prices and that you have basically flat volume or slightly volume up. So that's how I see it. So moderately up or flat, that's how I hope to come out of the year. But saying that on the light side, in the general building insulation 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, aesthetics, facade, normal energy renovation, that seems to be coming, factory buildings, those investment, and that draws a lot of volume.
So I would say slightly optimistic, up there. Then regionally, I've covered with you, but you are right. France, Germany is. You know, we had a good development in Eastern Europe compared to a very bad comparable in Q4. But I think you're right, France is probably a little bit more under 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, that they take action, and they manage to get maybe any deficiency 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 U.K., there our experience is that it matters, probably not so much what the market does, because we have this underlying growth in the non-combustible segment. In terms of plants, you know, when you invest in a plant, and then you look at return on invested capital or capital employed, I mean, our threshold is somewhere on our page is 15%, and that we would like to meet on these plants. But with all the depreciation, even though a plant will be good at generating cash, we want a plant that is not too creative at the beginning, because we need to fill it over 2, 3, 4, 5 years, otherwise, we built a too small one.
So generally, the return on capital employed is, you know, if we can get 15% or more, and then we keep running our old plants really well, the average works out fine.
Thank you very much for the results.
The next question is from, Brijesh Siya with HSBC. Please go ahead.
Hi, good afternoon, gents. I have two questions. The first one is on your CapEx one. So given that you are guiding for EUR 375 million, and 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 to 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 3-4 years? That's my first one. The second one is on the insulation on the roof, especially with 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 PV enabled, or stone wool roofing system? Is that something in management's mind to think of for expanding, given that you're stressing so much and what we could see in future be a PV enabled roofing system everywhere?
Brijesh, hi. Two very clever questions, you know. Good, good questions. On the CapEx and the buyback, I mean, we have, we have a very good cash flow, and even if we keep investing like this, we have money, and our equity ratio is high. But again, we cannot sit here and promise what happen next year. This, 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 a share buyback, but Kim and I cannot commit to that we do that every year, okay? Then on the installation on roof, there are a couple of things we can do on that.
I mean, we have not—until now, we have never said we will do membranes or anything else, but there are... 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, 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 a decision to do that, but it's a very interesting question that is worth thinking about.
Then you see a trend in the market for that 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?
Okay, understood, and thank you.
The next question is from Casper Blom, with Danske Bank. Please go ahead.
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 yeah, 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 position the ROCKWOOL Foundation and your other main shareholders will take in connection with that buyback? Will they be participating pro rata? Thank you.
Okay, so I leave the second question to Kim. I take your first question. Thank you, Kasper. 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, I read this, that there are two ways to buy it, because it has been decided by the Polish government that this should be sold. There are two ways. The one way is to buy, 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 that 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 and to someone, a bidder. And that is the main path of this thing. These two owners have not—they're not on a sanction list according to the EU or the U.S. It's a Polish sanction list. So our view on this was, if you go with the first method, you make an agreement, and 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 approving, 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 will 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 would 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 deal thing because we are not quite sure that it's 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 it's mixed up with the old government, and there are different parties. I see this as an acquisition that is fully determined by politics in Poland. And politics in Poland or in any other country is probably not our... You know, that's not our expertise. So we have taken the approach with 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 ten years lawsuits along the line with the second, so we tried 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.
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 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 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.
Very clear. Thanks a lot, both of you.
Okay, so we have three-
Yeah
... three, three people who want to ask questions, and we are over time, but we will do it. But please limit to two questions, and we try to work these three through.
Okay, the next question is from Kristian Tornøe with SEB. Please go ahead.
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 non-recurring costs. So you had the EUR 27 million for the Ukrainian rebuild fund. In Q3, you had some goodwill write-down. I think it was around EUR 12 million, and then you have these EUR 16 million in restructuring for Rockfon here in Q4. So when I add that up, that's roughly EUR 55 million of non-recurring items. So if you adjust for that, your margin would actually have been 15.8%.
So hence, when you are guiding for 13% on an unchanged top line, you're guiding the margin down almost three percentage points or roughly EUR 100 million. So, is that—I mean, EUR 100 million, is that really the inflation level you are expecting?
Kim, Kim can go through some more one-offs there, so I hand over to him. We also have some one-off costs in the years, and we have also done some impairments in the business and other things, but and new things can happen. I hand over to Kim. Kim?
No, I will not, Christian, 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.
Okay.
Probably, yeah. So that is included in the forecasting. Whether we're gonna have more one-off during 2024, we do not know. But as Jens said, there has been both positive one-offs, but there's also 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.
Okay. So, so just to clarify, in your guidance, have you assumed another EUR 27 million donation then?
No, we have assumed a donation, but it's up to the board to announce that at the AGM.
But you don't want to quantify how much you assumed?
At the AGM, you will get a—you'll get the number. That's a board decision. But we have included a donation in 2024.
Understood. Thank you.
The next question is from Claus Almer with Nordea. Please go ahead.
Thank you. Yeah, coming back to, to Christian'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, that could be so you can't help us, you know, get a better understanding of what it could be? That would be the first one.
I think you just have to be patient until April, Claus, at the AGM, because, the... Again, this is a shareholder decision. It's a board recommendation to the, to the shareholders that will be approved at the, at the AGM.
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 both talk about pricing, environment, and the volume outlook.
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 on single-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. And it is, you know, you had these 18,000 names in Sweden, where they handed them into government.
Construction workers who said, "We don't have jobs, you know, you need to do something." And, and so I, so I think that on the residential, it gotten worse, but the fact that it 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 billion 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 lower 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 U.S., North America, and Asia, that is as it is. I think there is a bigger hope in businesses that it's time to find the downturn, and therefore, I think it's a little bit better. I think we have seen that in our volumes here in month 1, 2, and 3 of the fourth quarter. I think we have a good opportunity to see that in the coming months on, on heavy density, more industrial applications. If that continues later on in the year, that's too hard—that's too early to judge.
That's too early to judge, but definitely, I think it looks a little bit better short term, on the industrial side.
That makes a lot of sense. Thank you so much for the, for that, call. That was all for me.
The last question come from the line of Pierre de Fraguier with Goldman Sachs. Please go ahead.
Thank you, and sorry for running over. Question would be on the competitive landscape. I mean, you've been very successful to variabilize, to variabilize your cost base 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 you mean in terms of your market shares, and just wondering, you know, if some of these lines, you know, if they were to come back, when would that be in your view? So the first question and second question, quickly, can you remind us your energy bill or sort of energy exposure as of 2023? Thank you.
So 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 the trends on the energy we have already covered. I can only answer for myself on the capacity, with what's coming up in the market, in energy efficiency, what's actually needed in Europe, I don't see on the stone wool and the glass wool, if this energy efficiency drive comes, that they're gonna be enough... or the capacity will be used, right? 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.
Yes, in some segment, 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, and we just try to navigate that, because we know one thing with our business: we cannot, we don't wanna 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 gonna cost more and more to build in the environment here. So, so, so that's how we do it, and how the others do it, I cannot say, but as you saw last year, net to net, there has at least we haven't seen big market share moves around in very many countries.
That's my observation, but of course, we look at our own situation, and that's what we manage.
Can you specify how much capacity you've adjusted, actually?
I gave a number, and it's not an absolute, but just to give an example, the 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 in a- But in the autumn of 2022, we pulled down, like, 800 manufacturing jobs in around, and that capacity we took out, and exactly, but we're talking 10%-20% capacity takeout, fair to say.
Thanks a lot.
Yeah.
Yeah. Superb.
This concludes our question and answer session. I would like to turn the conference back over to the hosts for any closing remarks.
Yeah, sorry about the last one.
Maybe take-
Just on the energy bill. As we do not, of course, disclose exactly what is the proportion, but coke is still our largest energy cost. And then I would say normally we gave ourself 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 to 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 the eighth, we have a ESG investor call, where we also have Mirella Vitale presenting the Rockwool Sustainability Report for 2023. Thank you very much, and have a very nice day.