Welcome to the conference call regarding Rockwool International's results for the first half year of 2020. My name is Thomas Harder. I am Director of Group Treasury and Investor Relations of Rockwool International. I'm here together with CEO, Jens Birgersson and CFO, Kim Junge Andersen. Jens Birgersson will go through our presentation, give you an update on the results for the second quarter and first half year of 2020. Afterwards, we will be ready to answer all your good questions. Before I hand over the words to Jens Birgersson, I must ask you to notice slide number two, which is the forward-looking statement. Please be aware that this presentation contains uncertainties. We can go to the next slide, which is slide number three. Jens Birgersson, I will now hand over the words to you.
Good morning, everyone. It's Jens here. I've given a couple of interviews this morning. It seems like, I don't know if it's in our building or generally, we have had echo, some problems during all of the calls. Not big ones. If you don't hear something I say, don't be afraid to take it again at the end during the questions. Also when you ask your questions, try to speak a little bit slow and clear, because there's something in the air today. Before we go into the standard presentation, I just want to expand a little bit of the background to the quarter. First, a recap of Q1. We had a good January, February, a good start in March. Corona started to impact. We got through the quarter flat. We did give you the sales in April, around -20%.
What happened during the quarter was that you saw quite a steep decline, -20%, pretty poor April. Towards the end of April, it started to come around. You also saw some of these, I wouldn't say panic actions, but abrupt actions that happened in the first half of the quarter. All the building sites in France were shut down. There were a couple of countries in Asia where factories were ordered to be shut down. We had more turbulence, and then the countries got more and more used to it. We took the approach for this quarter. We had a couple of objectives. First of all, with our financial possession, net debt free, we went into it without any angst, without any worries. We said, we're going to be the rock. We're going to navigate this in a steady manner.
We're going to keep, of course, paying the dividend and keep going on the buyback. We did do that. We also said that in the choice between subsidies and deliver even a few bags to a customer, we would deliver to customers. The numbers you see here, we haven't got governmental subsidy money in there. We have some very small amounts in some German-speaking countries. Fundamentally, subsidies is not what we steer, but only focus on customers. We were able to deliver, and then to keep our people safe. There's a whole slate of actions in the factories to separate people. We have had very few cases across Rockwool. Then in the office, we had three gears defined for the company.
Gear three, everyone in the office, gear two, half the crew home, half the crew in the office, and gear one, everyone home. We switched early into gear one. Again, that has worked quite well. No technical glitches. Maybe this is the third call in the last, since March or something that I have a problem. This has generally worked. We also said that we will focus on doing a better job than we did last time. After the financial crisis, we saw that Rockwool maybe lost the most of bottom line when the top line went down. We have actually prepared for this. We did a fire drill last year. We have worked on increasing agility and flexibility. At the same time, we have avoided actions to reduce everyone's salary. We did do a small salary increase. We see this as a glitch.
Yes, it's crazy times, but we wanted to manage it as we normally would manage any drastic impact on demand. That's how we approached it. That means that in terms of laying people off to preserve bottom line, we kind of had an ambition to preserve profitability but not maximize profitability. On prices, we said, steady in the boat, keep the pricing. Okay. If we then look at the numbers, what that resulted in, about 7%-8% down on slide three. 7%-8% down on the top line in the quarter, but more, of course, in Q2. Q1, otherwise, would have been a growth quarter. EBIT, 11.2% down compared to last year, but still double-digit. Then on cash flow, we typically have this build up at the beginning of the year of net working capital and seasonal stock.
We manage that and then, of course, trade receivables went down since we didn't grow, we declined, and that helped the net working capital. Kept a really big focus on overdues and haven't had really any defaults. We had for a period where a few invoices were delayed, but generally we have kept that in hand. We move to slide four, Q2. First half, five, six weeks of that quarter were the toughest April numbers you have. May was similar, then it started to improve and stabilize, and you also saw that the drastic actions were less drastic out in the countries. Big variance of what happens in markets. I don't normally go into countries, but just to give you a flavor, start with North America. Canada, keeping steady. U.S., up and down, mostly down.
In the Nordics, you could see Denmark jumping into double-digit growth, and we actually had to step up capacity in Denmark. Then you have markets like Italy, they shut everything, and we were down there close to 100%, and maybe it was 1% left of activity. You had a huge variability of what happened in the market. Across the board, if customers needed product, we delivered. We didn't have logistics problems on the incoming, not the outgoing. We saw raw material prices go down, obviously no travel cost, no hirings, and all the other measures, and we took out shifts wherever we needed and offloaded those costs. Also had good cost savings, normal cost savings through efficiencies. The factories ran with a very high degree of efficiency, actually, in the crisis. Says something about our people. Move to slide five.
If you look at Insulation and Systems. Systems got through it a little bit better. The reason for that was, I would say, Grodan obviously not affected by this. They kept growing throughout, but also Rockfon and Rockpanel have done comparably well. That's nice. In the Insulation segment, the countries that had a complete stop on the building sites for a couple of weeks that obviously impact. Our conclusion is that we didn't lose any market share during this time period. Move on to slide six. There you see actually that Systems in the quarter itself, it took also a bit of downturn. It hit worse and bigger on the Insulation side, as expected, because we have Grodan that plays in another market and some other segments, too. Slide seven. Regional sales development. Starting with North America, Asia, and others.
In Asia, we had quite a decline. China came out of it, and then it went down again, so it has been flickering around. It didn't come back in a V, but it kind of came up and then down. It's not fully back in China, which maybe surprised me a little bit. It's not so big for us. You saw South Asia, India taking very strong measures and saw the impact on the business. Yeah, U.S. is what we all heard, quite up and down. I should also say, though, that the U.S., when you look into the construction sector, people are quite optimistic about the measures coming. It has been a decline at times, but not a big panic in the market. People are quite optimistic about the future. Poland, Russia, Romania. Romania less so.
They slowed down a bit. Russia had cities and parts where they did complete lockdown, also Poland. You have some smaller countries actually growing throughout. Romania, even though the decline, it was not dramatic. In Western Europe, you could see basically the more south you came in Europe, the more drastic the decline. With Italy, Spain, France, once they shut, they really shut. In the Nordic, led by Denmark, you saw that up. Sweden continued. Norway were more drastic in the measures, also building sites. We were allowed for most of the part to continue our construction in Norway and we managed to do most, but quite a few things were shut down in Norway. Germany, in between, quite heavily impacted.
They took firm measures. There were areas where operations we had to take off shifts and all that. The market went down quite significantly. Profitability. Of course, there is with the deep value chain we have, when you go down closer to the breakeven point, it doesn't scale proportionally. We have costs that we can't move out. Largely, we have taken quite a few actions without being over-dramatic and preserved quite a healthy margin and positive cash flow. I'm happy with the EBITDA margin in Q2 considering the top-line decline. It should be noted also these numbers, that in 2019, we had a EUR 10 million one-off for the legal settlement in the U.S. The decline overall on EBITDA was 23% from 2019, like-for-like. Move to slide nine. Some of the businesses in Systems segment preserved profitability.
The like-for-like EBIT margin in the Systems segment went from 15.3- 12.4, and from 11.2- 8 in Insulation. That's, I think, acceptable. Next. Investment activities. Our spirit has been to keep going, then maybe push a little bit more on some sustainability investments, and I would say a couple of investment hasn't come forward, but we decided to keep the projects we have and keep going. No big change on that. Slide 11, cash flow. Net working capital, very strict focus on not overbuilding stocks. That has been done. We have controlled the stock weekly as we normally do. On the net working capital, the DKK 40 million there, that's with the decline in top line. We then reduced the trade receivables, obviously, and those together have then led to that cut from reduced net working capital. We kept going the dividend payments.
Obviously, we bought those shares at much under Safe Harbor, of course, but at a much lower rate in the Scandinavian market. That's on track or a bit ahead of the program. In spite of the performance, okay, we made money and we have invested, we did the dividend, we did the share buyback. We are still net debt-free at the end of Q2. On the outlook then, we see, we continue to be agile. We are ready for anything. We are restrictive on costs. Inventory management, we keep doing what we are doing now and what we have done in Q2. When we look at the market, we feel relatively safe to say that it will be better in the second half than in the first half. You see in some markets, very steep improvements, for example, Italy. In other markets, more slow improvement.
For example, U.K., there is a quick decline and seems to be a slower recovery. That doesn't necessarily mean that we will have a slow recovery because that's just more market share still. The change in regulation and the increased appreciation of fire in combustible insulation has kept going. I think we can mitigate some of that. Generally, we see that countries come back up, and that led us, if we move to slide 14, that we could in the annual report, we had the first guidance on the 5th of February, and then the two suspended periods there. On EBIT and investments, we just revived the previous guidance, then we have lowered the top line to reflect a little bit more statistically. That's based on what the second half year is a bit better than the first half year month-by-month.
Now we see what happens, but we expect the markets to improvement going forward. With that, I would like to hand over for questions.
Thank you.
Operator, I hope you are there now.
Yes. I am there. I am just moving into the question and answer session now. Ladies and gentlemen, if you have a question for the speaker, please press the zero one. Please hold until the first question arrives. We will start with two questions per participant. Please respect this. We have our first question from Kristian Johansen from Danske Bank. May I remind you, please remain at two questions per participant. Please go ahead.
Thank you. I will do my two questions then. Firstly, in the project segment, what level of delays have you seen in projects and tenders and so on, which could potentially have an impact into next year?
The second question?
Sure. Second question is regarding action by government in the countries where you're exposed on energy efficiency renovation. I think last time you reported, you mentioned that there's a new program in Italy. Has there been any other movement in any of the other markets?
Okay. What we have seen on the projects, I would say we saw a pause of three, four, five weeks in a number of projects in the countries where it stopped. It's hard to say, but when France stopped for five, six weeks, the project stopped. Now afterwards, that is a catch-up effect. Now those projects are going to accelerate. You could pretty much say that they delayed the amount of lockdown that the building sites were stopped. That's all that happened. We haven't yet seen, since there is a backlog of the projects, big projects, they have been bid, and that work has been kept going, and there's quite a big backlog in most markets of projects there. We haven't seen that really change. My question is what will happen, say, next year?
Are companies generating new projects that we will see in six months? That is my question mark, but we haven't seen much to the stock, the projects, and lower activity in projects coming out for inquiry. I think people have just kept doing, and then it's the next round of investments that then is yet to be seen, if there is a vacuum coming there in some segments. Is that okay, Kristian?
Yes, that's very clear, thank you.
Yeah. On the government actions, I expand that into the whole EU thing now, because then you have that as a base, because I think that's a topic. If you now look at the EU budget 2021- 2027, it's EUR 1.8 trillion. EUR 1.8 trillion. That is 60% higher than the previous six-year budget. It includes a number of things. First of all, it has this recovery facility, NextGenerationEU of EUR 750 million. It also has a Recovery and Resilience Facility of EUR 670 billion. About half of that is grant and half of that are loans. That money needs to be deployed relatively quickly, and then it has normal budget element. Whatever way you look at it, there is a good EUR 700 million, EUR 800 million of increase that is for a green restart or something like that in the economy.
Out of that, and this is our interpretation and we follow this daily, but 30% is preserved for climate action and a green restart. There are also some elements in there being discussed, for example, a tax to finance the grant piece with the potential tax on plastic. That's massive amounts of money. You see, for example, the U.K., they have done their own thing. It's about DKK 2 billion for restart and energy efficiency and some smaller amounts too. That's a non-EU country. Of course, in the U.S., it's such big numbers that we can't really see how it comes. Generally, it's a positive spirit in the U.S., that that money will go somewhere and will go into the construction sector.
I think that the awareness to get renovation. Also there is a target now of doubling the renovation rate, and by October, the membership countries should come back and tell the EU how they want to do it. There is a link between what they do and the central money, and this is advanced and all the rest. Fundamentally, a lot of good things. If you look then at the countries, where have you seen anything in play? I'm not sure that's an EU-related thing, but you look at Italy. Italy is already in positive growth territory year-to-date after the horrible stop. They are very quick up, and they have put a very strong, it's 110% subsidy of energy efficiency renovation. We clearly see it in our business, in the activity, and all the rest.
If you look at a country like France, they are aware of the need for renovation. They have their white certificate scheme, and they're restarting it. We don't expect France in our segment to come back to be on a lower level. Then you have countries like the U.K., where, for example, the furlough they did was made in a way that it actually forced some companies that could have gone bust since we didn't do it, we kept working. People that went on it, they actually were forced, almost shut down their companies, and that had a negative effect on the economy, even though it saved maybe some jobs. So the U.K., for some, are more hesitant how they will do it. In summary, when we look into next year and the outlook, we have seen some actions.
We are pretty certain that countries like Denmark, France, Italy, Spain also have a scheme. They will probably jump back in and be quite quick on it. They have simple schemes to do. Then you have other countries where you can be more hesitant, where they take a longer time to link the money to the project. We follow this. Hard to say. There's clearly a positive push. Some of the money also had a shorter best before date. You need to deploy some of these recovery funds before 2022 or 2023. Before 2023, a large portion of some of this money needs to be committed to projects. Obviously, you can't execute all of it. You have to commit it.
I think that we see activity, and then we see the whole variance of different governments vary in their skill of doing schemes that you can deploy. It can be leading the way at the moment. Okay?
Okay. Thank you.
More questions?
Thank you. Our next question comes from Yves Bromehead from Exane. Please go ahead.
Good morning, gentlemen. Unfortunately, I missed the whole presentation. Sorry about that. I'm not gonna try and pinpoint some slides. I'll go straight to some Q&A. My first question is just on the general situation today. We are actually hearing that July and August were relatively good months, compared to 2019 and even compared to expectations during COVID-19. That has apparently led some restocking across the channels, which is making the insulation industry quite tight. It feels that this is especially the case in the U.S., where price increases have been announced. I just wanted to understand if the situation is also relatively similar in Europe, and therefore, how should we think about price costs and if that's going to remain supportive into H2, even after the new capacity is coming on stream.
Second question, obviously it's great to hear all these new investments towards renovation, but we're hardly hearing anything on the new housing side. I just wanted to get an understanding of when you speak to the house builders and also to some of the distributors, what are you seeing and what is your, let's say, views on this as we go towards 2021 and, of course, the catch-up effect. How do you think the new housing will trend like? Thank you so much.
On the price cost, obviously some capacity's coming online. If you look at the announced increases over a five-year period, maybe stone wool the current plans, when you look at all, you're talking 3% CAGR capacity increase in the market with all the announcements we have seen. Obviously now, this year, next year, there are some factors which are gone. You're right on the U.S. First of all, the U.S. is extremely patchy. You can have one state in a complete different mode than another. You can almost not talk about like the South behaves very differently to New York did and now afterwards. We see everything from complete stances to booming and tight supply.
Generally, we have at least seen that Owens Corning, the last one, have announced a price increase, and we did announce a price increase also in the first half year. We have a traditional sticking to that. We don't announce and back off. That's the U.S. situation. Again, it's incredibly patchy. I see house builders and others being quite optimistic in the U.S., also new build. We see the start and stop and a wish to get the business going. Again, if too many people have corona, you can't run the factories, you can't run the building sites. You need to take care of the people, otherwise the economy doesn't work. Still a little bit of a gray cloud, but some optimism.
We go into Europe, I think that since short term, everyone have managed their capacity in the downturn, and short term now people are getting back on the projects and they want to finish them. We see demand coming back, and we see every week basically that now they are back. The question is, during the autumn, will it be on 100% of last year or below or above? It will be better than the first half year. I think that seems to be happening, but our general approach to price is to stay steady in most segment on the price. Did I cover your questions for that bit?
Yes.
Yeah. Okay.
Thanks.
Thank you. Our next question comes from Michael Rasmussen from SEB. Please go ahead.
Hi, thank you for taking my question. I wonder if you give any flavor on the month of July?
If you saw a pickup from June, I know that you mentioned that you saw that demand is rebounding strongly, but can we get any figures on that or maybe try to explain what geographies are moving faster than the others?
I can't comment a month. We got back to the same EBIT margin guidance and then as we had before, and then we get the top-line guidance, and you know what, March, that the first half of the quarter was quite down a lot. I can only say that it's now improving. In our business, you are probably better off looking at the overall construction industry because they average things out. We can be impacted by whether July is a two-day shorter month, impacted by the holiday strategy this year in France. Just a couple of days. We typically don't care too much about the month. What I said in the guidance, the situation is improving, and it's happening gradually, but that doesn't mean that you still have those workday variations between one year and the other.
We don't tend to look too much at the month, but it is improving.
Okay. My second question. In relation to your staff costs, it seems they're up year-over-year, due to the highest decline in revenue, I wonder what is driving this. Is it hiring for the people for the German expansion, the U.S. factory or?
It's a mix of things. On the blue collar side, we have been quite good at adapting to the capacity, which means increasing in some and lowering some. On that side, productivity has been kept. We are hiring. We started up Neuburg. That's fully started up. We have had also on the projects, just getting people into the U.S. for the projects, there have been complications. That's some of the fact. I should also say that our spirit for this quarter, we did do the salary increase. Our spirit is to adapt in a sensible way by market, so that we keep raising white collar productivity and we remain competitive. We didn't put the requirement on ourselves to do that within the quarter.
That means that the level of adjustments we have done on the white collar side, we don't do that based on a blip that the market stop, and we haven't really gone after subsidies. That means that you see that effect. Other markets, when we see the market dial in, the target we have is to preserve productivity, both in the office and on the shop floor.
Okay. Thank you very much.
Thank you. Our next question comes from Brijesh Siya from HSBC. Please go ahead.
Thank you. Good morning, gentlemen. I have two questions as well. First one is on Germany. We did see that a couple of other building material companies report a strong June as well, but you are kind of sounding like things are not as strong as others talk about. If you can just go a little more into whether any end market issue there, which you are facing and probably the others are not. The second one is on cost saving. If you can tell us whether you have done any kind of cost saving in H1 or any broader plan to do over the course of the year, whether that be temporary in nature or it will be kind of a more of longer-term permanent nature. Thank you.
Okay. I will not comment Germany in detail. We can say that Germany has not had a sharp V-up, but it's doing okay. It's interesting to see when, especially in our segment, that incentives for renovation, there's a huge amount of building permits, and there is a reset. Now with the incentives that are put in place, they have now a place to do energy efficiency renovation. We are driving that with our own employees. We are providing consulting, and we already have quite a few employees that want to do it with their houses. That is just starting now. Generally, Germany has managed the country, I think, for safety. I don't know which specific building material segments that have been growing. I can't comment that.
I just see that traditionally, Germany is normally quick out of a crisis, and I don't think we have really seen it start yet. Last time in the financial crisis, France was a little bit quicker out, and then Germany came, and then they came off strong a year after. They were basically back in our industry quite well. Let's wait and keep monitoring Germany. Cost saving. We have driven operational efficiency and got cost savings there. We have also savings on material. We per country, local managers looking into the productivity, and we have plans for that, but there's not a big central program. It's just to adapt to what the local market circumstances are. When we look at the market, we don't want to sit permanently with lower sales per entry.
We want to keep slightly increased productivity, which means that in some businesses where we are growing, we are hiring, in others we are reducing. Of course we have a hiring freeze. We do it maybe a little bit slower than some other company will do, but we do it sufficiently and we preserve competitiveness.
Okay, thanks.
Okay. Thank you.
Thank you. Our next question comes from Claus Almer from Nordea. Please go ahead.
Thank you. A few questions from my side. Jens, the first question goes to how you are managing the business, giving the combination of a demand picture that is improving, as you also have mentioned today, but also, I guess, still a lot of uncertainty about COVID-19 and a possible second wave. That will be the first question.
How we manage the business, it's the same whole element. We try to run a pull system with a defined protected buffer on inventory. We don't focus on subsidies, we focus on the customers. We had inside sales in place so we could move our field sales force on. We could work more on digitalization, for example, during when customers didn't need so much attention, we deployed those people to accelerate some of our digital initiatives, which means that we actually kept people that were not out selling and they worked to prepare some other digital initiatives like e-commerce and building the CRM and other things. We progressed that quite a bit. If we can accelerate the thing we know we need during a crisis instead of laying people off to do that.
Going forward, I want to set up the business so that we don't want to be optimized for a quarter. That's not how we manage. What we do now is that we had the other way match the demand of the products, and we think ahead, and then that next year, whatever next year will throw at us, we will be well-positioned to have good productivity and the right cost level by market. That's how we see it. That's a local, a couple of principles. We ran a fire drill actually last year where we analyzed back the financial crash 2007/2008. We had also changed some of the labor contracts, the way we approach it, and the idea is to be on the same productivity level and competitive in every market, and that's how we deal with it.
Therefore, I don't announce a big program or anything. This is just business as usual, and match the local operation with the local demand, and make sure we can meet whatever happens.
Okay. You say you are expect to business as usual and not the, let's just call it crisis we had three, four months ago. Is that the way we should think about your day-to-day?
Yeah. I would say this, not business as usual principles. That means all the principles we have, we have kept straight through. The office is still running gear two. Half the crew home, half the crew in the office. If you have a second wave in a country now, if the vaccine doesn't come or people don't use masks, then we might go into gear one, but it's kind of normal management. The principles are how we manage the business and keep delivering. That's the same. The fundamental principle that we're going to keep being competitive to keep our productivity and competitiveness. That's very important. We don't optimize it for a quarter, we optimize it for the level. We see this dial in.
In some markets, you might have a negative impact and then you have some market that will be growing where it's just a normal recipe, hold back on resources and raise productivity.
Okay.
It's not dramatic. Does that explain?
Yeah, absolutely, Jens. The second question goes to cost inflation. We have seen a number of costs like energy and so on is starting to increase again. Do we see this and how is that reflected in the guidance?
It's covered in the guidance we have. I think for the year we see a decrease net over the year. We have covered that in our forecast.
Sure. Okay, you see it is down on as for the full year, you will see a positive impact this year?
Yeah. That's right.
Okay. Thanks, Jens.
Thanks.
Thank you. Our next question comes from Franz Hoyer from Handelsbanken. Please go ahead.
Thank you very much. Just if you could help me with your pricing. I think you said that you have continued your pricing tactics, increasing them gradually, maybe not so much, I guess, during the Q2, but you have stuck to that, yes?
Yeah. What we did was we did, in most markets and segment, a price increase. It's various, of course, Grodan has a different market to Rockwool, Rockfon, et cetera. We have basically stuck to that. On the project pricing, we are selective. We typically get the orders at a premium, but we are a bit more flexible, but we don't jump around too much. Remember last year, we had a price decline in the whole market in Poland, so we are trying to work that back up.
Yeah.
The distribution segments where we have still demand, we have done an increase. I should also say, in the middle of the crisis, our focus was not on announcing price increase or anything like that, just keep deliveries.
Yeah
Care of the customers and help where. That pretty much how we see the year.
Yeah
With the cost situation, it's not a price year. The challenge for this year will be to keep it steady and keep the price quality up.
Thank you. Second question on market. Precisely because you've kept your factories open and you have kept providing availability to customers and so on, unlike some of your peers, have you a sense of your market share progression during this period? To what extent might that earn you some brownie points with customers that you can maybe hold onto some of that market share gain?
Yeah. In market share gain on projects, because you're only one quoting and responding, that's.
We have had a couple of markets where people haven't even responded to the inquiry. We have responded, and as the only bidder of course, we get the order. That's a very special circumstance. On the distribution segment, we have also done other things. We have done product trainings. We have launched in a couple of markets, e-commerce, because they were still sitting at their desks, and it was good time to do that. We have kept working. The NPS score is going to be incredibly hard to raise it. We've done five years in a row, but we've gotten a lot of positive feedback from the customers.
That's pretty much, we are a supplier that want to have top quality and top technical support and be down to earth, a real supplier they can count on. That goes for everyone that buys from us. I think at least I've gotten a lot of positive feedback, and I've not got a single complaint from a customer in the last four months that we have let them down. I think that has been good. If you look on the Systems segment side, there were a couple of segments there where for quite a while, we were the only supplier in Europe that could deliver. They were not huge amounts, but if you have a product and you get to the interior ceiling.
Yeah
That's the last bit you need to finish a project, even though it's only 150 sq m, it matters to get out on the site and finish the snag list. We did that. I can't see that we got negative points at least.
No. I understand.
I only have gotten positive.
Anything around bad debtors or anything like that developing among your customers?
What you saw in some markets are people stopped paying for a while. You could see it in France and Spain. We were in dialogue with them, and it was just the way it happens, and then we kept the dialogue, and I think we managed that we haven't had any defaults. There was a period in certain countries where people just stopped paying invoices. We had cash. We've been after it, and when we reached the point where it was critical, the customer said, "Let's pay." This is its balance between, do they really need the cash? At the same time, our policy is they should pay for product they have. It has gone through. We haven't crushed anyone's fort , and we have gotten the cash all the time. We are satisfied even though it was maybe a few days late.
Understood. Thank you very much.
Okay, thanks.
Thank you. Our last question comes from Lars Topholm from ABG. Please go ahead.
Hi, Jens, Kim and Thomas, congratulations on the solid results despite the volatility. Two questions. The first one is in Germany. When we talk about the Neuburg production line, on what date can you communicate when that should be up and running, and how much can we expect to contribute to the second half? It's quite a significant production line, and it's a production line you didn't have last year, obviously. Could you give some figures into that?
I can say it's up and running. It's up and running. We have started it. The idea now is that since it's a very cost-competitive asset, and they have like a shortage of in Germany, so it doesn't really change the capacity outlook. We have spare capacity in Germany. Now we get a new asset that have a lower cost position, and the way we use it is to use the new line. Of course, now we have start-up. We try to beat the record with getting that up, but still debugging, start, stop, a good fix. It's all good, but just a moment taking issues. I think we will have a good start-up, and then we bring in the business to the sweet spot, and then we just cut out capacity elsewhere, a shift in some other plants so that we optimize the geographic coverage.
That's how we seem to. You don't need to see it that we have this capacity, and we match capacity with demand, and now we have a new asset to do that. Then, of course, we hope Germany come back in good, big style so that it really adds something on top. Germany is now coming back up, and we need to see how fast and to what level that happens.
Just a quick follow-up. This exercise that you're mentioning now, did that contribute to Q2?
A little bit, because when we take out the I mean, not really, because you start up, you have hired full shifts and all that. Probably, the German plant has a negative impact from a cost perspective in Q2, and we talked about that, Kim, as sometimes using different numbers. You see a negative impact in the quarter that we had planned and we expected. Of course, when we take shifts off in Germany, when the market went down, we do that in the least profitable asset for the business. We optimize the orders, too. I would say the plant is a negative in the quarter, and then over time, it turns into a positive. Of course, we have the depreciation coming in, but from a cash perspective, it is a very competitive asset.
Okay, good. My second question is just on this EBIT, you're guiding around 12%. Obviously, October and November, you've previously communicated are your highest selling months. I'm not sure, have you put your foot on the brake in terms of personnel cost during the first half? I mean, how are you prepared to handle sort of the higher selling months? What are your assumptions on those months? Do you have enough capacity? In that regard, I see external costs are down 25% in the quarter. Obviously, not a lot of traveling going on, maybe not a lot of marketing. Can you operate your business at this level from an experience perspective in terms of carrying the costs?
How we set up the business is that, of course, we have a break on the hiring. The hiring is we have a certain attrition. We have a break on the hiring, but we hire. I mean, for example, we needed three more digital people for a particular implementation rather than using consultants. We found great people, we hire them. With everyone we hire, we look at. Not an awful amount of traveling going on, and that's going to continue. I mean, we do travel, but every travel is approved by quite high up in the system. I travel myself, but with a mask and all the rest. On marketing, I would rather say we do a step-up. We have adjusted competence of what we do.
For example, we worked quite a lot now on renovation and how to deal with this and how to understand what is, and that's marketing doing that. We are giving forecasts in marketing.
Just on this break-
On personnel.
Yeah.
Yeah. I mean, we had a break on hirings. We only take really what we need. Then, of course, what is not seen, but is actually in one market, we can have a reduction, and then we hire more people in the other, and then it is quite even. We are navigating that, and every local business should be set up for the business. That's the principle in it.
Are you prepared for October, November, or do you expect to hire more for those months?
Yeah
if there's not a second wave?
Yeah. On the blue-collar side, we have a whole range of flexibility schemes. In some places, we have temporary employees. In other countries, you have an agreement with the employees since years where they actually flex days between that time of the year and other times. They go home one day a week, all of them. They only work four days, and then you catch it back. We are quite equipped for delivering that. There could be maybe one line somewhere that can't meet it, but that's not the spirit. We go in with this, so we should be able to deliver all of that, of course.
Super. Thank you very much.
More than deliver, I think we can.
Thank you. Operators, our final question comes from Manish Beria from Societe Generale. Please go ahead.
Yes. Good morning. I have this question. Can you please provide the split of building insulation demand in Europe by new build and renovation, at least on the market side? When I mean the market, I'm including all sort of materials. It's mineral wool or it could be plastic. Can you provide the split?
I mean, there's not one split for Europe. We don't provide a split. Obviously, we have a split by country. I never look at the number for Europe. I look at the, since we have a local factory for the local market, and 90% of our business is not export in our Systems segment now, but the rest is basically within the same customs zone. We look at it by country, and we know it quite well, but I don't have a European split. We don't sit and kind of share this because we don't find much material readily available, and we have people working on it, so we tend to keep it to ourselves.
I have some update, because I have talked to some other people. They say something like two-third will be new build and maybe 1/3 or 40% will be renovation. Going by your presentation, your reporting, you said you have 50% split between new build and renovation. Just wanted to see why you have a higher percentage basically than the market. Is your sort of product more used in renovations? Just trying to see, because the renovation wave will help if you have a higher percentage.
Yeah. I think that there it's widely by country. In the new build you also have a big project impact, which is called flat roof. Therefore, some people might say that, big boxes with a flat roof, yes, it's new build, and you get quite different percent if you look into other commercial new build and residential new build and renovation. It depends a little bit how you define your discussion, but it varies by country. Going forward, we love new build, and we love renovation, both of them, and that's as much as.
Yeah. Also, the second question is probably, maybe you have done some sort of analysis on what the payback of the Insulation is by the product. Maybe if you do only the facade, what is the payback? If you do the interior wall by Insulation, what is the payback? Maybe the basement or the roofing. The payback could be quite different because you have an initial cost and then there is particular energy savings with respect to each of them. Maybe the facade is more energy savings. Do you have a number for the payback for different element of Insulation in different part of the building?
No. We obviously have people that can calculate that. It varies a lot. You need to look at the specific project. Typically, the payback for insulation, from a CO2 perspective and planetary perspective, it's really short. The economic payback, if energy prices are low and the investment, they're quite long, but it still makes a lot of sense to do it. Then, of course, when you get to the Italian case, the payback for the government, obviously, you bring people to work, you make the houses nicer. The payback for the people owning the apartments when you have a government subsidy becomes almost instant. You get a nicer house, and you don't pay for it. It varies immensely.
In Germany, for example, you see that energy renovation of residential houses typically slows down when the scheme is finished, and then they wait until the next scheme comes, where the payback gets better. It's not one calculation, and it's not average. Without subsidies and that, it is a long-ish payback to renovate a whole house and insulate it. It's a big project. It's still a very good payback, although it's not in a year or two. If you come into, let's say you do technical insulation in a refinery or a chemical plant, there you're talking paybacks of three, four, five, six, seven months. That it's dead easy to see it. In a normal house, it's more a slower payback.
Yeah. Thanks.
Okay.
It's very helpful.
Thanks. We messed up, or tech messed up on us a little bit at the beginning. I think we take one more question. Cora, is that fine?
If there is one, yeah.
If there is one more question, we take that.
Okay
Hand over to Thomas here.
Our next question comes from Pierre Rousseau from Barclays. Please go ahead.
Good morning, everyone. Thank you for taking my question. Basically, your EBIT margin guidance is either the same as what it was at the beginning of the year with the much lower volume growth outlook over the full year. My question is on productivity savings and the cost structure in general, do you feel that you could be a little bit more demanding and then have more cost savings in the future and in the midterm? That's my main question. Thank you.
Yeah. Basically, what that forecast says, compared to the previous guidance, is that we lose a bit of top line. We don't have anything dramatic happening on prices, and then cost, material cost, fixed costs is being reduced, and that's basically the picture. We include some cost saving in that. Depending on how 2021, the outlook for that, we will have an eye on what the cost level needs to be for next year. That's a really decisive factor, but I feel confident about delivering around that 20% this year with the actions we have in our costs. Okay, Pierre, did you have another question, or was that the question?
Yeah, maybe if there's time, just on the raw material tailwind, just to help us understand the margin performance, could you give a rough quantification of how much that was in the quarter?
Kim, maybe you take that one, Kim. Are you there, Kim? Kim, if you could please unmute your mic.
Yes. Pierre, was it the raw materials categories? Sorry, I was just answering with my mic muted.
The raw material tailwind overall that you had in your cost base in the quarter, if you could quantify it. Thank you.
Yeah. You can look into, of course, our details in the accounts where you have broken up on the raw materials and production material cost. You will see in the quarter there is, of course, some benefits, and also in the half year. As Jens said, even though energy costs are starting to fall, we do expect that the second half, we will still continue to have some benefits from the raw material cost in the second half, which has been incorporated in our outlook of the 12% EBIT margin.
With that was the last question. We have time for 10 minutes, or a few minutes over time, not 10 minutes. Over to you, Thomas.
Thank you. Thank you for joining today's conference call. Please be informed that on 18th September, the Rockwool Group will hold the next investor conference call dedicated to ESG theme. I hope you all will participate. Thank you.