Welcome to the conference call regarding Rockwool International's results for the full year of 2019. My name is Thomas Harder. I'm 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 and give you an update on the results for the fourth quarter and full year of 2019. We'll 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. When we look at the last quarter, I regard it as quite uneventful. If you look at the whole year and just start with summing that up a little bit, we stepped into 2018, we had a broad-based market growth, we stepped into 2019 with some fear for a global downturn, an expectation of a more volatile market environment. In spite of all that, we came out with a revenue that is the highest ever and also an EBIT and EBITDA that is the highest ever. We are very happy with that. Why am I happy with that? On the one side, our teams have adapted capacity. We have worked on pricing, segment pricing, and for example, the whole Eastern Europe, we had a quite dramatic decline and we pulled down capacities, moved down shifts.
We have had other markets like France, where the climate change or the energy efficiency drive from the government has created very significant growth. One of our large markets, Germany, for example, is turning south due to lack of maybe economic activity and also lack of real action on the political side on energy efficiency. We had a real mix of things, and very few markets played out as a steady state market continuing what they did the year before. In spite of that, we delivered this very good margin. If we look at some of the, I'm not saying operational parameter, but some of the things that we in the business care about. You look at, for example, Lost Time Incident Frequency, where we've gone from 3.5 over 2018 and now to 2.9. We've improved the safety.
We did raise prices, but we have kept our focus on customers. For the fifth year in a row, our Net Promoter Score increased. We increased it from 43 to almost 50. It's a very high level. I'm very happy with that the teams have kept working on it and for the fifth year now increased, which is very hard to increase from this level. We will have the ambition. Also, some of the marketing and messaging around the product. We won, for example, the best B2B campaign for the Seven Strengths of Stone. I think that's very important because that frames stone wool as a unique material that is more than just thermal insulation. We set that framework, and we see that stone wool as a fire-resistant circular material is gaining ground, especially against the plastic foams.
We were one of 60 companies globally that are included in the SCD Invest portfolio of 60 companies. We are very proud of that. In Norway, we won one of the highest environmental award for our project to reduce CO2 and modernize the Moss factory. We dropped CO2 with 85% emissions out of production. A very good year. If you look at the number for the year, I think there is two aspects that stand out for the full year. First of all, that we continue this progression of the Systems division, double-digit growth, good profitability development, and also the margin of the whole business, 13.5%. That was caused by business mix, more Systems division in there, but also the fact that some of that big project business declined a little bit.
We lost some business there, we had kind of a richer mix. Those factors, together with that we controlled costs and saw a slight easing of inflation, entered that 13.5%. That's a very pleasing number. Let's move to slide four. This is the quarter numbers. Nothing really to say about this other than that it was a flat quarter. It wasn't dramatic in any way. We did stop production at year-end, as we normally do. The previous year, we did produce. It's not the fact that it's slightly below 0.6 or slightly below the C rate. It doesn't really worry me. There is no trend change or anything in the quarter. Cash flow, obviously free cash flow down, compared to the previous year due to the investments that we successfully progressed. That's a good thing. Moving to slide five, sales growth.
Insulation business slightly off flat over the year and Systems double digits. Great work in the Systems division, and especially Grodan stood out with very high growth rates. I see that as an indication of how the focus on efficient, I would say efficient food production is gaining ground. We also had very good growth in North America, in our retail business growth. Another item that stand out in Systems division is that our acoustic business, the Rockwool business in Europe, had very good demand, and we had good appreciation of our products. We're happy about that, and that's an improvement compared to three, four years back. We're really second year in a row that we are progressing that business, and all the other businesses perform, too. If you look at Insulation, what does that mean that the business came out flat?
We had countries where Insulation is double digits up and double digits down and flat. I mean, the whole mix of things. The fact that it came out on a flat is more dependent on the mix of the countries where we saw very declining market activity and very growing market activity. Again, we kept adapting the business. We kept working on the costs, on the productivities. In terms of factories, the Insulation business produce everything we have, all products, also the Systems division products, with few exceptions on the grid side. We also reached an all-time high in operational group efficiencies, a metric I don't public, we stepped up in spite of several countries had decline in business. That's a good grade to my operational team. If you go on to slide six, don't really have anything to comment on that one.
It's the same as it was before. No trend changes. Little bit change of seasonality of the business. The ethics and flat roof business decline at the end of the year, so that growth didn't show. The Grodan business also drive a lot, but there's some other businesses that are not so strong at the end of the year. Absolutely normal Q4. We didn't have a big snow event or anything like that, but I would say due to the market condition in Europe, it took a more normal stop. We didn't produce through Christmas and New Year because we felt we can shut down the factories and do maintenance work instead. Going to the regional sales development, Western Europe overall plus 0.2%, no changes to the trends at all. It's the same as in every other quarter.
In the Nordics, you have some markets up, some markets down. U.K., France continue. Germany still stuck on quite a low level with maybe some signals of just stabilizing. We move into Eastern Europe. Broad-based decline across all the markets. Russia behind, I guess, thanks to the sanctions. They have sorted out the economy. It's low growth, steady market, and the dependency on oil and gas has been reduced, and they do a really good job of keeping that economy going. It's not booming. It's growing, and we do well in that. North America and Asia and others. North America, good, double digits. Asia, South Asia more unstable. It should be said that after the sanctions were eased a little, not the sanction, the trade dispute was eased, we saw quite a good Q4 in China.
Obviously with the Coronavirus business now, we're probably heading into a quarter that will not be great. Again, China is not a huge market for us. We don't depend so much on that. Profitability in Q4, I already mentioned slide eight. We improved EBITDA, we improved the EBIT margin, and we improved it in all businesses, so we're happy about that. Mix, country mix, business mix, cost, all of it work together to deliver that. Move to slide nine. What I like to see here in both businesses, in Q3, we have a little bit of a productivity gap. We had more inflation and more difficult comparable to the previous year. What you see in both businesses here is that the bottom line has increased at a greater percentage than the top line, especially Systems division.
I mean, double the bottom line profitability improvement on a double digit, almost double digit top line, 8%, 9%. Very good going. Insulation segment has also done a good job. Fine. Here, this is happening. We manage inventories weekly, and we do capacity adjustment as the markets go up and down. We have not stepped up on total inventory or anything in this, even though some markets have slowed down, we've been quick to draw down. Investment activities, we hit our guidance around DKK 400 million, and the execution of the investment has been good, stable, what we expected. Pleased with that. Move on to slide 11, latest development. Here, I don't know, 10 or 15 years back, we acquired our first factory in China.
We have since acquired another site, but the Guangzhou factory, and we have had very good business there, but the areas around the factory has been rezoned, and we have high-rises just across the street coming closer and closer. We're reaching a point where there are risks to, A, not having the factory quite across the street from high-rises, and B, that the land would be needed. I would only say that to complement on the cooperation with the local Chinese government and also higher up, the deal we have made to relocate the factory, which really means that we get a near full compensation to relocate the factory and build a new one and upgrade it, and we will do that about 100 km away.
It has been a very good cooperation with the Chinese government, and we are now building the new factory, will be upgraded and be the absolute best in China in terms of environmental compliance on how to produce stone wool in a very environmentally friendly way. That will be great. We also closed a transaction where we acquired the Pyroform business primarily in Sweden. They supply in the Nordics, but there's one factory in Sweden. A very good business. That has been closed. Due to the Thorn warning, still have a week or two before they announce, I cannot reveal the revenue of this acquisition. We wait for them, it's not insignificant, but it's not huge. It's a 60-people business, but it's a healthy business, and we have already started integrating that in our Rockwool business.
Free cash flow, I would basically say that everything hangs together. You see the net working capital ended at 9% instead of 7.4%. 9% is a normal level, as 7.4% is a very low level, and the reason is basically that last year, December, we produced up through New Year's, which means the trade payables that we generate are unpaid. Here we took the normal stop, which means a lot of the trade payables are paid before year-end, and that is the main difference between the 7.4% and the 9% you see there. No change. I would say the 9%, 10% net working capital is the normal year-end level. Share buyback program. Basically, we propose a dividend, DKK 32 per share. You know that you multiply with the 21 million share, you get about DKK 94 million in dividend.
As we have discussed with many of you, our equity ratio is around 80%, and we have a cash surplus on the balance sheet also. We have now added for the next 12 months and up to a maximum EUR 80 million. That would, if theory works, at the 1,600 share price gives some 3.7% gain and on the 1,800, 3.3% dividend plus share buyback, provided share buyback work too. It's a relatively sound return from those. We don't make any promises about the future, but we launched the program today. We started, and you get the weekly update, the standard report. Outlook for the full year, low single-digit growth in local currency.
What we are saying there is that just because a new decade started and also a new year, it doesn't mean that I feel it's any different to what it was last year, continued volatile market, and I think the Coronavirus underlined it. We can continue. I don't see a broad-based uptick all across, even though some markets looks more positive, others may be a bit more negative. With our very short backlog and the fact that we are below 9%-10% inventory, we don't know better than that. We see a continued about what we've seen. That's on the top line. This midterm effect, Green Deal from the EU, where they talk about doubling or tripling the renovation rate. Also to push sustainable close to customer food production, increased food production efficiency, and urban fire resiliency to increase fire norms.
Even though those factors speak midterm, we have not factored in much of that. We just assume that we continue and live in this kind of slightly positive growth mode. We are agile and ready for that. If it comes to the EBIT margin, here, I guess we are reaching a point. I mentioned my manager on EBIT, because that makes them accountable for their investments. Investments can be sustainability investment, growth investments, or maintenance investments. Maybe from your perspective now, the focus moves a little bit up the EBITDA, because in the EBIT now with the margin decline, you see here DKK 24 million comes from depreciation and it's a non-cash item. Then we have the startup cost in Germany and Norway, and we also had the legal case settlement we did in the U.S. last year that makes the 2019 margin slightly higher.
Anyhow, it's pretty much the same. There are these two startup effects and the legal case. Apart from that, the underlying operational margins on EBITDA, it's the same unchanged as we go into the year. Yeah. With that, I hand over to you for questions.
Thank you. Ladies and gentlemen, if you have a question, could you please press zero and then one on your phone keypad now in order to enter the queue, if you've not already. After I announce you, just ask that question. If you find that question has been answered before it's your turn to speak, just press zero and then two to cancel. There'll be a brief pause while the questions are being registered. Our first question is from the line of Laurits Kiergaard at ABG. Please go ahead. Your line is open.
Hello, Jens, Kim, and Thomas. Thank you for taking my question. First of all, Jens, maybe continue where you left off, the guidance of a low single-digit growth for 2020. You have some increased volume from new capacity coming in in 2020, which you didn't have last year. I guess, which you can correct me on, you're still aiming for these 1%-3% price increases. Given these two factors, I guess that my question is, what's the implicit underlying decline of your existing factory footprint? Can you give any flavor to this magnitude?
Sorry, I'm just going to unmute the speaker line. The speaker line is unmuted. Please can you reply to the question now?
Okay. Apparently, I was muted, so I restart. Underlying between price increases and volumes and new factories, we don't disclose those details. Fundamentally on the capacity, we want to have a capacity buffer so that we can cope with, say, three years growth in most places, three, four, five years growth, so that we have time to invest. Because we believe the business in the midterm has a higher growth potential than what we indicate now. We don't see those factors kick into this year. When you look at the capacity increases, they are not that dramatic in our big factory footprint. We will use the capacity increases we have now to optimize our logistics. Also when you look, say, Romania and Germany and the business in France, we need capacity there, so it's not bad.
We can drop some more expensive shifts.
Thank you for that. May we go on to the EBIT margin here? You mentioned it's sort of the same level as 2019, adjusted for a couple of things, the new factories in Neuburg and Moss, along with, I guess, the legal case. You discussed the EBITDA margin. Can we get some flavor on the EBITDA impact? You mentioned startup cost and depreciation. What's the startup cost here? Can you give any flavor to the magnitude?
Yeah, hi now it's Kim here. Very broad. We had the approximately EUR 10 million gain in 2019, which is just shy of a half a percentage point. That's sort of the comparable number for 2019. For 2020, we're going to have, as Jens mentioned, about just shy of one percentage point from added depreciation. That comes from both Neuburg and Romania, but also other factories that we started up in U.K. and in Poland. That's about one percentage point or just shy of that. Then you have approximately 0.3 or 0.4 on various startup cost and change of one-off.
In simple terms, you have the depreciation that's fully visible. You have the legal claim that we won, fully visible, and then you have tens of percentages up and down, which is just business as usual. Yes, we do start two factories, and we are building up staff for the North American factory that will start a year after. That's normal operation on there as ±0.5% on things we do. We don't go into that. All the big items have already been disclosed in the numbers in the back.
That was extremely clear. Thank you. My last questions, you mentioned, I believe it was in Q3, that you took out some lines in Trondheim, in Norway, and Roermond, in Holland. Here we see there's some strong operational leverage here in Q4 with delivery costs down 14% year-on-year. Can you give some flavor here on taking out this line?
I don't think I said in Q3. It's right. We discussed the example that when it was. These we use as examples. I said we are not taking product from Trondheim to Germany anymore. It was just an example of what type of business, because you asked about why did logistic cost not increase as much. Extra warehousing and the long shipping. That's, of course, the way we do it also now. We want to produce as much as we can as close to the factory, and we just continue to do that. Then the individual items, generally Southern Germany has been a very good market due to all the economic activity, and we have capacity to meet that now. The specific details of each factory, we don't go into those.
Those are examples of unusual cases that we had during the peak when we ship from Northern Norway down to Germany and maybe even Poland in our policy that we will keep customers whole. Of course, now we are back to this normal that in-country, for a country, for vast majority of business is within a custom zone.
Okay, super. Thank you very much.
Thank you.
Okay, the next question is from the line of Robert Whitworth. Robert, please go ahead. Your line is now open.
Hi, gents. Thanks for taking my question. My first question, I just wanted to know, could you help us to understand how your margin guidance compares between Insulation and Systems? I guess what level of normalized margin do you expect in the Systems division? Thank you.
We don't guide margin on that level, and it's also quite dependent on transfer pricing between the businesses, which is not a market-based pricing. We don't guide it. We step into the year and then we report back to examine it. Obviously the way you transfer price between the business, we have a steady machinery for how to calculate that, the tax compliant machinery and that is there. We don't guide on that level. It should also be said that all the businesses involved they are all very healthy businesses, but the margins also differ between the Systems division business, and we don't want to go into all that, where is the higher margin, where is the lower margin.
Understood. Thank you.
Sorry, Robert.
That's okay. Turning to another topic then. Is the EU ETS phase 4 a concern for you given obviously the manufacturing process is very CapEx intensive?
No, it is not a big concern. We foresee that we will increase our sustainability investments, but it is not to optimize the trading scheme. It is to make our footprint more efficient and reduce the CO2 emissions like we did in Norway. We have a whole program for that. We will talk about that more as we progress with those investments. We are working on the technologies we use. We are also ramping up investments. It is not dramatic, but we will need to invest more on sustainability. Hopefully we never get into the having to pay for CO2. If we don't, If we do, we don't see it as a big issue because we are driving it at the core, reducing the CO2 emissions.
Great. Thank you.
Okay, the next question is from the line of Christian Johansson. Christian, please go ahead. Your line is now open.
Yes, Christian from Danske here. First question is just, you described this improved operational efficiency in Q4, and to me, and correct me if I'm wrong, it seems like there is an improvement in the last quarter versus the previous quarter. Therefore my question is, how sticky is this? Is this something you can take with you into 2020?
Yeah, I would say the business is set up now for the current run rates in the markets. We went through that pain, I will say Q2, Q3. Sometimes, if you draw down a shift, you might see the capacity go down, but you might be a bit late with getting the cost out due to delays in the process of reducing a shift. I think at the moment, we are quite stable in the setup. You saw quite a steady state Q4. Yeah.
Does that mean that if you're right, that the growth is going to be low single digits, you should be able to run your production more efficiently in 2020 than what you did in 2019?
There are factors that will be less efficient because we are ramping up people. Romania is fully up in terms of people, but in Southern Germany, in Neuburg, we are hiring in the shifts. Then we are also starting to train the people for the North American factories. That causes an overlay, but underlyingly, we continue to be efficient. We're thinking every year, we aim for a couple of percentage point productivity improvement across our factories and cost savings. We try every year, and we aim for the same this year. Our goal is obviously not to be less efficient. There could be things on the raw material cost side that could change with quarters over the year. As you know, we don't hedge. We just go with it. You saw some of that in Q4.
With that will go, at the moment, I guess our outlook is that we have only marginal inflation this year, but that could change. You have a storm in Australia or you have something and something happen. At the moment it looks like limited inflation and therefore continued high efficiencies from several perspective.
Okay. That's quite clear. Just on prices, is what you assume in your 2020 guidance the usual 1%-3% from prices?
Exactly. The point is, I put a high value to doing an annual price increase. Some years we aim for more and some for less, that's kind of the standard strategy I want to apply. I want to do that this year too. We have announced price increases in many cases. Of course, we do this by segment. This is the aggregate I want to achieve. We have some markets where on projects, the prices might be a little bit lower, we don't want to deviate from our strategy.
Okay. Just to understand the around 12% would then imply that at the 12% assumption, that's roughly 2% from price. Is that how to think about it?
No, I wouldn't think about it. It's similar to what we did last year. We have extra costs, we do changes, we are agile, all of this costs money. In the pot of things, we want to deliver around that. Some of the changes compared to the previous year are the mathematical, the depreciation, and then we need to hire 110 people to run a factory, 140 people. The bigger pieces. The rest, we're just going to work. Reduce costs, some costs go up, and we just work the productivity and we aim to have an underlying maintained profitability, taking all the factors together.
Okay. All right. My last question is on the investment in sustainability. How much of the DKK 400 million you are guiding for this year relates to sustainability investment? Can you elaborate exactly what they are besides the conversion of the Norwegian factory?
We haven't come to conclusion that we should do that yet. Probably, we start to talk a bit more about specific cases when we do it so that you understand why. We will probably also in our sustainability report here in March, throw some light on some of those cases. Read that report, and then we take it one at a time. The only thing I want to say, it is increasing, and some of those investment, it's not going to have a dramatic effect on this year, a lot of what we invested. It is an increase in saving water, saving CO2, getting more efficient, getting cleaner. We do review that, and it also has to do with our existing own building stock, where we're putting some CapEx into renovation. It's a collection of that to just driving it a bit harder.
All right. I will wait for more details. Just before I finish along that, the new factory you're setting up in China, the one you're moving, I guess, what melting technology will you use for that?
Yeah. We will go electrical, local electrical for that. We want to test that technology, although it's a relatively small factory, so it's a good test of a small melter. It should be said that from a pure green perspective, with the current real supply in that area of China, another technology in the next 10 years will probably be cleaner because the grid is not clean yet. We are working on getting clean electricity. How quickly that will happen in China, in that area, we don't know yet, but we are going electrical on that.
All right. Thank you.
Okay, the next question is from the line of Prajesh Shah at HSBC. Please go ahead, Prajesh. Your line is now open.
Thank you. Hello, everybody. I have two questions. Probably the first one is on the CapEx. You're guiding for DKK 400 million for 2020. How to split that into maintenance and growth CapEx? Relates to that, I understand last year, maintenance CapEx was DKK 130 million. What kind of run rate would you expect that to be in the near term, the maintenance CapEx? That's my first question.
Yeah. We don't provide that, Prajesh, but you can see we have Do we have it? Maybe you take this. Yeah. We account for it as we move through the year. You have on slide 10 in the deck, you see the maintenance, and we will do the same time now, but it's similar level.
Yes, Prajesh, we have previously disclosed that we have a maintenance budget around DKK 80 million-DKK 100 million per year. You can sort of see that if you add them up, it is slightly higher than DKK 80 million or DKK 100 million. That is what Jens is referring to as the sustainability investments.
There is a difference there, but there is also another aspect to that, and that is, in 2018, we were a little bit lower on maintenance for a while, so we did a bit of extra early 2019. Again, sustainability investments are sitting in the maintenance part here.
Okay. Okay, understood. Thank you, both. Just to elaborate on that, I get your point. The maintenance CapEx is moving up, and which is all understood because of our sustainable investment as well. I'm trying to think through beyond this current CapEx cycle right now. Obviously, we are running two years of high CapEx, expansion CapEx. Moving beyond 2020, assuming these CapEx are getting over in 2020, are we kind of getting to a new normal where the maintenance CapEx will be higher but nowhere near to those big numbers we have seen in 2018 and 2019?
What I can refer to there, we don't comment CapEx forward, but in last year's, 2018 year's annual report, page 20, you have a study of the 10 years trend of the CapEx backward, where we said there have been about 11. We make some comments on that, but fundamentally, we don't guide to CapEx in 2021. What we are trying to get to now, I believe in the business, the growth perspective of the business, and we want to have a capacity buffer so that we have time within the investment to take green print decisions. I feel we are getting closer to that point now. 2021 will depend on 2022, will depend on how that midterm, and the Green Deal, and increased renovation investments are playing out. We postpone the decisions as long as we can.
What I can say now is that with the investments we have done now two years in a row, we have a bit of a capacity buffer.
Prajesh, as you know, we have not announced any new capacity projects, you'll have to wait to see during the year here. The U.S., which is the latest one, will be very end of the year.
No, beginning of
Early next year. That means the CapEx will.
Will flow this year.
This year.
That's in the forecast.
Thank you. That's clear. Probably the next question is on your pricing strategy. Understand 1%-3% is the broad range which we are aiming each year. Just to probe you a bit on that, how that has played out last year in terms of are you able to achieve the lower end of that 1% last year?
I don't comment on that. The base assumption, a couple of percentage points, some years a bit better, some years a bit worse. That's the goal. We did absolutely okay last year. We kept the price. If we would've dropped prices at the end of the year, you would've seen it in the margin. We've had a good execution on the strategy. We have the same strategy this year, even though in some regions we see a tougher climate.
Okay. Probably my last one is on Eastern Europe. You mentioned in Q3 that there is a de-stocking event which really impacted the numbers and obviously the sales as well. Have things changed there, or is there any signs of stabilization in Q4 that has the kind of inventory levels which you last time talked about?
I
has kind of normalized?
We saw the worst of the Eastern Europe combination of a market slowdown and destocking in Q2, Q3, and now we need to follow it. For sure is over six months, typically, distributors will destock when the market steps to different levels. We will follow that now moving forward. What happened in Q2 and Q3 and the destocking that aggravated the situation, I think we have that behind us.
Okay. Thank you. Just one, if I may, is on the competition pressure in Eastern Europe. Last time you talked about Poland is a market. Any other market you are seeing further competition intensity coming because of lower volumes in the market?
I think we mentioned, that's quite public that in Poland, capacity increases. There is another market, Ukraine. We don't have manufacturing there, but there are two Stormor players that one has expanded a lot, and you have over capacity in that market. It's not a big impact for us, but the case is there. Yeah.
All right. Thank you very much.
Yes, please.
Okay, the next question is from the line of Tobias Weimann at Morgan Stanley. Please go ahead, Tobias. Your line is open.
Hello, gentlemen.
Just before
Oh, yeah. Sorry.
Yeah. Just before to clarify, I misunderstood the last question. I thought it was only Eastern Europe. We also have the startup of the competitor's factory in France, last year, this year, or this year probably, that will come into the market. That's also an increased competitive pressure. You have Poland, we saw Ukraine, that doesn't so much impact us, and then the well-known factory in France. Just to clarify. I misheard and thought you said only Eastern Europe.
Sorry, just to confirm what you said in the end, the plant in France, I guess you're referring to the Knauf plant. Is it running already or?
Yeah. It is running. We don't see much of it, but we believe it's running.
Okay. Fair enough. Okay. My question, I guess the first one, again, on the CapEx. I am really trying to understand what is happening with the investments because initially you guided for DKK 330 million, then DKK 390 million, then it was DKK 400 million, and my impression was that some of the spending came a little bit earlier, and I was expecting a little bit of a decline for 2020. Now for 2020, you are guiding again for DKK 400 million, which seems quite a bit above what consensus was expecting. What is the reason for this, and when can we expect the normalization again? Now in 2020, it seems like it is going to be the second year where basically we will have zero free cash flow. What is the reason for the higher CapEx and when will it normalize?
Tobias, then you have not read our guidelines from last year in our annual report, page 20, where we do say that we have these two coming years with a higher CapEx ratio compared to the average. That is quite clear, the capacity expansions we have already announced very clearly. The reason why the CapEx is slightly higher this year is that, yes, we have accelerated some of the because we always had new investments coming in. Some we have not announced because it is not a new thing to the market, the CapEx ratio, it's going to be higher this year and as was last year, which is due to these announced capacity expansions.
2019 was still 20% higher, more than 20% higher than what you have guided at the beginning of the year, which was the DKK 330 million. Again, that was the level that I would say most analysts expected for 2020.
Yeah, Tobias, you should again, since the U.K. expansion was not part of the first announcement. I can go through each quarter to explain to you what we have announced more. During the year, we approved certain investments.
We just update.
We just update this. I don't think that's necessarily something different from what we have guided, and I think we hit more or less the level that we expected in the Q3 announcement. The guidance for 2020, I hope it's not a surprise for many that is clearly described in our midterm plan.
Okay, fair enough. Just on a specific project in West Virginia, I saw, I think you were guiding initially for 2020, and now the annual report says 2021. Are there any obstacles or any reasons for the delay?
No, what we're doing is we are a little bit delayed with it, but with the capacity need we have and the work we are doing, we are starting that one up. It's on track, it's progressing, and we are hiring people to train them. We see that we need to start that one up next year, and that's what we have scheduled to do now. It's just an adjustment to the schedule. It's not because something dramatic has happened. It's just operational planning.
Okay, there's also not any sort of major risk because there's obviously a lot of protests going on in West Virginia. Do you think there's a risk from that?
No, we don't see that.
Okay. Fair enough. Also on the capacity, which is coming in now, in Germany, obviously, in the first half of the year, in Poland, you have the second line running as well. Are you scared a little bit that the capacity is coming into some of the markets which are currently weaker? Obviously you talked about Germany being weak and still being volatile for next year. Eastern Europe, obviously, we have also seen sort of 10% volume decline. Now next year in those regions, you have more capacity and you're having a higher cost base, but volumes are declining. Does this concern you at all?
When you build plants, that takes two, three years to build.
I said it a few times. You will never land perfectly. Sometimes you might not. We are not the least worried about the need for the factories, and then there could be market conditions means that the timing is not absolutely perfect. It never will be. Fundamentally, what's happening in the demand for stone wool, we are not worried at all. We have been undersupplied in many of these regions for a long, long time, and we have a fair view of that where stone wool is needed. It's never perfect. There is no optimum because if it was, we would have to move the factories around several times a year. We adapt to it and we shift shapes and balance between them. We also have overlapping footprints.
When you get to a certain scale with a certain number of factories, you can move shifts and loading with the market between the footprints. We need it more in Southern Germany, so it will be fine.
Okay, fair enough. Then the last question I wanted to ask is on the insulation margins. Obviously in Q4, and it was mentioned earlier, the margin was very strong. You improved 110 basis points year-on-year. That was despite the sort of mid-teens of the tiered volume decline in the quarter. I just wonder, A, was there anything particular that helped you? You mentioned the energy costs there, but was there anything else? B, maybe there was something in 4Q 2018 that simply the comparison base was easier and maybe not everyone was aware of this, and that helped you, or is there anything like that?
It's country mix, product mix with the less heavy product mix, less projects, and then inflationary pressures and productivities. It's a mix of all those. For example, Eastern Europe a little bit less, and we have discussed that before, slightly lower gross margin. Those are the mix factors that impact it. It's all the things working together to make a better margin.
Also, the year before in 2018, we talked extensively about the exclusivity cost. We had warehousing to service the markets where we had high growth. Of course, we don't have those in Q4. In Q4, we had, as Jens said, we are able to maintain a decent pricing throughout the Q4, and then combine with lower input cost, as we've also explained.
The footprint closer to the customer.
Exactly.
Productivity improvement and product mix. Not all of them fully, but all contribute to something.
Okay, that makes sense. It was indeed also the fact that Q4 2018 was a particularly weak quarter because I think most analysts sort of looked at Q4 2018 as a base, and that was really significantly lower than Q3. The question is this seasonality that Q4 is always much lower than Q3, or was Q4 2018 very weak?
Oh, yeah. Q4 is Q4 with Christmas, depending on the weather, when the building sites close. Q4 is not a representative quarter in this business.
Okay. That makes sense. All right. Thank you very much.
The next question is from the line of Michael Peterson from SEB. Please go ahead, Michael. Your line is now open.
Hi, thank you for taking my question. I have a question regarding North America, Asia, and others. In Q4, you grew 4.5%. How much is that from the Systems division? If it was mainly from the Systems division, what brand was the main contributor?
It's the level we don't comment, Michael. Just sorry about that. We don't disclose to that level of granularity.
Okay.
I can make one comment, that's not a surprising comment though. Obviously, what happened in South Asia after the trade dispute and that, and that we have been quite open with, it has been slower in Asia last year. North America has been doing really well in some segments, less so in other segments, but the aggregate worked out to something very nice. I would say South Asia has been the main issue. North America is fine.
Okay. Thank you. Then maybe if I can ask regarding your utilization level, I know you do not comment on it, but if you assume that you increase your capacity by, let's say, 10% in 2020 and you have around 2%-3% growth, that will affect utilization level negatively. How are you dealing with this in, for example, say Eastern Europe, where you have seen the highest decline?
How we deal with this, we run, in our language, full blast, running 24/7 is five shifts. The good thing with stone wool is that if you run Monday to Friday, it's still a very efficient plant. What we do is we just take off shifts, and we are quite used to do this, and the factories are set up there, and we are quite flexible on it.
Okay, thank you. Maybe if I could follow up on that, what utilization level would you say is the most preferable for a factory?
That's kind of an evening discussion about philosophy between being an industrialist and being a market leader and earning the most money. If I could be a guy with one factory, and I run it 7 by 24, no marketing, no nothing, obviously, I want to have a full factory. If you have responsibility for that category can grow all the time, for example, in the U.S. and not run out, and you need to deliver the customers, you definitely don't want to be on 100% utilization because that doesn't work in the long run for the industry. You need spare capacity to do good in this game long term. It's not a big problem to have spare capacity on profitability either, even though, of course, if you run at absolute maximum capacity of an asset, then you have it all in the sweet spot.
Mathematically, that gives higher margin. Typically, when you own that capacity utilization, you have longer shipping, so it kind of counteracts. There isn't a single simple answer to that question, but we need to have a little capacity buffer.
Okay, thank you. What I'm aiming at getting an answer to here is, as was a question before, the Q4 2019 seems to be very strong. I'm just trying to find out if this was, of course, due to a better mix or if it was like the sweet spot utilization of the particular factory setup that you have now, or if it's maybe something else driving it.
Sure
If you look historically, this Q4 is probably the best you've ever had, or at least what my model says it is. I'm just trying to find out what exactly made this quarter this great.
It's all. It's country mix, it's product mix, some fewer big projects. It's also inflationary, and then it's good productivity, and a lot of shipments within the sweet spot of each factory. It's all of those factors that all pitched in a little bit each. You may be right. I haven't checked. Probably it is the best quarter, but I haven't checked it. I must admit, if it's the best Q4 ever, I don't know, actually. It's a good quarter.
Okay. Thank you very much, and well done.
Okay. Thank you very much. See many of you tomorrow. Yes. Yeah. Thank you. Have a good day. Thank you.
This now concludes today's call. Thank you all very much for attending, and you can now disconnect your lines.