Ladies and gentlemen, welcome to the Rockwool report on the first nine months of 2019. Today, I'm pleased to present CEO, Jens Birgersson, CFO, Kim Junge Andersen, and investor relations, Thomas Harder. For the first part of this call, all participants will be in a listen-only mode, and afterwards there will be a question and answer session. As a reminder, this conference call is being recorded. I will now turn the presentation over to your hosts. Please begin.
Welcome to the conference call regarding Rockwool International's results for the first nine months 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. First, Jens Birgersson will go through our presentation and give you an update on the results for the third quarter and the first nine months of 2019. Afterwards, 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. Now we can go to the next slide, which is slide number three. Jens Birgersson, I will now hand over the words to you.
Yeah. Good morning, everyone. Thanks for listening in. I think this quarter is quite uneventful actually, so we will not spend too much time on the PowerPoint, but I will move through quickly and then into the questions. If we move on to slide four, we saw a Q3, the three months. We saw a Q3. It's a very, very good top line. It's the biggest top line we have had in a Q3. It was also a Q3 where we saw the continued volatility with a couple of trends, basically Eastern Europe going, except for Russia, into very negative territory. We dealt with that, in terms of capacity. We focus also a bit on profitability, pulling down capacities. We had made most of the adjustments already.
The numbers I think are important here, that we had a 1% growth, we delivered about 3% on the bottom line, but we kept the profitability. It was nice to see. Move to slide five. No, wait. To six. We go straight into the quarter. On the quarter, when you look at the top line, the real highlight is the continued good top line and growth across the board and systems. We had, I don't know if you remember, but we had a Q1 double digit, Q2 just below, and now a double digit one again. We are very pleased with that. That's quite broad-based. Here, also Lapinus had a very good quarter. They are selling a big portion of the business into automotive, and they've been doing fine. It was good to see that we had a broad-based growth.
Move on to slide seven. Western Europe, France, and U.K. are the two engines. There are also some Nordic countries like Finland and Sweden doing well. Denmark flat. Germany had a difficult quarter again, negative growth, but we landed on plus 4% here. Happy about that. When we look at Germany, you have moderate decline on building permits, lots of order backlog, and the market is still stuck, and it's not really flying. I should say, though, that the level is high. It's a high loading. We had to take out some shifts to supply Germany, but fundamentally quite high activity, but not quite as high as the previous year. Central and Eastern Europe, there it was more of a increased trend of decline, where only Russia grew more or less.
It was good to see that both pricing and volumes and top line held up in Russia. The rest of Central and Eastern Europe, I think we had a quarter where you on the one hand had a slowdown in activities, but you also had de-building. We saw that in Q2, where the distributors have too much stock and they're using up the stock. I think that we have now worked that through. I think the distributors have now gotten rid of the excess stock they had, so we had a bit of a double effect in Central and Eastern Europe. North America, Asia. North America grew. China had a flat quarter, which is very positive. Then the rest of Southeast Asia that got kind of the Chinese economic impact, they are almost all of them in negative territory.
Profitability, slide eight. Underlying, so pricing is up above last year, and in some segment, the competition is harder, the heavy segment, the project side, but pricing is up. Profitability generally, I'm satisfied with that. The big improvement, of course, is in Systems division that we see on slide nine, the next slide, where you see double-digit EBIT improvement in the Systems division and more than 20% improvement on the EBIT. On the insulation business, you see the decrease in EBIT, and there I will say that that's pretty good, what we see there, because we have the one-off startup costs. They all sit in the Insulation division, and we also see all capacity adaptations, they're sitting in there. Pretty good going, I must say. It's good profitability. Investment activities, we are starting up in Romania now, and submitting products for testing and certification has gone really well.
The project in United States is moving ahead now. No obstacles to that. Germany is following the schedule we have too. That's progressing, and you see there, CapEx at a high level, and depending on progress on site and invoicing now, we're going to stay on that level until we are done. Not on this specific level, but we're going to have high CapEx now as we have high activity on the projects. Move to slide 11. There, I guess the main number is that we have kept the net working capital percentage. I think that's always important when you have certain markets slowing down, because that also means that we need to be very quick with our production to slow down.
Otherwise, you're going to build up unnecessary finished goods and inventory in those markets, which we haven't done because we have really been on our toes on that. We took the big piece of those adjustments we took in Q1 and Q2, but we have kept on top of that. Guidance for next year, the change we did, we put in the lower end of the growth. Mathematically, we enter into Q4, we have a December in front of us, and as you know, a December for us is always a low month, but sometimes we get a lot of snow, and it becomes an even lower month. Some years, like for example, 2014, I don't know if you remember that year. We had a year where mainly Germany just stopped the sites very early in the year, mid-December, and not so much revenue.
We see, we don't know what December will be, and we don't know if it will snow, but you have the uncertainty in the fourth quarter as usual. With that, I would like to hand over questions. I have Kim with me here also to answer those questions, so please go ahead.
Thank you. Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad. We ask you kindly to limit your questions to two at a time. Our first question comes from the line of Yves Bromehead from Exane BNP. Please go ahead.
Good morning, gentlemen. Just a few questions on my side. My first question would be on the capacity ramp-up and your overall strategy regarding capacity. Given the weaker outlook in Europe, you're mentioning that you shut down some lines, could you maybe help us in understanding how much net capacity you're actually adding if you're making some lines cold? That would be my first question. Then my second question. I understand that you have already filed the permits for a plant in France. Could you update us on that and whether you will go ahead with the project? What would be the investment cost of that project? Lastly, my last question is on the nitrogen emission regulation in the Netherlands on both the agriculture and the housing market impact it had. Do you expect that to impact the insulation in Grodan? Thank you.
Okay. On the capacity, we actually haven't shut any lines. We work, simplified, you could say 7 by 24 is five shifts in our language. Three shifts, depending on the country, is Monday to Friday. What we have done is that there is no line cold unless it's for a maintenance stop or something like that, but there are no lines. What we have done until now is just to take out a shift or two. For example, in Germany, what happens there is you have a very good demand in the south. If that demand decrease a little bit, then we shift off a shift maybe up at Værløse and Gladbeck, for example. That's how we work it, to just optimize logistics. On the capacity, we are adding now, say, a half a big factory and two big ones.
What that means as a percentage, it's not huge on our total. We are still talking about loading above 80% across the board. How we use that extra capacity is, of course, that in Romania today, we have quite a substantial export to Romania. We will ship that into the market and have short logistic costs. In Neuburg, in Southern Germany, again, we will deliver from the new factory and take away ships further away and reduce the logistics and also Variable Production Cost optimized. That's how we see on that. Then two big ones and one half plant and the next one in, [one], Germany is coming in H1 next year, and the one in North America, we still have in the second half year.
Depending how the market goes and also the optimization of our other assets, we will then time the use of that again based on logistics and when we need it. The progress is good on all those projects. On the France case, there's a bit of a different approach here. We buy land, here we are just doing the permitting, we do that homework so that we know that it's possible, get ready, but we have not taken a decision yet to build a plant, just to be clear, a formal decision. Nitrogen emissions in Netherlands. I was in the Netherlands on Monday, I got to listen a little bit to this. It's a very Dutch issue.
To sum it up, as I've understood it, basically, they use a lot of nitrogen in the farming, and for years, they have been exceeding their own targets and some laws on what you're allowed in sensitive areas to load into the ground. Now they reach an end where they cannot do that anymore. What we have seen then, we have seen that lots of building permits are being put on hold, and we also heard that they're taking a decision to lower the speed limit from 130 to 100 in the whole of Netherlands. It's not implemented yet, but I think they decided it. Definitely if this continues, this kind of local in-house, although I'm not sure you call it a crisis, but it's an issue. It will impact and it has impacted the building industry.
I hope they will solve it, but it's the fundamental issue, will they go after the nitrogen in the farming or not? They are very vocal, the farmers, and we study that. I don't see it will impact Grodan at all. Okay? Not at all. Maybe, of course, in terms of demand, that some of the farmers on normal ground will move. From a production perspective, it won't impact Grodan negatively. Of course, it could possibly mean that you get more into our type of farming, the pesticide-free one in a controlled environment where you don't put any nitrogen on the ground. It could be. I don't think we have seen that effect. I must admit, though, that Grodan is growing really well everywhere. They could be that there is an effect. We have not discussed it as an effect we are seeing yet. Okay?
Just to be clear, how big is the Netherlands market for you, especially on the insulation market?
It's important, but it's not one of our main markets. Germany and Switzerland are bigger than Netherlands for us.
Okay, thank you.
The next question comes from the line of Kristian Johansen from Danske Bank. Please go ahead.
Yes, thank you. First question is on your margin guidance. When I do the implicit number for Q4, the margin you're indicating by keeping these 12.8% indicates a decent margin drop versus Q4 last year. I just wanted to have you elaborate on what should drive this.
I see the following. I see probably an inflation that is under control and not getting worse. I see maybe some more price pressure in Eastern Europe on the heavy side of the portfolio. Fundamentally, we focus on profitability. I see we have control of the margins, and then we have the variability on profitability in December. That's it. Underlying, there is no difference in the business. We don't see that apart from that December is a short month, and we in the year, say, from 2014 up to now, my fifth December. That means that we have seen everything on December over this period, depending on what's happening.
It's a reflection of that I peg it on December, and December then produces and give a reasonable EBIT, of course, not at all on the level of October and November, then profitability will continue to be fine.
All right. Understood. My second question is whether you can elaborate a bit on the differences you see
Within residential versus non-residential, but also within new building versus renovation.
It varies, of course, across lots of market. If you were to say a section of non-residential, I would say there we see that the big warehouses and those big projects, we have fewer projects. If you look specifically in the case of Germany, for example, you see a moderate decline in permits on both residential and non-residential, but it's bigger on non-residential. France here. France, you see the opposite actually, it's increasing in non-residential and then residential permits are down, but there we see renovation up. We see a very mixed. In Poland, you see actually residential up and then non-residential down. I would say on average, we see that the hesitation about the economy impact a bit the non-residential, the commercial side of things, and residential hasn't really been much impacted in the last three to five months.
That has that effect that the heavy segment, the projects, that section of the market has declined. On renovation, since the levels, even though we look at Poland, you have had really a drop in the demand plus the inventory effects. If you then look into the segments, we don't really see the uptick in renovation apart from countries like France, where they have the energy efficiency project really driving growth.
This lag of an uptick, is that due to an already high level and lack of labor and these things?
This with Germany, I try to understand this in the lack of labor and the order backlog. There are many people in Germany that say that Germany is dependent on lack of labor, but it beats me then why it is on a high level, but why has it declined if it was lack of labor? I think it's a mix of things. It might be lack of labor, but it's also uncertainty in the market and where people hold back and try to wait or starting up new projects and things like that. That's my suspicion. I have not managed to get a one-to-one explanation of what's going on in Germany. One thing is for clear, the business confidence, when you look at that curve, is down in Germany.
Okay. Very clear. Thank you.
Thanks.
The next question comes from the line of Tobias Wyman from Morgan Stanley. Please go ahead.
Hello. Thanks for taking my questions. I have two, if I may. The first one on the systems division, we had another strong quarter, and it seems to me like the trends and systems are going in completely different direction as the trends in insulation. One is slowing down and the other one is increasing. Could you just maybe give a little bit more detail? What is the driver of that, and also where do you see systems versus insulation in 2020? That's the first question.
I'm not going to give you a forecast for 2020, but Tobias, you have been on these calls for quite a while, haven't you?
Yes.
You remember we had some issues in the system division where we were kind of spluttering, and we were not really getting it off the ground. There were a couple of factors. One was in Rockfon where the business, we had problems in Asia. We were not growing and had a loss maker there, and we didn't feel we managed the business as well as we could and use our portfolio. There we did the changes. We shut down that Chinese plant. We put a bigger focus. We brought in new management, and that has made a difference. What has also happened, I think, is that with these acquisitions that is happening, the big acquisitions, AMF, Knauf, Armstrong, all these moves, I also think that we are ready, good customer service, good product, out there selling.
It gives us a little bit advantage while the others worry about integration and other things. I think that's part of the driver there. The big aspect is that we are selling and we are out there working hard. You get to Grodan where Europe is doing well in Grodan, but there we also have that step up that we saw in mostly Q1, Q2 in the retail market in North America, where we had stock build hesitation, 2018, that just lost momentum, and it came back and stepped up, and that has continued. I think that's a driver. We look at, for example, Rockpanel. Again, a new manager in there. We have this fire non-combustible facades after Grenfell. Again, quite a push on selling, opening up some new markets. We see that on the top line. That's on that.
On Lapinus, there we have Rockflow. It is not huge growth, but it adds a little bit to the growth. You also have that friction market. I suspect one of you maybe follow the automotive industry. I think in the automotive, we have seen a couple of quarters with fewer cars being produced every month, and now I think we have been in three, four months where there are more cars being produced, and I think that probably helps them a bit. Did I forget someone? No. Those were all the businesses. Traditionally also, a ceiling is a little bit later, internal interior ceiling is a little bit later in the cycle. You have then a market slowdown, System division will keep going.
I must say, what I see here is sales efforts and really hard work on the portfolio and on the ground that is paying off. Adding in a couple of new markets where they hired more people, invested in fixed cost, and it starts to pay off.
Okay, it's not just a catch-up from last year, it's really higher volumes that are here to stay.
That's what I hope. We always have this view that I can't say that we keep going double-digit all the time, but we always said, over the long course, we should be growing faster in the derivative business, the System divisions, because their footprint in terms of markets they are going in are much smaller. We can always add a new country when we are getting in with a good share in one and keep working it, while in the insulation business, we sit now with more penetration into the plastic segment and the renovation at the end on those sliders per market where we are, then we add new markets, but at a slower rate, because you always need to build a plant. In the System division, you can start with three sales guys and move into a market basically every 18 months or something.
You need to get success in each market you enter, and I think we are working very hard on that, and I hope we will see that continue.
Okay, that's very clear. My second question, I wanted to follow up on Eastern Europe. Obviously, besides Russia, the performance was quite weak. I wonder if you could give us a little bit more detail. I remember last quarter you said the slowdown was partly related to some projects related to the automotive sector that have been canceled. Is it still the key driver? Maybe also on a country basis, which was the worst, which was a bit better, and how do you see the trends going into 2020?
I would say if you take the country, say, and I don't give specific country figures, but you say, apart from Russia, you can take Romania out. Romania is still doing pretty okay. All the others is double-digit down. There I also think there is a certain panic reaction on the distributors, that they were believing in increased business all the time. They were overbuilding stock. I think that, but it's pretty low everywhere, I must say.
In the quarter, yeah.
In the quarter, yeah.
Yeah.
And so-
So it's a fair-
Double digit decline. Yeah.
Is it fair to say that part of the reason for the slowdown in Eastern Europe is that some of your competitors have cut prices quite aggressively, and you have kept prices at a higher level, and therefore you have lost volumes in that region?
We have lost a little bit of big progress, it's not too bad, actually. One effect that has happened here is that when people on the distributor side really believed in growth and they wanted to build stock, we were the only one that could deliver. We sat with a lot more stock on the distributors than our competitors. We have paid the price for that now because that was delivered before. They're holding back before they start to reorder. What I predict, because the economic factors in Eastern Europe are not that bad, they still have low GDP that they want to grow. I don't know how quick it will happen, but I think we cannot exclude that Central and Eastern Europe will start to stabilize.
We had a couple of quarters a few years back when it went down very much in Poland, and then it came back, and then it grew. I think we see a stabilization. If we see a lot of growth, I don't know yet. I will just follow it. It's very volatile, but they tend to overreact.
Okay, it's more an issue of oversupply rather than weak demand?
I think it is a demand issue, that people lost a little bit of confidence, and then they overreacted, and I hope it's coming back.
Okay, that's fair enough. Thank you.
The next question comes from line of Brijesh Siya from HSBC. Please go ahead.
Thank you. If I may just go back to the previous question about Eastern Europe, a double-digit decline in like-for-like sales. Obviously, Russia is one-third of that business, and Romania is probably a bigger proportion. That would mean the other businesses have fallen close to 20-odd%. May I ask you what's the impact of the de-stocking in Eastern Europe, if you could split out between what's the demand weakness and what is due to de-stocking? Relates to that, we have new plants coming in Poland and impacting the pricing. If you could split out the 9.9% fall into how much is price impact, how much is volume impact there? That would be my first question.
I'm not going to split it up in percentages, but as a general direction, what I feel happened here over the last couple of quarters on that side is that there was a fair amount of stock. The double-digit decline in some of these markets, quite a fair portion of that is the stock reduction. I think it will stabilize a little bit more, and then we'll see the true market. I can't split it up like that for you. Then on the residential permits, if you look, for example, in Poland, they are down from December to June by about 10%, non-residential, and that is a segment with the big projects. Those combined, a bit of decline in the market, and then the others, and then the specifics.
Since we don't sit on the precise stock values, we don't know down to the %.
Any comment on the pricing scenario, especially in Poland?
The pricing is basically that the distributor segments where you do small orders, GBI, bread-and-butter business, relatively stable, and then tough competition on big projects. Where we put priority on taking down capacity and keeping a certain price quality, we are not willing to take big projects at lower prices.
Okay. relates to that, in Russia, I think it's slightly better than your expectation, the performance is, given that you were hoping there'll be some kind of pricing pressure coming because of competition. Are you positively surprised there? anything which has changed between last to this quarter?
I guess what has changed over the last couple of quarters, and this is not a forecast for next year, and you've seen it maybe on the stock market index that, say, two quarters back when we looked into next year, we sat and maybe we worried a bit about a cliff, more of a recession scenario. I probably now feel more when I look at all the indicators and how people talk and how the cement industry is doing and other people are doing, I feel it's more of a continued volatile environment, but not that cliff reduction. Also in Russia continued, it's growing. I think that maybe those horror scenarios, the risk of those feels a bit less likely as I see it. We have improvement also of this China, Donald Trump discussion. Less of those super macro risks, but still very volatile.
Okay. If I can just move to my second question, which is more on Western Europe. You had this strong performance in France and U.K. Would it be fair to say that these markets are growing double digits now?
I don't go into country details, but they're growing very well, I think for many players in the market, with the difference that France is more broad-based. Every supplier grows. In the U.K., it's the demand for stone wool, specifically, that is growing. I think the market is not growing, but I think on the high-rises now, stone wool is seen as the solution you should use, and therefore we benefit from that. The markets are different. If it's a single digit to double digit type, I don't reveal for them, but it's very good growth in both places.
Okay. Probably lastly on Asia, you are talking about a stabilization in China. Are you kind of looking at a possibility where Southeast Asia also comes to a level of stabilization sometime in Q4, given that it flows from China?
I'm a simple economist. I never dare to forecast, but when China really went down, and now we have a flat quarter, and it's the second flat quarter we have. When China went down, it took a couple of quarters, and then all the others went down. Now China has been stable. Well, if it goes that way downwards, why not that way when it stabilizes? That's my simple logic, but you could tell me if that's the case. Just the same way up as the way down. That's my logic. If that's fair or an economist would approve of that thinking, I don't know. That's my thinking at least. I hope we see a stabilization in Southeast Asia.
Thank you.
Okay.
The next question comes from the line of Claus Almer from Nordea. Please go ahead.
Thank you. Hi, Jens. Hi, Kim. Just also a few questions from my side. Coming back to the pricing environment. At Q2, you mentioned that you saw price competition mainly from stone wool producers having too much of inventory. Since then, we have seen other technologies also being slightly lowering their prices due to cost deflation. How do you see that impacting stone wool prices? That would be the first question.
Yeah. I think what's happening, I mean, the EPS seems to be a blood bath, and we don't get involved in it. I think on glass wool probably, in several markets, a bit of stabilization, at least U.S., and maybe also France. On PIR, that came down because of this chemical. We have seen a bit of price competition. What we have seen now lately on the project, especially in Eastern Europe, is the fact that there's available capacity and then smallish suppliers that just want to get rid of tons on their target to projects. That's the picture, and that's pretty much what we have predicted.
That means also that we tend to focus more on the distribution side. Small business take care of that. When the big ones come, if someone really go for loading, we have rather than reduced capacity. We said we can win that business back when we need to. We of course make sure that we are not in any way stepping out to the key strategic projects, but we don't.
Just to be sure, Jens. You're not that concerned about pricing as an overall theme, so to speak?
You know me, so you know that I work with price all the time, and it will vary in the markets. We will, of course, have a much tougher pricing environment to go forward due to the situation, also new capacity coming online. We don't want to let go of our pricing approach to increase the prices next year. We're going to come out of this year with a higher price than we had last year. That's still the ambition, and we work it. Yes, the environment is a bit tougher, but my ambition, we have some inflation for next year. My ambition is to pass that on, and increase the prices on average in the business. Yes, there are segments, competitive situations where you might have to adjust prices. Fundamentally, I will try to raise them a little bit.
You have cost inflation going into 2020. That was what you said, right?
Yeah.
Shouldn't you have some relief due to coking coal coming down?
There is relief. You're right. We have seen a relief because we had like an inflation of the comparable relief. There is an inflation this year. It's lower than last year. Next year, it's especially lower second half year compared to last year. Next year, I think we'll see moderate inflation. Again, I don't know that. In the current market environment.
Let's guide better on that Claus when we come to February.
Yeah.
Sure.
We will know more. Again, if the inflation would kick off more, then of course we would be much more active on pricing.
Sure. Okay.
There is some.
Yeah. Okay. Coming back to the split between the different markets and also systems and insulation. Insulation's on reported numbers or local currency numbers are down year-over-year. Is that purely due to Eastern Europe situation, and mainly due to price, or how should we think about insulation price versus volume?
We have the prices up on our aggregate for that division. There are quite big mix changes now. How do you calculate that when you are losing very high density tons in the heavy segment because that is declining, and you keep going the light segment. It depends a little bit with how you calculate. You have a higher profitability on aggregate due to that mix shift.
Okay. That makes sense. Then I'm sorry. Just continue.
No, you know that. That is a lighter grade, higher margin, and less of those non-residential box projects that then slides over into a richer mix. Yeah.
Okay. Just a final question regarding your new chairman. I know it is early days, but is there anything to add? Would that make any possible changes to the strategy, or how should we think about this?
Look, I met Thomas the first time in 2014. I've worked with him for five years. He knows this business, this company, and the industry better than any other board member, and he has worked for me the last five years, and he's great at stone wool. He has been part of making the strategy. He loves the company, and we work together. This is a non-issue. It's a timing in his life, and a great opportunity for him. We just look forward to that, and we as a management team will keep running the business every day and we congratulate Thomas to that role. I also want to thank Henrik. It worked great with Henrik. This is not an issue for us. We are really well supported in our strategy, and we keep working it, and the macros are every day improving for us.
Okay, thanks.
Thanks.
The next question comes from the line of Laurits Kjærgaard from ABG. Please go ahead.
Thank you, Jens, Kim, and Thomas, for taking my question. First of all, well done on the net working capital. I just have one question here in terms of Q3. It seems transportation costs or delivery costs of DKK 95 million is down 4% year-on-year. As far as I've understood it, when you started guiding in the beginning of the year, that you said that you've been delivering to some of the areas where you're currently ramping up new factories. What's the reason for delivery costs being down year-on-year? It seems like the first time since Q3 2016 that this has happened.
Thanks, Laurits. This is a good observation. It's not only on the D&T cost, it's also on the warehousing cost. Obviously, last year when we had this pressure in the market to supply, we did have more local warehousing costs than this, which we have now gone out of these many external warehousing costs and in general, less transportation between countries than we had last year. That's the main reason.
When we, for example, had the slowdown now in Germany, and the demand is very good in Southern Germany, we cut shifts first furthest away. We took Denmark and Norway at the beginning of the year, but now we took Northern Germany and especially into Netherlands. That means we get closer to the customer on average.
In the beginning of the year, when you were guiding this 4%-8% sales growth, did you expect to have to sell more in the areas that you are currently ramping up new factories and this has not perhaps happened and therefore obviously you sell a little bit less in these areas, but you have better margins in these areas?
It's not so much. If you look at it like this, Romania, we typically cover from Croatia, and we are on the same level or slightly up this year as last year. We grew it up to a level that is a good starting level to shift it into the factory. You need to take a market position, and we need to make money on that. It's quite a substantial loading we are built up. Once we get to that level, which we were already there last year, if we then had 5%-8% growth in Romania versus last year, that doesn't really make a difference on that type of volume we are talking about.
In Southern Germany, if we take out one or two shifts, especially to not freeze capacity, a lot of the trick is to produce some products to stock. Since it's so voluminous, the extra warehousing that Kim talked about, you handle it, you need to produce it, you need to bring it there, put it in, keep track of it. As soon as we can see a chance to say, "Okay, let's just eradicate one of those flexible external warehouses," we do it. You step out of a contract that could be DKK 1 million, DKK 1 million and a half. Of course, we keep our eyes on that and do the calculation, and when we can take one out, we do it.
It seems that this pressure that we were perhaps fearing a little bit in the beginning of the year has not really actualized. Does that mean that we are at peak delivery cost now, and now the portfolio of factories is looking stronger and therefore we can expect the delivery cost to stabilize or even go down a little bit marginally relatively to revenue?
Yeah. I think on a very high level, and then it could change depending on what market goes up and down and that. Of course, with every dot, factory dot you get in the geography, if that is not placed entirely wrong, that means you get a smaller average sweet spot.
Yeah
if the demand grows comparatively. That's right, but it's incredibly hard to predict this. You can almost look at population growth, look at something. In some parts of the world now, suddenly lots of car factories are coming up, and we need to deliver for one and a half year there, and we don't have capacity in the market, then we just need to ship in, and that might be for one. It's very hard to nail that down to the million with forecast. We can't do that.
Fair. Let's try to return to the topic maybe on Monday. Next question was in terms of the drum beat price that we've been discussing. Can you see that you've lost any market share when you've been increasing these prices by these 1%-3% that you've been mentioning?
Yeah. It's very, very hard when you have stock changes to check market shares. If you look at the competitors that have announced Kingspan, Recticel, Armstrong, it doesn't look like we have lost market share. You have Saint-Gobain that give a very aggregate number for everything, and they are very heavy in France. France is great, and I can just say that we grow considerably more in France than their aggregate numbers. When I compare, it looks like our organic growth is a percentage point above, or in some places 10% above, because some people are shrinking. With the big players, I have a feeling we are doing pretty okay. We are not gaining very much share. We are keeping our share.
Then you have these odd small ones who in any quarter go in and take two big orders, we don't get them, so they feel they gain share, but that is this back-and-forth game. Once the market starts to take off again, that will even out. I felt we have done really, really well.
Yeah.
I think it's very important for me with my size, that I don't want to sit in a quarter and having pumped in volumes when I'm four times bigger than number 2. I want to do my job and cut capacity and try to match it with what I see as the end demand in the market, and keep track of my market share. My strategy is not to increase my market share with 4% in a market that is slowing down or declining. My view is, focus on price and take capacity out and be responsible in that respect.
That's a good observation. Thank you very much. Last question that was discussed earlier was this with also factories where project sales growth has been a little bit weak in the past couple of years, maybe because of some price pressure, but also a little bit of downturn in automotive industry with a few postponements of factories, et cetera. Now we're seeing sort of a ramp-up of Volkswagen and Tesla in Germany, et cetera. Is that any interesting projects that you may be considering making a bid on? Is this, like electric vehicles, maybe-
We will be asked probably for all of that. I mean, that new, you all buy that car, the new electrical Porsche, the new one. What is it called?
E-Porsche. I don't know what it is.
The electrical Porsche. It's a super good-looking car. That factory is huge, and they're building it. We got the whole project. We normally get almost all projects with Volkswagen. I can't remember one we have lost. Tesla, new ground for me, but I hope Tesla doesn't build a factory in classic foam. I don't think they will, but I don't know.
We'll see about that.
Most of those projects are really big factories. For car industry, we are very strong.
Super. Thank you very much for taking my question. I'll see you on Monday.
Okay. Thank you. Thank you, Laurits.
The next question comes from the line of Mikael Petersen from SEB. Please go ahead.
Hi, thank you for taking my questions. I have a question regarding the guidance that was narrowed a little bit. Can you talk about how much that is pricing and how much of that is due to volume?
We haven't declined or reduced our pricing forecast.
The pricing forecast of between 1%-3% is still intact?
Yeah.
Okay. My second question is regarding utilization level in your factories. You mentioned cutting shifts in Denmark, Norway, Northern Germany, and then Netherlands. Are those running at a more optimal utilization level now, or are they below what you would call optimal for the stone wool factories?
They're running on a good level. The issue that happens when you're running really, really hard is that if you get equipment breakages, you don't have time to service, et cetera. Now, we are still on a very healthy loading. It's a good loading, and we can take away some of these warehouses. It's good, but of course, we like to run a factory 7 by 24. The Monday to Friday, we have almost the same VPC, and we are not down to subcritical levels anywhere. Good loading and a little bit space to breathe.
Okay. Thank you. Last question, if I may. In terms of maintenance CapEx, you flagged it at last quarter that was going to increase, and we saw a quite high increase here in Q3. Have you already started doing the maintenance, or is that not going to happen until 2020?
Come again on that question.
You mentioned that the maintenance CapEx was going to increase going forward, and what we saw here in Q3 was also quite the increase. Have you started the program, so to say?
Yeah
that you're going to renovate your buildings and so on?
Yeah, absolutely. In the CapEx now, we need to get used to that, and that has to do with putting Rockwool in the future. Sustainability CapEx, we have started, you saw maybe our award in Norway for the electrical melter.
Yeah.
It doesn't give more capacity, but it's a cleaner circular flow, and it open up certain customers that will now put all the business with us. We have started to do that, and that probably at some future stage, we should have a topic where we talk a little bit about these different things. It's already quite a substantial part where we want to go ahead and invest and upgrade on the environmental technology, the office energy efficiency, the melting technology, the spinning technology, the binder technology. We have already started to wrap that up and continue, and I see that keep increasing, and we're going to keep working on that.
Okay, the run rate of around DKK 50 million in the quarter, that is what we could expect for next year?
I can't judge on that. There is definitely, compared to two years back, it's going to be a higher portion. We'll come back to that maybe in the future and clarify a little bit what type of things we are doing. Yeah.
Okay. Thank you very much.
Okay. I think we are basically running out. I take one more question, and then after that, if you have questions after that, send them to Thomas or Kim.
We see you on Monday.
We see you on Monday. If we don't see you on Monday, send the question, and Thomas and Kim will call you up or respond in writing or whatever. Yeah? I'll take one more question, and then we end this call. Any more questions?
The last question comes from the line of Marcela Klang from Handelsbanken. Please go ahead.
Thank you for taking the last question of the call. I actually would be really happy if you could maybe compare the expected startup cost for the new factories, which will be a higher cost than previously, with the savings from lower transportation costs. How much bigger do you expect the startup cost be in the coming quarter or two? Are these two effects approximately comparable, or is one much bigger than the other?
Marcela, this is a super difficult question, and details that I don't even have it in front of me. We obviously have it in our budgets, we have it in our plans, and things happen, we reprioritize. At the moment, it's for sure, today, up to this point, we certainly haven't had any benefits from a new factory.
There's only Romania.
There's only Romania, and we are just producing now to get the certifications and building the first stock. Up to now, it's for sure, we haven't had the benefit of the factories closer to the market. That's precise mix of those two. We have a downsize but no upsides yet, but I don't dare to say how that would work. Then also when you start a big factory, it's quite a few people you need to take in and train, so it's quite substantial. Again, we come back to that and incorporate that in our forecast when we speak back in guidance in February.
Okay.
Sorry about that, Marcela. Okay. Thank you. I wish you all a good weekend, and I look forward to see some of you on Monday.
This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.