Earnings Call: Q1 2019

May 16, 2019

Welcome to the conference call regarding Rockwell International's results for the first quarter of 2019. My name is Thomas Hader. I'm Director of Group Treasury And Investor Relations of Rockwell International. I'm here together with CEO, Ian Spiegerson and CFO, CFO, Kimial Nansen. First, Ian Peterson will go through our presentation and give you an update on the results for the first quarter of 2019. Afterwards, we will be ready to answer all your good questions. Before I hand over the words to Jens Peterson, I must ask you to notice slide number 2, which is the forward looking statements. Please be aware that this presentation contains uncertainties. So now we can go to the next slide, which is Slide number 3. James Peterson, I will now hand over the rest of you. Thank you, Thomas, and good morning, everyone. I apologize for my voice today. Have a little bit of a cold. Before we get into the financials, I would like to use the fact that I have your attention and talk a little bit about the sustainability report that we should at the time of the AGM. Normally, we focus a lot on external work on what the product does for the environment and the climate, etcetera. But today, I'll also talk a little bit what we do internally. So first, let's look at the positive impacts key driver slide on the next slide on slide 4. What you see there is this fortunate situation that Rockwell has that the product does a lot of it has a very positive impact on the environment around us. And So basically 3 fundamental driver. The one is it's used to combat climate change, relevant topic, the second is that it's circular, there aren't a third of the waste on the planet comes from the building and construction industry. And Stonewall is one of the few construction materials that can be recycled still down the line. There are many products around, but talk about that they have recycled material in. We have that too. A third of what we use today. We have run up to 80% of non virgin material, but the fact is at the end of the day in take it back and we can do things with it, and we can use it for new product. And the 3rd driver here is to safeguard people's well-being. And here, what we increasingly discovered over the last couple of years is that And with the organization, our safe, fire resilient products with this durability, fits extremely well into the dams urban environment. On top of this, if you read this slide, funny safety is always there. On top of this under, I will say climate change comes a new emerging trend that natural material like stormwater is also a perfect substitution and a viable substitution that is ready today to reduce the amount of plastic in the world. And that's a very key theme. We ourselves, for example, we haven't found a way to replace plastics in the wrapping There are very good applications for plastics, but as a building material, Stonewall can replace a lot of plastics in construction and that's the trend we see coming. Turning to Slide 5, sustainability goals. These are the goals we have set ourselves these are fitness calls that we have set for our organization. The first one up to the left is the CO2 emission today. Well, the benchmark year is 2015, and we have a target for 2022 2030. People that say we should have even longer targets, but we tend to prefer to see what we can achieve in the next 5 years. And then we adjust the targets and maybe accelerate it as we move along. But on the CO2 emissions, today, Since you need a lot of energy when you melt the materials to make a fire safe stone wall product, we are using around 696 and we emit 6096 kilos of CO2 per ton of stone will reproduce And we have improved that as we go, but we want to reduce that factor as we move forward. And the second one and the upper role is to reclaim waste. The infrastructure to take back the product, we can take back the product and we can repurpose it. We can use it in our production and add it in the production. The value chain is not there yet in the construction industry, but we are increasing the number of countries, and we have targets for that, where we offer to take the product back. We just recently launched it in Sweden. And we could see an immediate impact on our top line from that. So this is something we are driving, and it will take a while to change construction industry, but it will happen. Then water consumption, and we use a fair amount of water in producing on what I'm also here beside the, we need to reduce it. I come back on all of these factors, what actions are we are taking. And then on energy efficiency, we put ourselves a goal to renovate our own offices around the world and cut the kilowatt hour per square meter by 75% So that is basically apply our own product in our offices and to achieve a substantial improvement. And then on landfill waste, we have also set the target to reduce that by 85%. We are producing millions of tons of tons of stone wall and we are sending something like 3%, 3.5%. It's also tonnage to landfill waste today. And we want to drop that by 8% to 5%. And then we have a safety target to improve that the lost time incident ratio that is lost time days as a percentage of 1,000,000 hours by 10% every year. And Some years, we manage, some years, we don't probably drive this all the time. Because we are in an inherently quite risky industry. We're dealing with hot materials. It's heavy industry. If you're using a lot of trucks and we have a lot of people traveling. So the level we are at, the benchmark level is 3.5 now that's what we have in 2017. That's not a bad level, but we have the ambition to improve it. If they flip to the side by the big, you'll see a little bit on the progress, what we have done. For example, on the CO2, I'll start again on the top left upper corner. The CO2 emissions so far, we have reduced by 4%. And fundamentally, the way to drive this is efficiency of the output to not waste material and the melting technology. For example, if you melt with electrical melt that is using renewable energy that will have a lower CO2 impact. On the other hand, melting with the gas smelter instead of buying dirty electricity from far away will also be better. So We have a strategy for how to improve this, but it is 10% by 2022, but it's a lot about managing technology. And we are I think the only supplier that can natural gas, coke, coke and electricity, we are good at all of those disciplines. Then we have the reclaimed ways to increase the number of countries where we offer that. I think that trend will accelerate as the year's call. It's a matter of doing it. I'm thinking through the logistics and also think through the income inside of a plant, how you deal with the material when the condensate and how you collect it in a market. In some markets, there are small startups that are making a business out of taking this from a building side. And in other markets, we have to do it more ourselves. We already do it with several big car companies, but we deliver a new flat roof or the new materials for it to be take back the old material Volkswagen, for example, is a good example of that. And then we get to the water consumption. This is a tricky target to get to, because water and the geographies we are is cheap. So we have noticed that if you apply our own investment criteria, and these investments to save water, useless water in our processes. It just doesn't, they don't get done. What we have done here is to lower the investment thresholds for what the savings so that we get some work done. And what are the actions in this area? It's basic water management, stop leaks, put in meters, know where it's going, not waste, they not use the platform. And then it's a lot of water recycling, and many of our plants now we just take in tap water. We clean it, use it as process water and then it evaporates a little bit in the process, but we can recycle water all the time. And that's place in most places already. And then we also do rainwater harvesting. We have big areas on the plants and by dust collecting rainwater, that would otherwise pass through our account and add that to the system. If you consume less freshwater from the grid, Then on the energy efficiency of the buildings, it is just to renovate. And this is also a good way for us to showcase how you use rock panel, rock phone, our normal installation, in a building project and how you renovate effectively and quickly. We are, for example, doing a project now in Gladbeck, It's a really old seventy's building that is not pretty that we are now uplifting with the renovation and making it top in terms of energy efficiency. Very interesting to take that project on. And we use it a little bit also to train our own managers and understanding how you do run away. It's good as the manager for an opco to add operational company to have a renovation project and have to liquid your product renovating your own office. Then on the landfill waste, that looks like we have gone back, and that's true. We have gone from £94,000 to 95,000 tons of landfill waste is still a small percentage of the total production. But that is the function of what we grew so much last year. The investment plans are approved here. And the trick to not send things to landfill. Is that a way to feed the waste, the product that doesn't pass the final quality test back into the process. And we do that, but they're fragments that we don't manage today. Which we have a couple of ways of doing that. Depending on the melting technology, you need a special process to be able to get the last bits and pieces of some of the bulk pieces into it. And we have approved a number of bricks and plants in some places. So I'm very confident to meet that goal and bring that down to less than a percent of the the total production going into landfill and other including other materials too. So that's an overview of those Then if we look a bit at the external vendors, there are many, many rating agencies around and there are ESG money around and a little bit depending on the emphasis of the rating authorities what they focus on. You have environment, you have social and governance, depending a bit where they've planted, we will score differently well. For example, we don't have a female board member today. If that is a high rating, we simply can't score well today. But if I were to emphasize a few of the heavy ones, the MSCI, and then the true cost in the SDD I'll take those 2. We start with the New York based, Morgan Stanley Capital International MSCI. This is the biggest one in the world as far as I know, and we are we are top rated on that one. We are very proud of that. Let me take true cost this is the standard of poor, Dow Jones, they acquired. This is London based. They acquired a controlling stake in this. And we are the only company in their rating. So they addressed the 3000 biggest companies is in the scope. They are not true with all companies, but that's their goal. We are the only company of the companies that are now evaluated by every product task score of 100% positive impact on the environment. So they are very much focused on the environmental aspect of it. Thanks. Proud of that record. And then the Danish STG Invest, they analyzed 65,000 companies from the data 100 to say that these are environmental and sound doing things in the right direction and we are one of the 100, again, very proud of that. So we have a lot of work left. We never score and all of these are very well positioned, okay? With that, I'll move on to the numbers. Slide 8 of the breakdown of the numbers here. Okay. So Slide 8, so just summarize the quarter. The quarter is what we expected it to be. The top line had a few starts and stops some places we have had, we have a winter and we saw some markets grow tremendously. We saw others not grow at all. And this is what we predicted. The top line is price and mix driven. Primarily. When we look at the CapEx, we have invested what we expect to invest. And you should also be said on the top plan that there's the biggest biggest space we ever achieved in the history of the company and Q1, so should be happy about that. I think that's another sign that this fundamental demand for the product, I'm talking fire safe materials, natural materials, not made of plastics, it confirms, I think, and the interest in stonewood is high and it keeps selling. And then if you look at the numbers, you can read them yourself. Moving to the sales growth on Slide 9, we see that we had a U. S. Dollar effect, the U. S. Dollar strengthened. So that is still on the currency effect, basically, that we had demand in the quarter. And What you see here is that they had a very pleasing development in systems, and we are happy about that. We talked about when the system coming back, I haven't promised when it's happening, but you saw across all the businesses, good growth, in particular, good growth and growth in North America. So we are pleased about that. And it's, of course, nice and they have that type of growth at the bottom line also for us alone. Please, the slide plan, the regional sales development, Overall, we saw a slower growth on project business. We have also seen some car companies coming with very big prompt processes that we want to do it. German car companies, we won't need the flat anymore because we're not going to build the plant. So we saw that on the private business. And then we saw across the geographies bigger ups and downs. Last, we had a broad base almost everywhere up, everywhere up. And now we saw ups and flats and some downs. So if we then start, UK, France, Sweden, all very strong in Q1. Germany, slight growth, Denmark Flattish, and also a mixed picture, but underlying fine. And much better outside flat roof business. The GBI and the rest were performing better than flat roof. Then we move into CE, including Russia, Russia, big single digit growth, Poland Hungary, single digit growth, Ukraine down by by a mile, we are just exporting into Ukraine, I assume elections and local supply conditions have changed there. And then also some other Eastern European countries that have the decline. So the mix of that led to that we grew only 4% but that's still acceptable level. North America Canada turned south. We don't know if that's permanent, but that went down. And we saw double digit growth in the U. S. Asia, basically, China had their new year, it's a bit earlier, but you also saw a decline in China that was quite big and also saw east Asia, Malaysia, Singapore, the weak markets at the beginning of the year. So I don't know if that's the trade war impacting the whole region. Or what it is, but we are still making very good money there. We expected it to be weak and it's week and it's kind of interesting to see if it picks up. Some of the Q1 development also lost, but we have had a good, for the expected inflation to pick up So we have gone out with the price increases in many markets end of last year that starts in January this year. So you had maybe some pre buying also. It's hard for me to estimate the effect of that. But in the U. S, you saw some of that. So that could also have impacted in some markets, but not every market has a new price increase in 1st January, so it's also generalized. Moving to Slide 11, profit margin. EBITDA of 7.3 percent EBIT up 9.4%. You see the numbers. And basically, to just anticipate the question. If you look at the EBITDA margin, it went from 18.6% to 18.8%. So that's one way of looking at improve. But when you then take the change of the IFRS, leasing, but you made a shift and reduced fixed cost and increased depreciation. If you add that back and you do the reed decimal count, you find that we have lost 0.4 percent EBITDA margin. And digging into that, and I'll just take one single factor. Basically what we have seen in Q1 is that we have a 0.7 negative percentage point EBITDA impact on EBITDA from the logistics and other items line. And if I just take the warehousing for our new projects in Broadan, we're doing expansion in Canada. The UK expansion in rates. And the German when I know about those alone, add up to more than the 0.4%. So it has a natural expectation. These numbers we have here, we still have quite a lot of shipments from that were planned in Q1 from more northern factories to more Southern factories due to the high demand, it was already produced. We have shipped that. That effect, we expect to improve the rest of the year. But the warehouse in this warehouse, and we expect to keep until those projects are completed. And move to Slide 12. Here, you have installation EBIT and you have systems EBIT and it's not much to comment here is pleasing to see the improvement in system division. That's good. And if you see the slight decline of 10.5 to 10 on EBIT in insulation. That's the same explanation as you heard on EBITDA, but it's a bit aggregated here because it's the whole of that impact put on there on EBIT. So there were a lot of improvements in insulation, but then that logistic effect since the total EBIT is smaller, had an impact here, 0.5%. So we kind of improved the rest of the and then we have that logistics on that. That will come right when we look into next year. Investment activities in Q1 I would say it's all it's all going. We are, of course, fighting the inflation of steel and other things. But if you look at the plants, Romania, it's on track to start talking in Q4. German in Arbor, towards the end of H1 next year, West Virginia, end of next year. And Molina in Poland with the current situation we probably start to switch that one on Q44, Q1, something like that. But, projects going well, okay. Seasonal impact on free cash flow. It looks like it's a lot down. So $49,000,000 down, but if you look at the factors, we had a positive one off last year or $50,000,000 for the flow knock shares that we sold when we integrated Blumrock. And then we have 3,000,000 more CapEx this year. So that explains the change in in cash flow. Finally, on the outlook, starting from sales. Net sales I have not changed my view on the volatility of the top line. Trunk took a new hit on China now that the 3 ended as Brexit is still in front of us. Things are happening. Yes, there was a macroeconomic for cost of kind of postpone the worries, but we see a volatile year. So if I can end up between 4% 8%, I'm very happy. And that's what we aim for. Then on the EBIT margin, and why do we upgrade already after Q1? Here compared to what we knew before, we kept this around 12 based on startup costs and more uncertain environment and then also the fact that we had increasing inflation. And now when we close a settlement, early April, advance on for Rockford, North America, that's around 1,000,000. We had the set to market condition for system duration. Those two effects makes me feel that we are starting to approach last year's margin mathematically from below and therefore, I shifted up already now say, let's target around last year's margin level. We still had those costs for the start ups and the rest, but I feel with this, these two effects, we should define to deliver a similar EBIT margin. With that, I hand over for questions. I will take some extra help from Keith today to answer those questions. Over to you. Our first question comes from the line of Ebrohmhead from Exane P. Paribas. Please go ahead. Good morning. Thanks for taking my questions. I'll have to start if I can. So the first one is just I wanted to get a better estimation of the guidance and maybe if you could provide a bridge to understand where the upgrade comes from. You mentioned that it's based on a strong performance of the System Division, but I also wanted to know if you have factored in some tailwind from the recent decline in energy prices, including cooking coal, gas and electricity. And it would be really helpful. Actually, if you could remind us what's the synergy bill for the company as a whole. My second question is on the installation division, where margins were weaker by 50 basis points. Could you help us understand how we should think about margins in in this division going forward, especially with the ramp up costs that you are facing. And lastly, on the system division, also trying to understand there what really fuel the growth? And is it a mixture of volumes and prices? So if you could bridge that would be helpful. And margin are also now back to 2016 levels. So just trying to get a sense of how we should think about margins from the rest of the year in this division? Thank you, Yves. Let me just start with the EBIT guidance. As in spite, we say, we have really not changed our look at the sort of the external factors in the market is still a volatile picture we see that goes both for sales price, the our ability to pass sales prices in the market where more competitors are coming online later this year. And also for that matter for inflation. Even though we know that the inflationary comparison to last year was more favorable in H1, we still see that there could be some inflationary pressure in the second half. So that's still a volatile market. So the guidance is really based on the same underlying fundamental assumptions that we have expressed in our annual report. With those 2 exceptions, as Jens was saying, that we have this settlement from Armstrong, take that apart as a 1 off settlement. And then we did see in the start of the year a much better performance by many of the system divisions businesses. And that carries a higher profitability in general. So that for the group, it matters. So those are sort of the ease at which as you know, we are not sort of giving a lot of details on our energy bill and as these things in detail. So that you just have to take that as cost of goods sold in totality. Well, just a comment there, if you are right in we don't, we don't see that the energy pricing would get worse the rest of the year. You're right. I'm not quite that strong. And then when you had an Insulation division, it's the same, I think it's the same, again, the scenario that we talked about before, many of the things we see on the group level on the price assumptions, on inflationary assumptions, is identical for the Solutions segment. We do have the ramp up costs that are part of the Q1 results part of the guidelines we set and there will be member costs for most of the year, that we have included So there's not a lot of changes in the underlying assumption from Bamboo costs that hits Insulation business this year. In our guidance? And then I think system division. Yes. So this system division, you know, we restructured last year. We also made a couple of management changes a year back. And you start to see that that is taking effect. So it's relatively broad based. The big trigger point, of course, for go down business whilst at the U. S. Retail market from a decline to an around the visibility is that we at least believe we can see the market in Asia and the Russian new factory start up work really well. And the other businesses are all on healthy growth. And We don't see a reason why that will change even though we don't believe that the type of step up since the retail market in the U. S, started from almost declining to now coming back. It's a higher growth rate around this time. And then it will settle down and reinvention about what would be a sound growing market, but not be the percentage as we see now, because you're kind of reestablishing itself. Okay. Thank you very much. Thank you. Our next question comes from the line of Larry Chergaard from ABG. Please go ahead. Hello, Jens Kim and Thomas. Thank you for taking my question. Since you started with ESG perspective, Jens, which is appreciated Let me just ask a question in regards to that. 1st of all, on a high level perspective, what we're hearing from a political side is that there's so much of a shortage of housing that it seems that housing renovation is sort of putting a plaster on a larger issue where politicians are now focusing on more housing Could you give a point of that from like your perspective? And also we read yesterday that sort of the larger companies Rockwell and what other things company doesn't really have women on the board of directors. And now that you're mentioning objectives, do you have any objectives here? Yes. So let's start with the housing. MIT has a lot of interesting long term studies on the housing. And One of the topics is that the productivity is not there. It's just a clear of productivity development. And the more you build, the lower the productivity. So you have that cannibalization between renovation, difficult, unplanned projects to the new build. So when you need housing and you start to build new houses, you do then see more, more new built and then it cannibalizes renovation and no amounts of renovation project. So that is a trend we see. So what we are trying to do is to show how you renovate more effectively and we are working with people how to figure this out. And we have the better homes, for example, in Denmark where we have promote an idea. But the fact remains, if you cannot, renovate the existing housing stock. There's no way you meet the climate goals. So the yield are pushing forward and putting goals on that. And the countries have realized it and people have realized that renovating the existing buildings and not tearing them down and getting the massive, carbon footprint of a new build and all the waste is the way to go. So that, I would say, is a good news trend that is still there and some countries will figure it out. But we don't see much in the numbers. When it comes to renovation, Stonewall is a fantastic material to use due to its properties. So we have a very good share when renovation comes. So that's on that side. Big, big new business. On the other hand, the big new business projects today are primarily noticing in family houses. Single family houses is an area where fire regulation is not so strong. We use a lot of glass or it's not our sweet spot. But the urban new build in multiunit houses, we have a lot to offer. So we have more problem with the new build But of course, if we could see the innovation trend kick off and we should monitor that very carefully, when that one kicks off, we have a real macro growth trend that we can sell on for many, many years. But you have this all hands on deck, shortage of labor, and you're trying more skilled to renovate and building new, less repeatable tasks. So you have this old dilemma. So quite frankly, we haven't seen a step change. We haven't factored in a step change in our numbers. But we see the interest and the understanding of the fact that renovation is the best thing. It beats PV, it beats Wind Farms, EBIT, anything in terms of climate impact. Yes, it's starting in a bit in France. Then women on the board, I control my own team I have 2 super women in the team. Yeah. And in the company, We are hiring for mid management positions. We get to a lot of applications for management positions in Rockwall. And we are hiring 3 women forever to amend into the mid management position if you look at the percentage. And over the years that would translate into more people and the executive team, more opco managers, etcetera. Among the best top co managers we have without consulting all demand is, is, our Russian team. Our whole Russian team is basically on the agreement. We have one man and the team, and they're doing great. So we have no reason to not do that and I like the concept of people growing up through the business and they take the board position. Then you have the issue of the board of Rockwall. And that's that, of course, we like to see more room in there. We have a target, but this really obviously the board on the nomination commitment to get it down, but it's out of my control. Okay, Lars. That's very clear, Jens. One other question is just on your personnel costs, which are up 8% this quarter. Is this any of these pre hirings that you're talking about? What should we take into account seasonality wise for these pre hirings? We kind of add them on to increasing rate throughout the year, and I think we talked about $10,000,000 on the year or something like that. So we are expensing that. The old way was to do the CapEx and then add the people when you had the plant In Norway, for example, what we do is we hire the people now, we put them in working parallel on ships we have. And when they have the new plant up to take a mix of all the experienced people at newcomers and put them on the new line, So you have and that was the reason why I one of the reasons why I said around 12% lost time because I saw this $10,000,000 over the year. And we had a couple of 1,000,000 in Q1, but it will remain the rest of the year and get a little bit worse But then as you know, we work with other improvements too, but it's there. And that's the magnitude. That's very clear. Just one last question here on your guidance upgrade. You mentioned in Q1 that you have tailwind of 0.5 percentage points for on revenue for Q1. Did you expect this when you made your guidance in Q4? My essential question is that you're guiding organic top line but consolidated EBITDA margin, is there any FX adjustment in this EBITDA guidance upgrade? I will ask you, the Q1, let's say, margin improvement primarily comes from the mixed, I. E, higher system sales and thereby higher sort of mix on an impact on the margin. There's no ForEx impact. And then there is another mix effect also. You see the flat roof has a lower percentage of the total and that adds to an improved profitability. Okay. That's very clear. That's it from me. Thank you for your clear answers. I wish you a great extent to attend and see you on Monday. Thank you. Same to you. Thank you. Our next question comes from the line of Christian Johansen from Deutsche Bank. Please go ahead. Thank you. So on the systems first, does the margin improvement you deliver year on year, is that entirely driven by growth in mean, I understand you say you have growth in all businesses, but do you also have a proven margin in the other businesses than growth? You see, I mean, the 2 flagship without insult in the other business, but the 2 biggest businesses are platform and roll down and they are both growing. So that's a mix effect of that. But there are some of the smaller businesses that haven't high margin too. So they are all improving, but of course, growth and it's a high margin business. So you have a mix effect of the retail business, but they are all improving. And then on your substation and Chinese businesses, I mean, this weakness, what's your expectation going forward? And then this mean for margins, how are margins compared to group average in this region? It's fine. I mean, we have double digits in all those markets, though. So we've had to live oil in India, but India hasn't really had a decline in small business for us. But all the others are Southeast Asia is above the beverage, and then China is double digit health of business. So From a margin perspective, it's not giving away businesses, it's good, profitable businesses. And then when I check with peers, that are doing business there in related segments. This China effect is seen pretty broad based. I must say. It seems to be and also the other big Danish companies that are active there. It's not a big problem for us. We were running at such an incredible load last year. And we quickly adapted to it. And let's see what happens in the rest of the year. I've been doing business in China for many, many years, and I can recollect a couple of bad start previously. And then you get to May, June, August, you think it's a flat year and when something happens and at the end, you see good growth. So let's not exclude that that will happen. But it's too early to say. But how is this reflected in your guidance? Have you included a cautious growth assumption for this region, you've had? Yes. I mean, we put, we have a high volatility in the market. So keep an eye sit and look into this and take a realistic look at assumptions has something drastically changed that can crash our top line guidance. And we don't see reality and such changes. All right. That's all for me. Thank you very much. Okay. Thanks, Kristin. Thank you. Our next question comes from the line of Claus Almer from Medina. Please go ahead. Thank you. Also a few questions from my side. First question goes to the ASP. How much did you benefit from higher prices in the first quarter? And what should we expect from rest of 2019? A second question. Let me just do one by one. If that's okay? Oh, okay. We had a good pricing performance in Q1. So you know, I always say, 2% to 3% price. And, so two comments on price. Absolute price is slightly higher than absolute inflation. That's the first comment. And unsatisfied with it in the light of my 2% to 3%. And then of course, it depends if you compare quarter on quarter versus average last year, but we're on track to deliver the 2% to 3% over the year. But it isn't that in the first half, you will be maybe slightly behind the cost inflation, both for transportation or input costs. And that will then reverse in the second half of twenty nineteen. In in the first half, we're just yeah. Yeah. Sorry. Yeah. No. I I don't think so. I I think that the relative price improvement will be, you always have an upward curve, not always, but plus a very upward curve during the year of the price. And that means that I think transportation inflation will continue the whole year. I don't think there is a reason to be pessimistic about other inflation. And then I think warehousing will stay for the new builds, but then the distance shipping element Denmark to Germany, etcetera, Norway to Germany. That will go away and improve over the year. So I think that we would keep, kind of a constant small positive gap to those factors per year. I shouldn't get anywhere. But again, you're dealing with with, yes, the MSTA, but that's what I feel because we had, we have a better pricing performance now than we would have maybe in the last quarter due to the slope of the curve and that we have gone out quite hard on price now. To make sure we didn't end up behind the game and came to you and answered, oh, we missed some advice. And now the margin is down, it will improve the rest of the year. Okay. That sounds good. Is there any markets where you have been, let's just say, surprised on the upside about the ability to raise prices and maybe also the other way around markets where it has proved difficult to raise prices. I think there are no particular market exceptions. What you see in these times is that smallish projects with people that might fit with a bit of extra capacity. The one off bids there, you have a tougher price competition. And then on the distribution, on the drumbeat bed and butter business, we have been able to do what we normally do And on the smallish project business, we are market leaders and We have stepped away from some of these. We have gotten quite a few of these too, and we do this in a measured way. Okay. And then my second question regarding the growth within systems and insulation and insulation in Q1 was below your full year growth guidance. How should we think about growth in the rest of the year, will Insulation come back to, let's just say, in the middle of of of your growth guidance, or will it be the system division that will be the main growth driver? It's hard to say. I mean, we look at all the forecasts and we also look into contractivity as such as the country doing. So it's hard to say, but that's a goal. But clear is an insulation business, the weather dependency is weaker in Q1. So you need to look into the stability of the business more based on Q2 and Q3 because that is a more underlying activity. Q1, it's more, it's a lot of snow to the starter projects and others. So I will not, make an estimate on the installation business per se, but I think we should have an absolutely okay year for the insulation unless of course something happens, something macro in the market that we move out of the for tray to some guidance, which I don't see now. So I'll still stick to that. Yeah. But maybe if you could say some color, how helps you have started, will installation according to your expectations, be within the the band, already in Q2? Claus, I can't comment on the Q2 now. Sorry. But the guidance for the full year of course includes also what we know in the market. So that's fair to say. We didn't exclude information from after. The words would have crashed from end of March, and we won't include it. We will be stupid. We don't do that. Thank you. Our next question comes from the line of Pierre Uzi from Barclays. Please go ahead. Hello, gentlemen. Thank you for taking my questions. The first one is on the difference between your EBITDA. That number is going down in Q1, presumably you have some capacity expansions, your depreciation should increase. So Firstly, is there any one offs to be aware of in that number in Q1? And secondly, what would be your guidance for the full year? The second question is on, the one off costs and the pre hiring relating to your capacity expansion. I'm curious to know how we should think about those one off costs in 2020 when the cost base remain more or less flattish because most of your expansion will be behind or it's not what kind of exceptional one off costs would you expect in 2020? And the last question is on the settlement in North America. Do you have any other significant ongoing litigation for which you will expect some resolution in the coming quarters? Thank you. Thank you very much, Pierre. Let me just take the bridge between EBITDA and EBIT. One of the things that happens is that the mid, because the ongoing projects that we have in Romanian, overwork, and U. S. And a few others, they will not have any impact on depreciation this year. Hartely, Romania will be the one that is coming online in the end of the year and the same with Richmond, Kenya and Poland. So the underlying depreciation, if you correct, from IFRS 16, is slightly lower this year, simply because of, you can say, the historical pattern of investments And one of our major factories had a depreciation at a 10 year period that sort of in the last year in 2018. So it was the UK factory where we had a difference in the depreciation that will carry forward for the remaining part of this year. And then as we get these new investments on board, of course, the precision will start to increase again. So that's the bridge. And all the things that James is talking about, EBITDAS is operating differences mainly coming from logistics. Then you had the one off cost prehiring, as I said, most of this will prevail through this year. They are, of course, also one of our prehiring focusing into next year as we are working towards getting online with notebook and Vansham, so you should also expect something next year. The last thing, whether we have any other vehicle legislation going on, no, we don't have So just to correct that, yes, we don't have any litigations or anything about the money? No, no, no, no, not money. So in this case, we went after to correct what we felt was a market imperfection. Then we have legal cases in the group, but I don't see a monetary impact in terms of a settlement and an upside of any significance compared to this. Understood. Thank you very much. Thank you. Our next question is a follow-up from Christian Johansen from Bank. Please go ahead. Yes, just to follow-up on prices. I mean, has the price increases you have done had any negative impact on your volumes in the quarter? And also what is your competitors doing on pricing? I think, we haven't seen any major effects with the exception of some of the project businesses where we just said we're not going to take certain projects or certain prices. So in the distribution business, it has been fine. And I've seen, I mean, the inflationary picture is the same when the competitors. So we have seen other others raised the prices too. But again, it's, as I said, the task, depending on how the volume develops for the full year. Some new capacity is coming on. It's up to prove it this year, but we have been disciplined and we don't see any significant losses I saw that there was one competitor on a plastic material that said that they have grown tremendously against traditional materials, I assume that's glass ball and stone wall. We went through our markets. We couldn't see and the signs of that. We saw projects being postponed, but we don't saw we didn't see major losses anywhere. So So I'm quite carefully optimistic. But again, since I came to Rockwall, it's a new situation, a more volatile market, what will happen. We have come a long way on price, but you need to navigate every new year. And we've been doing that, see what happens. In terms of the project business you referred to, how big a portion of sales is this? You know, Christian, we don't give it, but, so, but it's a relatively big segment for us, flat roof insulation. For sure. But it's also lower margin. So the lower prices you don't want to take is, I mean, is that a reflection of the foam producers being more price aggressive or what's No. We took advantage of it. We know that, I mean, the XPS and EPS our conclusion in the second price as a risk. It doesn't matter. Then the Tier and Per, are back on the MDI, lower cost. We are seeing lower prices and maybe we have lost a few projects there and there for that, but that's not a major thing. Remilius projects is mostly to stone all what we see. Last fall is not really on the flat roof of the player. It's in some very few markets. They managed to make the product that can compete in that side. But is just an exception. Thank you. Our next question is a follow-up from Klas Almer from Redburn. Please go ahead. Thank you. A few follow-up questions from my side. The first is a multiple Christian's question. The slide will segment, you're losing to stone wood producers. Is this a change to what we have seen in 2018 where my impression was that there was lack of available capacity, I. E. Very good pricing environment. Is it a big conclusion to say we lose to Stonewall. What we see in the flat roof segment is what you saw on our Volkswagen and dialer. We see project postponement. And what happens when you see project postponement is that the salespeople say if only possible. And in my world, when the big guys don't invest in new factories, the project is from, because it doesn't materialize. So I think the biggest impact is not project losses. The biggest impact is that the products disappear. And then when we lose a project and we're talking smallish mid sized project. When I pulled the organization, it's mostly to other store suppliers, yes? And that is to people that have capacity and now they want to fill a few months. And it doesn't change the market position in a way short term actions to load up a plan where our approach is keep, say, the price level and adapt capacity, but we are good loading level have been disciplined about that. And we have also in Q1 been successful with reducing capacity in Northern Europe and So over the coming quarters, you see a slight impact of that we are not shipping from Norway and Denmark into Germany, etcetera. We are getting out that. In Q1, you still saw it, but the debottlenecking efforts. So we rebalanced capacity and we are on a good and sound capacity utilization level. Okay. Just to be sure. So you do not see a changed pricing dynamic versus last year. It's more maybe a few projects here and there. But overall, Yes. Maybe the difference last year was that when you had a very tight market, then they really come to us because they know that we'll mix in Danish, Norwegian German, German, whatever. Make sure they get to deliver and they can count them. So we properly get that over share in such a year because people trust us to deliver. And we did delivery every time. And then in the year like this, if someone gets a bit more extra capacity, you have more normal competitive dynamics. So you had a bit abnormal aspect on some of the products last year. And now it's back to normal that if someone has capacity, they're small in their excess, they go for it. And that's fine. And we don't want to play that Sure. Okay. And then just my second question regarding the settlement, how is this 1,000,000 being calculated? Is it based on both market possibilities, or can you give any flavor to that? You know, we've settled with settled this. A few days before we're offering a jury. And one of the parts we need to sign when you do a such a supplement in the U. S. Is to say no one did any wrong, but we're going to write this to the customer. So I cannot comment that for legal reason, but I can say that there are certain behaviors in the distribution that we'll change. That's what I can say. If the way the legal system works and to make a settlement, you basically And as there are no further questions at this point, I will hand the word back to the speakers. Okay. Yes. But there's no more from our side. I would most likely see you many of you on Monday. Have a nice, long weekend. Thank you.