Earnings Call: Q4 2018

Feb 8, 2019

Ladies and gentlemen, welcome to the Rockwall Full Year Results 2018. Today, I'm pleased to present the CEO, Jens Biegelsen, the CFO, Kim Younger Anderson, and the IR Thomas Hader. 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 Woggle International's Results for the Full Year 2018. My name is Tom Tara, I'm here. I'm Director of Group Treasury and Mr. Lacey of Logle International. I'm here together with CEO, Jens Peterson and CFO, Kim Johanis, First, Jens Biegelsen will go through our presentation and give you an update on results for the fourth quarter full year of 2018. Afterwards, we'll be ready to answer all your good questions. But before I hand over the words to Ian Spiegerson, I must ask you to notice slide number 2. Which is the forward looking statement. Please be aware that this presentation contains uncertainties. So now we can go to the next slide, which is slide number 3. James Pearson, I'll now hand over the rest to you. Thank you Thomas. Good morning, everyone. On the Slide number 3, you see our numbers for 2018. I'm very proud of those numbers. It's with the top results. And if we move on to and there is nothing in it, the guidance we set up to 15% this morning. To 13, we achieved all of that. But if you flip to Slide 4 in Q4, We had a relatively uneventful Q4, no surprises that is the biggest Q4 ever in terms of deliveries, very, very high capacity utilization. You saw December weather that wasn't great. So December came in maybe a little bit worse. It could have done, but totally okay, but it was still enough to deliver the numbers. And in terms of 2 year growth that 22% in the quarter growth came also in Q4. And when we take full knockout, we had another quarter with double digit growth, which is pretty good because the year before, Q3 and Q4 had started to accelerate. So it's a good market activity. And we saw some markets that stopped a bit early for Christmas. We had some random effects, but nothing extreme, all in all, it worked out. Alright. Moving on to Slide 5. Up to 15 and Flumbrooke there, 2.7. Flumbrooke had a very good year, benefited a lot from that we were able to sell some extra volumes out of York outside Switzerland. And we saw straight to the end of the year, the trend that non combustible insulation is really high end demand. Very nice to see some terrific growth in Q4. Systems grew in the on the full year, only 4.5%. And I Let's move to Slide 7 and look into Q4. So if we move to Slide 6, And I would say that the trends are pretty much the same as we see before. But there is maybe one positive trend there, but it's a little bit new. If you look at the bottom of this slide, you see that the system says it's up 5.5% like for like or 6.2% in local currencies. And if we track through the quarter, we started the year with Q1, which Sierra growth. We have a Q2 around 2% growth, Q3, a little bit lower than 2% or at 1 point 5 And then now in Q4, we had, 5%, 6% growth. We have done a bit of restructuring there. We shut down the business in Asia. We saw growth on continuous south And now I think getting to the stabilizing point. And I think that we now turn the corner on the top line on the system division after a lot of work. And we also found one more management change in that business and we start see that business pick up. So I'm carefully optimistic that we have now leveled out in system division and that we are heading north again. Slide 7. Western Europe, double digit very good growth UK, more than 30% growth in the quarter. Norway, very good. Sweden, very good. Netherlands, very good. France, totally acceptable growth in Q4 mid single digit. Germany was slower. I'm not quite sure why Germany was slower if it was a shutdown in December or whether it's was just a choke in the market with all the activity going on. We had a little bit of growth, but it was slower than the previous quarters. If we move on to Central And Eastern Europe, including Russia, here, we saw tremendously strong market development. And if you take Russia, Romania, Poland Croatia in 20% up, Very good. Over Russia shows a very high market activity right now. North America, Asia and others, China had another good year and also a good quarter, almost double digit growth. There is more capacity should a new acquisition, we haven't obviously been able to start to use that. So when we come into this year, even though these are small levels in the overall, we hope to be able to grow more in China. In the U. S, we saw the building material market, installation into buildings, residential, commercial, very good quarter, but we had a very slow quarter in technical insulation. And that was a bit of a new trend. I don't know yet if that means that the U. S. Kind of process industry industrial activity doesn't invest at the moment, but it was notable. That said, the bill in material markets was strong. Moving on to Slide 8, And you look at the profitability, we talked about the leverage here EBITDA, 14% and EBIT, 15% on the top line that grew 10%, 11% not the 2x leverage or more that we have seen. We made an alter if you if you look then at our EBIT margin, we came in at 11.7% in Q4. We were on 11.2% the previous year. And when you compare quarter on quarter and also the year, we typically have been to 2 percentage point or more up on the bottom line. And with the high capacity utilization. We had to ship further. I've told you before about this policy that we don't charge the customer. For example, in Germany, if we ship incremental volume from Denmark. And if you dig through the annual report, we put the number here. So it's not a secret number. The impact in Q4 from logistic, longer distances, warehousing, etcetera, is a full 1.7%. So the underlying leverage in the business in the sweet spot is there. But 1.7% margin points were giving away in Q4. Slide 9, nothing much to comment on that, but maybe a slight shift here is that we had another quarter now where the system division is up a percentage point in in margin compared to the year before. So I think that it's another small sign that we are getting through some of the adjustments we are making in this, should say that it's not the buoyant market we have in the systems in in the U. S. Road on market, but at least we don't see that decline anymore. Which means that the other businesses that are growing aggregated and compensated for that. But we have a business and it's not declining anymore in the U. S. Grow down. And over the coming quarters, we'll then look at whether that we've really passed, and we are starting to head up. Next quarterly review of our interest rate. Slide 10. Nothing much to say. We the plan for the year, we are pretty much kept a little bit less CapEx spend, maybe as it normally happens, but good cash flow, net working capital due to the growth down a little bit to $7,400,000,000, but absolute value of inventory and other is a little bit tough. But no more change. And I would also say that if we step into the year with a good inventory level, it's not that we'll deplete the amount risk or anything like that. Slide 11. Investments is progressing. We see on some of the investments that steel civil works, etcetera, strong pressures from a cost perspective. So we see the cost situation, trick, even rebuild them, not alarming, but there is an inflation on materials. Steel, savings, etcetera, due to the high activity in the market. Things are on track. In West Virginia, we have continued protests to the plant, but they have reduced in power locally. It was stronger and worse months back but some of you have seen some of that. I will say the biggest challenge at the moment, we are progressing with the plan We have deployments. We are moving the weather conditions have been challenging, but we are still on track with the project and construction in progress. We move on to the outlook. Slide is up 13. We, as many others, we don't know exactly how this year will play out from a global economic perspective. We have made our best effort. What we are saying here is not the conservative forecast. I want to make that clear. I don't want you to to write that I don't believe what I say here. I believe what I've written here. And the reasoning for it is basically that on the top line. We had a very good growth in 2018, but we see the GDP forecast come down. I also see constraints on the installation labor side in some of the construction markets. So I am not hoping for another 15% year. As you know, before I said, we could, from a capacity perspective, with the debottlenecking and all the things we are doing, get to double digit top line from a capacity perspective. When we now look at the market and as you are all aware, we don't have back Clark, we don't we believe from 1 week to the rest on the run rate, the recurring business. I I feel we have made a realistic forecast here 4% to 8%. As the year progressed, we will obviously see how the main markets in Europe are developing? Are they getting worse? Are they improving? Or is it just like this? Still, but we have reflected that we see greater uncertainty in the whole economic climate, including with the Brexit effects and other effects. This year than we saw in 2018, enhanced the wider guidance. On the EBIT margin, the logic for the margin has been that this year we delivered 2018, we delivered just short of 13% to 12.8%. With the new factories that we're going to start up, most of them starting in 2020. We want to do a quick ramp up approach means that we will hire people early. We will train them and we have front loading the schedule. This on the full year gives an impact with our current plan of about 0.5 percentage point. I also see that inflation will be higher. We're talking some $20,000,000 higher inflation, what we see now that can change. It can also vary between the quarters. You know, we don't hedge. But of course, we want to offset that with price. But all in all, with that plus that we are on a high utilization level, despite the debottleneckings, also in the sweet spots that impact on extra shipping etcetera means that we don't have the leverage on the growth. And therefore, around 12% is what we guide here. So it's very realistic. It's not conservative. But again, as we move through the years, we will look at the the re situation. We are working on price. We are working on cost reductions. We are working on procurement. All of that work continues, but those assumptions are giving you around 12% is realistic. Investment just reflects what we have announced. In the last three years, we have been on an level of about 6% of revenue. Over the last 30 years, we have been on an average investment level of 11% of revenue, And here, we are stepping up in the Rancho Twelvethirteen to catch up a little bit and create room for growth. And most importantly, there's room for growth in the sweet spots. So that we can get rid of that long 0.7 percent negative impact. Again, It doesn't mean when we grow that we don't earn more money. It's obviously the incremental revenues that doesn't have the leverage you still earn more money when we do it. In the annual report, we have put the section in and I don't know if you have had the time read that yet. But our 3 year or midterm guidance expired in 2018 We delivered on all those parameters. And now the question is, what do we say about the coming years? In the annual report, you find something slightly different before the I'm trying to solve the business side. I want to tell you how we felt that in the current potential inflection point the stable environment that we had in 2015 when we gave the previous guidance. So what we have done here is that we have said that over a full business cycle, what are the trends that could be important for you to know about us? And so we started a little bit with the revenue. We are very bullish on the macro trends. And I've listed them there in the material. The positive macro trends for Rockwall, I think infirmed up during the year. They have the fire safety non combustible dimension and the Grenfell Tower and the development there with the ban, and also some changes in other, that seems to be more and more relevant. So that's a really longer trend. The energy efficiency and the renovation agenda to meet the climate goals, you know, everything about percent of the energy and 40% of the CO2 is from buildings in Europe. And going off to the building stuff and renovating it, no climate goal will be met unless you do that. So we believe in that trend. We haven't seen a lot of it yet, but we think that is partly due to capacity constraint on installation. It's less productive to renovate than to built you should also say in that perspective that we are doing a couple of showcase renovation cases of our own offices to show what can do with Stonewall and our products to do the energy of innovation for this efficient. I've added a new trend in there And this trend for sure will be a trend that we believe with for as long as we live and also our children. And that's the plastic trend. Many of us do this that we take a paper bag the shop instead of a plastic bag and we wonder how can we get rid of plastic. Plastic is great for many, many applications. And it's very hard to replace. We are plastic packaging for our product and we are working, how can we replace it? It's just not easy. But there are places where you can substitute plastic easy and building insulation as one of them glass wool, stonewall and other insulation materials can do that, can do that easy. And I think that's a trend we will see over the coming years have become stronger because certain things are very hard to do. This one is easy to do and it works and it exists. So I think that's new trend we talk about, and I think it's there, then we have the urbanization, we're still 115. We have the growth on Horticultural substrates, the precision farming, but another way of expressing that would also be that we believe that there is a growth in precision farming but more specifically pesticide free farming. And that is something you can do really well with our substrates. Then we have indoor passive acoustics, remains important and then the storm of water management. So all of these trends when we looked at them with a new explicit trend we put in here are strong, the remain strong. And then on the cyclicality, I know that in several of the meetings we have, you talk about TASAs. We supply building material billing material market or the construction market is cyclical and therefore Vockwall is cyclical. We We have tried to put some words to why we feel Rockwell is not actually a cyclical stock. So if you haven't had time to read it, read those trend, but I'll give you a couple of data points. Now one data point is that over the last 30 years, there are only 4 calendar years where Rockwell has not grown. 4 years out of 30, I wouldn't call that the cyclical business. That's a steady growth business. And if you look at the years where we didn't have a growth, we were typically big shocks, one in the 70s, the oil shark, that shock took only 1.5, 2 years. And we were up on the same run rate a month as before the economic shock. The only one that took longer, it took 3 years to get out from the Le Mans brothers 1, too, in absolute terms. 1 year down, and then grow, but that growth, it took 3 years from the peak before until we have reached that peak again. So I think that's extremely encouraging. And I think in light of when we get to investments, this also gives us quite some comfort that provided me nowhere to put the plants on the ground, but we don't build it in the wrong place. Because we don't have the right market signals, we should really keep building steadily in upcycle and downcycle. Obviously, we don't want to build so that we build a plant and then we don't need it for 5 years. That's not to spin it. If we have a location, what we made in judgment like that. Of course, we slow down and we cut back. But fundamentally steady organic building of factories in light of our track record on the transformer is our base, right? Then final comment there at the bottom sales of our stonewalled product should grow an average at least 1 percentage point faster. Hear what we did is that we went through all our sales data for the last 4 years. And we find that yes, we have taken market share in some places. We have been more successful in some places than others, but fundamentally, when we look at the markets, we see that Stonewall as a category has gained or has had a 1 percentage point higher growth than the average of the market we're seeing. So the category has grown stronger. And that has been the trend the last 2 years, but also the last 4 years. And I think it's driven by this trends. And we believe that's a long trend. And that's why we are quite optimistic about that there is the substitution growth happening in the next 5, 10, 1520 years. Okay? We move on to the earnings, slide 16, 15, 15. Here, You are getting readers with that, but if you look at the 10, 2030 year EBIT margin, that has been on average 8% between 7.88.8.2. We stepped up in the period I've been here. We have about the percentage point higher of revenue, higher investments in R&D, brand, positioning, positioning is an important there and also digital initiatives. So we have done that. In spite of that, the last 5 years, 2018 and the previous 4 years, we have just short of 10% EBIT margin. So we have, in my mind, permanently shifted the profitability up due to the way we run the business. And just to give you a data point for that some of this pays off, In 2018, we started to put in eShopE Commerce hook up customers in EDI and try to get down to the fax orders and the email orders and all the rest. And the we are now running the increased amount of orders that we get by ADI or e commerce or e shop, with more than 60% during the year. And now one third of our orders come via e Commerce or EDI. To be grew at more than 60%. So this investment, even though we haven't spoken so much about it, we are perhaps even a bit surprised ourselves how quickly that grown. And I should also say in the markets we did it, they do some test markets. And for example, Poland, we are now on higher than 60% by other new solution. And that has basically happened in the course of just a year. So it's So the 1% I feel got invested and we're talking 100 of 1000 of transactions. Between us and our customers. Let me move on to the investments. And the investments that you saw that we We lifted that up. Our return on invested capital is now about 22% or something. We still commit to keep it above 15 we don't have a goal to get it down to $50,000,000. We keep high if we can, but we don't want to go below that. But once again, when we look at the perspective of rock wall on the CapEx dollar per revenue dollar, we see that over the last 10, 10 to 30 years to capacity ratio or the CapEx ratio, the investment ratio, including maintenance, the CapEx has been on average 11%. The last couple of years, it has been 6% the last 2, 3 years. And now since we have the capacity challenge here and we believe in the long term goal, we are stepping off into above 11% the next couple of years to get some capacity into growth. So it's nothing unusual with what we do. It's just a slight elevation above the average, the historic average for a couple of years. And I think the reasoning for doing this in light of how this business works with this business model, it has a strong, strong logic at least from company management side. We believe in what we do earlier, and we believe this would work. And we will continue to keep the return on invested capital high. And having said that, we, of course, continue to look for acquisitions. If you find a factory, a stone wall or an adjacency, we have no problem buying that. And the recent acquisition in China is the integration is granting without any problems. The place is already starting to look better. We have some more work to do there need to up invest that place to get the latest environmental technology and some other improvements, but it's going well. And is obviously a good vehicle for us when we find good targets. With that, I hand over for questions. Thank you very much. Questions. Now we have a question from the line of Christian Johansen of Danske Bank. Go ahead. Your line is open. Yes, thank you. So first question is regarding this faster ramp up of factories, which you have highlighted. Can you quantify how many employees are we talking about here? And then what will the financial impact looking into 2020 from this Yeah. That 2 1000 more than 100 people to get it off the ground. And then if you start the factory, you get in the basic indirect people, the warehousing and all the rest, and then maybe go one shift, etcetera. What we do here is up. And since the factory, when it starts, you do commissioning and then you start very weak on training these people. So we have precise number, how many people are going to train and how many do that by using our other packers, but the difference is that we want to move away from this strategy of having it 2 to 3 year ramp up where we are just idling that asset to be able to do it in a year and go up on full capacity if we need it. And so and I don't want to give a forecast for 2020, but as I said, 0.5 percentage point on the full year this year is the incurred costs that we have planned. So you can recalculate, of course, how many million euro EBITDA is. So this training flying some key people around bringing in some people to train and have them on board and actually burn fixed cost or that before they actually produce anything. So that's the impact. But I don't go into 2020, how big the import is, but it's not going to be huge in 2020. And it depends on of course, in the market condition, if you look at, for example, Romania, we grew Romania in Q4 with close to 30%. That factory with the market, we're going to be able to fill it very, very quickly. So the payback on the up investment is tremendously quick. And one would just say, should we have a bigger Romania. That's more the situation there. Then you look in the U. S, when we get to it, if the U. S. Economy seniors and you're low, we have this argument with the low penetration. There, we don't want to have a fully loaded factory from the beginning because we need 2 to 3 years. So that should have a low loading, but what we don't want are these quality problems stops firefighting, but have a running factor with a few ships. We run it. So it's slightly different situation. So I don't have an aggregate number I can share. I simply don't have that head and plus I don't want to forecast the ramp up for, say, the rest of the union plant. Now it than 3. I don't know that. Okay. So to clarify, do you do this sort of early trading on all the Fives expansion you're currently doing? It depends. They're slightly different. If you go, for example, in Southern Germany, in Neuberg, you have lines next door. So there you do, but we want to be able to hit ships we need with perfect quality, basically after that. And then reality is that we're going to fail a bit because there are big plants we build, but we're going to be we want to be much, much quicker than before so that you don't have to hear the stories, for example, in Mar, Mississippi, or it was just quarter after quarter after quarter with problems. So in Romania, you need to hire the people, put them there and train them, and then you don't have experience among the work So you have a bigger job. In Germany, the job is smaller because, you have a factory next door. You can take half a shift in Flinto, put over and put new people with experienced people. So it's easier. And in Poland, we have a very big population of blue collar. So there is not as dramatic at all. So it varies between the markers. But West Virginia, for example, going to be a big impact because you don't. You are in Greenfield. You don't have any people with Stonewall experience. And the cost is quite substantial. Alright, thank you. Then my second question is on these transportation costs due to longer transportation. And then I'm just curious how when you are sort of bridging you realized in 2018 to what you're guiding for 2019, would there be sort of a continued market pressure pro form a penetration. Is that what you are assuming in your 'nineteen guidance? Yes. So what we have done in the guidance is that we have not obviously given the leverage on the growth here. In the guidance. And the reason for that is that in our all our actions to debottleneck, We have been successful in the sweet spots, but also, in the factories, further right, to achieve a higher capacity, And then depending on where that capacity heats, I mean, if we can deliver from the sweet spot, we do it, but we still have in our plan, but we will have to ship because we're talking we are north of 90% capacity utilization. Which is still a lot at 10% whatever I don't give the precise number. We still have capacity, but this still means that we will have the shipments Of course, in the lower end of a scenario and depending on how every debottlenecking exercise are playing out when you put it into play, that come there. But we have not factored in the leverage we would have from kind of a comfortable capacity utilization, no cross border trade. That's not what we are for. Thank you. Our next question comes from the line of Klas Almer of Nordea. Thank you. We also have a few questions from my side, both from based on the revenue and the cost side. The first question is about your revenue guide from 2019. What do you assume for price increases cost inflation? That would be the first question. Yes, the pricing is to normal drumbeat in a 1% to 3% And that that should cover inflation. So you mean so that would be neutral on your on your revenue side or gross profit you would say. So I wanted to want to free up to higher revenue or prices and have a compensate for whatever cost inflation you have? Full year, but you can have a quote where energy prices spike. We don't take you can have variations over the year, but the the the mission is that, you know, let let's assume it's 2% we calculate those millions and then we compare that to the inflation and, the cost increases. It's a roughly match out. Which means that potentially you could have a slight gross margin deterioration by that if the numbers are exactly equal if the if you have a little bit more price, it's neutral, you know, the match. Sure. So that's roughly the same amount and then a little bit up and down. Okay. Then moving down in in the p and l and to, let's just say, your your EBIT margin guidance with a neutral ASP and cost inflation picture, half percentage point from from, as you mentioned, ramp up for new factories, the the decline in in the EBIT margin, slightly struggle to to to really, understand that, So for maybe So so it's what we did. Yeah. Close. Oh, so simple reasoning. I'm a bit on broad, which means that we don't have a lot of leverage on the margin because we're on the high capacity utilization. Deduct half a percent for the start ups and put the rest cost increases equal to price increases. And there you go. But but then that you you're guiding for a decline in in the margin. Or maybe maybe I'm asking in other ways, because if you look at your cost structure, if you look at the number of employees, you you you added in 2018. So that was around 5%. Has edged up 11% versus 2016. I think maybe that's slightly, a surprise giving your custody program Can you maybe explain a pitch what is happening on on on the employee side? Yeah. We need to, I mean, we grew the top line 14.7, percent. And of course, we had price in there. But you still talk about quite a substantial volume growth, kiloton growth, and to produce that, we need more people. We need more people. So that's the one side of it. And then, if, if, so that's proportional. And, but we have raised the productivity nevertheless. Because we didn't really start any new factories. So when you start a new factory, you lose a bit of blue color productivity, but really just hired more. But then on top of that, you have another aspect. We don't buy turnkey plants. So when we step up, the investment level has been more strong. Most of these engineers are in house and then in digital, we are not outsourced. We did a cut in digital a few years back, a competence and capacity cut Now we have replaced that with a new type of competences we have. So that's also an adder. And those three together leads to that increase in people. But again, what we tend to look at is top line growth versus the employee growth and that we keep raising productivity. So the revenue or the sales per employee has increased 2018 and also 2017. Yeah. Sure. That that I can understand you. But I'm just trying more. I would have thought giving your cost savings program launched a few years back that, that you would say the people you needed to hire to the growth in utilization would, you know, be compensated by the normal, cost savings program but that that's difficult to see in the numbers, at least. Okay. Yeah. But you can see at the the from a productivity perspective, we produced more output and EBIT per employee than we did after the cost out program. Okay. Right. So the project is getting an increase. And then, so we so we we we reduced headcount, and I'll be added in, but we have invested, you know, the 1 the 1% of extra costs, I talked about investment in digitalization. Some of that is headcount, people working on those areas. So that's another aspect. So the 1 percentage of cost is not only cost that we send to agencies on the outside. We do the work ourselves. So that, that is, a large portion in there too. So what the productivity is higher. You know? Right. Okay. And then this far, there's a half percentage points in margin dilution. From rendering up the new, factories. Would that be a Q3 or Q4 event, or when when would would when will we receive these numbers hit the the the p and l? Radio 23240. Or is there any Okay. So you say at so that'll be a roughly speaking and margin percent dilution in the second half of nineteen. Yeah. Sorry. I was thinking that you're already starting that into 2 with the remaining effect. So did you see something spread a bit, for the year? Of course, a bit more in the 2nd half. Maybe, and then just just a defined question. Looking at your guidance, revenue growth, Can you maybe point to some markets where you see the biggest upside and and downside, or or you would say uncertainties? Yeah. So what I see, that's I I guess, Germany, for example, you have a very high number of approved building permits, but you have a very high you have a high need for accommodation houses, etcetera. But you also have a constraint in construction. So having met many, many customers in the market, they all say it's going to be a fine year, but I see signs up I haven't seen negative on Germany, but I'm not, I believe Germany had a better 2018 than it's going to have 2019. Even though many customers say that's not the case in Germany. So I have some in UK, I think, will continue on to something terrible happens with Brexit, we have a 5 month buffer against the closed border in the UK. So we should be able to continue business, but if something happens, really crashes it. But at the moment, we don't have, we haven't factored that in. We have reduced a little bit our growth expectations, but we haven't done a full Brexit disaster. So the The the 4 to 8% is more the result of re saying, look at 2018, what happened? Assume it's a little bit slower here and there. You can do a scenario for different markets and then say this, this feels. All right. And it's constraints as GDP changes, it's all sorts of factors, and then we come to this 4% to 8%. So it's not It's not the specific market, but we said this one will will crash or anything like that. Sure. Okay. I will, you know, start asking Chris, but just find find what do you mean about 5 months of, in the UK? Do we have 5 months of inventory or what What is this kind of a buffer you have? Yeah. No. No. You you know, 98 99% of what we do in the UK comes from the local factor in that. So what we do now, before the Brexit, you know, we we we are blessed here. We don't so we haven't analyzed how hard will it be to get the product over the border if the customs doesn't work. So what how we have approached it is to say, okay. Let's take the raw materials that, we need so that I imported the small things and make sure we have 3 months of that in the warehouse. That stuff. And then let's go a little bit higher on seasonal stocks. So we say have 2 months of stock. You add that up, 5 months. That doesn't mean, of course, that every imported roof ceiling tile and grow the rock panel, but that's, again, not a major business, but also there we built a little bit of extra software we can. So we have tried to physically buffer a hiccup. And if the hiccup doesn't happen, then, you know, we just work that off. We just flex it a little bit with network and capital. I mean, by the way. Okay. Thank you so much. Thank you. Our next question comes from the line of Louritz Keirgaard of ABG. Please go ahead. Your line is now open. First of all, thank you for the presentation, Jens and Kim. In terms of the top line first, Jens, you mentioned in your opening statement that the stone wool insulation has been growing about 1 percentage points relative to other insulation types Could you maybe like talk a little bit about going forward? How perhaps plastic substitutes will react because it seems that their input costs are going down. So perhaps also they're they're they're they're a little trichlorab now. So here, Yeah. Very hard to get data on that, and I always welcome when you dig into this. But what I see is that on EPS and XPS, I think I start to increasingly conclude that the markets are disconnected. When I looked at the ethics business in Germany and other markets, it doesn't matter how they price. That's almost my conclusion now. So that segment, they have overcapacity, the lower prices, and we, we don't look at it. When they need stone wall, they come to us or someone else with stone wall, And it doesn't matter that that cost a little bit more because they are doing the whole thing. Then on peer and poor, the MDI prices are down, And I think, yes, they're going to be tougher. They have lowered prices in some markets now. We saw that in Q4. But we didn't lose much because there are still a lot of projects where people kind of say, okay, here I want Stonewall. And the intersection where we complete head to head hasn't been so big. So if the lower price, sure, we're going to lose a few projects in that in reception between the friction area between, but there are also segments here that is clearly Stonewall and CLIP and Poor. So I think that it's not going to hit across the whole flat roof and across the whole facade installation. So that's more observation, but yes, the price competition will increase. Then of course, in local markets, we want to be if we have the market not growing or shrinking, that could happen in Europe, Italy, for example, is in recession now. Then our strategy is to be disciplined on price and cut capacity. That's what we wanna do. And that's what we want to execute. So on there, the different segments of the market, you have the distribution business bread and butter business, long term relations, e commerce based, not only EDI based, I think there you have a more link between inflation and the pricing. And my approach is that that should work. And then on the project business, there could be a bit more competition because someone is very hungry for volume, but I don't want to reduce capacity in a certain market. So we see a sort of that, but our approach will be to maintain the price quality and the customer service. And, and of course, if the market is growing, that's much easier than if it's shrinking. So I think we have some increased competition, but I'm not pessimistic about the direct competition if the market continues to grow. In the areas where stone will end sort of plastic based products are competing against each other. Could you tell anything about these customers? Are they more price sensitive relatively to before in terms of more price relatively to environmentally focused and also what type price differences, is that currently on sort of plastic based products in Stonewall? You know, we have seen anything from 10 40%. And we have won projects and lost project with all those price differences. So very hard to say it's it's you almost have to dig into each specific market and segment and application and if it's spec or not specs. It's hard to say. So it's gonna be one of these where we we have to look at it and and see what's really happening with that. But my view is still that the growers' competition to stone will install me. Okay. And in terms of stone, one silver canal, and Paroc, they will also, I guess, increase capacity and the especially in the second half year. A few thoughts on that? It depends what happened. If if the market keeps growing and renovation starts up where Stonewall has a high share Then a bit of capacity increase will be swallowed very quickly. If you have another scenario where the market really going down, then of course, that capacity depending on the strategy of those players could have a difference. So it's very hard to say, but there is, in my mind, room, in a growing market for more capacity and, for someone. Fair enough. Then last question. Also, the employee side, especially in Germany, you have mentioned yourself that there's lack of worker capacity therefore, sales cannot be as high as maybe previously thought. Could you talk about maybe, wage inflation in 2019? Relative to 2018, we don't expect it to be increased throughout the city. Yes, sir. Correct. That we have the workers to produce. So I'm talking about on the job sites, the Polish construction workers, the German construction workers, I see signs of constraints there. Yeah. I know. I know. Yeah. Yeah. Yeah. So that that's to say. It's just something I see that they're very busy and it's hard to get the builder. And, you know, on the building project, a specific competence on the project, indeed I also, our part, even though those type of people are there. So that's that, that's, that's, I think, something we have seen in Germany, even though we don't have proof in numbers of this that way, but that's what we hear. But what's the other aspect of salary? Oh, the salary. The salary inflation for 2018, we we basically follow market and you see maybe half a percent, a third of a percent higher salary inflation in 2019 than 2018. On average, but then let's assume it's 0.5%. But then that should be also said that there could be certain markets where you have much more due to something local. For example, Poland, where we talk, So we just follow the market, but when you aggregate it all up, it's higher, but it's nothing you shouldn't expect us to work out and live with. Okay. We'll deal with that and it's not dramatic. But just if the supplies the same and demand for workforce increases quite a lot, which you've seen by some of your customers. Then you should see higher higher wages for them also. No? Yeah. But there's a, you know, we, we are offering careers at Rockwall. It's, it's not like working at McDonald's when you go in a work and if Burger King gives you $1 more. You go to Burger King. Many of our workers and our existing factories have been with us for 30 years. They liked the purpose. They liked the health insurance, they like their colleagues. So it's not like a whole factory environment because suddenly car factory starts with them that would take all our employees. We go for our segment within the market, But then, of course, when you're hiring to new plant, it could be a very tight situation and you need to do it. But so even though we feel in certain areas, all those steal our people and this and that. But on average, it's working out and it's not going to be very dramatic due to that we have quite a loyal workforce. But, again, we're gonna have islands or places where it's gonna be tough. We have to deal with that, but on in the aggregate picture, it should work out with a relatively limited, higher increase. Okay. Super. Thank you. Have a great weekend and see you on Monday. Yeah. See you Monday. Thank you. Have a good weekend. You too. Okay. So then we can finish. We have already talked about more questions. No, no. Any more questions out there? Yes. Our next question comes from the line of Kristin Johansen of Danske Bank. Go ahead. Your line is open. Yes, thank you. Just a quick follow-up. You mentioned this slowdown you saw in Germany in Q4. I'm just curious whether this continued into January or whether you've seen a different trend? I can't comment. You know, December January, snow weather, all of that. So even if I were to to open up with all the numbers. Our experience is that you shouldn't conclude anything based on January. It's up some years down some years. It's too early to say. Too early to say. We need to see what happens towards the end of February March. That's when it really starts to take off. And as you know, some of the businesses you need the winter to go away is the same every year. And then it depends what week are they going broad based onto the site for certain segments. And it doesn't have to do anything with the market activity. If that happens 2 weeks later, we see a lower number. It doesn't mean the market gone down. It just means the winter was longer. So we still too early to say, Krishna. Fair enough. Then the second question was on this disappearance of the leverage as you guide for 2019. Obviously, this is not the natural state of your business. So can you give any flavor on when we should expect leverage to come back then? I, believe more plants. So for example, normally supply quite a bit into Romania. When we get the plant up, that gives more leverage. Neuilberg, when that comes online in 2020, then you start to see leverage because basically in Southern Germany and that area, there's always good demand for us. It's been the last 20 years. So All of those factory assets will give a bigger leverage. You look at North America, all the people you know, you have the West Coast, a lot of economic activity, and then you have flyover country, and then you have the East Coast. Mar in the south, Toronto in the north, coming in with Pasadena in the middle, very good location to serve up. Northeast and U. S. So again, we'll improve the leverage. So I will say all the factory projects do that. Then of course, we do debottlenecking in our existing content, of course, we put our focus in the areas where we needed the most So that impacted. But again, I don't have a number for if that exactly compensates the tons will still shift. So very difficult to answer, but the assumption is that the debottlenecking alone does not change. So we basically see this trend, going forward. Alright. So, sir, the the case. I should also say, go back to Klaus Alton's also on the on the a little bit on the focus on the cost reductions. Last year, a lot of the focus was on getting more output from the asset. We had to go with the earn cost reductions this year, with this lower market outlook that I've given now, we have more focus on cost reduction. No. Alright. But based on what you're saying, it sounds like liver should come back by 2020 because that's when you would have Yeah. Yeah. Yeah. Yeah. Alright. Great. And then if if I adjust may If we look at this year and take a more positive scenario, say that you are actually able to grow more than the 8% should we then expect sort of a further dilution of leverage, I mean, given the factors of capacity constraints, And again, it depends, of course, where the growth is coming from. Price of course will not necessarily give a dilution. Alright. But if you're growing volumes in in capacity constraint markets, we we should expect more. Again, it depends on where the volume is coming coming. So I think I think that let's see how the year develops and how quarter by quarter, how we we progress. And then then the and whether volumes is coming in higher than what we predicted, I'm sure we will somehow be able to, to guide you, next time after Q1. Thank you. That was all for me. Okay. Thanks, Krishna. Thank you. Our next question comes from the line of Michael Peterson of SEB. Go ahead. Your line is now open. Hi, thank you for taking my questions. My questions regarding in Western Europe. You said that the key developments have been strong in Norway, Sweden, Netherlands, last quarter, you mentioned the France, UK, Italy and Spain. And then since you're not mentioning those countries now? Is that that's because they're performing more poorly, or how should we understand this? Yeah. I I think when you look at the quarters, they jumped around a little bit, Basically, Eastern Europe has just been double double digit high up all the time. And now we mentioned those, you know, you can you you can spend a very big role for the time. Norway, I mentioned because it's back up, nobody did this kind of slowdown, and, and now it's just up and it's growing tremendously. So we mentioned that but I would say Germany and France is still, I mean, it's a huge market for us, but we are around the 5% growth, which is great. Great. So it's not, no, no disasters is growing. Germany is the one that Q4, was not great. We are in great harmony, but the market was not so active. On the other hand, Germany is also the obviously the biggest December effect every year. December, certain years are fine, and then they're very bad. So I will say no big changes on the development, no big worries. It's just that we believe that some of that's in France as a market we grew really nice. But when you look at France, there's some alarm signal for France overall. And that's what I mentioned, but business is good in France. Thank you. Our next question comes from the line of East Broomhead of Exane BNP Paribas. Go ahead. Your line is now open. Good morning. I have two questions. The first one is on the EBIT margin. So you mentioned 12% guidance and you mentioned that you're going to have a 0.5 percentage point margin pressure from the engineering and training costs from the ramping up of those plants. So the rest is essentially the logistic cost, if I'm correct, So would it be fair to assume that if you were growing at the lower end of your top line guidance, margins could be higher than if you were growing at the at the at the at the at the higher range of the guidance, which is 8%, in top 9. That's my first question. My second question is, under capacity expansion projects. I wanted to know if all those projects are committed or if you could delay some of those expansions, if demand is getting incrementally more negative? And finally, my last question is on CO2. There's a lot of, discussions around the CO2 emissions scheme and how that impacts the cement sector, but we haven't really, looked at other, sectors such as maybe the installation sector and the stone wall production process. I just wanted to get an idea of how the new ETS 4 scheme could impact your business at all. Thank you very much. Okay. So it came and take the first when I take the the the 2 A and B of the second question. Okay. I'll take the one way where you can say the range. And of course, mathematically, you are you are right. If you get a lower end of the sales, mainly driven by price, obviously, you you will see, a less negative leverage impact on the volume. So I think that that's sort of a logical conclusion. And then on the CapEx, would you take CapEx sense? Okay. So if you look at the CapEx, I mean, Romania, it's all hands on deck to get going, and it grew tremendously. So too late to do anything. That one needs to go in the ground. And again, as I said, 30 years only 2 years for shrinking margin. Once you, you know, you can do, like, what happened? The Spanish when the Spanish billing will stop people just left equipment on-site and left, our branding and our approach is not that. So we have somewhere up to you. You can buy the land you can do in some land preparations, and you could pause the project. But if you look at Romania, too far gone. It's going to happen, and the market is there. The ethics market is very strong. So we go ahead with that. Southern Germany, where that project is happening. Let's say Germany went into a complete negative issue. That part of Germany is still one of our strongholds. So we will finish it and then If we don't need the capacity, we will take the capacity out somewhere else where, the VPC, the variable production cost is higher. And then you have products like we bought land in France and Sweden, there, we have the option to start. We are pretty sure the location in Sweden. But again, every balance, where do we need the capacity and when is the right time? So there, if the business come as worse, we obviously don't start. We have the option. So that's pretty much up. And then in West Virginia, with a 2%, 3% stonewall share, and the fact that we keep clocking very good growth in the installation segment for building. We had the experiment. We just need the plant. We're going to build it. So but yes, if it's really, really would turn sour, we can stop things, but generally, build it or don't start it. And then on the CO 2, we haven't seen, any changes to the regulations, actually. So maybe you are more updated than me, but we have not seen any recent changes that have come into effect. So we don't have an impact. And if the CO2 charges increase, and it goes without the allocations we have today and the cost would go up. We fundamentally still see that as a positive thing because, you know, we save 80, 80 times or a 1000 times or 4000 times depending on the segment more than the CO2 we use when we produce. So somehow the market would definitely be better if, CO2 costs is priced higher. So yes, costs will go up, but also the demand for the product. Okay. Thank you very much for responding to these questions. Thank you. And we have no further questions on the line. Please go ahead speakers. Okay. So thank you very much for the questions and look forward to see some of you on Monday. And wish you a really good weekend. Thank you.