Jens Korsgaard, I'm here together with CEO Jens Birgersson and CFO Kim Junge Andersen. Jens Birgersson will, as always, go through our presentation and give you a quick update. Afterwards, we will be ready to answer all your good questions. Before I hand over the words to Jens Birgersson, I must ask you to look to the second slide, which is the forward-looking statement. Please, as always, be aware that this presentation contains uncertainties. Then we can go to the next slide, that is slide number three, I will hand over the work to Mr. Jens Birgersson.
Thank you, Jens. I will immediately switch to slide four to go to the quarter, because I saw in your commentary you have already isolated these quarters. We just talk about Q2. I think Q2 was relatively uneventful. Our crews out there did a great job of keeping the factories running. We had some issues. We ran out of one supplier, ran out of oxygen. Oil compressor broke, a sub-supplier. We had some battles there, that's when you operate tight. Some of these, nothing major. Uneventful. Top line grew nicely, good leverage on the bottom line, up 43%. I was thinking that having this slide in front of us, I go through all the main dimensions of the business as I saw it, we quickly go through the rest, we go to the questions.
If we start with the market, we saw very good growth for the stone wool in almost all markets. There are very few exceptions. For example, in Hungary, we didn't grow double digit because we were tight on capacity. It's still a very good growth. Denmark, we have the big issue. It's burdening us a bit, that's not growing. The rest of the Nordics is double digit. Germany, France. Germany, tremendous growth. France, very good growth. Poland, the list goes on. Why is that happening? Why are we seeing this quite high growth? First of all, in almost all markets, you have a positive construction environment. There is construction or renovation work going on. That's happening. That's certainly not double digit. It's not super booming all over, it's growing. Germany, for example, have high activity. That's happening.
In the segmentation, the money primarily flows into plastic insulation, plastic foams, glass wool and stone wool, the mix is a bit different. Of course, the plastic foam is the big segment, we see an increase in the stone wool share. It's not dramatic changes all over, you see an increase away from plastic foams to stone wool. Stone wool is hot in that perspective. There are certain segments you see the flow to a greater degree, for example, external wall insulation, where now in Q2, we are up to, say, 40% in Germany. I said the number, three years back, it was 14%. That's going on. One would say, okay, is that extra transition giving 17% growth for everyone? I don't think so.
I think that we have taken the larger share of the extra demand because we have been able to deliver, and we have been very successful in getting the deliveries to the customers. Yes, we monitor lead times, and we have some areas. For example, Poland, flat roofs up to 8 weeks. Hungary is very tight. Generally, we manage to solve it, and that means that we get the top line. If we then go to the capacity, if you look into delivering the forecast this year, we can do that. What happens then in 2020 and 2021? No, 2019 and 2020. Last time I said we have, with the forecast that we had at the time, room in 2019 for double-digit top line.
I can say with all the work we have done, debottlenecking, the CapEx we already invested, SKU reduction, shorter maintenance stop, not doing less maintenance, but doing it quicker, and all the actions we are doing, I can say that still holds with the upgraded top line. We've also done quite a bit work on year 2020. What needs to be very clear here, I'm not giving an outlook for 2019 and 2020. I'm just saying what capacity room do we have should the market continue to develop as it does. That means in February, we will come with outlook for next year. Have come to the conclusion that also in 2020 we can deliver double-digit top line. Of course, if 2019 will be 35%, then I would eat that up. It looks pretty good from that perspective. It's tight.
It requires an awful amount of work, but our teams out there are pretty good at it, and we have a good methodology. Should also be said that in 2020, when we look at capacity, very little in that plan comes, for example, from the U.S. factory. That really kicks in 2021. In that year, Germany should start to come in, Poland comes in, Romania comes in, and also some increases we do in Floorrock and also the rails expansion. That you will start to see a bit more of in 2020. That's on the capacity, and I think that's good news. The fact that we measure, as I said, the delivery times every week, by segment. Delivery times has increased, but on average, we keep the customer supply. What is the implication of that on the P&L?
We keep holding back on fixed cost. We have a fixed cost as a percentage of revenue improvement. We have to add shifts. We have to hire people, but productivity is increasing on all the categories. That's good. We are still cutting costs and doing operational improvements. It's quite substantial money we have been saving, and it will continue this year and next year. That's progressing well. That covers more than inflation. From a contribution margin perspective, here you saw the gross margin and contribution margin improve. We can see clearly that with the price and efficiency improvement we are doing within the sweet spots of the factories, say 300, 500 km out per factory, we see the margins go up on the business due to higher factory productivity, cost absorption, better relation between cost and price.
There we are improving the business. We have the business where we are shipping, for example, Denmark into Germany. We even took some product from Russia into Poland for a big project. On that business, we are paying a price on the bottom line. It is not the same contribution margin, but the overriding rule still holds, which means that if we grow 10% on the top line, I feel reasonably comfortable we deliver at least 20% bottom line. P&L feels sound. We put very high priority on getting product to the customers at a fair price, not a predatory price, but a fair price. Some of these logistic costs with certain customers, we take the cost. We say, "It is not your problem that we take from our factory further away to stay within our frame agreement." We work that way.
It is a mix of structures depending on the market. On the price, the year as we see it, the progress so far has gone well around 5% on price year-over-year. That is what we can see. We also see inflation. It is there. It is not dramatically worse. It has increased a little bit, but it is not the shock we had last year. Those were the main dimensions on capacity outlook, P&L market, and price. Why we are growing, I would think, proportionally faster than some others. If you go into the growth picture, H1, slide five. Floorrock is doing very good. Insulation is doing good all over. Systems, still not a dramatic growth in any way, and it is too early.
If you move on to slide six, we compare H1 to Q2. You can see that on slide six that systems has slightly better growth percentage in Q2. I think now the issues we have had on Rockfon and also that the growth on business are starting to stabilizing. I still need a couple of quarters proof point to see that that is coming around, and that we can maybe step a bit up above 5%. We have not seen it, but at least we see that the worsening factors that we have had are not worsening more. All the other businesses are growing quite nicely. The business is stable, but of course, it is not up on the insulation growth rate because you do not have quite the same drivers in that business. We move on to slide seven.
Here, it is maybe easier to say where it did not grow really well. We can cover some countries later. Singapore, not going well. Denmark, we shrank, but the rest of the Nordics, really good. Generally the whole Eastern Europe, Russia, not double digits, but high single digits. Very good development in Russia. They had a long winter. When it started, it has started well. I see a good year in Russia. All the Eastern countries doing really well. France, Germany, exceptionally good. Spain, Italy, and France just look solid also. Those are on the markets. U.K. up now. More than 40% growth. We have seen that now quarter after quarter.
There hasn't been a ban on combustible insulation, anything on high rises, but we can see that the market perception that for certain buildings it's better to pick stone wool, and that is there, and it's happening, and therefore we grow. Move on to slide eight. Profitability. 43% up on the top line that was 17. We don't have big exchange rate effect on that numbers, both in actual and budget rates, it will look like that. Slightly lower growth on the bottom line, but Q1 is a short quarter and an easier comparable. I'm happy with this 43% we have there. That looks fine. I think, not much to comment there. We move on to slide nine. We have taken quite a lot of action into the System division. We have a new manager on board in Rockfon.
Now it's up to prove in the coming quarter that the System division EBIT margin gap to last year, that that starts to close. We have a much smaller gap, quarter-on-quarter in Q2 than we have in Q1. We are carefully optimistic over the two, three coming quarters that we're able to get up on the levels we had previously. It's up for us to prove. In the big picture of things, if we can get that 4%-6% growth in System division and keep the margin on these levels, it's a good business, we are waiting for growth on to come back on the real growth path again. That will make a difference. The business is in a good place, and the problems we had, we have acted on and structurally adjusted for most places.
Free cash flow, slide 10. Here, we keep, in spite of the investment program, building cash. We are again debt-free. More debt-free. I'm quite happy to say that we have managed to increase net working capital. It's okay to increase net working capital now because to utilize and not freeze capacity, we need to build stock. We have paid a certain price to lift the stock level. We started to ramp up the factories already during the autumn. If we wouldn't have done that, we wouldn't have been able to deliver that we did in Q1 and Q2. That's a good net working capital increase. It doesn't mean that we'll get less prepayment or that we are paying suppliers quicker. That's not what we are doing.
This is pure inventory, to some extent also it can hit between the quarters that we have invoiced a bit more than normal. It comes between the quarters sometime. Fundamentally, it's finished goods inventory. Investment activities, that's ramping up. The projects are increasing or are progressing as expected. We could say that we are impacted by inflation on some of the materials we buy and also even steel imports on some of the equipment we ship between countries. You know, we have in our normal business, we are not really impacted by the import duties because less than 10% cross the border and we are not in those categories as far as I know. I haven't seen the case yet.
On the construction steel and other things, we can have small input, but again, that's project impact, so it doesn't impact us so much. We move to slide 12, the capacity. These are projects that are coming online, and we have Wales, Poland, Romania, that if everything works out, should start to kick in to a certain extent next year, Germany to a relatively large extent in 2020, U.S. really getting ready end of 2020 and only starting to give serious volumes in the year after that. This is what has been decided. What we see now with Neuburg, the German expansion, that project we are trying to fast track. That can offload some of the demand in Germany and parts of France. We are now getting to a point with the development in France and Spain, but we need more capacity for France.
We have identified piece of land. We have not executed the deal yet, but the option to build in France is very tangible. Although we haven't executed, that's in the cards, so to say. We haven't decided to build a plant yet. As always, we will keep that up. Our ambition is to keep our market share in France. We're not going to lose market share in France, which, if this market development continues, will require more capacity, and we will add that. Let's move on to outlook. 13%-15%, we upgraded that. The basis for that was that in the old gap of 7%-10%, midpoint 8.5%, I was getting into two quarters with double that growth.
Even though last year we had the ramp-up of the growth, we have basically 8% and 10% growth in Q3 and Q4 and lower numbers in the first half year. We see that the growth continues, but maybe to slightly lower level. The two-year growth is, the current assumption, is going to be roughly the same, maybe slightly improving, therefore we are now on 13%-15% there. December effect, winter effect after this summer could be anything, therefore we don't know exactly. We will have to see when we get there. Clearly so that the building activity is such that it would be good in very many markets if they can work quite hard in December to finish all the projects, because the plans on some of these construction sites are not being met.
We see continued high activity the rest of the year, but weather is air. The other factors, we have EBITDA and investments, we haven't changed. Okay, that was my quick overview. With that, I hand over for questions.
Thank you. Ladies and gentlemen, if you have a question for the speakers, please press 01 on your telephone keypad. We ask you kindly to limit your questions to two at a time. The first question comes from the line of Kristian Johansen from Danske Bank. Please go ahead.
Yes, thank you. My first question is around pricing. I think you mentioned 5% increase from prices that in Q2 or in the first half, or is there any difference? What should we expect for the second half of 2018, or what have you put into your guidance when it comes to prices?
I'm saying that it's around the 5% mark for the full year versus last year. I didn't comment how much it is yet. What I see with what we have in the cards of around 5% over the year and slightly bigger effect in the second half. We did start to increase the prices last year, so it's a little bit hard because Q3 and Q4, you're starting to see a slight price effect loss. I quite frankly don't have the precise number in my head, because of course, price this year is still a projection, and last year we were up a bit in the second half. Around the 5% going forward and in this quarter. That's what I would call it. It will vary then up or down 1% if you do the final calcul.
Okay. My second question is on the productivity improvement, which you also highlight. First of all, can you in any way help us quantify how much are we talking about here for the first half? Will that be sort of an accelerating impact into the second half and 2019?
Productivity improvement, it depends what you refer to. Are you talking fixed cost productivity improvements, or are you talking output improvements? Which productivity?
Anything that helps the bottom line, essentially.
Yeah. We're adding shifts, on fixed cost, white collar, overhead productivity, that's improving. That's improving. Of course, other cost absorption per factory, that's also improving because the output is going up, even if you add shifts, a lot of the indirect things around it is getting better. Our assumption here is that the logistics for the out-of-sweet-spot shipments is eating quite a lot. I'm not saying that logistics inflation, the oil prices are up a bit, there's some effect, mostly the kilometers we ship on average, that's a negative effect. I sum all of that up back, that minimum what we should achieve, or my golden rule, that with those effects, we should have double the bottom line growth to the top line growth. That's where I left it. More details on that.
Of course, we have done better now a while, there could be quarters where we just deliver twice the top line growth on the bottom line because it's enough that you take an out, it's your one factory or something like that, and then you lose a little bit of EBIT, that's the threshold for me for acceptable quarter. It doesn't mean that one day we miss it in a quarter for certain reasons, fundamentally, all the productivity factors should boil down to that, at least twice the bottom line growth from the level we are now compared to the top line growth.
Okay. Quite clear. Thank you.
Sorry. Maybe your model doesn't work that way, but you've seen we deliver on that level, and that's what I feel we keep up with.
Yes.
Thanks, Kristian.
Thank you. The next question comes from the line of Yves Bromehead from Exane BNP Paribas. Please go ahead.
Good morning. Thank you for taking my questions. The first one is regarding your recent presentations, where you often talk about taking share from foam-based insulation. Your growth rate also implies that you're taking market share from glass wool. I wanted to get a bit more color in terms of how the market share dynamics have been playing out between-
Yeah
glass and stone wool.
I'm not so sure about that, Yves, because you have a lot of new construction in certain markets, and I think some of the market share you see, the extra growth is actually taken from stone wool. We are not taking it by them losing top line. We are taking it by taking the stone wool on top, where they are sold out.
Okay.
I cannot say whether the big factor is coming. The step-up in growth rate, that's because I think plastic foam is transitioned to stone wool, maybe also glass wool, but mostly stone wool, is what I believe. In that segment, we take a lot of it because we can deliver, and we are relatively quick still to deliver. That's how I see it. The market share between glass wool and stone wool, we had a period last year where we were losing share, for example, in France. The gap between glass wool and stone wool was too low because Saint-Gobain and Knauf are very low on the glass wool, and we went up with the price also in the GBI. The gap turned too big. We had to adjust, and now we are back.
You also saw the Granulate business where glass wool came in, and now we have taken back so that we're almost back to where we were before. You have segments like that, but I would not say that on average, there is a move in the market where I can say that stone wool is taking share from glass wool. I won't say that. For example, in Denmark, you might have another case where glass wool perhaps is growing faster than stone wool because the price differential might be a bit too big. Why are you so sure that stone wool is taking share from glass wool?
No, it was more of a question than being an assertion.
Okay. My read on it then, Yves, is that I don't think that's the battle. That's a mix issue between how much new build, flat roof it takes, more of that. We take from the flow over from plastic that comes into stone wool, we take a higher share there. Again, the others are not losing volume. Most of them fully loaded.
Maybe sticking to the question, when we look at the U.S. market, where glass wool is predominant, how do you see that playing out given that yourself and your competitor are also driving more stone wool penetration in that market? Is that working as expected?
Yeah. It's working as expected. We had, for example, last year, a setback with Home Depot in Canada where they took us out of the great many stores, and now we are in. We have the same thing happening in the U.S. because we raised prices, and they took in another supplier in a great many stores. We see some back and forth on that. Fundamentally, the stone wool tons are so few in relation to the whole market that I don't know if you can even call that share gain that we are dealing with, that we fill our plant if we have half a percent more of the market. No one will even notice. It's an underlying growth, of course, of the stone wool business, but the glass wool is also growing at this stage because the U.S. is so good.
It's not the drama between these two, and both segments are growing at the moment.
Okay, thanks. There's a second question on margin and earnings, which have recovered quite significantly in Europe and the U.S. There's also been quite a very impressive execution of your strategy so far. I just wanted to look a bit more on the long term. What is the group's strategy? Would you consider entering new markets now through M&A, or do you still want to focus predominantly on the execution of your CapEx strategy in your core markets?
Adjacent new markets If we can find I'm quite constrained on building new plant capacity, as you could imagine, the engineering capacity of that. I'm not keen at the moment to step into greenfield new country, building a new plant, because that's the most difficult thing you can do. It's easier to add a line or build in a country where you already know the country or you're selling. Romania, for example, is not the scariest step, relatively the simplest step to do. We are looking, and yes, we have things on the list that are new countries where we could acquire something, but we have not managed to bring one after Flumroc to a point where we can say that we get into the terms and agree a price.
I have a couple of those in the pipeline that I'm working on, and if it takes me one year or three years or 10 years, or it might never work out, we have a few. I'm absolutely not against entering a new country. Obviously, I'm not keen, for example, I'm not going to do an acquisition in Middle East or Brazil or Australia. That's not high on my agenda. If you can take another country nearby or that fits into our supply network in the wrong way, that strategically fits very well with our thinking. If you are within striking distance, even if you are within 1,500 kilometer from a market that we are already in these times, that means we might be able to take volumes home that we are shipping to that country today.
I'm not talking five or 10 such targets. I'm talking below five potential opportunities around, and none of them is mature, what I have now in the hand.
Okay. Thank you very much.
Thank you.
Thank you. The next question comes from the line of Claus Almer from Nordea. Please go ahead.
Yeah. Hi. Also a few questions from my side. The first question goes to your CapEx or your maintenance CapEx. Jens, we have seen, or maybe it is Kim, we have seen CapEx for maintenance going up for the last couple of quarters. Is this just a quarterly variation or is there something structural going on due to the higher volumes, et cetera? That will be the first question.
No, it is mainly a quarterly variations. The planning schedules that are fitting in. There is no indication that maintenance CapEx are going up.
Where do we put the environmental CapEx? Does it come into.
No, that comes into-
The other.
Yeah. There could be, as Jens alluded to here, there could be a few millions more on what we call sustainability investments-
that we classify as maintenance CapEx, where it doesn't really give an increased output. We do this for sustainability reasons. We are seeing a few of those, but it's in the single digit millions.
There could be an effect there, Claus, of DKK 2 or 3 million, we should check those numbers, and next time we speak, we can say. I would suspect that some of this energy efficiency abatement filters, there could be some of those that ended up in the maintenance CapEx pot that maybe increased a quarter with DKK a couple of million. We need to check, because that's really not capacity CapEx, and we do a little bit more of those cleanliness, sustainability investments, as in our strategy, and we are doing some more. We are not talking big money.
Okay. Jens, also the same question. You mentioned France, you're considering adding capacity in France. Would that be a greenfield or can you expand the current facility?
Considering the size of the country, we have done the logistics calculations for a greenfield, and that's what we have our eyes on. Yeah.
Okay.
If you look at our footprint, we feel there is a logic, a very strong logic for a greenfield there.
Okay. That would be 100,000 average factory or small or bigger?
We have not decided on a factory, I should say that.
Sure.
We are, as you know, with the new thinking, we do the logistics, we do the business scenario, and then we define trigger points for when we actually start to dig. We have done all of that. We have identified the area we want to be in. We have identified the piece of land, and considering if Macron and their meeting their environmental goals, the climate goals continues, the most likely scenario, and I'm not saying that has been decided, but the most likely scenario is a full size line.
Just my final question. If we focus on the system division, where, as you also mentioned, things are maybe not going as good as it is in the insulation division. Is it more about lack of execution, or do you also see a lack of ability to pass on the higher input costs? What is actually driving a lower EBIT despite top line growth?
We have increased prices also in the system division, but Fundamentally, if you look at Rockfon, Rockpanel, Lapinus, it's running really well. We have the U.S. Roxul business. That one has declined, and we think that stabilizes and coming up. We haven't lost share. That's not what's happening. It has just declined. Rockfon, we have the main Asian issue and also some organizational issues that we needed better drive in that business. I would say it's one macro effect on the market, where we have to adapt and regroup and rethink, and the other was more or less self-inflicted.
Thank you so much.
Thanks.
Thank you. The next question comes from the line of Michael Peterson from Handelsbanken Capital Markets. Please go ahead.
Hey, everyone, and thank you for taking my questions. The first one is regarding the capacity increase that's going to happen in 2019. The extension in Wales and Poland, how much is that going to add to your current capacity? The same for Romania.
Yeah. Romania, I'm not giving the numbers, but what you know about Romania is that it's not a full-size line. You roughly know how much it will be, but not all of that will come next year. Okay? What else did we have? You had-
Wales and Poland
Poland, since we shut the line down renovating it's a pretty big, actually, not quite a full-size line, again, that's coming online next year, it gives a good, between a big and a small.
Wales.
Wales, here, we are doubling the capacity, but lots of that we have achieved with debottlenecking. You could say that Wales, for the CapEx, looks like a small line, but we are achieving with all the actions we have already taken and shifts and all the rest, almost a full-size line. It's coming in steps. A bit of that we have already done. We have already managed to ramp up capacity in Wales. Now, we added a shift now, early summer, and that kind of, you will see that effect, that adds capacity second half year, but it will also add next year because then we have the first year also with the same manning. It's a mix of it. Between a small line and between a big and a small, that's basically the magnitudes.
You have the spread between the years also, it's a bit difficult because not any one of those start first of January.
Okay, thank you for that. If you can give me an update on Sweden. Now you're mentioning you're looking for expansion in France, since you already bought a property in Sweden, will that be coming first or?
No, we are doing double-digit growth in Norway and Sweden, and that's going well. I now manage expansion against engineering resources also. Too early to say, but with the way France and Germany is going, Central Europe looks like a more buoyant market. The property market in Sweden is, at the moment, isn't really growing. It took a bit of a beating. In France and Germany, the stronger fundamentals feels a little bit more solid at the moment. We haven't decided. As I said, we work with options, and then we push the button so that in the third year from that we pushed the button, we will start to have an effect.
All right. Thank you very much.
Yeah.
Thank you. The next question comes from the line of Kristian Johansen from Danske Bank. Please go ahead.
Yes, thank you. Just had two follow-up questions. In the report, you mention a negative impact from product mix. Can you just elaborate exactly what you are referring to?
Basically, you have flat roof, very big flat roof projects and big ETICS project. They have a lower contribution margin. They are still very good projects for us. Here we have this philosophy that if we have a customer, for example, Volkswagen, they tend to use us. In the choice between when you are tight on capacity between selling GBI or taking a 2,000 ton flat roof project, that will skew it towards a worse mix, but it's still a good mix. It's just the nature of that many tons going into flat roof that will worsen the mix.
Okay. Quite clear. The second one was just on cost inflation, whether you can elaborate a bit on your most important cost parameters. You obviously touched upon logistics, all the other ones in terms of development and expectation for the remainder of the year.
Relatively small increases on coke and energy, basically. The different energy forms, but not super dramatic. In some places we see it on plastic, some places not. You're talking not huge numbers, but a bit of an inflation. Nothing of the step changes we lived through last year. It's all manageable then from the perspective that with the very successful cost reduction and efficiency improvement program we have. Inflation now it's there. We keep an eye on it, and we see that it continues, but it's on a more gradual or civilized level than we saw last year.
Okay. Thank you.
We believe it will. It's not massive numbers, but significant numbers that we obviously need to pass on to customers.
Sure. Okay. Thank you.
Thanks.
Thank you. The next question comes from the line of Andreas Karst from ABG. Please go ahead.
Hello. This is Andreas from ABG. My first question is a longer-term perspective on the market and the drivers of, say, underlying growth. Jens, you've previously stated that the market could grow 4%, and I'm trying to get a sense of how fast it's growing now and how fast can it potentially grow due to the factors such as the revision of the EPBD, so the energy performance directive that has been revised during July, and also say the whole fire safety theme, how much on top of the 4% could that add, or where are we today, and what could the potential be in those two, say, themes, in the general market? Thank you.
Let's say it like this. I think that there is a gradual transition of a section of the market from plastic to stone wool. I think that's a long trend. These renovation directives and the energy directives, how much that will impact, we like to see it. When we look, for example, in France, we've seen our growth in our business 5%-10%. If that's caused by the approach to the energy directive and the ambition to insulate, because they've pledged DKK billions into that, and quite a large portion is in insulation. We haven't seen any money yet, so it's hard to say what the percentage is. The wish is there, but we haven't seen it, but we see a very good activity. I don't know. It's too early time.
We just say that it's in the right direction, but we haven't banked on it yet. The main driver, as to say is we have capacity, and stone wool is getting a little bit more. That's what we have banked on so far. We don't have an actual percentage yet because we want to see it penetrate deeper into the country and turn into real money.
Okay. Going to say-
Sorry about that. We get more clarity as it moves, as we move forward, I think.
Yeah, it was just to get a sense of, say, the potential market growth given where we are in the cycle. Moving down to, say, the operational leverage and the potential for your EBIT margin, if you could kind of give us a, it's not a guidance, but an indication of, say, what the potential is. Right now your restriction is in delivery costs. That aside, what could the potential be? You're currently at 13% EBIT margin. Is it unrealistic to think that this business could go all the way to 20% longer term with, say, sufficient demand of growth underlying? I am trying to basically understand the dynamics there. Thank you.
Yeah. Difficult question. Do you have some ideas, Kim?
It's definitely something that has been asked many times also because that of course is something I think what we are looking for is what are the things we are working on that still could have a leverage factor? As we have earlier said that we are still working on operational excellence programs that will stretch the next few years in. Obviously we are not doing this without having some kind of ambition of this will give some leverage also on the earning side. That's definitely something that we are hoping for. You could say, as we add capacity in some of these markets that we are saying now, U.K., Poland, Romania, Germany, they are in the sweet spots. Of course, as you add capacity there, you ease up a bit on the logistic challenge that we're having.
That in itself would also give a leveraging factor. I think that's what we are looking at.
Although we have the depreciation also on the EBITDA. I think it is like this. At the moment we are working on, we have a cost and efficiency program running with quite some substantial numbers. We see that we should keep, as long as this business cycle continues, keep raising prices, not predatory, but appropriately and regularly. We are adding some costs for new capacity, and we have more half-full assets because we don't fill them immediately. You have that as a negative. We assume we compensate inflation with price. We have not outlined a path to drive at this stage the margin up. We kind of ourselves as around the 13% as we guided and focus on delivering the growth and then also get more experience what that means on logistics.
We are quite deep into that, but I would have to wait with saying when we get to February, because then we will give a margin guidance, and we have another one and a half quarter of experience of this to see what the market conditions are. If the markets slows down, then of course we have costs we need to compensate for under absorption and all the rest. I just see that there is definitely potential to take out cost of the business and the rest of productivity. We have a quite substantial program for that. We have not yet translated that into new margin guidance.
Okay. Just to sum it up, so there is potential for more, assuming that there's.
Cost reduction. There is definitely a room for more cost reductions, and we are working on that, yeah.
Okay. Clear enough. Thank you