Ladies and gentlemen, welcome to the ROCKWOOL report on the first half year of two thousand and twenty-four. Today, I'm pleased to present CEO Jens Birgersson and CFO Kim Andersen 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 would now like to turn the presentation over to your host. Please begin.
Thank you very much, and good afternoon, everybody. Sorry for the delay. We had some technical challenges here in Chennai, from where we're taking the call. Today, I first of all, of course, I'm Kim Andersen, the CFO, and with me here, I have the CEO, Jens Birgersson, and today, we will present to you the first half result, and then afterwards, we go into Q&A. Before we start, I'd just like to remind you on slide number two, the forward-looking statement, and please be aware that this presentation contains uncertainties. And with this, we can quickly go into the presentation on slide number three.
Good morning, good day, everyone. It's Jens here. Kim and I, and the whole board of directors of ROCKWOOL, including my successor, Jes Munk. We are in India, in Chennai, and the reason we are here doing a board meeting is at about 90 kilometers southwest of Chennai, what was previously called Madras. We have bought a piece of land, and we have approved the factory project for our second factory in India, where we have had quite a successful last couple of years filling up our first factory. So that's the reason we are calling from here, and I really can't blame India for the technical problems here.
No.
Everything works here. It's some other issue that created problems there. So if we move to slide three, the H1 results, as you know, I normally don't comment on here very much, but I think the contrast between H1 and Q2 is a little bit interesting. So in H1, we saw 8% quite broad-based growth, but as we have seen in previous, probably in the last one and a half year, is the commercial side of the business growing. We don't see much growth on residential, rather the opposite. So the residential is still troubled, but we are doing fine on the commercial side of things. If you look at the results year to date, EBIT margin 17.7%, and that has been achieved on more or less neutral pricing.
We have a fraction of a price reduction. There's a mix of market. There's some markets, the price is going up, for example, North America and parts of Asia, and there are others where the prices just hold, and somewhere they are down, but we are kind of monitoring our market share and navigate that. So overall, we are very happy with the first half year. Moving on to slide four, second quarter highlights. Comparable differs a little bit, so Q2 wasn't very strong last year. Q1 wasn't strong either last year, so I would say we have a really broad-based growth, and record growth in North America. I don't think we ever had a bigger growth number and higher sales. That goes for both the Canada and the U.S.
Overall sales in nominal, we always talk budget rate. Good to see that we crossed a billion. I'm not sure if that's the first time, but very, very strong quarter. And then on the EBIT margin, we reached 18.7%, and that includes EUR 7 million Ukraine provision or donations. And just to sum up, we had in Q1. Q1 plus Q2 is a little bit more than EUR 30 million that we have donated. Let's move to slide five. I'm not really gonna comment this, but if you look at the up on the right, the Systems divisions growth, it's in -1%. We did divest Charles Wille, so on like-for-like numbers, System division had two percentage point better growth that's shown there.
If you now shift to slide six, we see Q2, and what's pleasing here is to see that here, obviously, the insulation business is growing very, very much. It's, it's a super good quarter, but maybe from my perspective, even more pleasing is that the System division has gained a little bit of momentum. So if we add back the 2% last top line for Charles Wille, we have about 5% on a comparable basis. So we are looking now in the coming quarters whether the growth will increase a little bit in the System division. The main driver for growth on that have had a very strong development. If you turn to slide seven, the regional sales development.
Starting with Europe, it's a very scattered picture in Western Europe. We have some countries growing, you know, 20%-30%. We have Sweden growing surprisingly quite well. Germany, single-digit growth, healthy growth path turning the corner, although we don't see Germany on the residential side turning up at all, but that's on the commercial side. Then we have countries like Spain, France, U.K., that are around the zero, slightly negative. So quite a widespread on that. Moving to Eastern Europe and Russia, you see several of the countries with very solid double-digit growth numbers, and one or two of the small amounts of negative.
We have not listed here that Russia had a very good quarter, but so did Poland, and so did, for example, Ukraine. We are small in Ukraine, but we grew some 40% in Ukraine. Moving on to North America, Asia and others, quick summary of the whole thing is that China's negative, U.S. and Canada is on record growth, and Southeast Asia, including Japan, very good growth. Thailand, Malaysia, Indonesia, and where we are now, India, on very good growth. We are getting closer to a point where we can't sell more, but it's nice to see that we are growing out here and also in North America. Let's go to profitability on slide eight. Margin has increased quite a lot.
If you look there on the right-hand diagram, EBITDA margin up to 25%. EBIT margin now 18.7%, which is a lot higher than a year back, so the trend upwards have been healthy. We have listed some of the factors, obviously, volume growth, stable sales, prices, input costs have kept stable. We see now maybe inflation coming back a little bit. We have had some favorable factors coming in, obviously, compared on the inflation, but we see also many materials kind of ticking up with normal inflation. One item here that is worth noting, if you look at the headcount, we are about a hundred employees or so higher in the headcount compared to a year back, and that is with the 10% growth.
So obviously, we have a tremendous, tremendous productivity improvement, almost 9-10% productivity improvement, and that gives us nice overabsorption of fixed costs on the factory, overabsorption on the rest, and you see that flow through to the bottom line. It's nice to see that scalability is there in the business. I'm also quite happy with this quite sudden ramp up in the factories, where, for example, in North America, we had to step up capacity very quickly, and also some European countries step up. Germany, for example, increased the shifts, but we have been able to do that relatively quickly, and that has helped us in supporting this growth. If we move to slide nine, here, I only want to comment on margins in Q2 2024.
I guess I spoke about the 5% like-for-like growth of Systems division. Here, I'm quite pleased with that. The Systems division is up on around the 15% margin again. Of course, insulation at that margin is doing very well. I also want to maybe clarify that the whole Ukraine donation has been put on insulation, so that you are aware of that. Looking to the investment activities, nothing noteworthy. You recognize most of these things, but we have done a small acquisition in Vietnam. We have signed, and we are very close to close, I think four to six weeks.
Just to underline that we are here with the board in Asia, and we have since a while been working here in Asia to step up our efforts. It's a very small acquisition, but yet an important bridgehead into Vietnam. Many of us might not know that even a country like Vietnam has a hundred million people and a very great outlook at the moment. So I'm happy with that we could get that one, because again, it's clearly growth markets, and it's good to have the more or less only solar factory in the country. We're also working on some other targets in the region. It's not a lot around, but we are scouting. Move on to slide 11.
Net working capital percentage, 11.5% is down compared to a year back from 13.4%. Nothing special with that. It's nothing we really need to focus a lot on. It sits inherent in the business, that we don't tie up too much net working capital. If we had one wish on that number, due to the volume growth, we may perhaps would have liked to have a little bit more finished goods inventory. We had to sell a little bit more than we wanted to, and we're gonna work now maybe to bring that inventory up in the coming quarters. Then the last bullet there, the net cash position, around EUR 200 million net cash positive. And that's after the dividend, and it's after the share buyback. We are on track.
We had about 160 million EUR buyback plan for this year, and we are pacing relatively well on the curve on that one. So good cash and, in spite of high investment, obviously, with the earnings level we have now, we have a lot of cash in the company, so good to see that. Slide 12. As we normally do in the half-year report, we normally include one or two slides on sustainability. We have done that also here. It's not much drama about that. We have the five sustainability goals that with the time horizon to 2030, we on track or ahead on all of those. I'll just pull out a couple of data points here. Okay, I'll take it from my memory.
So if you look first on the CO2 emission intensity, this is the goal we defined before Science Based Targets existed, and, you know, as an engineer, that's a good metric. Here we have achieved with the index 2015, 100, in terms of ton CO2 per produced ton stone wool. We had the reference level 2015 of 100, and now inherently in the business, we have reached the index 84. So that's 16 points, so 16% down from produced through productivity improvements, conversions, green energy, and some other actions. And we will see this number now continue down over the coming years, because we are investing and we are taking actions.
In the annual report on the sustainability report, you will see a number below the 84. So that's progressing well. You know, the green investment on the CapEx slide, you see what type of money we put into that. We are also working now, as we said, on our energy supplies and the contracting around that to see if we can get out of this extreme volatility the next round we have, an energy crisis or something like that. So that work is ongoing. Science Based Targets that we also have a goal for talks about CO2 equivalent emissions in absolute terms, excluding acquisitions. We have a goal for that, too.
It's quite pleasing to see that when the business is growing volume and top line double digit, that our CO2 emissions only increase with 6% on more than 10% volume and sales growth. So that's good. That shows that kind of emissions per ton is working. It also underlines the challenge we have of 2030 and onwards of really convert the whole company more or less into electrical melting, driven by green energy. So we need to. It's a really challenging target, but we are working on it. At this stage, we don't feel that it's impossible. We have the technologies, and we have the investment plan. But then, of course, the more we grow, the more challenging that goal becomes. So...
At the moment, I would say the long-term growth outlook is quite positive. So it's a challenging goal, but we are working, and we can see that the actions we are taking are good. On the Rockcycle, is called here, is referred to as the reclaim waste streams, where we take back our own products and upcycle them, recycle them. We have added now also Poland to the countries where we offer this service, and then we have now 22 countries in the scheme, and the goal is 30 by 2030. So we are well ahead of that. We will beat that goal. We will be ready much before 2030. Yeah. Then on safety, the safety goal, no serious accidents and no fatalities in the first half year.
You know, it's what we like to see, and that's how we need to perform all the time. But as you know, we have a big operation with many factories, and these factories, things can happen, but we are working very seriously on that, and it's good that we have a good first half year. Going to the outlook, slide 14. Going forward on sales, we haven't seen any change or any dramatic developments in the market, but we are stepping in a couple of quarters where we have more challenging comparables. So on the top line, that mid-single-digit percentage growth seems like a good outlook still, although we are ahead of that until now, but that's because of comparables.
But as we see it now, we see the business pretty much continue. That's good. On the EBIT margin, around 17%. Also, there we are a little bit ahead, but then, as you know, we have the December effect going the way, and we also have the summer in France profitable business for us, impact a bit, but we feel comfortable with that outlook and on the investment, nothing really to report on that. We're on track to invest what we have planned to invest for the year. Yeah, should say, though, on the investment side, we have had one setback. Our new plant in France, we were surprised, I must say that we got a negative verdict on one of the lawsuits, so we are regrouping on that.
We have not at all given up the new factory in France, but we need to look at that and see how we keep pushing the plant in France. We thought we should be able to start building it now, but this was a setback, and we can expect a further delay. Possibly we'll move the resources and accelerate another project. We have a number of projects started, but we have absolutely not given up on the French plant. We will keep working through that. Over to questions.
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. We will start with the two questions per participant. Please respect this, and at this time, we'll pause momentarily to assemble our roster, and the first question will come from Claus Almer with Nordea. Please go ahead.
Thank you. Yeah, two questions from my side, I'll do them one by one. The first question goes to inflation. Jens, you mentioned that you do see a, it sound like a small inflation. Does that mean you're going to raise prices, or will you have to absorb that in your, in your PNL, so to speak? That would be the first one.
Yeah. Yeah. So, Claus, thanks for introducing yourself. We don't have the normal screen, where we can see who asked the question. I know who you are, so great if you can introduce yourself like that, so we know. No. Yeah, I see. I mean, the inflation doesn't go away. We had the energy benefits and some other benefits, but we have several markets where we foresee that we will do a small drum beat price increase to cover that inflation. There could be competitive dynamics in some places where we might not do that, but the overall direction is that we are ready to do a small price increase to pass on the inflationary pressures as far as we can.
Okay, and then leading to the next question, which is, you know, the implicit second half guides, and you did touch upon this in your slides. But implicitly, you guide for around 16% EBIT margin in the second half, so down versus first half. Also, if we adjust for the Ukraine donation. Is this only due to France and December sale, as you said, or is it also the inflation impact? You have previously said it's not easy to raise prices in all markets, so you had to be more, you know, specific about these price increases.
Yeah. Yeah, I saw your headline in your initial comment, and I would say we are not. You have seen some companies that have released their earnings report now and that have seen decline in top line, and that is quite a mixed picture in different related sectors. So, and we haven't seen any of that. So we are not pessimistic. We are not pessimistic on the prices. I think we can do most of that. Yes, we believe there is inflationary pressures, but we have the ambition to pass that on. So that's the outlook. And then we did upgrade, what was it? The eighteenth of July to 17%. We felt to make an assessment now is not prudent. We feel comfortable with the 17%.
We obviously have no ambition to reduce the profitability, but we acknowledge, you know, the December effect and the France effect, as we always do. So I will leave that to my successor... kind of nailed that outlook in his maybe first earnings call.
There are also, you know that how we're coming closer and closer to the autumn period, where many of our markets will negotiate 2025 prices. There's always a little bit of timing there.
Yeah. Yeah. So I wouldn't, you know, do straight the mathematics and say, we have concluded this and that. We'll come back on that forecast when we're a little bit deeper into those discussions. And I also say, you know, we feel comfortable with the 70%, and it will, you know, the next time we will know more.
Fair enough. Thank you so much for the answers.
Thanks.
The next question will come from Peter Sehested with ABG. Please go ahead.
Great, it's Peter from ABG. Thanks for taking my questions. I have two, and the first one is on France. With the MaPrimeRénov' program has noted an increase in applications following their return to the normal application procedures. And I guess that these applications will probably not hit the markets or realize in the second half. Is this something that you have taken into account in your guidance? Because I know that in France the renovation program has been a very important driver for ROCKWOOL for the past year. That's the first question.
Yeah, it's accounted for. We, you know, we have a good profitable business and France is slightly in the negative territory in the quarter, and we haven't factored in any hopes and dreams from the scheme. So we have a good conservative or realistic forecast, and that's included.
Okay. Good. And then just going back to the guidance, because your wording on pricing is essentially the same as you had, you did in Q1 and Q4. Also with respect, and we have sort of the usual thing about the December impact, that's also something that you typically reiterate around this time of year.
Yeah.
Is there anything that is sort of different this time than it has been?
No.
Let's say-
No, no, it's very much business as usual. You know, we drive a very strict pricing process in the company, and we stay on top of the markets, and we try to take that very seriously. And there isn't any dynamics out there that is different to another year. Of course, and we don't have the situation we had in the autumn twenty twenty-two with the hyperinflation and all this. So it's, I would say, business as usual, and there is a slight inflation, and we will try to go after it, and it's not, no, no drama around the whole thing. But then, of course, you have, you know, some markets, some segments, competitive pressures. We work on all that, but so far so good.
Thank you for taking my questions. And also I'd like to say, thanks for your effort and what you've done at ROCKWOOL. I think you've set, you and Kim and the team set a very high, let's say, benchmark for the incoming CEO. So, good luck to him as well.
Yeah. Yeah.
Thank you, Peter.
You know, thank you very much, Peter. We have the same team in place, so he gets a very strong pair of hands taking over the business. So I'm very optimistic about the future. Thanks. Next.
The next question will come from Arnaud Lehmann with Bank of America. Please go ahead.
Yep. Thank you very much. My name is Arnaud Lehmann from Bank of America. My first question is, I guess, related to pricing, margin, and returns, staying on that topic. You indeed have done very well on margins, and that drove an improvement in ROIC, which you publish, I think 23% is the printed number in the H1 report over the last, I think that's a 12 months rolling data, which compared to 15% last year. I appreciate there's an element of, let's say, inflation in CapEx and the cost of adding new plants has gone up. But on the other hand, you I don't believe you have a broad-based plans to increase capacity. It's more of a selective process.
So I guess my question is, you know, beyond pricing and margin levels, do you believe that these sort of returns are sustainable going forward, or is there a possibility for some sort of normalization over time?
Yeah. I would like to. I will give just a brief flavor on that reflection on it, and then Kim should come in it, because he continues. My view on that is that we are not still, you know, we wanna have 15% or above, but the biggest job as the CEO or what I've seen is that for me, it's not so important if it's 23% or 16% or whatever. It's important that we keep supporting the volume growth. And at the end, in our industry, you know, if you have the capacity, you can deliver the volume. So from my perspective, I think, yes, we want to have a good cash generation with a good margin, but we would like to invest more, and sometimes we get delays, like now in France, the plant.
We would really like to build that, and that would be a burden for quite a while, such a big plant on the return on capital employed, and quite frankly, I'd rather have a couple of percentage point lower return on capital employed and get that plant built, because that's better for the long term for this business. So that's how we look at it. So I think that now you have a combination of that some projects are hanging, and yes, we are building plant in India, plant in Romania, we are building one in Sweden.
And U.S.
And the U.S. You know, we are building. It's not just selected. We are building, and we're gonna step up CapEx, but it's quite hard to build. So it's not a goal in itself for me to keep it to the twenty-three, but I should let-
But the short term, the 23 or 24, close to 24, compared to 15 last year. The last year was a bit abnormally low because that was impacted by the 2022 downturn in performance. And maybe this year's is a bit abnormally high since we have a relatively low working capital for the beginning of the year. So I think a normalization would be around the 20s. But as Jens said, it's not something that we steer towards necessarily on these short term ROICs. We do the 15+ target setting internally, and then we go for this. But we will step up investment in the coming years. So yes, and myself will maybe not be able to present the 24% ROIC short term.
But yeah, in the short term, that's where the numbers are. Very good. Thank you. Thank you for that. My second question, if that's okay, is regarding Russia. I mean, no change, as far as I can tell, in terms of the way you're thinking about the ownership of these assets for ROCKWOOL. Should we expect a change with the new management in the future, I guess? Maybe nothing.
So, you know, we have worked through this in detail. My successor is still, until the first of September, a board member. He's part of it, and we haven't seen the external environment on the reasoning for not continuing what we do. We haven't seen anything change, and we see the companies that take the other route, it impacts very negatively, so we see no reason to change, and there is no intention to change the strategy because of the new CEO of the company, and it's, we are all aligned on this.
Thank you very much.
The next question will come from Yassine Touahri with On Field Investment Research. Please go ahead.
Yes, good afternoon, so two questions on my side as well. First, could you comment a little bit about the pricing trends and the volume trends that you've seen in July and August? Is it fair to assume that there is no change on pricing, or have you announced some additional price increase? I think in the U.S. there were some price increase. And on volume, have you seen any improvement or deterioration versus second quarter? And then my second question would be on the new entrants. Like, in an environment where margins are relatively high today, do you see a risk for new companies to enter the European or North American mineral wool industry?
Or do you think it's too hard, like, because of a regulation, like, and they could face the same issue as you're facing in France?
Yeah. So in France, we see some price pressure in the residential segment on the light walls. Construction activity is relatively low. We haven't seen much of a change. I mean, it's around this year, or slightly negative, slightly up. Nothing dramatic, and I think we need some, I don't know, governmental programs taking action to get that up. Overall, in Europe, on the GDP side of things, we probably haven't seen a case for a broad-based upturn. It has weakened a little bit lately in Europe. So France sits there around the zero, slightly negative, nothing really dramatic on price, maybe some segments a bit down, but other segments we can increase the prices. So that's on that side. And then, price increases in some markets where we...
There is no issue whatsoever with the price. For example, the U.S., we just launched an 8% increase, and that, that's in line with what's happening in the market on glass wool and stone wool. That's moving. The last question, just to make sure I understood, you asked me how difficult it is to enter the stone wool business. Was that the question?
Yeah. Do you see a risk? Because the margins today are much higher than they were, ten years ago.
Yeah.
Do you see a risk that you would see a new player coming in?
Yeah. Obviously, there are people that look at stone wool now and think, oh, this is a fantastic business, let's enter this. And you have, you know, 18% EBIT margin and the rest. I think having a single plant versus our quite big machine now, with a lot of economies of scale, and also considering how difficult it is to start up a plant and run a really, really productive outfit. I think you will see some entrants, but I must say there hasn't been an entrant for a long time that come even close to our margins, because it's very, very difficult to run a small network or just one plant without brand and without the service level and all the rest.
So, I'm not particularly worried about new entrants, but yes, some people will announce new plants, and we'll deal with that when that comes. But the trend historically has been that the plants are announced and very much delayed, because it's also very, very difficult to build the plants. You need to be very persistent in some geographies to get your plant built in today's world. And I think their scale is also important because we have the means and the persistence to just keep working it until we can build our plants. So it can be very challenging to get all the permits, and you get the permits, and then you have protests or whatever, as it is in many industries in Europe at the moment.
And maybe just a very last point, which is just like, not a question, but more a comment about the fact that you, you've delivered such a great growth for the company. I think it's quite impressive what you've been able to do in terms of of margin and productivity. So just wanted to wish you the best of luck for your future endeavor. Thank you.
Thank you very much, Yassine. And you mentioned an aspect there that is an important one to us, that we don't talk about too much, and that is our productivity, the economics of scale of the business. That's an underlying big advantage of ROCKWOOL that we have in the culture, and that's a strong point. So thank you for those words.
The next question will come from Brijesh Siya with HSBC. Please go ahead.
Great.
So I have a couple as well. Just on the pricing, right? It's interesting that you keep talking about pricing like this in the quarter. But looking at Eastern Europe, Eastern Europe growth is up 28% in Q2. Given some of your competitors, not direct one, but a different segment little bit, but they talk about when the volume is bounced back, they see some pricing pressure. Is that something, is also impacting you? Because I recollect historically, Eastern Europe has been a different market, where competition is a little more intense compared to Western Europe. So any comments around that will be very helpful.
And within that, if you could just give a little more flavor into the Western Europe, when everybody's talking about interest rate cut coming through, do you see similar risk panning out in Western Europe as well when the volume bounce happens, maybe towards end of Q4 or maybe into 2025? So that's my first one. I'll come back on second.
Yeah. Okay, thank you, Brijesh. So in Eastern Europe, we have the classic country, for example, Poland, where price competition is fierce. Whenever volumes go down, wherever it's down, and you see the whole EPS competition in several segments, flat roof and in facades. So there we really live it. But then there are also some Eastern European markets where, you know, Romania, Hungary, where we don't see much of that, where it's more Western in the dynamics. But for sure, that effect is there, and it's no secret that Poland is challenging now, but we balance volume and price, and it's kind of schoolbook, really a lot of competitors that want volume for any price.
We do well on the really big projects where you want really our fire safety, you want delivery safety, you want the logistics. Those projects we still can take with good margins, and on the other, we need to play it a bit more by the ear and then correct some of that when the upturn comes. So that's the same pattern as we have discussed many times, Brijesh. But there are also quite a few Eastern European markets that doesn't have that Polish dynamic.
So, then in Western Europe, on the trends, on the dynamics, I think fundamentally Western Europe. What you see is that sometimes, there could be, you know, there could be circumstantial means that there goes three, four months, and you get simply too many projects, and then someone doesn't get enough, and then it turns into a bit of a seasonal panic in all of the competitors, and that is nothing unusual of that. And we have seen it, for example, in Germany several times, where someone really, really wants volumes. And our approach has traditionally been that, okay, if it's not on a sustainable level pricing, we'd rather step away from those projects, and then the market will normalize.
I must admit, I have not seen any other trend in Europe. I don't see any change to the fundamental dynamics to the Western European pricing until now.
... Perfect. And my second question is more into the U.S. You're talking about U.S., you are nearing full capacity. Then looking into 2025 and 2026, and I guess your new plant is not coming on stream until 2027. So what kind of U.S.? I was talking about U.S., sorry.
Yeah. So-
So, I was asking you about... Sorry, if I just finish the question, is that you have near full capacity right now, and looking into 2025 and 2026, what kind of volume headroom you have to continue to grow this number? Or you see there is a kind of a real capacity constraint that's limiting your growth in the near to medium term until the new plant comes in 2027.
Yeah. Yeah. So there are the normal two or three factors here on full capacity that can be quite confusing for our business. Because if we miss a few months, and we are not on full capacity, we are frozen capacity, and we can never catch that back in the year. So what happened here was that we had some challenges with delivery time. In the U.S., we didn't expect the ramp up. The business went down in 2022, early 2023, and then it step-changed up, and we didn't have the ships in place. We battled to get blue-collar workers in to shift up and to train them and all the rest. Then we sat with this more than six months backlog of orders on delivery times.
During that period, we didn't increase prices. We just focused on one thing, to work back lead times, and then we go up on full capacity. This doesn't mean we don't have more capacity in the plant, even though we run a couple of months at full. Going into next year, we will counter that if we see a good next year, with more seasonal stock and running more close to full the rest of the year. We have more growth in the business, and that will take us through one or two years, I think, and then, of course, after that, we do what we normally do if we run out. We use capacity from other parts of the world and supply the demand, although we don't make a lot of money on that, we...
Our ambition, and we have done a lot of that in Europe. You remember last time we were up on very high utilization. We shipped from even Norway down to Germany. We use those type of means because our priority, if we have that demand, is to supply the customers, and here we might get into that next year or the year after, where we actually have to bring in certain grades of stone wool into the U.S., and we will be ready for that when it's needed.
Okay, that's great. Thank you. Thank you, Jens, for all your kind of effort. And I think, yeah, you've done a great job, as my colleagues have already told, that kind of probably the pricing initiative you have taken in the last nine years has been simply pretty impressive, and that's what we can see with the margins. So thank you very much, and good next innings.
Thank you, Brijesh. Go well. Thanks.
The next question will come from Harry with Berenberg. Please go ahead. Harry, your line is open.
Yes. Hi, can you hear me?
Yeah, we can hear you.
Yeah. Okay, great. Yeah, it's Harry at Berenberg. I've got two, please. So firstly, just coming back on a couple of remarks you've made on the margin. I think it may be in response to Arnaud's question, but just for clarity, I appreciate your point that both margins and returns on capital could move around, but were you indicating that around 15%, in terms of EBIT margin, is the right way to think about a sort of through cycle average margin, and obviously, having had a big increase this year? The second question, please, is around sort of pricing and competition. And when we're thinking about that, should we be thinking about your product relative to other stone wool providers, or should we actually always be thinking about it relative to the broader suite of insulation products? Thank you.
Yeah. So, I will hand over the 15% margin question to CFO Kim. I'll take the other one first, and then Kim will answer the average cycle margin, which I don't feel I'm the right one to answer at this moment. On pricing and competition, I would say that yes, it probably attracts people to the market. Stone wool is a great product. It has a very clear cut out space in the market, and to meet you know, the climate goals, our insulation among other insulation products will be needed, and obviously we think ours is the best, and so I think we can see some new entrants, but again, I don't see anything happening there quickly due to the nature of the business.
In the last couple of years, the inflation on equipment, this nearshoring drive that has happened in Europe and the U.S., is just expensive and complicated to build. There isn't a lot. We have a lot of in-house engineers doing a lot of this work. It's not easy, so I wouldn't factor in that you will have big new entrants that come in five, six factories very quickly. That's not likely to happen, but sure, we're going to have new entrants.
In a normalized margin, I don't think necessarily it exists. Of course, in the coming a few years here, in 2025 and into 2026, we have no plans to open any new factories, so there will be no sort of major depreciation change coming. That will change, of course, once we start to get the big factories open in Europe and in the U.S. So that will definitely impact the EBIT. We are working on margin improvements. We have told you previously about our efforts to reduce the manning in our factories. That is definitely a margin possibility, but besides that, I think we just work towards, you know, having constant focus on productivity and then hopefully to maintain or improve margins. That's really our aim.
But as I said, from 2027 onwards, there will definitely be more depreciation coming from the planned investments that we're doing over the coming years.
Thank you very much.
The next question will come from Zaim Beekawa with JP Morgan. Please go ahead.
Afternoon, all. Just, two questions for me. The first one is, I noticed there's a slight mixed effect in the regional sales. Can you just remind us on the impact this has on the margins, particularly by region? And then secondly, on your hedging, for the year and into twenty-five, please. Thank you.
Okay. I'm going to leave the hedging to Kim. Actually, with the recent success we have had in North America, we don't have so much regional effects of the margins. We have always said France is a very good markets, but we have a lot of other markets now that are on the same level. When you have North America versus Europe, on average, you don't see much mix effect, country mix effect anymore, because we are up on scale, and we start to have that mass profitability in North America. And then Asia is still too small to impact the picture. It doesn't matter if they grow 20%, they won't impact our numbers because they're still too small, so there are some effects.
You know, we still have more difficult markets like Poland and some other markets that if that really grows a lot, it dilutes. But at this stage, I won't say a country mix effect is big. And then in the residential segment, actually, our margins per unit is a little bit higher. That one is low. On the other hand, we get this beautiful over absorption from all the commercial, heavy density products, flat roofs and all of that, and that's also given an effect.
I won't say we have any great mix impacts at the moment, but for sure, if we wouldn't have had the volume growth that we have now, all these big projects, every flat roof project, would have diluted the margin a bit, because that margin on the paper is slightly lower, but with this absorption, it's fine.
On the hedging side, we, you know, we had this with the foundry coke, which is still our biggest energy source. There, we can only fix prices a quarter at a time. As of right now, we don't have a hedge for 2025. On electricity and gas, which we have the markets in Norway and Spain, we do have sort of long-term contracts for the bulk of the consumption on electricity and on gas, we have covered into Q2 next year. Let's say about 80%, the best we have for most of the expected consumption.
Perfect. Thank you for those answers. And, Jens, best of luck on your future endeavors also.
Thank you very much. Thank you.
The next question will come from Marcus Cole with UBS. Please go ahead.
Hi, Marcus Cole from UBS. I've got two questions as well. I was reading in a statement that you've recovered some share in Europe. I was just wondering if you're willing to put some numbers to that. And then the second question is, just on the volume growth strength in H1, are there any one-offs in there that we should be aware of, that you don't think that can be repeated in the rest of the year? Thanks.
Okay, so Marcus, to share our view of broad-based is, you know, I've been staring quite hard on maintaining it, and you know, in some countries, we know down to the decimal because there are associations working, and sometimes we don't know exactly, so the market share has remained pretty stable, and then there could be country differences. Obviously the U.S., where we are growing and we have a very low market share in the total market, we have a high market share with installers, but still only a couple of percentage point of the overall insulation market. We are taking market share out of the insulation market, but I don't think anyone is noticing that because everyone is growing.
So market share is stable, improving in some places, slightly down in others, but overall, we are happy with the way we manage that. And what was the other question?
We don't have any special one-offs.
No, no one-offs. No, we don't. We have some big projects, but you know, the biggest project we ever get is like EUR 4 million or EUR 5 million or so, and many of them. So we have brought some big projects, but not in that thing.
... Okay, thank you very much, and best of luck for the future, Jens.
Thank you.
The next question will come from Axel Stasse with MS. Please go ahead.
Good afternoon, everyone. Thanks for taking my question. I just have one remaining. If I understood correctly, the commercial market drove the EBIT margins in the first half year. So how should we look at pricing in the residential market going forward? And I'm asking this question specifically based on your comment on the key focus on volume growth. So is it fair to assume we could see some pricing risk in the residential market when volumes pick up, or did I not understand it correctly? Thank you.
We unfortunately have a disturbance on the line, so we could not hear that question.
Could you maybe just repeat one more time?
Let's see if it's-
Keep it very short.
Yeah. Yeah. Sure, sure. Sorry. So the commercial market drove the EBIT margin in the first half year of the year. And based on your comment on key focus on volume growth going forward, is it fair to assume that we could see some pricing risk in the residential market going forward to gain share?
What is... We're just gonna try to – just a second. We mute you, and we just see if we cannot.
Okay.
Yeah. Yeah. Okay. So I think the residential market at the moment is a bit of a falling knife. So we clearly don't have an ambition in the market to... If you look at the new housing starts in Germany, it's down to even lower level than last year. I can't remember how much, but it's really, really low. So we don't have a plan to attack in any way and take market share. We just try to stay in, and when the market is that low, it's better to focus on, you know, where we have some volume growth and maybe have an opportunity to just ramp up and get nice business in.
So I don't think the timing to go after market share growth in the residential is a good one at all, because I think it will just result in a negative price spiral. So we try to take care of our market share, and then we hope that at some stage, this market comes around.
Okay. Thank you very much.
This concludes our question and answer session. I would like to turn the conference back over to our host for today for any closing remarks. Please go ahead.
Yes. From myself and Jens here, we'd like to thank you very much for the call today. I'm sorry the line broke up a little bit here at the end. If you have questions afterwards, of course, you're welcome to give me a call, and for some of you, we will see you next week. Thank you very much. Have a nice day.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.