Earnings Call: Q1 2021

May 19, 2021

Ladies and gentlemen, welcome to the conference call regarding Rockwell International's results for the Q1 of 2021. My name is Thomas Haader. I am Director of Group Treasury and Investor Relations of Rockwell International. Today, I am pleased to present CEO, Jens Biegelsen and CFO, Kim Jungernarson. For the first part of the call, all participants will be in a listen only mode. As a reminder, this conference call is being recorded. First, Jens Perkinson will go through our presentation and give you an update on the results for the Q1 of 2021. Afterwards, we will be ready to answer all your good questions. Before I hand over the words to Jens Peeggsen, I must ask you To note is slide number 2, which is the forward looking statement. Please be aware that this presentation contains uncertainties. Now we can go to the next slide, which is slide number 3. Jens Bergsen, I'll now hand over the words to you. Thank you, Thomas. Good morning, everyone. To sum up the quarter is relatively uneventful. It's a positive quarter. The year started a little bit slow. We have some segments are quite dependent on weather. And you may recollect In January, February, we have quite severe winter in especially Germany, into France, also up here for a while. So we saw A quite a slow, stable start of the year. And then end of February, I will say March, You saw an acceleration across the board. And we will go more into that. But with few exceptions, you basically saw Everything starting to come up. There are some small European countries that didn't really start to accelerate. And Southeast Asia Didn't really accelerate. It still declined. But apart from that, you just saw notably better business environment. From our side, we stepped into the year with a certain capacity plan and a certain run rate. And this is the time of the year where we Tune the production not to demand, but to a targeted stock curve. We were on that. And then the acceleration week by week came and also the outlook. And that meant that we got Quite busy with ramping up shifts, adding shifts, Getting people back in on the production lines. And in the meantime, we pulled down some stocks to deliver the market in March. Notable also was compared to what we saw in November, December for the year on raw material cost and price. We had an outlook that was relatively moderate and a little bit of a slower restart. And then it started off with this Input material to plastics that took a jump, MDI, I think 70%, 80%. Wood, a lot of raw material increases, gas, electricity just started to happen very, very suddenly. So we took We look at our pricing strategy and we started to get busy with adjusting that. Out of the 2 businesses, System Division and Installation, Good margin on insulation in spite of the inflationary effects And not so much price in the top line. At their non system division, they were a little bit more spared in terms of raw material increases. And we also have some price in the market. So you could see more of that coming into the bottom line. So that's fundamentally the summary Of the quarter, more growth towards the end of the quarter. And then the margin, 13.3%, we are very happy with that. That also covers depreciation, depreciation increase of €5,000,000 On EBITDA margin, you don't see that, but here obviously, I have it. So happy With both the top line and the bottom line. If we move to Slide 4. Growth relatively evenly spread Between Insulation and Systems divisions, so 7% and 5.5%, 6%, Quite some big currency effects, dollar, ruble would be the main ones. But generally, Good demand in both businesses and higher demand towards the end of the quarter. If we take next slide. Western Europe, starting in the North, include also UK. The UK kept going very strong In the Nordics, Denmark is clearly the strongest market. Finland also did really well. Sweden Norway a little bit slower, but growing. And then in terms of continued trends with the Super Bowlers, we saw Italy just Keep growing at a very high rate. Of the more Central European countries, Germany Clearly had a slower start, but they also had the worst winter. And then in March, we saw very encouraging growth. Eastern Europe, Russia, good healthy business climate. And we grew with it. And we are highly loaded there, so it's a limit to how much we can grow. Romania, the new factory, It has had a very good start up. We are ahead of our growth schedule and It's already providing really good returns, so we are happy with that. And it produces well, so that's nice. Big currency effect from the ruble. North America, Canada, healthy. U. S, Booming, absolutely booming. And here, we simply can't deliver more than we did. We are loaded. And next month, we are starting our tests over this weekend. But next month, we start to kind of seriously do hot Commissioning of the new factory in West Virginia and mid year, early Q3, we should We're starting to produce there and that's absolutely needed now to get the delivery times down again to an acceptable level. So the if we would have had the factory half a year early, it would be nice, but at least it feels very timely now and It's on track to get up and running. Profitability, Slide 6. EBIT margin, I commented already. And there you have the depreciation effect, Good over absorption of cost, fixed cost down. Obviously, we don't have much Travel at the moment still run-in most countries less than half of the white colors in the office in most places. And generally, costs are low. Productivity improvements across the board. We also had some effects. We didn't see much John gas increases, for example, in Q1. So all good on that side. Profitability by business segment, I already commented Slide 7. Good performance by insulation to cover some of those increases on raw material cost. And yes, we have some price in there, but very efficiently good productivity improvements and good cost control. So that kept that double digit. And then the big step up in system division on 7% growth, good cost control, Some price increases in there. And then they haven't seen much raw material increases. So they get to full For lower absorption on the extra volume. So that's what they came up. Some mix in it, but not really. It was growth across All businesses, very pleasing. Q1 investment, new for today, I think. We are now showing you the green part. We did €17,000,000 of sustainability, and Kim has plotted this backwards. And in our calls later, we can discuss it a bit more. But I just want to explain what it is. I mean, maintenance is to Keep the plants running and maintain them just like servicing your car. Capacity is self explanatory, adding new capacity. So what's in this sustainability investment green area? Basically, we have defined it that when Investment or CapEx is mostly purposed towards meeting 1 of our 6 sustainability development goals, Then we put it in here. So that means that if we were to change, like we did in mass, They're melting, but we don't increase the capacity, but it works. That's a green investment. And I give you some example to just Make it a bit tangible. For example, in a factory heat recovery, Heat exchangers connecting to local district heating grid, that's sustainability. But also safety, for example, safety routes, fire safety installations, Safety in any respect that we sustainability because we have a homework there. We run a hazardous business. Reduction of, say, CO2 emissions, what we did in the Nordics in that respect, Or other emissions, afterburners, curing, upgrades, etcetera, that serves to reduce emissions. And then you have waste treatment. When we invest in something where we can say put more waste into our plants, Reduce landfill or invest to reclaim more waste in the process from other industry. That's also green investments. And then the whole area around water, saving water, circularity of water, not having it evaporating away. Often those investments can be quite expensive. Stopping the leaks is not very expensive. But when you start to put in circular system to save water in a country where you barely doesn't pay for municipal water, some of those investments are Great in terms of water saving, but from a return perspective, they are not impressive. So that's how the green investments works We classified it and Kim and Thomas will explain more later on. Cash flow, Nothing notable on that. I think that basically the 2 effects, a bit less CapEx. And then With the acceleration in the business, the kind of rundown of inventory freed up cash. I would have preferred to kept inventory. But on the other hand, I also love the fact that the market took off. So That's why the cash came up a bit. We always have negative cash flow at the beginning of the year, but it's less Negative than normal for a very positive reason. Outlook, we changed that before this. We haven't We assessed that before we issued the last announcement, of course, and nothing really has changed. So WDT top line 10% to 12% EBIT margin around 12% and the investment level around SEK 3 SEK70 1,000,000. So that's the same as we said, was it 2 weeks back? With that, I hand over for questions. Our first question comes from Briaish Syah from HSBC. Please go ahead. Thank you. Good morning, all. I have two questions. The first one is on the guidance. Your 10% to 12% volume growth I mean, Total growth, if you could split that into volume and price? And related to that, if you can even Let us know how that upgrade is looking in terms of market share gain and in terms of underlying market growth. Okay. So Wes, it's Jens here. Good morning. I never give the volume and price, And I will not do that at this time either, but we have not factored in, We still have a moderate price increase assumption. We have the inflationary pressures, the raw material price increases. And I still look at this year that we will increase price a little bit more than when we talked, say, before Christmas, Because inflation was low, but I see the compensation of the inflation as a mix of productivity improvements And price. So I still have a moderate price assumption. There is not a crisis. It's Very proportional to the volume growth. So that's on the volume. And then on the market gain, I see that on flat roof, for example, You have quite high price increases on the plastic form. And That means that more business going to come to Stonewall. So due to the pricing strategy and that The plastic forms have gotten impacted much more severely, I think, I don't know for sure, but I suspect so by raw material increases. I think that we haven't factored a certain number, but I suspect that you will see Stonewall and Rockwell due to our capacity availability Get some market share due to those factors, but is this upside on positive, But we haven't factored in anything dramatic in that. Okay. Does that answer your question, Riesh? So you mean to say that this 10% to 12% growth, it's mostly the underlying market growth and you still haven't factored in any of these Market share gain? Yes, but it's a little bit hard to say, because the market growth of the Total insulation market, I look into what we see in Stonewall. And but if you then go back and look at the total market Mineral wool plus the plastic foam, I don't know if that market will grow 10% to 12%, But I see that with our run rate and our forecast, I definitely see that we should be able to grow 10% to 12%. But I Expect that you will see a lower growth in the plastic form due to How they have been impacted on raw material. So and that is, in a way, a market share growth, but it's just that the composition of the market Change due to the cost structures this year, okay? Okay, understood. And The next one is on your competition position. I think you have rising pressure in Key markets like Poland, France, Germany, Hungary. Can you could or could you please elaborate on that? Because of this change in dynamics, you are seeing less pressure in those markets or anything different you see from what it was in Q4? I think maybe overriding comment is that in the previous calls, We have spoken a lot about the extra capacity in Poland, in Stonewall. We talked for a while about the new factory in In Hungary, but it seems to be delayed again from a competitor there. But you have the extra capacity in Poland. So I would say that The concerns for a big battle about getting Finding customers for the factories, that has been reduced due to that the market has started up Much more positive than maybe we predicted 6 months back. And then We collect also that what they do in Italy, that seems to be going very, very strong. And we still have quite a long run rate of the EU money or the renovation and the energy efficiency coming. And I don't know how many of you got your vaccines already, but we already see some level of opening up. And most of you probably, of course, you in the U. K. Have it. But here in mainland Europe, most I haven't gotten it, so there's still a positive effect there. So I think fundamentally, those markets looks a bit better because underlying demand across the board is Our next question comes from Guy Fonte from Exane BNP Paribas. Please go ahead. Good morning, gentlemen. Thank you for taking my question. I guess my first one is on the capacity utilization. With the level of growth that you're seeing and the increased outlook on the top line, can you maybe Point us towards comparison with the peak of 2018. Are we in a situation where With the low stock environment, we're sort of back to where we started before you have all those capacity coming through. That would be my first question. My second question is on the fixed costs. If we look at the personnel cost and the amount or the number of employees in the business in Q1, There isn't really any addition to that versus Q4 or even the average of 2020. So I was curious to understand if You need to increase the amount of headcount in the business as you're lapping through the year With the new capacity coming in the U. S. Or if the current run rate is the one we should assume? Okay. So And then my final question. Okay. So do you want to respond back to the last one later? No, no, no. Now Eeva, I think we do you also as a 3 question, man. And after that, we go to 2 questions. So list your 3rd question. All right. And the last one on CapEx. Just trying to understand with the amount of demand that you're seeing here, How should we think about potential future growth investments? You've got one plant in France, which you haven't really announced Anything on you've got one in Sweden. What's next after that? Okay. So let's start with capacity. Compared to 2018, we have Romania up and running. We have done several investment on the system division. We have Rockfon expanding capacity. We have West Virginia now starting next month. We have done work in the U. K. We have done a couple of step ups in Poland And we have the Neuwburg. So we have more capacity in 2018. So that's really good news and we're going to need it. The capacity we see now with one exception, We can't supply the market in the U. S. At the moment because we need a new factory. So delivery times are 140 days, But we are solving that hopefully in the coming months. In the challenge in Europe, I mean, it's doing well, but it's fundamentally that we go from, in some factories running Monday to Friday, 5 times 24 or close to that, a 3 shift pattern. And now we need to go to 7 by 24. And that's always a reset. So and we are busy with that. And supply is tighter in some corners, but fundamentally, we have the capacity to do it. And then there could be some areas Where we need to ship further and we have the normal discussion about logistic cost on that. But it's more the derivative Of the curve, how quickly it grew, that creates some challenges. But we are doing pretty well on it. And it's all hands on deck. So taking that back to your headcount, if you look, for example, in the U. S, we have hired 90% of the people we will need once we start up and if we increase the shift, we need some more. So for most of those we have hired, we did reduce A couple of 100 jobs last year. On the white collar side, because we shift, for example, more into Eastern Europe, we do some improvements in the structures. And some of those we plan to hire back. But then also when we go from, say, 5 by 24 and the factory to 7 by 24. You're going to see an increased headcount. But if you then relate The personal expense, blue and white color in relation to the top line, nothing dramatic will happen. We will grow more, we need more hands, we need more sales, we need a few more things. But you can be relatively sure that you see a good Productivity improvement in sort of revenue per employee this year compared 2019 and this year, you will not see A worsening this year, as I predicted. Even though we have several new factories starting up and some of them, obviously, West Virginia will not Absolutely not before this year. It will run on very low level in relation to the capacity and yet we have a lot of staff and overhead there. But in spite of that, I think we have a good Productivity year. Okay. Then on CapEx, we have a plan And I don't want to run ahead, but we have a couple of macro trends. If I look at the Economics of Europe and U. S. And I cannot tell too much about the business cycle. But My simple take on it, we could be relatively sure that we have 18 to 24 months of good Business, good economic cycle. I believe that's a fair assumption, could be longer. Thus, the stimulus packages, all the rest. But I think we have a window of happy market. What happens after that Through the general business cycle, I can't say. I mean, you would know better than me. I never been through such a situation. But we still have the macro drivers for Our business, and that is the climate challenge And saving energy and renovating houses and creating jobs. So I think that one is a long trend. And then if we look at the long trends into Our system division, okay, Rockwell, for example, is growing well, but offices maybe not quite as before. The other type of buildings growing. So I think we have macro trends on both sides. And that means that and we will have further discussions of that. That combined with A fuel transition over the next 10 years to meet our science based target. That means we are Probably more geared to staying on a CapEx level that is not you're not going to see SEK 200,000,000 from us, because With the size of the business we are now to grow, we need to build plants and we need to do fuel transactions And we need to do the green investment and we need to maintain. And that needs to keep going. Okay. I think that covered your questions, Oeb. Thank you very much. Okay. Thank you. Our next question comes from Lauritz Kierkegaard from ABG. Please go ahead. Hi, Jens Kim and Thomas. Thank you for taking my question and congratulations on your preannounced results. I was wondering about the Comfortability in the double digit growth that you're guiding now, you mentioned yourself an uneventful quarter with 6% organic growth in Q1. And it's no secret that your business has quite low or short visibility even in your markets, which you've also mentioned before, Jens. So in addition to that, we have quite low easy comparables for or not easy comparables for the second half of twenty twenty one. I was wondering how you could talk about your comfortability in this 10% to 12% organic growth given that you in the past have said that you have quite low visibility. Thank you. Yes. I obviously don't have a big backlog, but I see the order activity. We see the projects. We have the stimuli. We are all going to get vaccines. I feel comfortable that 2021 is a better year than 2019. There are so many trends, so Martin's green restart And the trends for our products, insulation, not only Stonewall, it they are all on the positive side, Plus this post cage or post war experience, I believe we have a better year 2019 on the top line. Would you be on the careful side then your guidance? You know, our the guidance, as you know, that it's not like Kim and I sit And no, we look at run rates, and we have done this now quite a few quarters together. So we do The best estimate, and we don't want to mess around and downgrade. I don't think we even did that At the end last year, we delivered our guidance at the end, I think almost, but it this is what we believe today, Okay. Okay. And also thank you for the CapEx split, very appreciated. I was just wondering about the new capacity. Can you share about the top line contribution that you're now expecting from, for example, Jefferson County And perhaps Nurburg and Romania, which you didn't have last year. So what I'm essentially asking is what's your assumption about the underlying growth Of the new volumes that you now have versus your expectations and your previous guidance from the new capacity So your considerations now that you're a little bit further along on, for example, Jefferson County? So 100,000 tonnes, €100,000,000 that's roughly plusminus. Obviously, this is different for System Division. But that's the rough view. And We still have some capacity in Arborg to grow with obviously the whole U. S. Plant And we won't even touch that this year because simply to ramp it up so quickly. Romania is already Quite far along. So it helps, but I will say like this, we have capacity In Rockwall, so that we can deliver that growth and we could also grow again next year for sure, okay? The €100,000,000 is top line contribution from West Virginia in 2021? No, I'm not saying that. I'm talking about the general rule. If you add 100,000 tonnes capacity, you should probably get around €100,000,000 top line when you fully loaded it. But I did make a statement on by when we fully loaded it because we build the factory to build it up It should last for 3, 4 years. It's not smart if we build a factory in the U. S. In 2.5 years and it fills up in 1 year and then we need another one. We are in a shortage. So it's a big factory we built, but just the relation is roughly that. But have you changed your assumption about how much contribution you have to 2021 comparative to when you gave your previous guidance? No, but we had a lower top line last time. We didn't change so much in the U. S. Because U. S. Was already Booming when we had the last guidance, yes. Super. Thank you very much. Thanks. Thank you. Our next question comes from Yassan Touri from On Field Research. Please go ahead. Yes. So a couple of questions. So First, you said that you anticipate pressure on production capacity in the coming high season quarter. Do you think that this is going to be the case for other mineral wool player? And are you considering second price Increases in this environment, which is where you see a lot of inflation? Yes. Then My second question would be on if I look at the CapEx as a percentage of sales in 2021, it's probably going to be close to 13%, 14% of sales Versus an average of 10% of sales in the past 20 years, when we look at the next 10 years, Do you think the CapEx as a percentage of sales is going to be closer to the 14% in 2021, closer to what we've seen or closer to what we've seen In the past 2 decades. Okay. Thanks. And then my last question sorry. Okay. Should I answer those? Yes. So on the capacity, I think, I don't track The loading, I obviously don't know how many shifts around and that. But I think typical for the industry is that when Acceleration happened that quickly, and they are in the same market. I think everyone We'll have some challenge. I mean, you don't change from 5x24 to 7x24 in the factory Overnight. Some people might already have been on that and then they just sit there and that's what they can produce and they maybe can improve it a bit with Portfolio, they run-in the factory and what segments they focus on that. So that all of that will be going on. But I think everyone will, With such a quick incline and the fact that the prices of the farm has gone up, I think in mineral wool, generally, you would see Price increases and you will see some capacity challenges while you step up To full 100 percent capacity. And remember, some of our factories, they are running on 100% for a period of the year, every year, because We love producing and shipping immediately it goes out because it's so bulky. We don't need to we don't want to have too much stock. But now I think everyone will realize that you might have to stay on absolutely 100% a longer time on 7 by 24. And then 7 by 24, you can also, depending on when you did your maintenance, if you did your maintenance, the bigger ones last year, The 7 by 24 can be run for a bigger portion of the year. And that's very hard to judge who how people plan that. We certainly tried to do maintenance last year in the places where we could get people to do it. So That shouldn't impact us negatively this year. Then on the second price increase, We have some businesses where we have annual cycle, but I would say most of our businesses We have every 6 months an adjustment. So that's Absolutely open. And in some cases, we have already decided to do a 2nd high June price increase, so August. All the countries are a bit different. The pace is different. So absolutely open for doing that, and it's already happening in some businesses. They've already been announced in some businesses. Then on the CapEx, We invest against the growth curve and we also need to increase our investments in the green sustainability fuel transition. And we didn't do that historically. We didn't do fuel transition projects, to give an example, on the green investments. Historically, we built a certain type of melter and when it ran out, we replaced it. So I don't want to answer whether it's 13 or 14 or 11 or 12. But the thing I would say is, I don't see if the growth is If we are growing and we have this until 2,034 to reach the sustainability goals on the science based target, we have set That we would go below that, okay. And then I said at the last call, Yassine, I think you are new to this call. Have you spoken before? Yes, I was I looked at the transcript, yes. Okay, okay. But we have said also that Kim and I, We are considering when this when we get out of COVID and corona and all the rest and we see some stability again that We throw some extra clarity on that so that you know a little bit more. But at the moment, in quite a turbulent growth environment and we are still working on technologies, We don't want to go into further details because we think we would confuse them. And then my last question would be, I think part of the renovation, at least in the housing, It's coming from the fact that people are staying at home and are doing some renovation because they've got nothing else to do. Do you believe that as the population gets vaccinated in the U. S. And in Europe, We could see a reversal and people spending more money on travel and leisure and a slowdown In activity next year? I think what you have, you have the stimuli money That goes into delivering country targets. So I think renovation have every potential to stay On a high level, although there's some in cottages and those home personal renovation might go down, I think we're going to see a busy construction industry. I think we will see money going into renovation. We ourselves are renovating Our offices now around the world running through some really nice projects. But I think you're going to see a competition between new built Hands for newbuild and labor for renovation. And it's always hard to pitch who wins of those 2. And I think it would be running on quite high capacity utilization. So I don't see At the moment, at least, a result, it falls back very much due to that we go back to work. I think it's the balance between new build and the other side And where the renovation gets the arms and legs they need now? Thank you very much. That's very clear. Thank you. Our next Next question comes from Michael Peterson from SEB. Please go ahead. Hi. Thank you for taking my question. You were talking about March where you saw like acceleration of activity and so on. I'm not sure if you can Talk a little bit about how it looked in April and maybe in May, if you've seen the same trend of countries recovering and activities is picking up as well? So Michael, I'm not going to comment April May, It would be a mistake by me to do that. We never do. But I basically saw, I mean, let's say like this, we saw January February depressed by, I think at least for us, By weather. Maybe in January, nothing much happened. But in February, definitely a certain weather effect. And then in March, the business stepped up. And if you look at our guidance, mathematics of that means we are not forecasting that the market Suddenly step back on January February level, Marc. Okay. Thank you. And then I have a second question that's regarding the pricing in the U. S. You're talking about you cannot deliver more in the U. S, assuming that the Utilization must be high. Can you talk a little bit about how the pricing environment is in the U. S. If the demand is so high? Are you able to increase prices throughout the year? Or how do you view the current competitive environment over there? You can I mean glass wool This is increasing prices and you can increase prices throughout the year, yes? All right. Thank you. Our next question comes from Franz Hojer from Handelsbanken. Please go ahead. Yes, good morning. Thank you very much. I was interested in your comments regarding the dynamic between oil prices, foam prices going up And this spilling over into positively over into the Stonewall demand. And I was wondering, are we Is this the normal dynamic that you're talking about here? Or is it are we reaching some Sort of inflection point where this dynamic gets stronger? I think I'm not an expert on the downstream oil and gas. I worked 2 years in that industry. But What I observed from it is that after a period of low business, That industry often see a reset of the price. It could be a production problem, shortage, whatever. Something happens to demand and there is a Supply shortage mismatch between demand and then the prices on in this case, I mean, the 2 I know is One of the materials that goes into polystyrene and then the MDI, and they jumped up Due to a number of factors with 70%, 80% over a couple, maybe 3 or 4 months. And we have seen that happen before And we have also seen it normalize. And I don't think we should expect that to stay Forever, it depends, of course, what happens with the overall economic cycle. If All different business segments go well. Also in other industries, then you can expect that the price level will not go back very quickly. But I'm not an expert on that. Steel prices, for example, when I speak to steel guys, I say it will stay high until the next Crisis, that's what they predict, but I can't really swear. So we have a price effect now. But then I think The bigger effect and the one I'm more interested in, this is good of course that we get this business, but the one I'm more interested in Is that we stopped using single use plastics in insulating buildings. That is the trend. And we see in the U. K. With the fire requirements where you talk not only about insulation, you start to look at Insulation value, fire, recyclability and end of life CO2 emissions, those four factors, that's the one I care about and that we don't only talk about Raw materials as an insulation material, it's much more than that. And that speaks in our favor. And I want that Trem to go and I want people to realize that that's how we should look at it to meet the climate challenges. Okay. Thank you. And on the issue of the moving from 5 To 7 day free shifts in 7 days. Is that something that is I mean, I guess you've been running 7 days in parts of the operation already. And but it sounded like there is a shift in the percentage of output that is coming From 7 ships as opposed to Yes. So how you run the business, that's why we have the negative cash flow in the Q1. We typically use the low months To set the stock curve. And then we kind of optimize the stock curve with the demand for the year to Optimal way of running a factory, and we also want the factories to have a bit extra capacity. That's how we go into January, February, March, and we steer on this stock curve. And then now demand happened very quickly, the increase. Then we draw down the stock, you saw it on the crack. And then, of course, we need to catch up with the step up Before we run out of stock, and we can't stock every. We have products made to order and we have products that you can make to stock. So it's a bit of a we know how to do this, but it's not entirely elementary to figure it out. But we have very strong processes for that. And here we needed to do it and it's nothing unusual. But then and we also have a labor population with trained people on the outside We have a mix of permanent employees, people that actually likes to come in and work only during high seasons. They have another job during losses. So we have that set up. The challenge this time is the speed of it. We need to be quick. And the other is that Whenever you are close to car manufacturing, the guys don't like me to simplify this much, but that's my Greatest simplification. If you have car factories around, and suddenly everyone starts to buy a lot of cars, Then it takes a bit longer to ramp up, okay. Because when the car companies hire people, they hire people, they're good at it and they pay much More when they really need it than when they barely need it. So we have some of those, but that's all normal stuff that we go through. Nothing unusual. And we love running the plants at 7 by 24. But of course, we don't want to be with Factory footprint where every factory run on that because that means we will not have enough to cover next year's growth. Yes. But it sounds like there is a step change either late in Q1 or into Q2. No, but the ramp up was quick because we had delivered on the stock curve and they have the shifts done. And then instead of a 3% to 5%, we end up with double that growth at least. That, of course, means that we need to step up the underlying run rate of the factory. And that, as I said, it was a broad based increase, Which means they are U. S. We ramped already, but in some of the others, You know, many, many factories got touched. So we had to put all hands on deck to plan how we do that. And then as you know from before, We have the philosophy that our regular customers, even if we haven't The capacity just around the corner, we will ship in material and we make sure that we do our utmost to keep them whole. Okay. And if that means that we have to ship from Denmark to Berlin for a few weeks, and we do That's how we see our job, okay? Thank you. Thank you. Our next question comes from Manish Frere from Societe Generale. Please go ahead. Yes. So good morning. Congratulations on the very good quarterly update and also the guidance. I have 3 actually. The first one is on the cost of goods sold that I see, I mean, the pricing inflation impact of 5% There, so basically the price impact of COGS has led to 5% increase there. So can you just first confirm that if I'm right in Q1 is 5%. The second is how do you see because the raw mats energy cost is rising quite fast, so how do you see for the rest of the year this COGS Inflation, so this is the first question. The second one, I wanted to just see your comment on the North Plant of France. So do you see the capacity ramp up there? What is the competition dynamics? I mean, are they too aggressive there? And the third one also wanted to confirm on your CapEx. You just said, I mean, Bhagavad, I didn't catch fully. So do you mean like the CapEx Could be something like 12%, 13% for the next decade because the demand is going to be very, very good for the Rock Oil Industry. So I will take question 23 and then Kim will take the first one. So I'll start then. The plant the competitive the competitors plant in France hasn't changed the market very much because the market is doing Quite well. And as I mentioned in my kind of broader description, due to the increased demand everywhere, Those new plants and also our own increased capacity that we have in Poland and Southern Germany, I think the impact in the market has been that we were probably fortunate to have them to be able to deliver the Stonewall. So that's my observation. And then on the CapEx, I don't want to give a percentage. I said I come back, but I would, with the green at the end that we have, a caution against lowering the 11%, but then I don't want to say if it's 12% or 13% What it is, I mean, we're going to stabilize the situation, but we need to keep investing in capacity As the business keeps growing. So that's as much as I can reveal there on the numbers. On the cost of goods sold and Energy costs, etcetera, I hand that over to Kim. Yes. Thank you very much, Manish. As you know, on On our hedging of input costs, we do buy forward both Energy and Coke 1 quarter. And for the Q1, the situation was that we in fact, the coke prices did not increase over last year. But All other energy costs, electricity, gas and the oil related raw materials that we are using, plastic films and binders, They did increase, and we do expect they will increase also for the remaining part of the year. So I think you can expect The inflationary, you can say, the impact of that will be more visible from Q2 onwards. And this 5% calculation for Q1 is correct, right, I mean, on the COGS, Just from the inclusion part? No, no, not on the COGS. Zecht, we secure the COGS prices A quarter in it, a quarter out. So the COGS price for us was secured in Q4 last year. And there was No meaningful inflation on the cob prices compared to last year in our quarter 1. Because when I look at your financial, I mean, the COGS is up 7.8% Y o Y. Your revenue is up 3.3%. So I do the difference 5% to get the pricing inflation there? The COGS, not the Coke. I was thinking about The Coke itself, no. The cost of goods sold is up, but it's also about a mix, but it is up in Q1, but not as much As 5%. So I think you can expect more increases in cost of goods sold going forward. I think the first quarter Increase in cost of control was more a matter of mix than anything else. Okay. Okay. I understand. And you say, I mean, when the COGS will increase for the rest of the year, probably the pricing will also be more dynamic, so we shouldn't worry so much About the inflation, right? That's our basic assumption, yes. Okay. Thank you. Our next question comes from Claus Almer From Nordea, please go ahead. Thank you. Yes, sorry about circling back to some of the former questions, but There's been a lot of questions regarding the cost inflation. So maybe you could say how much should you increase your ASP this year to fully compensate the cost inflation From a full year perspective, that will be the first question. But I didn't even say I will do it only with price. So we're talking with the price effect, my price, input material effect and my productivity improvement, We should compensate that it's all good for us. And then For me to sit and guide, now we talked about the second price increase. I said, I want to be rational I'm quite predictable with the customer, but I also have my options because we could also see a situation that inflation goes Up even more than we have in our current forecast. So I can't answer that. But in terms of dynamic with the levers I have, We should be able to manage it, okay. So that's as much as I can say, Claus. And I know that then creates a problem in the spreadsheet because You don't know exactly what the number is, but if you know the cost and the productivity improvement, yes, you might see Slight margin impact, but you have our bottom line guidance. Sure. Okay. I was mostly talking about how it is today. And then, yes, obviously, there could be more inflations later this year, but it was more like How does it look today? But I guess you are not going to get it closer? No, but what I'm saying is that we'll manage it with Productivity improvements and price, it happens suddenly and we deal with it and We have an extremely well trained organization that working with that, and I hope The customers also knows that we are not going overboard. We are doing it professionally, and that's our intention also this time. And So far so good. Maybe, Jens, if you can ask in another way. So the way you are steering your pricing, You must have ample headroom versus a form. So are you just increasing the prices According to inflation, but there's really good room for raising price because It's becoming so much more expensive than Stonewall. Yes. It's Yeah, it's quite a tricky question. I mean, fundamentally, we apply market based pricing, the value of the product. But we want to be a reliable player year after year after year. In 2,007, 2008, Rockwell raised prices with 20%, 25%. I don't want to do that. Customers don't Forgive you, it's not serious business to me, at least not how I see it for Rockwall with what we are. So we are Open to that inflation might change compared to the quite high assumption we have now. It might be higher. I don't think it will be lower. And then we might have to adjust. And in some markets also the plan is that we have a first price increase that is in place and a second, and it's quite normal for the drumbeat in the country. So that's how we work it. And then plusminus €10,000,000 in the balance between price, raw material cost, Productivity, we have many actions in the company where we work on cost, productivities, etcetera. So we steer it as we go along in the year. But at the end, we want good sound market based pricing, yes? And we want to not do stupid things in 1 year, okay. That makes a lot of sense. And then Jens, sorry again about another question about CapEx. You said something about SEK 200,000,000. Was that meant this will be the low level or it will be below SEK 200,000,000? How should we? What I said is, with our growth now, we're getting we're a company between SEK2.5 billion and SEK3 billion. I'm just saying that we had 11% historically. We did that 30 year study 3 years back or whenever it was. I'm just saying, you're not going to get down. You look at last year, we didn't go down on SEK 200,000,000 CapEx. We just Kept working our investment as much as we could, but it wasn't so easy during corona. So I just gave an example that Don't expect that we'll be down to 200,000 because, a, we are a bigger company. We keep growing. Yes. Some year we might not be growing so much like last year and last time was 2,008. I think Lehman Brothers, we didn't grow. Otherwise we grow And we have the sustainability. So we need to invest. So we're not going to be on the €200,000,000 level. That's what I said. I think there was a year ago. Okay. I just want So it was not the number you should use. It's just don't hope for us getting down to those level because the growth is there, The sustainability is there, and we just need to keep investing in the business. Sure. Okay. So my question regarding CapEx It's more how are you really working with CapEx. So we know it takes 2 or 3 years to do a new plant. And you're talking about a 18 to 24 months of good activity and who knows what's going to happen after that. But I guess in 2 years down the road, you will not have a lot of available capacity left. So how are you Planning CapEx in 2, 3, 4 years down the road? So we have I mean, we work a lot with that. And because you could say like this, the ambition is and that's hard when the market grows this much. The ambition is that you plan Scenarios with the CapEx and the capacity and your draw curves and all the rest. But you want to have A float so that you have enough capacity to supply also optimistic market growth scenario And that we have enough capacity so that we can switch a plant off and do a fuel transition. So my reasoning is, I always want to have a bit of spare capacity. That's my reasoning. And then What I guess that means? Yes. And that means we trigger investments Well in advance. And that's what we intend to continue to do. Okay. So we're getting close to that point where you need to do the next steps? Yes, but we are doing the next steps all the time. We are just building Big thing for Rockfone. We are building for Grodan. We are starting up the second of the 2 big plants. Mean, we keep doing it all the time. And then, of course, we don't necessarily announce everything we work on. But the idea is to Keep the capacity buffer going forward. That's the objective. Okay. Thank you so much and congratulations on the strong Q1. Thank you, Claus. Thank you. Our next question comes from Ceta Ekbloom from Morgan Stanley. I've got A few follow-up questions on the growth story. Can you give us an understanding of whether at the end of this year you would expect All of the new capacity that you've added in the group to be fully ramped up? And if not, how much incremental capacity do Do you think you'd have spare into 2022? And that's just in terms of thinking about local currency growth potential into next year if we have a more normalized demand picture? The second question is, would you be willing to give us some detail on how much of your 10% to 12% local currency growth is driven by new capacity coming online this year, new volumes, so we can get an understanding of your underlying market growth. And then the third question is, how easy is it to squeeze incremental volumes out of your footprint? Is your asset base such that you actually have to make quite large investments on a sort of go forward basis? Or can we think about squeezing out an incremental 3% to 5% volumes every year From a brownfield perspective and not needing to make those fairly lumpy investments? Thank you. See, they're incredibly good questions and incredibly difficult questions you have asked, because we are Confining what we release. But fundamentally, we look at the Stonewall plant. Over the last 3, 4 Yes. We have worked very systematically on raising the maximum capacity of the plants With it quite significantly without big investments. So that's the whole culture and it's a methodology we work with. You can't do 3% to 4% to 5% every year forever, but we have done very good progress in the last Yes, and there's still some more to do. Then on the new capacity, I mean, the ones coming on, Germany It was a big one. West Virginia is a big one. Romania was a half size one. And then in Poland, you can say all of it like a big one, I guess. The U. K, somewhere in between, but We almost doubled the capacity there. So those are the ones we have been doing and they are there now. And then we are doing in China, we're Moving on factory and that doesn't really increase our capacity, but we have capacity in China as not the core market. So those are the Main moves we are doing and that is aimed at staying ahead of the game so that we have within the horizon that we can come out with more capacity if the market grows. But then, of course, if you have a market that grows 10%, 15%, 2 years in a row, we are in trouble because we don't have That much spare capacity with this type of quite asset intensive plants that we have. But we have been very good at getting more out of our plants. But so that I guess that's as much as I can say on those questions. And you're not going to give us any detail on how much of the 10% to 12% is new volumes? Come again on that one. So your guidance this year of 10% to 12% local currency Revenue growth. Would you be willing to give us some color on how much of that number comes from Adding volumes in the U. S, adding volumes in Germany. We are the only company in this industry that Talk about countries, we don't give it. It's for competitive reasons. We don't see a benefit of giving it because no one else gives it, and we don't want to give that. To say that we have also previously talked about, Once we start up the new factories, obviously, it is an advantage to get a load on those as fast as we can. And then we take out shift if there's not the demand just in a season. We take out shift in some of our existing factories. So we don't track sort of What is new capacity? What is not or what is existing capacity? Okay. And if demand stays Where it is or if your sort of view on demand materializes, would it be fair to say that those new facilities would not Be fully ramped up by the end of this year, that there may still be a little bit more flex in that footprint? Yeah. But we often have an overlapping footprint. So it's not like Neuberg In Southern Germany, it's a factory that makes a product that no one else can do. It might have some products that way. So our objective with the Southern Germany factory has been to ramp it up to full capacity as soon We can because it's a very, very good asset. And then we take a few other ships off in other factories. So we work with a network model, where the factories are nodes And then we have the customer spread out. And then we optimize the network. So it's a slightly different business model as opposed to that you say now we build a factory for this product And then we fill it up. Romania, for example, we were supplying a lot into Romania, and we very quickly ramped it And then we brought some capacity home to Croatia. And that capacity we use in Italy. You see, so It's very, very difficult to talk about an independent asset. I guess an independent asset, where would we have that? U. S. Might be the most No, they are all connected. We really don't have independent assets. There's almost Always overlap between the service zones of every factory, okay? Perfect. Thank you very much. Very useful. Just to go on, the coordination and the model we want to run it is a network optimization tool. It's not The individual factory, of course, the factory man around the factory, but we optimize the whole network. Good. Next question? Our last question comes from Pir Rausch Sturm from Barclays. Please go ahead. Yes. Thank you, everyone. And the first question would be on the pricing strategy. It seems that Your competitors have high inflation. It seems that you have 1, 2 years of good demand growth. So Is there any way for you to get more than moderate price increases? And do you think there could be upside there? The second question is on the margin guidance. To me, it seems that If you achieve the top line revenue growth that you guide for, the margin guidance looks quite So I was wondering if you could explain the various cost items that could impact your margin negatively this year. I think maybe The supply bottlenecks from freight costs, some cost inflation, if you have any quantification of the margin impact Of the one offs for this year, that would be helpful. Thank you. Okay. Pierre, so I take the pricing and I hand the margin one because A lot of it is startup cost and depreciation and loading levels. So Kim will take that. On the pricing, We want to be a long term. We have talked about the drumbeat pricing module approach over the last 5, 6 years. And we have done that some years a bit more, some years, but every year something and we try to reflect the margin There's absolutely an opportunity to walk out and increase the price. I think I could increase the price with a high percentage if I wanted and get it to the bottom line this year. But my objective, Pierre, is a drumbeat pricing with a clear logic to how we price and the fact that Every year we come with a price increase reflecting inflation on the market value of the product. And that's how we see it. And I'm not I don't want to step out of the year where the inflation made us look like a company That didn't perform. That's not my objective. But I'm not interested in raising the price with €100,000,000 1 year and bring it to the bottom line as a Great pricing. And the next year, I have every customer in Europe feeling that they exploit the situation. And That's the difference. In some materials and industries, you work in one way. And how I feel we should Work with Rockville is that way. And that means that sometimes I've gone out and done a 2% to 3% price increase when we had deflation Historically, because I think the profitability level wasn't right of the product. It was underpriced. And we did that. And this year, I don't think the challenge is to make price increases. I think it's to be a good Supply and do an appropriate price increase. That's how I see it. Okay. Over to Kim on the margin. Yes. Thank you very much. On the margin, Pierre, in terms of one offs, you know the sort of the most obvious one is, of course, depreciation coming in. And we have already Our early guidance said that from the NeuPro plant and from the Vanssen plant, there will be additional depreciation very close to 1 percentage point of sales. I think even last in the February call, we even quantified it around €25,000,000 to €30,000,000 additional depreciation for the full year. Of course, the ransom plant would only come online In the Q3, so you would only see that impact in the second half of the year. And then we've also said, and that's the same thing, The situation hasn't changed, that there are start up costs, both on Neuwburg and for Ransom. That is kind of a one off In the 1st period of your start up. And we have also quantified that earlier to approximately 0.5 percentage points margin impact. So those are sort of the one offs that we talked about early on and they haven't really changed. It's the same thing. That means the underlying, You can say performance, the guidance upgrade is really not so much different one offs, but it's really the underlying performance that is better than what we have assumed. So Okay, understood. So you're not seeing a lot of extra costs from Bottlenecks like freight or the low inventories or No, those they have been incorporated in our margin guidance already. Okay. And maybe a very small last one, if I may. On the margin step up in Systems, I think in Q4, you had mentioned that there was some mix impact in there. And since in Q1, we have a very strong margin again. So And is that the new kind of level that we should expect from you going forward? I mean the margin in Q1 was Really good. Kim and I target what we guided. And then over the year, depending how hedging and Price schemes came into place. You can have the margin jump around a little bit with the quarters, but we should deliver the full year guidance. And you might see a quarter that is really, really good and some maybe a little bit lower or you don't see any of those And quite frankly, we don't calculate to that level because we know roughly what's going to happen And we feel confident that guidance will hold. And then we don't plan so super careful around the markets because it's subject to negotiation when it kicks in. And we don't run a Monster Central spreadsheet on every item there. We look at where it's trending And what the endpoint and the total for the year will be, that's how we steer it. So I wouldn't comment the next 4th and the quarter after that in terms of margin, just say that we feel good about the bottom line guidance we have done and We want to deliver that one, okay? Perfect. Thank you and congratulations. Thank you, Pierre. Thank you. There has been no further questions. I'll hand over back to the speakers for any final remarks. Thank you. Please be informed that on 8 June, the Rockwell Group will hold the next investor conference call dedicated to HD topics. Thank you for joining today's earnings call. Hi, everyone.