Earnings Call: Q1 2021

May 19, 2021

Ladies and gentlemen, welcome to the conference call regarding Rockwool International's results for the first quarter of 2021. My name is Thomas Harder, I'm Director of Group Treasury and Investor Relations of Rockwool International. Today, I'm pleased to present CEO Jens Birgersson and CFO Kim Junge Andersen. 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 Birgersson will go through our presentation and give you an update on the results for the first quarter of 2021. Afterwards, we'll be ready to answer all your good questions. Before I hand over the words to Jens Birgersson, I must ask you to notice slide number two, which is the forward-looking statement. Please be aware that this presentation contains uncertainties. We can go to the next slide, which is slide number three. Jens Birgersson, I'll now hand over the words to you. Thank you, Thomas. Good morning, everyone. To sum up the quarter, it's relatively uneventful. It's a positive quarter. The year started a little bit slow. Some segments are quite dependent on weather. You may recollect that in January, February, we had quite severe winter in especially Germany into France, also up here for a while. We saw quite a slow, stable start of the year. End of February, I would say March, you saw an acceleration across the board, and we will go more into that, but with few exceptions, we 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 a notably better business environment. From our side, we stepped into the year with a certain capacity plan and a certain run rate. 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. Then the acceleration week by week came, also the outlook. That meant that we got quite busy with ramping up shifts, adding shifts, getting people back in on the production lines. 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. 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 increases just started to happen very suddenly. We took a relook at our pricing strategy. We started to get busy with adjusting that. Out of the two businesses, System Division and Insulation, good margin on Insulation in spite of the inflationary effects and not so much price in the top line. On Systems 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. That's fundamentally the summary of the quarter, more growth towards the end of the quarter. The margin, 13.3%, we are very happy with that. That also covers depreciation increase of DKK 5 million. On EBITDA margin, you don't see that, but here, obviously, you have it. Happy with both the top line and the bottom line. If you move to slide four. Growth relatively evenly spread between Insulation and Systems Division, 7% and 5.5%, 6%. Quite some big currency effects. Dollar, Ruble would be the main ones. Generally, good demand in both businesses and higher demand towards the end of the quarter. We take next slide. Western Europe, starting in the north include also U.K. The U.K. 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. In terms of continued trends with the Superbonus, 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. 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 there'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. We are happy with that, and it produces well. That's nice. Big currency effect from the ruble. North America, Canada, healthy U.S., booming. Absolutely booming. Here, we simply can't deliver more than we did. We are loaded, and next month we are starting our tests over this weekend. Next month, we start to seriously do hot commissioning of the new factory in West Virginia. Mid-year, early third quarter, we should be starting to produce there, and that's absolutely needed now to get the delivery times down again to an acceptable level. If we would have had the factory half a year early, would be nice, but at least it feels very timely now, and it's on track to get up and running. Profitability, slide six. 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-collars in the office in most places, and generally costs are low, productivity improvements across the board. They also had some effects. We didn't see much on gas increases, for example, in Q1. All good on that side. Profitability by business segment, I already commented, slide seven. Good performance by insulation to cover some of those increases on raw material costs. Yes, we have some price in there, but very pleasingly, good productivity improvements and good cost control. That kept that double-digit. The big step up in Systems division, 7% growth, good cost control, some price increases in there, and then they haven't seen much raw material increases. They get the full lower absorption on the extra volume. That's why 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 DKK 17 million of sustainability, Kim Junge Andersen has plotted this backwards. In our calls later, we can discuss it a bit more. I just want to explain what it is. Maintenance is to keep the plants running and maintain them, just like servicing your car. Capacity is self-explanatory, adding new capacity. What's in this sustainability investment green area? Basically, we have defined it that when a investment or CapEx is mostly purposed towards meeting one of our six sustainability development goals, then we put it in here. That means that if we were to change like we did in Moss, the melting, but we don't increase the capacity, but it works, that's a green investment. I give you some example to just make it a bit tangible. In a factory heat recovery, heat exchangers, connecting to a local district heating grid, that's sustainability. Also safety. 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 every respect, or other emissions, afterburners, curing upgrades, et cetera, that serves to reduce emissions. 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. 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're not impressive. That's how the green investments works and how we classified it, and Kim and Thomas will explain more later on. Cash flow, nothing notable on that. I think they're basically the two effects, a bit less CapEx, then with the acceleration in the business, the kind of rundown of inventory freed up cash. I would have preferred to keep the inventory, on the other hand, I also love the fact that the market took off. 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 assessed that before we issued the last announcement, of course, nothing really has changed. The top line 10%-12%, EBIT margin around 12%, and the investment level around DKK 370 million. That's the same as we said mostly two weeks back. With that, I hand over for questions. Our first question comes from Brijesh Siya from HSBC. Please go ahead. Thank you. Good morning, all. I have two questions. The first one is on the guidance. Your 10%-12% total growth, if you could split that into volume and price. 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. Brijesh Siya, good morning. I never gave the volume and price, and I will not do that at this time either. We have not factored in. We still have a moderate price increase assumption. We have the inflationary pressures, so the raw material price increases. 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. I see the compensation of the inflation as a mix of productivity improvements and price. I still have a moderate price assumption. It's not crazy. It's very proportional to the volume growth. That's on the volume. On the market gain, I see that on flat roof, for example, you have quite high price increases on the plastic foam. That means that more business going to come to stone wool. Due to the pricing strategy and that the plastic foams 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 in a certain number, but I suspect that you will see stone wool and Rockwool, due to our capacity availability, get some market share due to those factors. It's upside on positive, but we haven't factored in anything dramatic in that. Okay? Does that answer your question, Brijesh? You would just say that this 10%-12% growth, it's mostly the underlying market growth, and you still haven't factored in any of this market share gain? It's a little bit hard to say because the market growth of the total insulation market, I look into what we see in stone wool. 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%. I see that with our run rate and our forecast, I definitely see that we should be able to grow 10% to 12%. I suspect that you will see a lower growth in the plastic foam due to how they have been impacted on raw material. That is, in a way, a market share growth, but it's just that the composition of the market changed due to the cost structures this year. Okay? Okay. Understood. The next one is on your competition position. I think you have pricing pressure in key markets like Poland, France, Germany, Hungary. 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 stone wool. We talked for a while about the new factory in Hungary, it seems to be delayed again from a competitor there. You have the extra capacity in Poland. I would say that the concerns for a big battle about finding customers for the factories, that has been reduced due to that the market has started up much more positive than maybe we predicted six months back. 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. 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 of us haven't gotten it, so there's still a positive effect there. I think fundamentally those markets look a bit better because underlying demand across the board is better. Okay? Okay. Thank you very much. Yeah. Thank you. Our next question comes from Cedar Ekblom 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 in the increased outlook on the top line, can you maybe point us towards a comparison with the peak of 2018? Are we in a situation where with the low stock environments, 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. 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. my final question- Okay. Sorry. No, no. Come back to the last one later. No. I think we do you also as a three-question man. After that, we go to two questions. List your third question. All right, sorry. 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? Yeah. Okay. Let's start with capacity. Compared to 2018, we have Romania up and running. We have done several investments on the Systems 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 Neuburg. We have more capacity in 2018. 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. Delivery times are 140 days, but we are solving that hopefully in the coming months. The challenge in Europe, it's doing well, but it's fundamentally that we go from, in some factories running Monday to Friday, five times 24 or close to that, a three-shift pattern. Now we need to go to seven by 24. That's always a reset. We are busy with that, and supply is tighter in some corners, but fundamentally, we have the capacity to do it. Then there could some areas where we need to ship further, and we have the normal discussion about logistic cost on that. 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. 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. For most of those we have hired, we did reduce a couple of hundred jobs last year on the white-collar side because we shift, for example, more into Eastern Europe. We do some improvements in the structures, some of those we plan to hire back. Also when we go from, say, five by 24 in a factory to seven by 24, you're going to see an increased headcount. If you then relate the personal expense, blue and white collar 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 a 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, some of them, obviously West Virginia, will absolutely not be full this year. We run on very low level in relation to the capacity, yet we have a lot of staff and overhead there. In spite of that, I think we have a good productivity year. Okay? On CapEx, we have a plan, I don't want to run ahead, we have a couple of macro trends. If I look at the economics of Europe and U.S., I cannot tell too much about the business cycle, my simple take on it is we could be relatively sure that we have 18-24 months of good business, good economic cycle. I believe that's a fair assumption. Could be longer. There's the stimulus packages, all the rest. I think we have a window of happy market. What happens after that to the general business cycle, I can't say. You will know better than me. I've never been through such a situation. We still have the macro drivers for our business, and that is the climate challenge, and saving energy, and renovating houses, and creating jobs. I think that one is a long trend. We look at the long trends into our Systems division. Rockwool, for example, is growing well, but offices maybe not quite as before. The other type of it is growing. I think we have macro trends on both sides, and that means that we will have further discussions on 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 you're not going to see DKK 200 million from us. With the size of the business we are now to grow, we need to build plants, and we need to do fuel transitions, and we need to do the green investment, and we need to maintain. That needs to keep going. Okay? I think that covered your questions, Yves. Thank you very much. Okay. Thank you. Our next question comes from Lauritz Kiergaard from ABG. Please go ahead. Hi, Jens Bjørn Andersen. 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. It's no secret that your business has quite low or short visibility even in your markets, which you've also mentioned before, Jens. In addition to that, we have quite low easy comparables for, or not easy comparables for the second half of 2021. I was wondering how you could talk about your comfortability in this 10%-12% organic growth, given that you in the past have said that you have quite low visibility. Thank you. Yeah. 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. Yeah. There are so many trends. Okay. Thanks very much. Much green restart and the trends for our products, insulation, not only stone wool, they're all on the positive side, plus this post-COVID or post-war experience. I believe we have a better year than 2019 on the top line. Would you be on the careful side then in your guidance? The guidance, as you know that it's not like Kim and I sit and know. We look at run rates, and we have done this now quite a few quarters together. 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 of last year. We delivered our guidance at the end, I think, almost. This is what we believe today. Okay? Also thank you for the CapEx split. Very appreciated. Yeah. 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 Neuburg and Romania, which you didn't have last year? 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 to your considerations now that you're a little bit further along on, for example, Jefferson County? 100,000 tons, EUR 100 million. That's roughly plus/minus. Obviously, it is different for Systems division. That's the rough view. We still have some capacity in Neuburg 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. It helps. I would say like this, we have capacity in Rockwool so that we can deliver that growth, and we could also grow again next year for sure. The EUR 100 million 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 tons capacity, you should probably get around DKK 100 million top line when you're fully loaded it. I did make a statement on by when we fully loaded it, because we build a factory to build it up, and it should last for three, four years. It's not smart if you build a factory in the U.S. in two and a half years, and it fills up in one year, and then we need another one, and we are in a shortage. It's a big factory we built, but just the relation is roughly that. Have you changed your assumption about how much contribution you have 2021 comparative to when you gave your previous guidance? We had a lower top line last time. We didn't change so much in the U.S. because the U.S. was already booming when we had the last guidance. Yeah. Super. Thank you very much. Thanks. Thank you. Our next question comes from Yasin Turan from On Field Research. Please go ahead. A couple of questions. First, you said that you anticipate a 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 players? Are you considering second price increases in this environment, which is where you see a lot of inflation? Yeah. My second question would be on the, 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 or closer to what we've seen in the past two decades? Okay, thanks. My last question. Sorry. Okay. Should I answer those? Yeah. On the capacity, I don't track the loading. I obviously don't know how many shifts I run on that. I think typical for the industry is that when acceleration happened that quickly and they are in the same market, I think everyone will have some challenge. You don't change from five by 24 to seven by 24 in a 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. All of that will be going on. I think everyone will, with such a quick incline and the fact that the prices of the foam has gone up, I think in stone wool generally, you will see price increases, and you will see some capacity challenges while you step up to full 100% capacity. Remember, some of our factories 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 want to have too much stock. Now I think everyone will realize that you might have to stay on absolutely 100% a longer time of 7 by 24. 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. That's very hard to judge 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. On the second price increase, we have some businesses where we have annual cycle, but I would say most of our businesses have every six months an adjustment. That's absolutely open. In some places, we have already decided to do a second June price increase or August. All the countries are a bit different. The pace is different. Absolutely open for doing that, and it's already happening in some businesses. It has already been announced in some businesses. 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, and the green investments historically. We built a certain type of melter, and when it ran out, we replaced it. 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 we are growing and we have this until 2034 to reach the sustainability goals and the science-based target we have set that we would go below that. Okay? I said at the last call, Yasin, I think you are new to this call. Have we spoken before? Yes, I wouldn't. I wish I could confirm it, yes. Okay. We have said also that Kim and I, we are considering 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. 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 you. Okay. My last question would be I think part of the renovation, at least in housing, is 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? Yeah. I think what you have, you have the stimuli money that goes into delivering country targets. 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 into some really nice projects. I think you're going to see a competition between new build hands for new builds and labor for renovation. It's always hard to pitch who wins of those two. I think it will be running on quite high capacity utilization. I don't see at the moment, at least, a risk that 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 whether renovation gets the arms and legs they need. Yeah. Yeah. Thank you very much. Take care. Thank you. Our next question comes from Mikael Petersen from SEB. Please go ahead. Hi, thank you for taking my question. You were talking about in March where you saw an acceleration of activity and so on. I'm not sure if you can talk a little bit how it looked in April and maybe in May, if you've seen the same trend of countries recovering and activities picking up as well. Mikael, I'm not going to comment April or May. It would be a mistake by me to do that. We never do, but I basically saw, let's say like this, we saw January and 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. In March the business stepped up. If you look at our guidance, mathematics of that means we are not forecasting that the market suddenly step back on January and February level. Okay. Thank you. I have a second question that's regarding the pricing in the U.S. You're talking about you can't deliver more in the U.S., assuming that the utilization must be high. Can you talk a 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? Glass wool is increasing prices, and you can increase prices throughout the year, yes. All right. Thank you. Our next question comes from Frans Hoyer from Handelsbanken. Please go ahead. Yeah, 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 positively over into the stone wool demand. I was wondering, is this the normal dynamic that you're talking about here, or are we reaching some sort of inflection point where this dynamic gets stronger? I think I'm not an expert on the dance in oil and gas. I worked two years in that industry, 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, there is a supply shortage or mismatch between demand. Then the prices on, in this case, the two I know is one of the materials that goes into polystyrene and then the MDI, they jumped up due to a number of factors with 70%-80% over maybe three-four months. We have seen that happen before, and we have also seen it normalize. 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. 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 read it this way. 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 stop using single-use plastics in insulating buildings. That is the trend. 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 trend to go, and I want people to realize that that's how we should look at it to meet the climate challenges. Yeah. Okay, thank you. On the issue of the moving from five to seven day, three shifts in seven days, is that something that I guess you've been running seven days in parts of the operation already, but it sounded like there is a shift in the percentage of output that is coming from seven shifts. Yeah. How you run the business, that's why we have the negative cash flow in the first quarter. We typically use the low months to set the stock curve, and then we optimize the stock curve with the demand for the year to optimal way of running a factory. 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. Our demand happen very quickly, the increase. We draw down the stock, you saw it on the crash. Of course, we need to catch up with the step-up before we run out of stock. We can't stock. We have products made to order, and we have products that you can make to stock. We know how to do this, but it's not entirely elementary to figure it out. We have very strong processes for that. Here we needed to do it, and it's nothing unusual. We also have a labor population. We train people on the outside, but 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 low season. We have that set up. The challenge this time is the speed of it. We need to be quick. 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? 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. 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. Of course, we don't want to be with a factory footprint where every factory run on that, because that means we will not have enough to cover next year's growth. Yeah. It sounds like there is a step change, either late in Q1 or into Q2. No, 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%-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. That, as I said, it was a broad-based increase, which means U.S., we ran full already. In some of the others, many factories got touched. We had to put all hands on deck to plan how we do that. Then, as you know from before, we had 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? If that means that we have to ship from Denmark to Berlin for a few weeks, then we do that. That's how we see our job. Okay? Thank you. Thank you. Our next question comes from Manish Parekh from Societe Generale. Please go ahead. Yes, good morning. Congratulations on the very good quarterly update and also the guidance. I have three, actually. The first one is on the cost of goods sold that I see in the pricing inflation impact of 5% there. Basically, the price impact of costs has led to 5% increase there. 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 coke inflation? This is the first question. The second one I wanted to just see your comment on the north plant of France. Do you see the capacity ramp up there? What is the competition dynamics? Are they too aggressive there? The third one also wanted to confirm on your CapEx. You just said, but I didn't catch fully. Do you mean the CapEx could be something like 12%-13% for the next decade because the demand is going to be very good for the Rockwool industry? Yeah. I will take question two and three, Kim will take the first one. I start then. The competitor's plant in France hasn't changed the market very much because the market is doing quite well. As I mentioned in my 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 stone wool. That's my observation. On the CapEx, I don't want to give a percentage. I said I'd come back. I would with the green agenda we have, I caution against lowering the 11%. I don't want to say if it's 12% or 13% or what it is. We're going to stabilize the situation. We need to keep investing in capacity as the business keeps growing. That's as much as I can reveal there on the numbers. On the cost of goods sold, on energy cost, et cetera, I hand that over to Kim. Yeah, thank you very much, Manish. As you know, on our hedging of input cost, we do buy forward, both energy and coke, one quarter. For the first quarter, the situation was that in fact, the coke prices did not increase over last year. All other energy cost, electricity, gas, and the oil-related raw materials that we are using, plastic films and binders, they did increase. We do expect they will increase, also for the remaining part of the year. I think you can expect the inflationary, you can say the impact of that, will be more visible from second quarter onwards. This 5% calculation for Q1 is correct, right? Yes. I mean, on the coke, just from the inflation part. No, not on the coke. We secure the coke prices a quarter out. The coke price for us was secured in Q4 last year, and there was no meaningful inflation on the coke prices compared to last year in our quarter one. When I look at your financials, the CapEx is up 7.8% YOY. Your revenue is up 3.3%, I do the difference 5% to get the pricing inflation there. The coke's 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. It is up in Q1, but not as much as 5%. I think you can expect more increases in cost of goods sold going forward. I think the first quarter increase in cost of goods sold was more a matter of mix than anything else. Okay. I understand. You say, when the costs 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 Nielsen from Nordea. Please go ahead. Thank you. Yeah, sorry about circling back to some of the former questions. There's been a lot of questions regarding the cost inflation. Maybe you could say how much should you increase your ASP this year to fully compensate for the cost inflation from a full year perspective? That would be the first question. I didn't even say I will do it only with price. 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. For me to set the guide now we talked about the second price increase. I said I want to be rational and 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. I can't answer that. In terms of dynamic with the levers I have, we should be able to manage it. Okay. That's as much as I can say, Claus. I know that then creates a problem in the spreadsheet because you don't know exactly what the number is. If you know the cost and the productivity improvement too, 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. Yes, obviously, there could be more inflations later this year, but it was more like, how does it look today? I guess you are not going to get closer. What I'm saying is that we'll manage it with productivity improvements and price. It happened suddenly, and we deal with it, and we have an extremely well-trained organization at working with that. I hope the customers also know 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 we can ask in another way, so the way you are steering your pricing, you must have ample headroom versus a foam. Are you just increasing the prices according to inflation, but there's a really good room for raising price because it's becoming so much more expensive than foam will? Yeah. You don't want to take advantage of that situation. Yeah, it's quite a tricky equation. Fundamentally, we apply market-based pricing. Yeah. The value of the product. We want to be a reliable player year after year after year. In 2007, 2008, Rockwool 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 Rockwool with what we are. 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. We might have to adjust. In some markets also, the plan is that we have a first price increase that is in place and a second. That's quite normal for the drum beat in the country. That's how we work it. Plus or minus EUR 10 million in the balance between price, raw material cost, productivity. We have many actions in the company, but we work on cost productivities, et cetera. We steer it as we go along in the year, but at the end, we want good, sound, market-based pricing. Yeah. We want to not do stupid things in one year. Okay. That makes sense. Jens, sorry again, about another question about CapEx. You said something about DKK 200 million. Was that meant this would be the low level, or it would be below DKK 200 million? How should we- What I said is with our growth now, we're a company between DKK 2.5 billion and DKK 3 billion. I'm just saying that we had 11% historically. We did a 30-year study three 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 DKK 200 million CapEx. We just kept working our investment as much as we could. It wasn't so easy during Corona. I just gave an example that don't expect that we'll be down to DKK 200,000 because, A, we are bigger company. We keep growing. Yes, some year we might not be growing so much like last year and last time was 2008, I think Lehman Brothers, we didn't grow. Otherwise, we grow, and we have the sustainability, so we need to invest. We're not going to be on the EUR 200 million level. That's what I said. I think there was a year. Great. Yeah. It was not the number you should use. It's just don't hope for us getting down for those level because the growth is there, the sustainability is there, and we just need to keep investing in the business. Sure. Okay. My question regarding CapEx is more how are you really working with CapEx? We know it takes two or three years to do a new plant, and you're talking about 18 to 24 months of good activity, and who knows what's going to happen after that. I guess in two years down the road, you will not have a lot of available capacity left. How are you planning CapEx in two, three, four years down the road? We worked a lot with that. You could say it 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 you 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. Yeah. My reasoning is I always want to have a bit of spare capacity. Yeah. That's my reasoning. I guess that means. Yeah, that means we trigger investments well in advance, and that's what we intend to continue to do. Yeah. Okay. We're getting close to that point where you need to do the next steps. We are doing the next steps all the time. We are just building a big thing for Rockfon. We are building for Grodan. We are starting up the second of the two big plants. We keep doing it all the time. Of course, we don't necessarily announce everything we work on. The idea is to keep the capacity buffer going forward. That's the objective. Okay. Thank you so much. Congratulations on the strong Q1. Thank you, Claus. Thank you. Our next question comes from Peter Exley from Morgan Stanley. Please go ahead. Thanks very much. Hi, guys. 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? If not, how much incremental capacity do you think you'd have spare into 2022? 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%-12% local currency growth is driven by new capacity coming online this year, new volume, so we can get an understanding of your underlying market growth? The third question is, how easy is it to squeeze incremental volume out of your footprint? Is your asset base such that you actually have to make quite large investments on a go-forward basis, or can we think about squeezing out an incremental 3%-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. We are confined in what we release. Fundamentally, when we look at the stone wool plant, over the last three, four years, we have worked very systematically on raising the maximum capacity of the plants quite significantly without big investments. That's a 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 years, and there's still some more to do. On the new capacity, the ones coming on, Germany 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. U.K., somewhere in between, but we almost doubled the capacity there. Those are the ones we have been doing, and they are there now. We are doing in China, we're moving one factory, and that doesn't really increase our capacity, but we have capacity in China. It's not a core market. 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. 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. We have been very good at getting more out of our plants. I guess that's as much as I can say on those questions. You're not going to give us any detail on how much of the 10-12 is new volumes? Come again on that one. Your guidance this year of 10%-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? No, we are the only company in this industry that talk about countries, so we don't give it. It is 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. 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. We take out shifts if there's not the demand just in a season, we take out shifts in some of our existing factories. We don't track sort of what is new capacity, what is not, or what is existing capacity. Okay. If demand stays where it is, or if your 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? We often have an overlapping footprint. It's not like Neuburg in Southern Germany is a factory that makes a product that no one else can do. It might have some products that way. Our objective with the Southern Germany factory has been to ramp it up to full capacity as soon as we can because a very, very good asset, and then we take a few other shifts off in other factories. We work with a network model where the factories are nodes, and then we have the customers spread out. We optimize the network. 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 up. We brought some capacity home to Croatia, and that capacity we use in Italy. You see? It's 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. Yeah. Just so you know, 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 manager run the factory, but we optimize the whole network. Good. Next question. Our last question comes from Pierre Rousseau from Barclays. Please go ahead. Yes. Thank you, everyone. The first question would be on the pricing strategy. It seems that your competitors have high inflation. It seems that you have one, two years of good demand growth. 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 conservative. 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 and some cost inflation, if you have any quantification of the margin impact of the one-offs this year, that would be helpful. Thank you. Okay. Pierre, I take the pricing and I hand the margin one because a lot of it is startup cost and depreciation and loading levels. Kim will take that. On the pricing, we have talked about the drumbeat pricing module approach over the last five, six years. We have done that some years a bit more, some years, every year something, we try to reflect the margin order. There is absolutely an opportunity to walk out and increase the price. I think I could increase the price with a high percentage if I wanted, get it to the bottom line this year. My objective, Pierre, is a drumbeat pricing with a clear logic to how we price the fact that every year we come with a price increase reflecting inflation and the market value of the product. That is how we see it. 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. I'm not interested in raising the price with DKK 100 million one year and bring it to the bottom line and say, "Great pricing." The next year, I have every customer in Europe feeling that I exploited the situation. That's the difference. In some materials and industries, you work in one way, and how I feel we should work with Rockwool is that way. That means that sometimes I've gone out and done a 2%-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. This year, I don't think the challenge is to make price increases. I think it's to be a good supplier and do an appropriate price increase. That's how I see it. Okay, over to Kim on the margin. 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 in our early guidance said that from the Neuburg plant and from the Ranson plant, there will be additional depreciation very close to one percentage point of sales. I think even in the February call, we even quantified it around EUR 25 million-EUR 30 million additional depreciation for the full year. Of course, the Ranson plant would only come online in the third quarter. You'll only see that impact in the second half of the year. Then we've also said, and that's the same thing, the situation hasn't changed, that there are startup costs both on Neuburg and for Ranson that is a one-off in the first period where you start up. We've also quantified that earlier to approximately a half a percentage point margin impact. 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. Okay, understood. You're not seeing a lot of extra costs from bottlenecks like freight or the low inventories or? No, they have been incorporated in our margin guidance already. Okay. 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 in Q1 we have a very strong margin again. Is that the new kind of level that we should expect from you going forward? The margin in Q1 was really good. Kim and I target what we guided. 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. 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 quarters. Quite frankly, we don't calculate to that level because we know roughly what's going to happen, and we feel confident that that guidance will hold, 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 end point and the total for the year will be. That's how we steer it. I wouldn't comment the next quarter 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, Pia. Thank you. There appears to be no further questions, so I'll hand over back to the speakers for any final remarks. Thank you. Please be informed that on eighth June, the Rockwool Group will hold the next investor conference call dedicated to ESG topics. Thank you for joining today's earnings call. Hi, everyone