Hello to everyone, and with a little bit of suspense, I welcome you to ROCKWOOL A/S's Conference Call regarding the Results for the Full Year and Fourth Quarter of 2025. My name is Kim Junge Andersen. I'm the CFO of ROCKWOOL A/S. Today, I'm pleased to present CEO Jes Munk Hansen. For the first part of this call, all participants will be in a listening-only mode. As a reminder, this conference call is being recorded.
First, Jes will go through the presentation and give an update on the results for the full year and fourth quarter of 2025. Afterwards, we'll be ready to answer all your questions. Before I hand over the word to Jes, I must ask you to notice slide number two, which is a forward-looking statement. Please be aware that this presentation contains certain uncertainties. Now, we can go to the next slide, which is slide number three. Jes, I now hand over the word to you.
Thank you, Kim, and good morning to everyone. I start on slide number three. Overall, we consider the full year result to be positive, and the full year revenue increased by 1.1% in local currencies, slightly above expectations, due to a good finish to the year. Acquisitions made back in October 2024 accounted for 1.2% of growth. The group revenue grew around 3%, 2.7%, to be exact, excluding the Russian business. As you all are very aware of, on 13 January this year, Russian authorities installed external administration on our four factories in the country, thereby taking control of the business there. Consequently, the value of the net assets and liabilities related to the Russian subsidiaries of EUR 392 million was written down to zero in 2025.
For more information about the financial performance of the Russian subsidiaries, please refer to note 1.5 in the annual report. Moreover, at the end of this presentation, we have prepared an extra slide with the numbers to help you establish full transparency on this event, and we will walk through that at the end of the presentation. The EBIT margin before the Russian value adjustment ended at 14.7%, down 2.8 percentage points. Of that amount, the Russian performance accounted for around 1 percentage points, and additionally, one-offs, including 2 factory closures and the Flumroc incident, also contributed to the margin decline with about 0.6 percentage points. We maintained good pricing discipline and benefited from stable input costs. On the other side, we invested heavily in several areas, including capacity expansion, decarbonization, and digitalization. Overall, we find a good.
is a good result, given the very challenging market conditions in 2025. Further, on slide four, group revenue, excluding Russia, increased 2%, mainly driven by North America, South Europe, and our OEM business and ROCKWOO. We're pleased to inform that production is again up and running at the Flumroc factory in Switzerland. And I can confirm that the incident was not related to fundamental E-melt design or proprietary technologies. The production incident did, however, affect overall revenue growth in Switzerland. The Q4 EBIT margin ended at 11.8%, excluding the Russian value adjustment. The Q4 EBIT margin was negatively affected by the Flumroc incident with around EUR 4 million, and the decision to close the oldest of our two factories in China with around EUR 15 million in impact. Slide five, that talks to the full year revenue.
Total revenue in 2025, excluding acquisitions, was broadly in line with 2024 in local currencies. As noted on the previous slide, excluding Russia, revenue grew 3% in local currencies. Price increases accounted for about half of the growth. And then to a change in our segment split. Before we move on and talk about the segment performance, it's important to note that we have changed our segment reporting. Our full North America is now managed under the North American Insulation business, and Lapinus has been allocated to another Insulation business, namely our OEM. The changes reflect market structures as Insulation and ROCKWOOL North America share overlapping customers and channels. And in practice, Lapinus operated as an OEM business, and therefore now is consolidated into our OEM business within Insulation, also called Core Solutions.
As a result, around EUR 140 million of revenue has been reclassified from Systems segment to Insulation segment. All quarterly figures have been restated accordingly and can be found in our annual report. Insulation segment grew 3.4% in local currencies, excluding Russia. There was solid revenue growth in North America, as well as in Eastern and Southern Europe. This was offset by low single-digit decline in our main markets, namely France and Germany. The Systems division delivered a fairly stable top line in 2025, despite a challenging market. Rockpanel delivered a solid growth, where Rockfon Europe and Asia remained stable. While our Grodan business declined, mainly due to a weaker cannabis market in North America. And I'm just looking at the technicians to make sure that everything is good. Yeah, thank you. Slide number 6.
Group revenue increased 2% in the quarter, excluding Russia. Insulation revenue grew 2.1% in local currencies, excluding Russia, and growth was driven by the insulation business in North America, our OEM business in particular. Revenue decreased in the UK and Switzerland due to the Flumroc incident, pulled the numbers down. In the systems segment, the year ended on a positive note, with revenue growth of 1% and a good commercial momentum going into 2026. Rockfon Europe Asia and Rockpanel performed well, while revenue in the Grodan declined. Let's take a look at our regions for the quarter. In Western Europe, revenue declined with half a percentage points. The good growth in Southern Europe was offset by market driven decline in the UK, and a production stoppage, as mentioned in Switzerland.
In the United States, we continue with good growth in Q4, while the Canadian sales improved after having some difficult quarters. In Eastern Europe, revenue grew 4%, excluding Russia, with solid growth in Poland, in Hungary, and in Romania. In Asia, revenue declined 5%. Sales in China, Thailand, and Malaysia decreased, while Japan and our important Indian market continued to grow despite the Indian factories being in a sold-out situation. A few comments on our profitability in Q4 on Slide 8. The margin in the quarter were impacted by several large developments. First of all, the China factory closure and the Flumroc incident had 2 percentage points negative impact, while the lower performance in Russia had a negative impact of around 1 percentage points on our EBIT margin in the quarter.
Regarding China, due to the dramatic industry overcapacity and a systematic or systemic unattractive construction market, we decided in December to close the oldest of our two factories in China as part of optimizing our footprint. In addition, the factory was coke-fueled and facing sustainability investments that were not economically viable in the current Chinese market. The closure resulted in a restructuring provision and impairment of the assets of EUR 15 million. The Flumroc incident caused a lengthy production stop. While stopped, products in the Swiss markets were sourced from other ROCKWOOL factories, although with reduced profitability. The incident has in total cost a loss of around EUR 19 million, of which EUR 15 million has already been covered by insurance in 2025.
The continued slowdown in Russia also had a significant impact, which was partly offset by continued deflation on raw materials and moderate tactical sales price increases. Let's look at the profitability by business segment for the quarter. Looking at profitability by segment, EBIT margins in insulation was down 5 percentage points compared to last year, impacted by the closures, as just mentioned in China, the Flumroc production incident, and a slowdown in Russia. In addition, it should be noted that the comparison numbers from last year include the EUR 8 million gain from the sale of the Baltimore warehouse back in Q4 2024. In the systems segments, EBIT margin decreased two percentage points, mainly due to lower sales to the cannabis market in North America, higher depreciation following recent capacity investments, and limited ability to pass on prices in an increasingly competitive environment.
A quick look at our investments for the quarter, where our biggest investments in Q4 related to the construction of new factories in the United States and India, as well as the second production line in Romania, and of course, our expansion of our technical insulation production line in Marshall, in the US. The sustainability investments mainly related to the conversion to electric melting technology for two production lines, one in the Netherlands and one in France. Moving to cash flow on page eleven for the quarter, the net debt, the net debt position landed at EUR 168 million, mainly due to loss of cash in Russia of EUR 243 million. Free cash flow decreased EUR 13 million compared to the same quarter last year, mainly lower, due to lower earnings, a less favorable working capital development, and higher investments.
The negative development in working capital was mainly due to planned stock building, as well as timing differences in other receivables related to VAT and prepayments. This time, we have added a few more talking points to our sustainability in connection with, of course, wrapping up the 2025 achievements. So slide number 12. Starting with our most important, which is safety, which remains our top priority at Rockwool, with, of course, having an aim of zero fatalities and zero serious accidents. However, during 2025, two fatalities were reported from our Russian business. A place where we, of course, have no insights on exactly what has happened and have had no chance to follow up on these incidents. In addition, in the group, we have had 5 serious incidents.
Nevertheless, we still have improved the overall lost time incident rate, though we clearly still have more work to be done on our safety performance. Another sustainability measures we are progressing very well, both on the SDG-related goals with baseline year 2015, and you see that here in the left column, and the science-based target related Scope one and two, with 2019 as a baseline year, and you see that here in column on the right. The most important thing today is to highlight on the SDG side is our Scope one and two, CO2 emission intensity goals. That is emission per ton produced. You see them on the top of the left of the slide. We set our original goals back in 2016, with a target year of 2030.
We have actually, in fact, met the original goal way ahead of schedule in 2024, and that's why we now have raised our ambition levels. What you see on the slide is hence the new goal: to reduce our CO2 emission, a ton of stone wool, also called intensity, produced by 50% in 2034. We'll come back to that on the next slide. We're on track with the remaining SDG-related goals, though we did not- we did actually, in fact, use more water in 2025 due to using less recycled and less reused water, as well as increased cleaning and maintenance activities. And now to the SBTi side, the science-based target side. To the right, you see on the slide, we also updated in 2025, our scope and methodology of how to measure Scope three emissions.
As a result of this more refined approach, we now report an increase in Scope three emissions, though the 2034 targets remain the same, the same. And importantly, we are confident that we will meet that target. Then we have an extra slide on decarbonization and our commitments and ratings on slide 13. Just to elaborate a little further on our sustainability performance last year, let me highlight a few special, specific developments, then also talk about why this is important to us. On the decarbonization front, I spoke on the previous slide about having achieved the original emission intensity reduction goal ahead of schedule, and thus having set an even higher goal. Another development, group management's short-term incentive are now also linked directly to the decarbonization progress. And there's more on the strong commitment front.
We also increased our ambition level on the absolute emission reduction target, and we're now committing to aligning with the stricter 1.5 degree emission reduction pathway from the previous well below 2 degree pathway. We'll submit, we have submitted the updated plan for the science-based target validation during this year. And just to remind, the well below 2 degrees reduction plan was also validated by SBTi. Further, we will also submit a net zero by 2050 commitment for SBTi validation for the first time, and this will also happen this year. A little bit about ratings, and, we come to our improved ratings, and we're very pleased to have achieved, A minus rating from CDP on both areas where we report, and this is climate change and water security.
This rating improvement reflects both stronger operational performance as well as transparency, better transparency in our reporting. So all in all, we're very pleased to get this additional recognition for our efforts. Just to sum it up, we continue to making substantial sustainability investments, both because it's good for the climate and importantly, because it is being very good for our business. Investing in electrification, in new binders, and other efficiencies, makes us stronger and more competitive in the market. And very critically, there's a direct correlation between our decarbonization efforts and better environmental performance declarations on our products, the so-called EPDs. So yes, it's very much about competitiveness and about business value, as it is about doing the right thing for the climate. And this is why our sustainability investments remain a very high priority for us.
That was for 2025 and a little bit already on 2026 on sustainability, but let's look at the outlook for 2026 on page 15. Just to state the obvious, this outlook is excluding the Russian business. In 2026, we see a slight positive outlook, but with regional differences. Construction activity in Europe is still expected to be relatively low, and we expect to see continued pressures in parts of Eastern Europe and Canada. On the other hand, the United States continue to offer solid long-term growth potentials, and we see selective opportunities driven by EU renovation and demand for non-combustible insulation. Across the business, markets are generally stable to flat, with pockets of growth, and we expect prices increases in line with inflation to support ongoing investments in capacity, sustainability, and market expansion.
With this in mind, and recognizing that it's still early in the construction season, we look out for 2026 revenue to be between 2%-4% growth in local currencies, compared to 2025 revenue of EUR 3.616 billion, excluding Russia. Excluding Russia-related matters, the group EBIT margin for 2025 was 14%, with most businesses performing well despite the challenging conditions. In 2026, we expect sales prices to balance input costs and inflation, while increasing spending on capacity expansion, electrification, and sales and marketing. That will raise the cost base, resulting in an expected EBIT margin between 13% and 14%. Lastly, our investment levels. Major 2026 investments will include capacity expansion in India, Romania, and the United States. These are ongoing projects.
Then also acquisition of land for further manufacturing sites, and then importantly, the restart of the French factory project following clarification of the building license. We're also pursuing large factory conversions to electric melting and expect sustainability investments to remain relatively high. In total, investments are expected to be around EUR 650 million in 2026, excluding acquisitions. This concludes the normal set of slides, and then we have prepared one extra slide, two actually, that Kim will make a few comments on in order to help you with transparency on the Russian situation.
Yeah. Thank you very much, Jes. And, if I go to slide number 16, which is sort of the traditional slide with quarterly results and full year results, you can see that we have, for your benefit, added in a line with EBIT before value adjustments of the Russian business. And if you go to slide number 17, we have prepared what we will consider as a fair comparison for 2026, the 2025 numbers, excluding Russian-related matters. What does that mean? That means we have taken the 2025 result and excluded the financial performance of our subsidiaries in Russia
and the donations for the Ukraine Reconstruction Fund, and the reversal of that liability we had in the parent company. So I hope you will find this useful in your analysis of both 2025 and 2026. Thank you very much. We are now ready to start questions, and please try to contain yourself with two questions at a time, and then we'll see how many we can manage to squeeze in in this half an hour. Thank you.
Thank you. We will now begin the Q&A session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up the handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two at this time. We will pause momentarily to assemble our roster. Please note, please restrict to two questions per participant. We take the first question from the line of Ben Rada Martin from Goldman Sachs. Please go ahead.
Hi, good morning, Jes and Kim. Thanks for the questions today. I just had two, please. My first is on the 2026 margins. You highlighted, I guess, some of the investments you're making on the cost side this year, you know, speaking about new capacity, electrification, sales, and marketing. What kind of investment would that drive in terms of basis points in your margin this year? I'm just interested in, I guess, bridging the gap between the 14% margin you did ex-Russia and D&A in 2025.
And the 13%-14%, you're guiding this year with a reasonable backdrop in terms of organic growth. And then the second one would just be on the CapEx envelope for this year as well. You mentioned that a portion of it will be tied to new land acquisitions. Can you maybe talk about the regions that you're interested in looking at, and any geographies in particular that you have kind of earmarked for future factories? Thank you.
To the first, it's a plethora of activities that drive extra cost. But mainly it is additional engineers for our many factory builds and conversions, and that drives the cost in the start. But in addition to that, we're also spending a significant resource on digitalization of the company, which is very much around our productivity measures. We have a whole program called Factory of the Future that requires more digitalization. And then last but not least, very important efforts in sales and marketing, also very much driven about modern sales tools. So those are the big categories. I can't give you the... I won't give you the exact numbers.
When it comes to additional capacity expansion, as you know, we already have announced 7 factories right now, 5 in Europe, 1 in India, and 1 in North America. The next areas we are looking at is additional capacity in India, where I mentioned before, we are in a sold out situation, and we are looking also for the next factory in the U.S., simply from the perspective that there's so much market to convert from competing insulation products to stone wool.
Great. Thank you.
Thank you. We take the next question from the line of Anders Christian Preetzmann from Danske Bank. Please go ahead.
Yes, hello. Yes, and Kim, thank you for taking my questions as well. Just going back to the CapEx here, I mean, you previously communicated that CapEx going forward would be in the range of around 13%-14% of sales. But with your new guidance on EUR 650 million for 2026, that's quite above that range, even including the Russian business. So is this level of CapEx representative for the rate going forward into 2027 as well? Or should we expect then a lower or even more elevated CapEx for 2027? That's my first question. My second question is, in addition to the elevated CapEx level, can you please share some thoughts on your capital distribution policy? Would you perhaps consider adjusting your capital structure to allow for, say, a new share buyback program, or are you content right now with the current payout levels? Thank you very much.
Yeah. Thank you very much, Anders. On the CapEx, it's true that the original guidance was a higher CapEx rate of net sales. That, of course, was at a time when we also had the Russia business inside. I think it's fair to say that with the programs that we have started up now, this will also, you can say, carry forward into the years beyond. As you know, we are opening up the first of the seven factories that we have lined up here in 2026. That's the one in India that has the least CapEx, because the next one is in Romania in 2027, and followed by both the TI insulation and the US factory in 2028.
The ones we are talking about is coming after that. So there will be sort of a continued long-term plan of investments. We have not yet guided on CapEx levels after 2026, but it will be at a higher level than in the past. On the capital distribution structure, there is no plans. We will continue to adhere to our dividend policies of paying at least one third of net profit, and we will, I know the board will use the share buyback as an ad hoc tool to channel excess cash back to shareholders when you can say they feel the time is right for this.
All right. Thank you very much.
Thank you. The next question comes from the line of Anna Schumacher from BNP Paribas. Please go ahead.
Hi, everyone, and thank you for taking my questions. Again, I have a couple on the CapEx. So, could you provide a bit more of a specific breakdown of the EUR 650 million investment? For example, how is it split between growth, maintenance, and decarbonization, and which one is driving the large backlog? Secondly, as it links, but in this week, I guess, with the EU closely since the regulation surrounding ETS and slow down the reduction in free allowances, how could this change a regulation impact you? And would it make you reconsider the pace and/or size of your decarbonization investments in the coming years?
Anna, we had a little bit of hard time hearing you acoustically. I think we got the first question. Do you mind repeating the second one? We-
Yeah, sorry. So the second question was that there's been some news this week suggesting that EU could loosen some regulations surrounding ETS and possibly slow the reduction in free allowances. How would this change in regulation impact you? And would it make you reconsider the cadence or size of your decarbonization investments in the coming years?
Yeah, let me try to give you an answer for this one here. On the breakdown of the CapEx amount of EUR 650 million, most of the increase will be in what we call capacity investments, giving the many new build days. We have continued investment in sustainability, and we will invest at least EUR 100 million in that annually for quite a number of years. And then we have our normal maintenance level. So, but most of the increase will be capacity related.
On ETS scheme, as you know, we have allowances on our balance sheet that can cover us for some years, and we are following this closely. I think it make good sense for EU to try to extend some of these periods because there are so many constraints in converting. Yeah, I think our conversion is not so much driven by this ETS scheme, rather than it's driven by other good business business reasons and our sustainability commitments. Thank you.
That's great. Thank you.
Thank you. We take the next question from the line of Chase Coughlan from Van Lanschot Kempen. Please go ahead.
Yep. Hi, good morning, everyone. Just a question regarding the electric furnaces. You mentioned that of course, there's a business element here, and I think you could make your, your products more competitive, but just from an economic standpoint and a margin standpoint, could you give any more details around the comparison in OpEx costs between, say, natural gas furnace and electric furnace in terms of energy, or is there a difference in labor standpoint? Just for sort of my, my understanding.
Yeah, but there, there's several elements to it, but the installations we've done so far are in themselves good business cases, and competitive from a manufacturing perspective from that. I missed your question about the labor. There's not a big labor difference between the different technologies to be noted, if you thought there was a different structure on that. So I would say they are very competitive, and we also, of course, select conversions where we see that it makes sense from a financial perspective. It does influence our decision, which factory we convert first, if we have access to the grid, what the infrastructure costs are to get access to the grid, and of course, also, keeping an eye on the electricity prices in the area.
So, A nd then there is the other one, which is this, the most important is that the demand for products with low footprints are definitely accelerating. So this is a competitiveness issue from a product standpoint of view, the so-called EPDs, Environmental Performance Declarations. And this is what is important to us, that we are competitive with the most premier product, not only in the usual qualities, but also on the environmental footprint side.
Okay. No, that's very, that's very helpful. And then my second question, regarding obviously the, the big step-up in CapEx, and now, you know, you, you sort of lost control of the, the relatively high cash generating Russian business, how do you view sort of your debt profile at the moment? How much can you draw down, let's say, and you still feel comfortable with within the one times covenant, especially given you have this large expected cash out associated with, with CapEx this year?
Yeah. Hey, Chase, it's Kim here. We are still quite confident that we can ... and there is no plans to do that, to keep within that leverage of 1x EBITDA, and that's still the plan. We, as you know, we are even outside of the Russian business, we are quite rich in cash generation, and the plans that we have allows us to keep within that coverage.
Okay, perfect. Thank you, gentlemen.
Thank you. The next question comes from the line of Alexander Craeymeersch from Kepler Cheuvreux. Please go ahead.
Good morning. Thank you for the presentation and taking my questions. So on the 2026 outlook, I just want to come back on that comment on the increasing sales and marketing as a percentage of sales in 2026. I'm just wondering, like, why, in a year where we expect volume growth, why don't you expect some operating leverage? Second question would be on, you mentioned in the annual report that you see increased competition for Rockpanel. I'm just wondering whether this is increased competition coming from fibre-based cores or stone wool cores. If you could just highlight that. And then the third question is just to double-check something. The Russian activity was 100% insulation activity, correct? So those are the three questions. Thank you for taking that.
I think that was three questions. I was just kind of thinking of writing down while you were talking. Sorry, as I might return to your third question. So, operating leverage, yes, I mean, the growth is still moderate out there, and a lot of our investments, as you know, are longer term. It takes us 4-5 years to build a factory. So you do encounter not only CapEx, but also cost, before you have a factory, not just up and running, but at a capacity that contributes positively.
So it takes more than that to create operating leverage in the short run. But we are, as you know, both investing in capacity and in sales capabilities and digitalization, as I mentioned before. But it is all about being more, having higher productivity and competitiveness. The Rockpanel question, so you a little bit hard to hear. Did you ask about which specific competitors we encounter or? Not totally sure.
Yeah. Where are you seeing the increased competition from? Is it from peers, is it stone wool, Owens, or something else, you know?
The increased competition we're seeing is not so much on the Rockpanel side, actually, even though there are new entrants, for instance, in Europe. It is more on the Rockfon side of the systems business, where there's been increased competitiveness. Not so many offices being renovated as we'd like to see, and that, of course, just increases the pressure in the market. Notable also, Knauf has opened a factory, and they, of course, also trying to gain some share in this market.
Okay. Thank you. Then the one. The last one was just to confirm something, that the Russian activity was 100% insulation segment, correct?
Yes. That was only insulation. Yes.
Thank you.
Thank you. The next question comes from the line of Zaim Beekawa from J.P. Morgan. Please go ahead.
Morning. Thanks for taking my questions. The first one is just on the margin guide of 13%-14%. Can you just sort of depict what gets us to the top end versus the bottom? And then secondly, in the US, where demand is going to exceed capacity, what do you think that means for pricing in the region? Could this be above the drum beat 1%-3%, and actually more high single digit? And actually, if I can sneak one more in, is just on the hedging actions you've taken for 2026 on the energy front. Thank you.
It's true, it's super early in the year to become more precise on the margins, so I won't do that. US pricing, we have plans for how to handle the situations where we could be in a sold-out situation. We have capacity available other places that we can supply into the market, and that we will do tactically also just to keep momentum and serve our customers. How the pricing exactly looks for going forward, I don't know yet. But, of course, you can just study the price points in the U.S. building materials industry in general are very robust, and has also been a market that has been, let me call it, more rational about price increases than, for instance, the Europe market that is more fragmented and sporadic in its pricing. That's as close as I can get to it.
On the energy hedging for 2026, I can inform you that we have covered about 75% of the gas and electricity for the first two quarters and 50% for the third quarter. And then, as you know, we have this quarterly price setting for foundry coke. That means we have fixed the prices for quarter one.
Sorry, can I confirm? That was 75% for Q1 and Q2?
Yes.
Yeah. Thank you.
Thank you. We take the next question from the line of Pujarini Ghosh from Bernstein. Please go ahead.
Hi. Thanks for taking my question. So my first question is a little bit looking into the PNL of Russia. So previously you had announced it was around EUR 78 million for 2025, and in today's presentation, thanks for the details, we see that your group net income was around, was EUR 457 million for 2025, and excluding Russia, it's EUR 357 million. So on the net income line, the delta seems to be around EUR 81 million.
So please explain a little bit on why the impact on the net income line has been more than the EBIT. I mean, maybe we're getting we're missing something here. So that's the first question. And the second question is on your pricing increase. So you just announced, or, highlighted that, you know, for 2026, you expect pricing to be in line with inflation. So how does that compare to the 1%-3%, you know, drum beat pricing increase that you normally would adhere to? Thanks.
Yeah, I'll take the first one. The, the, the 78 million is the, is the, result for, or the EBIT for, for the full year. And as you know, in Russia, we had quite, large amount of cash, sitting there on the banks, and, there's quite a high interest rate, that you earn on that cash. So that's the reason for that the delta on the net income is higher.
And on the pricing side, I think it fits quite well with our usual drum beat to cover inflation with the price increases in the range of 1-3. Price increases, however, are very different from market to market. What we're talking about here is an average for the world. It varies greatly, and we are sophisticated enough to handle pricing, of course, also by market and competitive situation.
Great, thank you. Could you explain a bit more, like, which markets could potentially see higher pricing?
No, we don't give that kind of data points.
Okay, thank you.
Thank you. We take the next question from the line of Kristian Tornøe Johansen from SEB. Please go ahead.
Yes, thank you. Two questions from my side. First, on the CapEx, I appreciate this fit into the three focus, sustainability, maintenance, and capacity. Could you talk a bit about your return requirements for these three kinds of investments? I mean, what return on invested capital are you assuming for the three various kinds of investment? And then my second question is on the guidance, you can say, on this deliberate choice to increase your cost base to capture the potential of renovation activity in Europe. So I'm just curious on your visibility on this pickup in demand. Has anything changed? Do you think you are better at this position now than you were 12 months ago? If you could just expand a bit on that one as well. Thank you.
Yeah, thank you, Christian. For the categories of the CapEx amount, we have sort of a general rule of thumb. On the capacity-related investments, we have sort of a threshold of 15% return on invested capital, pre-tax. On the sustainability investments, we allow up to 8 years of payback. And then maintenance is typically a shorter payback period, much shorter payback period than that. So that's sort of our general rule.
I will comment on the investments and the renovation wave that is mainly in Europe. I think it's super important to say that by far, most of our investments and activities are not driven only by the logic of the renovation wave. We're fairly conservative in our expectations of when what will come. So the factories that we have decided, for instance, in Europe, are underlying increase in capacity demand, and not yet by the renovation wave. The same, of course, for Asia and for the U.S.
When it comes to the renovation wave, we have, of course, also noted, not surprisingly, that the political system in Brussels and also particularly in the local countries is taking the time it takes, so to say. However, we are following them closely, and it is in May that the EPBD, the transposition of the rule sets, has to be effectuated in the countries, and we see the first countries being in place and ready. But we must say we're also conservative and don't expect much out of those, you can say, regulatory-driven growth pockets in 2026. So our plans are not based on that that will materialize in great deal.
Understood. Thank you.
Thank you. The next question comes from the line of Cedar Ekblom from Morgan Stanley. Please go ahead.
Good morning, gentlemen. One question from me. North America presents a great opportunity. Can you walk us through how the economics will stack once we have the ramp? What sort of margins and return on capital you expect, and how you're go-to-market strategy versus distributors and large contractors? I assume the latter is direct. Thank you.
We had a little bit of a hard time hearing you acoustically, but I understood you would like to know a little bit more about the opportunities in the US and how we go to market. I think I also heard you asking for specific numbers. The specific numbers we don't disclose, on the US level, other than the ones we showed on the slide. But the opportunity in the US is converting the categories from glass and foam into stone. So we are not depending on, you could say, the activity level in construction industry in the US very much, because we come from a very low level of market share, a couple of percentage points, where we in most other markets, including Canada, have significantly higher market share, with stone wool....
So, it is a true conversion of categories from those two I mentioned into stone wool, and appreciation by customers that the qualities of stone wool, and I'm not going to list them all here today, but particularly the fire capabilities, non-combustibility of stone wool is increasingly appreciated in the U.S. So it is really, as a strategy of conversion, it's a strategy of expansion, and that includes some of the elements you mentioned. It's about setting up the right distribution in wholesale and in retail, I should note, where we are absolutely present in the big box, namely, Lowe’s and Home Depot. You will find us in most of their addresses, but setting up the wholesale distribution channels also in states where we are not present today, and that's why we have quite a lot of capacity, opportunity, and growth opportunity ahead of us.
Okay, thank you.
Thank you. The next question comes from the line of Allison Sun from Bank of America. Please go ahead.
Hi, good morning. I have two questions. So first is on the, the market outlook. I think you mentioned that Canada is probably still expected to be weak throughout 2026, and Eastern Europe, you're expecting sales to decline by single digit number. I mean, if you could tell us if high or low single digit number would be great. But is it fair to say you are mostly expecting the Western Europe to recover and the plus a solid market growth in the US to drive up the sales? Is that a fair comment? The first question. I will ask the second question after this one. Thank you.
Yeah, now you almost took me around the world. That was many I need to comment on, but let me try to take it from the West. We do see that Canada is somewhat stabilizing right now, but it's an industry, the... Sorry, construction industry market area that is really hard hit and heavily influenced by the ongoing tariff and just in general political environment with the US. Canada is like a huge geography, so we have territories in Canada that are up. So you can see activity going up in Quebec, but the very important Ontario area that has driven growth and investment, namely in automotive and data centers, is down. So it's a nuanced picture. It has stabilized, but we don't see a lot of upside in the year.
If I go to Europe, again, I think I said it also in the last call, the picture of having a Southern Europe in good shape, with growth and development, namely, countries like Spain, Italy, all the way over to Romania, with strong growth rates, strong activity levels, developing nicely. And then, the two big markets, France and Germany, where we had decline last year, also being somewhat lethargic, still struggling with getting some of the programs that they have announced, getting them activated. France just announced a row of initiatives that should play favorable into this year. And Germany, you've heard about the funds that they have at least announced, now more than a year ago, but we're still waiting to see them in the market. So it is also a very nuanced picture in Europe.
Okay, thank you. My second question is a big nuance. I think the sweet bar fire that happened in New Year, I saw there are some news with the photos that saying the Rockwool products are potentially involved. I mean, I don't know if you have any comment or color you can add, because we should think of Rockwool's products is non-combustible. Thank you.
We know very little of what has happened. We have of course also registered that there are some pictures that I believe are all the way back from 2015 circulating on the internet, where our brand is on the pictures. Those are from 2015. We have not been contacted by the authorities yet. And I don't know more than what you just said about this terrible tragedy at this point in time.
Okay, thank you.
Thank you. We take the next question from the line of Julian Radlinger from UBS. Please go ahead.
Yeah, thanks very much, guys. Hey, so first of all, getting back to the French tax incentives that you just mentioned, I'd love your thoughts on what you think the effect of that could be on, on new build and, or on renovation. I think a lot of people are trying to figure out whether this could be something that re ally gets demand going, and, and I'm sure you guys have looked at that more closely.
And then my second question is, talking about the UK market specifically. So within Europe, it seems like that's the market that'll see the some of the most capacity additions in 2026 and 2027. Specifically from your competitors, and then you're adding more capacity yourself, I think, in 2028 or 2029. Is there a risk at all of maybe some temporary overcapacity at all in that market, just because of how much capacity is coming in there in the next few years? Thank you very much.
Yes, two a little bit speculative questions and also answered. But France, of course, we are also trying to understand exactly what this will mean to the market and to us. Similar to other political statements, there can be a difference between what is stated and the effect it takes out in the market. However, France has been quite effective and good at, or historically, we have seen, working with the so-called white certificates, fairly executable programs, not too bureaucratic. And I must say, we see some positives in these new programs, but we don't have enough detail yet to actually trying to convert that into, you can say, real growth expectations.
But of course, it's positive that they're leaning into it, and that they are setting up these programs that they have had success in the past. Regarding capacity, we are not. Of course, we monitor that. I would say many of the things that you've mentioned have been announced, but where we haven't seen actually buildup of capacity yet. And as you also know, our products don't travel very far, so it is very local, whether or not there's a surplus or lack of capacity. So you really have to dissect it by country and most often also by product category. But we're sticking to our plans. We don't see anything that will, you know, dramatically change the trajectory that we are on right now.
Got it. Thanks very much.
Thank you. We take the next question from the line of Yassine Touahri, from Onfield Investment Research. Please go ahead.
Morning. Thank you for taking my question. First of all, regarding your 2026 EBIT margin guidance, are there any material one-off items we should be thinking about? And then second question: so in Q3, you'd flagged an incident in Switzerland and reduced efficiencies across some factories. Have you identified the underlying root causes? Could you maybe describe them? And what, what concrete measures are you putting in place to prevent similar disruptions from going forward?
Let me comment on the incident in the factory. We know very, very well what went wrong. And it just, I can narrow it down to a particular valve that failed, a mechanical installation that regulates the flow of the lava, the melt, you know, if you've seen pictures of our production. It was a mechanical error, and the redundant measures were not strong enough to take over. So it's been a fairly, you can say, very specific issue, and an issue that has been easy to correct from an engineering perspective. And we have, of course, gone back in our own footprint to ensure that the proper dimensions have been upgraded and that redundancy measures are in place. There was no big need to, for instance, change standard operating procedures or the like, but that was the driver of it.
Yeah, and just to come back on the margin outlook, we do not, we have not included any one-off, i.e., that we have not, for instance, included a forecast at any donation for the Ukraine Reconstruction Fund.
All right. Very helpful. Thank you.
Thank you. We take the next question from the line of Pierre Rousseau from Barclays.
Hello, gentlemen. Thank you for the presentation. Maybe just a quick follow-up on planned capacity additions for the other European factories. So, you know, the four remaining, excluding Romania. Are you able to provide a slightly more precise timeline at this stage? And in particular, for the French plant, which was permitted end of last year. And then, second quick question would be on labor inflation into 2026. What are your expectations there, please? Thank you.
Yeah, but like Kim said before, what we can share with you is that the next factory opening will be next summer in India, in Chennai. Sorry, this summer in India, in Chennai. And then, 12 months later, it will be the Romanian factory, where we have adding a line to our existing facilities. Those are the ones we can give you specific dates on, yeah. Will you take the labor inflation? I can also do it. The labor inflation on a group level, we see around 3%.
Understood. Thank you.
Thank you. Ladies and gentlemen, this concludes our Q&A session. I would like to turn the conference back over to the management for their closing comments.
Yes, Jes Munk Hansen and I, Kim Junge Andersen, thank you for joining today's earnings call. We would like to thank you for all your questions and the audience for listening in on today's call. We appreciate your interest in ROCKWOOL A/S. If you have further questions, please feel free to reach out to me. You may find ROCKWOOL contact details in our investor section on our corporate website. Thank you very much. Have a very nice day.