Earnings Call: Q4 2020

Feb 10, 2021

Welcome to the conference call regarding Rockwell International's results for the full year of 2020. My name is Thomas Hager. I'm Director of Group Treasury and Investor Relations of Rockwell International. I'm here together with CEO, Jens Bergelsen and CFO, Kimi Jorgen Amersen. First, Jens Hirchen will go through our presentation and give you an update on the results for the full year Q4 of 2020. Afterwards, We'll be ready to answer all your good questions. Before I hand over the words to Jens Nielsen, I must ask you to notice Slide number 2, which is the forward looking statement. Please be aware that this presentation contains uncertainties. Now we can go to the next slide, which is Slide number 3. James Petersen, I will now hand over the words to you. Okay. Good morning, everyone. While we look at the numbers For the year, I was going to try to frame how we entered the crisis, where we are now and how I look at the year. So We'll start with the top line for the year. We saw COVID-nineteen start to impact us at the end of Q1 in 2020, we landed on a 1% growth in Q1. And then In the Q2, we were up like for like currencies, minus 16% in Q3, minus 2%. And then with the announcement that we did yesterday in Q4, we came in at about 2% growth like for like. We saw from somewhere around end of Q2, Q3 that the dollar started to weaken and also the ruble, And we had a bigger difference between reported currency and like for like. But in like for like, the kind of worst it was in Q2. Moving through the year, we took the approach with we paid an all time high dividend. We did a share buyback. We also did a normal salary increase to our people, and we took an approach of Not panicking, but to adapt capacities, obviously, we reduced travel. We did some restructuring because we saw A crisis that impacted the markets very, very differently. We only have some factory shutdowns basically in Q2. And after that, The world has pretty much realized that you could keep the building industry and the construction projects going. So I'm very happy with how our focus on keeping the employees safe, Adapting capacity to the demand and at all times delivering to our customers We honor that. And I could also see that during the years when we did the customer service that And sorry that our NPS score increased again for the 6th to 5th year in a row. So that's all good. In the business, we had some ups and down, big variance, but I guess the biggest highlight was the system division or system segment where it kept improving during the year. Around the last quarter, we were up 50 almost 50 Santo, maybe. If you then look at the balance sheet, we went into the year net debt free, And we came out of it in spite of all what we did during the year, also net debt free. So we have shown, I think, both Resilience and Agility. If we then go back and so was there something positive in the crisis? There have been a number of positive things. We obviously had to shift people to home office. That in some respect, I'm convinced it reduces productivity. It makes collaboration and creativity Less, it reduces that. But we could use the time to do things. For example, we did a lot of investment in Preparing e commerce, rolling that out. So we have upped our percentage of e commerce business. The PIM system, product information modeling, we have really, really done a lot of work. And we have, for example, Provided a lot of customer training during the year. And all of that were things that maybe normally we wouldn't have time to do it all. From a sales perspective, we did okay because we had already prepared inside sales. So we had the functionality in the business, And that has helped us a lot in terms of selling and answering to quotations. And at no times in any business did we focus on Government subsidies. Even if there was a remote chance that the customer needed an order, we didn't shut down to go after subsidies. And There were some cases, for example, in the U. K. Where we saw business drop with 98%. And one would have thought It's a good thing to go after subsidy and shut down the factory. We didn't do that on the week after we had quite good business. And we kept delivering, kept quoting. We never went into further. So that's the way we approached it. If then look at the wider macro perspective, I had said or I have said several times that a financial crisis or a crash or something That could be good for us because it might increase the focus on the need to change something in the world to deliver On the climate goals, for example, the Paris climate goals. And I, of course, have a mission that it will be a virus pandemic. But so instead of a financial crisis or adjustment, we got the situation where Before COVID-nineteen, we have been preaching energy efficiency is Necessity to deliver on the Paris goal and any below 1.5 or 2 degrees C scenario, That's kind of proven. But when we now look where we stand after the crisis and towards the end of it, it's not over yet, is that The awareness, so the EU has put, let's talk mostly about the EU, dollars 1,000,000,000,000 or euros 2,000,000,000,000 in Green restart or stimulus or call it what you want, but unheard of numbers, €1,000,000,000 to €2,000,000,000,000 I think the number is €1,800,000,000,000 And the awareness now that you need to go after energy renovation, there is a backlog of energy renovation that is Needed. And it's also something that generates the highest number of local jobs Per euro spent, that insight and the amount of press and messaging and understanding of that A second increase. And when we look into the going forward, obviously, that's a Possible thing. So even though we would have loved not to have the year as we had, very happy with the way we operate, keeping people safe, Not rocking the ball too much, and I think the crisis is has and is helping to reinforce what we believe very much in Energy Efficiency, renovation, using less is an absolutely necessity to deliver on the climate goals. If we then move on to the quarter, nothing much to comment on it. We have had If you just look at we ended up with a growth, which we are very pleased with, obviously, the Systems division pulling most of that. Inspiration and Student Pro. But on the profitability from a profitability perspective, Both EBIT margin and EBITA margin increased. And on the cash side, we We're very active on reducing inventories, never sit on extra inventories that cost a little bit of EBIT at the beginning of the year where we Took inventory down, but we paid back on cash. And we have also seen that we have been very good at paying sub The fires throughout really been strict on that we pay. We don't want to cause problems. But I should also say that our customers have paid us, And we haven't seen an increase in defaults or anything like that. So good sound business without panic. Let's move on to the sales. If we look at the sales, I guess the highlight is the system business. And there you saw some segments. Obviously, in Rockford, for example, office renovations of acoustic ceilings maybe didn't Go up, but then hospitals and schools increased. The growth and business have been doing good. Automotive started to come back towards the end of the year for Lappeenr. Generally, we have seen good developments, We have also seen some growth in some of our innovations in the system division. So that's that was quite pleasing. On the installation, There isn't anything that has surprised us what has happened. And we come back a little bit to the regions and the Chris later in this presentation. Move to the next. In Q4, Obviously, the growth in systems continued, and the Cover of installation was maybe a little bit slower than we expected. And when we run kind of down the country list, and I don't want to go into Too many countries. It's clear that, for example, France started up after Q2. And then Q4, The market stumbled a little bit. The white certificate process didn't seem to have Real momentum, it didn't really come up as quick as we expected. Poland also, It's recovered, but still a negative territory in Germany also, to give a few examples. So just a little bit Slow to restart maybe than we expected. ParaFon in Sweden, we've done the integration is complete. It has gone really, really well. It's not a huge one, but it's a very good addition to our footprint in the Nordics. And we are super happy to have this very competent group of people in the group. Move to the next slide. I guess highlights here would be that Russia, after a bit of initial COVID-nineteen challenges then recovered quickly and we had a really good year there. And then North America, all time high. And in the U. S, we This is the residential segment that is brewing, flat roof, facade installation, the non Amazon and logistics center business, sure, We don't see a lot happening there that might change, but the residential side of things is going really, really well. When we move over to Asia, I will say South Asia has been suppressed. I haven't really gotten out of it, and China has jumped a little bit Up and down, and now I think they are more on the up. But they came out of it, started to grow, then they went So out during the year and then up again, but now I suspect China is now in the Gulf territory all the time. Yes. So if you could move on to Slide 8. The profitability, I hear that nothing much has happened. I think it's Worth to note that the EBITDA margin has held up absolutely well. And on the EBIT, We had if you look at the full year in 2019, we had the Riga settlement in the U. S. If you add that back, we have actually almost the same EBIT margins everywhere. And in Q4, With the growth of 3.7%, we increased EBIT with 6%. So it was a very good Quarter in like for like currencies, I actually don't think we ever had the bigger quarter than Q4. And that's not normal for us But we have a Q4 that is among the biggest quarters in the year. And our Q4 this year was really, really strong. Profit was Probably the biggest one we recorded in the quarter and the top line in like for like currencies also really big, if not the best. Move on to Slide 9. Considering if we go into Systems, I mean, almost 50% profit improvement, nice mix, Growth, productivity, costs down, it all plays together. We also price is up there a little bit, Not dramatic, but could help the price increases. And then on Insulation, when you look at The EBIT considering the top line development and moving there from 11.5 Percent to 11% EBIT margin is we are happy with that. We have managed to reduce cost. And when you look over the year, our operational efficiency improvement in spite of taking out shifts, So adding ships and doing all these reductions during the year, we have delivered on our Plan on operational efficiency and cost savings improvement in spite of lower volumes. And That's good work by our operational teams. Slide 10, Quite frankly, it has been quite difficult to execute on some of these projects. In Norway, We started up the most the Oslo, the Moss smelter, new technology, probably the biggest electrical master for Stonewall in the world. We started that up Towards the end of December, and we had people in quarantine from across Europe sitting several weeks in small hotels with a special government approval. And then we got it up and running, and it's already running full steam. And a lot of extra procedures, It costs a bit more to do it, but I'm super happy and super proud of what our teams Achieved between Christmas and New Year, some how that plant runs. On North America, in Norway, we have kept Going, we have a lot of other investments. But fundamentally, in North America, even though site activities never stopped, We lost a bit of time in North America on the project, and now the start up is in around midyear. So it cost us more, and that means some of the CapEx we wanted to spend this year in North America Went over to or we wanted to spend in 2020. It has gone over to 2021. Should say also the new factory that we really wanted to start because we are On the supply constraints now in the U. S. Because it's a phenomenal market. Slide 11, Nothing really to comment. You can read what it says. Careful networking capital Management. But at more time have we taken out too much inventory. We have always focused on deliveries. But during Q2, we didn't want to sit on too much cash. On the share buyback program, We did that during the year. We completed it, and it worked out nice. The return on it By closure, it was something like 46%, and we kept buying straight through corona. And I've heard that we were the only company that did the share buyback. And I think it was good timing. I thought you have buyback program. It was also very well executed. We Never hesitate to go through the whole thing. If you then go to the outlook, start with the sales. We have had said now 3% to 5% growth. But we read from there, I mentioned the plus 1%, minus 16 minuteus 2 and plus 2 percentages by quarter. We have obviously a bit of a tough winter now, But underlying demand is good. So for H1, first half year with the visibility we have, Yes, certainly, even though we have more corona probably in this period and also more cases of corona In this period than we had last year, the world has gotten more used to it. So we are optimistic that we would get out of the year With the H1 that is growing because Q2 will not be a repeat of what it was last year. And then for the second half We have not speculated on whether more countries would manage to do what The Italians have done that put the scheme in place, that the world class, that just absolutely created the boom in the business and got Given the money on the ground, creating a tremendous buoyant market, we are not counting on that anyone else will We managed to do that. That could be something that happens. And we haven't tried to speculate by what time The level of vaccination will be so high that we can all step out of our cages and behave normal again. We don't speculate on that. So we have done a forecast where we think 3% to 5%. That's really the most realistic with what we know today and when we Move through the year. On that level, though, we, of course, have healthy productivity. It's a A much easier situation to manage than having 1 quarter down with 16%. On the EBIT margin, We have 11% as the guidance, and I've seen a lot of comments on that. And how the reason here is that On the fundamental contribution margin and cash generation margin, we have One one off. We see business will continue to grow. We don't see massive changes. Yes, we have some segments with higher price pressure, but we have other segments Where we are increasing prices. We have a situation that is roughly stable. What we have factored in is that with the new jumbo line in Norberg And also with now the last half year of the ransom factory completion that we hire all the people, we obviously don't Produce anything in it, we add all the cost. And when these lines will not be full, so that we'll be running on very low Output this year, I mean, especially Ransom starts midyear, testing our products, getting them in the market. You have a lot of cost. You have manning. So that gives about 0.5 percentage margin impact On a run rate basis for the full year, the calendar year. And that again, if you take EBITDA margin plusminus0.3% or Down 0.5%. It's marginal. It's just part of building 2 big factories. And then when we move down To EBIT, you see this with 1.5%, but we have the 0.5% that I just explained. We have another percentage point of revenue, and that is purely noncash depreciation. It's depreciation of assets we build or have built. Moss is in there. Obviously, the ransom is starting to go on and the plant in Southern Germany is in there. It's there, and that's a percentage point. So the underlying cash generation of the business is roughly where it was, and we're talking half a percentage point difference. Then we get into the investments, what how do we reason about the investments. And if you look at that, what that covers, We have we are building due to the development in Wokforma that has been planned. And we are planning for relatively large investment in Vodafone this year. So I think in the last 3 years, we haven't had an investment of that magnitude in Logfone. We need that because we need more capacity And we need to invest now. We also see that the forecast For the CapEx this year around EUR 400,000,000, we landed from EUR 360,000,000. So there is about a €40,000,000 CapEx that kind of goes into next year because we simply were not able to execute. U. S. Is the main factor in there, but some projects we just had to drop, and that's why we got down to 360. We never set an ambition because of corona to reduce the 400. Nothing of the assumptions of those investments that we had in that forecast have changed Due to corona. So this is just a move. And then we have another aspect on the SEK 370,000,000 CapEx. And that is in China, we have a government grant to move our factory. We really built a new factory, but there's a big, big ramp of almost SEK 40,000,000. And there is most of the CapEx that we're going to spend on that factory will fall into 2021, But then it's mismatched with the grant because we get more than 50% of the grant the year after, and that also inflates A little bit on CapEx. So that's the story on CapEx. So we have had some increases in CapEx due to corona. It was more expensive to bid some of these things because we didn't want to stop during corona. And when the market now comes back, we would need this capacity, especially in the U. S. Where our delivery times at the moment are longer than we want them to be. Okay? With that, I hand over for questions. Thank you. Haver. Our first question comes from Christian Johansen from Danske Bank. Please go ahead. Yes, thank you. A couple of questions for me. So First is on systems where your Q4 results is pretty amazing. So first of all, is there any One offs in these results. And if not, is there any reason why we shouldn't expect similar margin levels to continue in the coming quarters? I think we had it's not a one off in terms of making a gain Or anything like that, we don't have that. So it's no legal case or windfall. But you had, I would say that margin is a bit artificially high. It's all sound business that It's in there. But after corona, it just happened in Q4 that all the high margin business when they kick Start, they all came at the same time. So the most profitable part of the portfolio in almost every type Of System Division. That business came. So it was a mix shift with just a rich mix In several of the system division units. So I don't want to we have a new manager coming in running this business there from Maybe Q2. I'm still involved in that for a bit, but I don't want to set the expectation that you're going to be up on that Q4 EBIT margin, that's not what I see. I don't see those businesses go away, but it was kind of a The business was not quite there, so Simon, then it just flooded in, in the same quarter and we delivered it. Okay. So is this based on what you can see in the beginning of Q1 that the margin is normal? No, I haven't I don't sit in the under Andrew. We look at the overall business. So I don't make a prediction, but I'll say Q4 was 50% jump in profitability, that doesn't happen every quarter. It's just Not that way. We had low travel. We had High level of productivity because we had restructured a little bit. We had also hired some new salespeople and built up some things Okay. Volumes at that time were higher than before. There were many, many things that play together, and we had a rich mix. So I think we can Explain where it goes. There are no surprises, but I don't predict that rich mix in every quarter. No, I don't. Understood. Then second question is on these startup costs on your new factories. So can you just maybe remind us How much did you have in start up costs in 2020? And just to clarify, when you say that it dilutes margin by 0.5 percentage point, That is the net difference of having higher start up costs in 2021 versus 2020. Hi, Christian. Kim here. It is we had start up cost in 2020 as well from the German factory, but not as much as we expect in 2021 with the German and the U. S. Actually combined. So the net difference is the 0.5% we're talking about. Understood. And then my last question, you state that you saw low positive Price increases in Q4 in most markets. But what was the ever since? Because then I guess there are also Markets and businesses where prices are not going up. So what's the overall impact from prices in Q4? And where is it that you see this pricing? Yes. I we saw a very small effect, very small effect of prices, And it depends what you compare with where the Q4 against Q4, Q4 against average, but in both cases, A very minor effect. Understood. And then on the second part, where does the price dilution come from? Yes. So what you can see is that in it depends what part of it. But if you look at North America, for example, Shortest of product, big price development, then the system division, Normal drumbeat pricing, most of the insulation business, normal drumbeat pricing. And then the project businesses, flat roof, epics, Sandwich panels, more price pressure, yes, because those projects is not the type of business that have been growing now. That Businesses are under the Industrial segment on that side. I would say, ethics has gone Quite well. The market seems to be developing now, starting up due to, I guess, energy efficiency or delay projects. But That is the area. So that's the same as we said at the last call, exactly the same area. And then on top of that, if you look at the raw material side of things, we have seen Raw materials go down. And therefore, when we are done, the price increase we have done, the price increase in 2020, We felt during corona that to go with the second increase rather, Cover our market shares through a sensible small increase in the business that moderates it and And not increase a lot from this year, but I'm not sure if it's for that. Okay. If I just may follow-up. So it sounds like you're seeing a demand driven pressure on prices in sort of the Commercial and Industrial segments. I mean, what's your sense on how much this is driven by companies holding back on investments Due to COVID-nineteen uncertainty and obviously, if COVID-nineteen hopefully goes away, should we expect this to It's Paul. Supply and demand driven pricing. So you have you could have competitors that shut down and suddenly starts up, and then they want to have projects and they go over after projects. And then you have demand where, obviously, the Tesla factory that's going ahead, Amazon and such Thanks. I don't know if you noticed, but when you order now e commerce over the web, at least where I live, the deliveries now are near instant. I mean the whole of it. So I think there are investments there. I think public buildings, Schools, hospitals, we see good. But then on the office side and in other industrial side, It's quite hard to see what's going. I would predict offices will continue to be slow for a while, But it's very hard to see a clear, clear pattern other than the common sense view that All the businesses, other than the one I mentioned, they don't really invest. Understood. Thank you so much, Thomas Hara. Thanks, Christian. Our next question comes from Yves Broglenhead from Exane. Please go ahead. Hi, good morning, gentlemen. A few questions on my side. Just reading through your annual reports, you provide some nice information on Hager. As far as I can sort of come to my conclusion, It seems that you're confident on Russia, the UK and the U. S, probably also on a grow down in some new development in the systems, Add a bit of pricing and it does seem that maybe for Western Europe and Eastern Europe you're a bit more cautious. If you could just provide a bit of color on that, that would be great. I'll jump to my next questions 1 by 1, if that's okay with you. Yes. So I think that's exactly it. I mean, while we see Italy come up very quickly, If we mentioned in the deck France, Germany, Poland, a little bit slower in the start, I think fundamentally, for example, in France, the demand is really good, but the wide certificate scheme After the shutdown, I cannot come up fully. So I think it's exactly that, but we still need to see A full recovery in those markets in Insulation, yes. The Nordics, as you know, UK It's all good. And then it can be very different. I won't tell you what, but in Benelux, we have seen the countries jump around and One country doing really, really well and another country in the Benadox battling. So But in those big countries, France, Germany and Poland, still think we have a bit before It's truly just back up again. Okay. Any news in Europe? Sorry, I'm with you. It was Bad connection there. It's a mixed picture. I mean, some of the markets we are absolutely sold out and now there's You see declines. So it's I don't want to go through, but for example, Romania, we're doing really, really well With a new factory. And then it's like every second country there, you see a mixed picture. Okay. Maybe just jumping on to my second question regarding competitive dynamics. I think the last time you spoke to the market, There was a bit of a change in the strategy from trying to always go after price increases to maybe covering your market share and protecting those Market shares. Have you seen anything different? What is your sense as you start 2021? How do you think about the competitive dynamics in Europe playing out for Rockwell would be really interesting to understand? I think the story still Fitz, and it's going to be dependent. Fundamentally, I think that the capacity increases, It's a 3% CAGR in Insulation. I think that's needed for the market. And then it's a matter of the Quickness of the restart. So I think we can count on competitive dynamics It is similar to what we saw. I won't say it has been dramatic in any way, but it's certainly in the project business Segments where you have that mix of industrial buildings that might not invest the number of projects. So and there we have seen some segment like analytics where business has been running really, really well because somehow In the Energy Efficiency OIBDA, that started off a flat roof has been more up and down. So it's the same story. And I think we need to see what happens in France, Germany and the other markets, how that progresses, The market is recovering. And my final question, thanks again. Just last one on The installation industry dynamics, when we look at what the governments are saying, although I understand that we don't have the industrial Gail, for now, it does look like wood insulation, hemp insulation, cotton and whatever Is remaking a strong story with a lot of governments trying to push industrials to invest in this year and a lot of your Competitors are actually doubling capacity, for example, in wood insulation. Do you fear that the overall insulation market is going to become Competitive in the next few years and the market shares will change? I think if you look at what we have great appreciation from, we are just Working on circularity, we are the only ones being able to offer that. I think fire resilience is really, really there. And maybe wood insulation is another type of insulation that might take some share from the plastic forms. But you still have this longevity and the chemicals in it to keep it long term and the moisture and pro and cons. So I think you will see a drift from plastic foam because as soon as you take Scope 3 Emissions, end of life, then plastic foam is not a good thing. And while wood insulation, you could say, is embedded captured carbon in it that You put into a wall, but you still need that installation to last for a long time. So I don't see dramatic shifts, But I think you can expect cellulose and wood insulation to be a material because At face value, when you listen to the story, sounds very credible and a good thing, but I think we did the main winner here at Stoltenholm. Would you ever consider investing in Wood Wool if it became a bigger topic? I say like this, I never say never, so don't write now that we are looking at acquisitions, but We, of course, study and look at this. I can tell you one thing. I would never ever invest in plastic foam insulation, that I guarantee But yes, we still need to learn more about it and understand how it works and the long term effects. At the moment, we are very busy with our strong results. Thank you so much for responding to my questions. Thanks. Thank you. Can I please ask all participants to limit themselves to 2 questions Harber? Our next question comes from Jayash Sohayar from HSBC. Please go ahead. Thank you. Good morning, gentlemen. I have 2 as well. So the first one is on Your guidance, you helpfully provided that you have a little more visibility in H1 for H1 compared to H2. So can you please help us split that due to Piper's lifelike sales into how you're looking for H1 and what it implies for H2? And within that, if you can give us what's your price expectation for this year? Okay. So Bidesh, I'll take that. So I don't Want to go into quarterly guidance. It's very hard. As you know, we don't sit with the backlog. But I'm just Maybe with our guidance, I just want to signal that I don't see a Q2 that is minus 16%. I think The world has learned. That was a shock reaction to the COVID-nineteen. So that's gone. So my visibility is such that I believe that we get into Good business down to the summer with corona still there. And then I have not been able to I see no reason to quantify a corona free and what the implication is of all the factors for the autumn. So Kim and I have reflected that in putting like a 3% to 5% growth perspective. And when you run your spreadsheets, If you Q1 is often a smaller quarter in of our 4th quarters. So that almost whatever you put there and then You neutralize or do something with Q2. You end up in a range where 3% to 5%, depending Whether some growth is coming back in the second half year, and that's what we try to reflect Based on what we know. And then it could be better, but I think it's a very realistic forecast we have put now. Then on the price expectations, we have a bit of inflation coming. So we definitely want to have a price increase to cover inflation. And there are many segments where the price increases are out, and then we have a question mark on those Segments where we applied it. So we have been moderate about our price expectations and the outlook we have this year. So we have risk and deflation, and we haven't put a big pass in. But I should say, we have launched price increases in We're not the majority of the business already. So but the percentage What we land on, I would predict a slight price increases here, depending on how quick the market develops. Okay. Thank you. And my second question is sorry, I thought I lost the second question as well. Thank you. Okay. Your third question then, Biyesh. Okay. Apologies if that was We give you one extra today, okay? Thank you very much. Appreciate it. So the second one is on the UK market. We have seen quite a bit News flow around it, obviously, the Ghentel tower inquiry is going on. So there's a lot more noise about cladding, It's been put in the historical buildings. So the government is in the process of putting a system in place. So Really, I want to see I mean, you have historically talked about a real shift and a significant rise in your Products. But have you seen any further change in that trend in the last couple of months, probably when the Grenzal Taur inquiry started? Have you seen people really I mean in terms Yes. Yes. I mean I think we have had a Very good business. We had a month where the furlough and all the rest, but We had a really good year in the UK again. And the debate and the discussion and this whole liability Perspective between people that have apartments that you can't even insure and who pays the bill and doesn't go back to that whole discussion Reinforces the trend, you have quite a bit of work, I predict, to replace Plastic Foam Insulation and Highrises. And then the question is, okay, is it? You have all sorts of punishment being discussed. The way we see it, we think that our growth for non combustible, that will continue, But I doubt that the market can cope with much more growth than you have. We see the continued growth, but the extra measures and the discussion is adding at the end of it, so we can see it for a long time Because I think just a matter of executing more, the growth and the pace that is being done now is Pretty good pace, and we are quite happy with it. So I don't expect in the year that then suddenly the growth doubles because I suspect that there are labor constraints and installation constraints and also to figure out who pays. But we have seen it in the mid- and high rises now, even mid rises and multiunit housing that For the RadCorp, certainly, people go the non combustible route. So if there is a doubt, They say, okay, let's go save because of this couple of percentage higher cost maybe to go walk forward and they do. Is that okay answer, Briege? Yes, that's great. Thank you very much. Okay. Thank you. Our next Question comes from Claus Almer from Nordea. Please go ahead. Thank you. Yes, sorry about going back to this pricing All demand and supply situation in Simkim. But we have talked in past calls regarding this added capacity from How do you see their behavior in the current market situation? That will be the first question. Yes, Claus, Kim here. Their behavior hasn't really changed. I think the ability to deliver to the market Has maybe not been as fast as expected. We still do not See any meaningful volume coming out of Claus factory in France. But of course, they will eventually Get a better situation there. And we do expect that in 2021, they will be more active seeking the volume into the new factory. But it has been we thought also that the autumn period would have been affected by this additional capacity by cloud, but it wasn't really that we again, We expect every high season now we have the next is the spring season, and we expect them to be ready for the spring season. Okay. Then the second question, I really couldn't hear what you said about Q1, but my question goes to if you look at the inventory End of 2020, I guess that's around it down by something like 10% year over year. Does that reflect Your thoughts about Q1 or is more a stronger Q4 or how should we think about the trend in the inventory? We are set remember last year with the inventory, there was A couple of special effects. The year before, we had this extra 2019, we added extra storage buildings. So and we did away with that, and we have worked a bit on our replenishment flow to be able to run with a bit less inventory. So those are taking away some of them. And in North America, quite low ones. In North America, we simply ran out of We solved it, yes. And now we need a new factory. And in the meantime, we need to keep selling what we have. And then You have the effect of Norway where we had 2 or 3 football fields of inventory To cover the shutdown where we did the transition to the new electrical melter, and that's what took us Through to year end, so you saw that inventory disappear by truckloads every hour, and that also impact. So I would say, with the exception of that we look forward to get a new factory in North America, Inventory levels are okay everywhere, okay? Sure. Okay. And then about the CapEx, I understand what you're saying about the CapEx for 20 21. And I know you're not giving guidance for 2022, but should we expect guidance to normalize, if you can use that word, Beyond 2021 or should we expect this, let's call it high level or should continue after 2021? There is no guidance for beyond 2021. And but the thing is, if you look at the split between maintenance and capacity Investments this year, you will see there's still quite a high level of capacity investment. And of course, that will continue in 2021 with the factory in Vanssen. But after that, we announced something differently, then that will deduced by significantly. Okay. Thanks. Thank you. Our next question comes from Antares Kropiov from ABG. Please go ahead. Super, thank you very much. Maybe a question here on the prices again. In your outlook for 2021 on Page 15, you report, You say that higher input costs, which you expect to go through, can be compensated by operational efficiency and cost saving. At the same time, you mentioned in Q4 low positive sales price impact in Q4. Are you saying here that prices are a little bit more difficult to get Drew in these current markets. Yes. Laud, it's exactly that, that System Division, Many of the segments, the distribution businesses, all of that's going, Russia, You have many, many normal markets, I would say. Yes, the vast majority of the market are normal. But then, As I said, with the project business into the industrial segment, there We have said that we're going to put priority on market share preservation, and we have not projected In our outlook, we are ready to kind of preserve our market share. And there you're talking flat roof, Ethics yes, and it's a limited geography. So limited geography. So that's In our thinking and it's the same story that we talked about last, there's no change to that. So the answer is For the majority of the business, there is actually no change if we look at the top line, but there are segments where We're going to be on high alert for until we see that the market has recovered. And another thing to follow-up, that's also what we put here, these the Operation Excellence Program. We have talked about these crossing programs that we've been running. And we did see last year Some good benefit, as Jens Olof said earlier, despite the disruption in manufacturing. And we also expect this year to have good cost saving And these improvements are Bigger than these are big numbers that we don't disclose them, but we have been very successful with that. And that means that As a business, we are successful in becoming more competitive. That's very clear. Then my second question, I think, is particular to you, Jens, it's in regards to how you weight the new capacity and your sustainable CapEx. Because you once again say in your report that there's 100 times CO2 multiple benefit in using Stonewall versus CO2 in producing it. And the EU targets these 3% renovation rates by 2,030 currently at 0.3% and maintaining that to 2,050. So that requires a lot of Capacity, would you say instead of using your CapEx within sustainable issues, scope 1 and scope 2, wouldn't it be much better to, let's say, For the world's CO2 reduction, for you actually to produce as much volume as possible until 2,030. Yes. I think this is if you look into there are two sides of the story. So our footprint on how much CO2, we emit when we produce a ton. And we're talking Big CO2 emissions are then a fantastic payback. But in the way the world has developed, We can't just be a fossil fuel based business and say we save the world so we can behave in any way. So We have announced the SPTs, and we are one of the early companies that committed on science based targets Where we say that our scope 1 and 2 would go down with 38%, and then we said 20% on scope 3. That means a third Of our absolute emissions, and you could imagine, if you take a third of our absolute emissions In 2019, we're going to take away. That means that we need to take out a lot more emissions Because we have growth also. These are absolute targets, and we are growing the business. And then one would say, okay, as a Short term capital is the best would be to just build new factories, capacity investment, I don't care about that because the factor 1 to 100, who cares? And So we have validated our targets. We have committed them. And if you look into my RSU, our 5 year RSU, we even put in the CO2 target there To just show that we are serious about it, and we need to balance this. So what we do now, we did the biogas. We were already the only company in the world that commenced on with gas. Now we do it with biogas in Denmark. We started up the melter in Norway. It's the biggest electrical melter for stone in the world, and it works great. Yes. So there are 2 things. On the one hand, we need to have the new technologies. And there are other areas you can act on in the plant So that when we build a new plant, it can be clean from the beginning, I mean, with a lower CO2. You can never be perfectly clean because we are melting stone. But So we on the one hand, we need to have the technologies ready and work on that. But we see it as a risk for the business if we don't make a long term commitment To put some serious money into making this transition. And yes, in the short term, if you look at the year, we could have Kept doing business in Norway with the plant we had. Now we dropped our CO2 emissions with more than 80%. But the combination of Norway, we're talking Donsse, Vandrop and Moss, we have lowered our CO2. We have improved our The EPD for our product in the Nordic region, we dropped it in 1.70% CO2 across the Nordic region. We also see it as our duty as the leader in the industry to lead the way on that. And we think we can balance this with really good returns And the growth and improving the footprint. And that's the balance, and that's the art of what we are doing going forward. And we're still working On some quite heavy R and D. We haven't reduced in our R and D parts on here. We are increasing our R and D efforts not dramatically, but we keep working Because we believe that's the future of Stonewall. It needs to be a circular product. We offer that scheme already in Europe, and it needs to have And even better CO2 footprint, Scope 1, 2 and 3. So we balance this. But you're right, the short term, If you just were in a Stonewall business for 3 years, even in 2,034, If you make the forecast for the CO2 price, let's assume today is €30, €40, let's assume it's €90, Compare that to fuel transition project, that's peanuts. Yes, it improves the payback to not pay that, But we are talking quite big investment. Building a new melter with all the hardware around it is expensive, and we need to balance these two dimensions. But I'm convinced that we, as the leader in the industry, need to have the best emission footprint in the industry. That's our goal. So let's follow-up on that conversation another day. Have a great day and congratulations on your results. Thank you. Thank you. Our next question comes from Xingu from Unfield. Please go ahead. Apologies. It appears that Syncrus is disconnected. Can I please confirm? Our next question is from Manish Beria From Societe Generale. Please go ahead. Yes. So good morning. So I'm very sorry to ask you again on the pricing side, But can you just quantify, I mean, what is the pricing pressure that you have seen in some of your project business? I mean, is it like low single Digit, mid single digit or sort of like double digit decline in pricing that you expect there? So I will say 1 by 1 maybe. So Manish, as all the other players A mineral wall that we compete with are not disclosing any of this. We see it as competitive Information. And therefore, we are very poor at quantifying this, very, very poor. But our goal is still and we still have it With the services and the products and the quality we have, we still have a premium in those Segments. We are not talking about Rockwell being cheaper than the other somewhat competitors. We have a premium product and a premium offering, and that's what we're but sometimes we need to adjust it so that we are not Quite as much more. But if you look at the building side, when you start up the site, For example, if a customer wants to have many small deliveries of the right product at the right Our when they start the building site, we are very happy to do that. We are very happy to do it with 17 products Instead of just one. And so we are even though the bid is made on the project or some of these segments, it's the project bidding we are Talking about not so much the distribution segment and the diffuse segment. And we do that. So it's not a matter of us Undercutting a lot of people, but it's reducing the gap a bit and making sure we defend our market share. But I don't want to sit and say it's double digit there. And I quite frankly don't have We don't look at the business that way, but we see certain projects and we have an ambition to absolutely maintain market share, And just to confirm, like you said, okay, project business, there is some pressure, you want to protect markets here, but In the other part of the business, I mean, the pricing is up. But I heard in the call that you expect 2021 pricing Should be slightly up, still slightly up, right? So I got it right, correct. My point is that Normally, we do a couple of percent each year. I'm not a believer in 5% 10% price increases. I believe in run with pricing. I still do that. And I say that we are going for something very low. And then in the product business, Our priority is to market share, yet we want the premium for our product. So that's as much managed as I can say. And also And then on the margin Manish, one more thing. On the margin, We have actually given quite a bit of information because we have said that underlyingly, the net of all these effects, We have 2 factors, 0.5% and 1%. So we have in a way we believe with all the tools we have That the underlying profitability of the business is preserved. Yes, yes. So that's good. Also on the CapEx side, I mean, so you have laid out why the CapEx It's increasing in 2021, but you haven't talked yet, I think, about because you've talked quite a bit of Detail on the CO2 reduction, the long term target, but you haven't talked about the CapEx associated with that. So if you can quantify in 2021, how much It's also due to sustainability maybe Yes. We have never guided for CapEx multiple years. It's an aspect we need to take with us, Kim and I, because I see you ask us all the time. And we need to think about that. But at the moment, we don't guide. We have given some guidance on to cover certain growth, How much do you need to invest per year? There is I don't know if you have read it, I think in the 2019 report, There were some percentages of revenues and there were some links to growth. How much CapEx sustainable CapEx you need, 11% to 12% of the revenue and with that you can fuel a certain amount of growth. And then on top you have an increased Portion of sustainability investment where Moss, strictly speaking, we didn't need it for that reason, but we needed it because we didn't feel right About that old man. And we needed a new technology. So we have given some clues, but I see your request for The CapEx guidance. And maybe in a couple of years, when we have figured out this transition in more detail, we could Provide some better information there. But at the moment, we have decided not to do that, okay? So if I can add just one more. So you are now back to 11% in 2021, but I mean Yes, around 11%. I'm not saying that. I'm not saying that because this was a long cycle average. And then we're talking sustainability investments, We're talking a changing world. And then, of course, when you have 1,000,000,000,000 to 2,000,000,000,000 going into maybe energy efficiency, The plants come in big investments. It's not like we can expand capacity in Very simple, small incremental steps. And therefore, a year for a CapEx project that takes 3 years or 2 years to build It's just not the right window. It's very hard to say how much it is. Today, what we do is that We keep investing and we keep adding capacity and doing sustainability investment, and we haven't reduced Engineering Resources, and let me balance the resources between CapEx project and R and D, and we kind of sit steady of the engineers because we are, As I said many times, a tech company. Some of the work goes into CapEx, some goes into R and D, and we don't have a more accurate Fork us on that at this stage for you. Obviously, we have 1 ourselves. So I have just one more on the margins maybe like So basically, you are back to 11% margin in 2021. So just wanted to see because Knop plant has not yet started. So all the competition is not yet coming, I mean. So maybe like 2022 could also be a tough year for you in terms The margin like the competition continues maybe in 2022. Yes. Manish, just to that metric, I don't see the 11% as a tough year. I don't want the 1% depreciation I want the North American plant to start up so that I can sell more. The EBITDA margin is impacted by 0.5% for the start up. Let's work on that year on year. Let's do the best of that. And that's because we invested the depreciation because we added capacity In Central Europe, Central Western Europe and North America, that's a good thing. Yes. Yes, I agree that. Yes. Because we are entering it's growth. We need to take care of growth and we need it's not small additions we do When we build one of those plants. It's an addition that should take 3, 4 years to fill. Yes. Thank you. Thank you so much. Okay. Thank you, Manish. I hope that helps. Our next question comes from Jing Gu from On Field. Please go ahead. Hello. Hi. Can you hear me? Hello? Yes, we can hear you. Great. Thank you for taking my question. So I have one concerning the input costs. So you said that you expect underlying profitability to be relatively stable for 2021. Appreciate the comment. But if we look at the coking coal prices, I'm just wondering what level of Coca Cola prices you factor in for your underlying profitability comment Because the market seems to think that it can go up by another 20% to around $170 to $180 Or even higher if the Chinese demand comes back later this year. So I'm just wondering what is your what are your assumptions and scenario there To achieve the stable underlying profitability comment? We do expect that there will be inflation, and we have that in our Our guidance as well. We are not sourcing from Australia as such. I think we explained in the meantime, Tim, that we do We make price agreements a quarter in advance. So we have already fixed prices for Q1 from our regular suppliers. And that is supporting our view on the assumption that we have in the outlook. Then of course, we just have to wait for the negotiation for the Q2 to see whether this situation between China and Australia Has normalized a bit. There is a bump in supply of cooking coal in the world. So it is just hopefully a matter Of the imbalance between China's decision to import and then Australia is ready to deliver that good price up in a short time. Like we saw back in 2016, it was a spike that lasted not too long. Okay. I see. Great. That's helpful. So let's say if in Q2, you see another, say, 20%, 30% closing cost price increase, you're still confident that you can pass it through via pricing negotiations in Q2? We will not go into those assumptions. We have our own sourcing assumption and that will include inflation, but it's not anything you can cordially to the spike in prices between Australia and China. I see. Okay, great. That's helpful. And then another thing is the cost saving project that you've been doing, I think starting from 2015, 2016, because it's been a couple of years. I'm just wondering for this year or even going forward, how much more cost savings can you still do? Can you maintain like a relatively stable pace or you can actually accelerate Or did you decelerate because you've been doing that for years? The cost saving and operational excellence program we talked about It was initiated 2 years ago only. We did do a special, you can say, The restructuring project in back in 2015, but that was targeted at the indirect workers. Now the The operation exchange program has been running for 2, 3 years only, and that's the benefit we are seeing now from that. We have not quantified it as such. It is quite significant. But the level of cost savings should be sustainable For the next day, 1 or 2 years? Yes, yes. Okay, great. Yes, that is. Thank you. That's very helpful. Thank you very much. Our next question comes from Michael Pietersen from SEB. Please go ahead. Hi. Thank you for taking my question. This is regarding the Systems division. You mentioned the rich mix Previously, can you maybe try to specify what type of product is this and maybe what the underlying trend is for these type of products? Yes. So we saw it, we have the growth on this well. We saw rock I'm not going well. So the right portion for the Friction business and the same in We have been able to shift the mix up also in Rockform. So it's basically both. Okay. And then maybe a second question regarding your capacity expansion. In Sweden, we currently have a property there that you're able to invest in going forward. And is that something that's in the near Horizon. The Nordics have performed quite well in the recent years. And I would argue that the production cost is higher in both Norway and Denmark where you currently supply Sweden from. So is it within the next year or 2 you'll announce your factory in Sweden? Or when can we expect that? So I can't say because the way we operated is we bought the land and we are proceeding with Permits and all the rest. And that's kind of our new philosophy how to do it. And then we push the buttons on investments And we feel the timing is right, and that's a big reason. So we wait until it's the right time, but I can confirm that we are progressing with permit applications and all the rest, but we have not taken a final decision now. We start to shovel. But that has not been done because we have this with the CapEx that there are several places In Europe and the rest of the world where one would think we need more capacity, but we need also to be a bit Careful. If we would have had an assembly business, we might have been building 3 or 4 factories or maybe if you could shift between. But Our policy is local and that makes it very tricky when you decide in the market to go with it because when you put When you start building a plant, it's also limit where you can build another plant because we don't have infinite construction resources. So no time line that I want to announce on that at this stage. But we are not we are doing permits. We are doing permits in France. That's the way we approach things. Okay, very helpful. Thank you very much. Okay. I think you have a question. That's the last questions for today. We are a little bit late now. Operator, could you please pass through, Yves? Otherwise, Yves, you can give us a call afterwards. Yes. Okay. We lost the info, this list in here. But anyhow, you take over. Yes. Please be informed that on March 19, the Rubber Group will hold the next investor conference call dedicated to the dispute topics. Thank you for joining today's session, and thank you for your good questions as well. Thank you. Thank you. Bye.