Welcome to the conference call regarding ROCKWOOL International's results for the first nine months of 2020. My name is Thomas Harder. I am Director of Group Treasury and Investor Relations of ROCKWOOL International. I am here together with CEO Jens Birgersson and CFO Kim Junge Andersen. First, Jens Birgersson will go through our presentation and give you an update on the results for the first nine months and the third quarter of 2020. Afterwards, we will be ready to answer all your good questions. Before I hand over the words to Jens Birgersson, I must ask you to notice slide number two, which is the forward-looking statement. Please be aware that this presentation contains uncertainties. Now we can go to the next slide, which is slide number three. Jens Birgersson, I will now hand over the words to you.
Okay. Thank you. Good morning, everyone. If we start slide three. I would just like to say, more important is Q3, but year-to-date, when we look at that, I want to reflect a little bit on the guidance. We are now year-to-date with 12.5 points, and we have the guidance on 12- 13. We just need to hang on to this. There's not so much left of the year, so we are well-positioned there, and then the top line mid-single digit growth with improving quarters. Also, that is well in hand. The CapEx, just to reflect a little bit on that guidance, we took it a bit low. When I go back to the CapEx later, it has been quite a challenge to keep the investments going in these times.
We have had to go through all sorts of actions to get people to site and keep construction going. We have suffered some delays due to that, and also some increased costs for some of this. Nevertheless, the overall is that we have a bit less CapEx than we expected. If we turn to slide four. We came in about 2% down like-for-like on the top line, but there was a dramatic improvement of the top line compared to Q2, up 17%. We obviously normally never talk in that way, but in this case we did, because it was a good proof point for how we navigated Q2 and Q3 combined. When we got into Q2 and we saw the very rapid decline of the top line, we didn't take any rash actions. We took shifts off. We kept delivering. We kept people safe.
Yes, we had the government lockdown also in part, but we kept operating, and that helped us, of course, now when the business came back up, that we had the ability also to deliver a 70% higher output. That was good. On the margin, it's not very much less top line, but what we saw there, obviously travel and entertainment is down. We kept working on factory improvements, cost reductions that we normally do every year, and then on top, we have kind of the natural hedge of energy prices on incoming materials that we have hedged for, because of other sectors, other industries where demand went very low and that also we benefited a bit from that on our price, incoming price. That helped us to deliver really good margin, and in spite of the lower revenue than the flat a bit.
If we look at cash flow, nothing dramatic on it, but I would say I am very happy with our organization's ability to keep making sure we get paid. We did that, and we have not done any of this nonsense of holding back payments to small suppliers. That is not our way of doing it. We do not believe that it is better for us to make their lives difficult. We've paid. Been very diligent on paying on time to make sure that our suppliers do not crash, because they are too difficult to crash. No improvement due to that whatsoever. Maybe rather the opposite. We go into slide five. There, we basically can see that the insulation business is still down. It has not come up to the same extent while we had quite a good development on the system division.
We can move on to slide six instead. What you see here is that the insulation division is still down, and when you look across the countries, we have all different patterns in different regions. I will come back to countries, but we have double-digit growth in some countries. For example, in the U.S., we have U.S. growth while Canada is still in decline. It's very patchy, and we see very different patterns. On the systems business, we see that Rockpanel, Rockfon, and Grodan, they go through this relatively untouched, and then obviously the business we have in Lapinus and say into automotive suffers a bit more. We also have had regional differences in the Rockfon. For example, Rockfon North America have had a tougher market, just the way the market reacted.
Part of that is explained by the overall U.S. trend of residential is in an absolute boom, while the commercial side of things is not moving, and that's the segment where Rockfon North America is. We have big variance from that perspective. On the insulation side also, many countries and regions doing well, but there are some segments that are more challenged. If you look, for example, at technical insulation into oil and gas and marine, especially the oil and gas side, it is a challenged segment at the moment. Regional, Western Europe, I would say the further north you come in Europe, the better it is, or with one exception, I would say. The Nordics has performed well again, including Norway. It's not big growth, but despite the extreme lockdown, somehow the business is holding up.
We go into looking down also towards the corner of Romania. Russia is doing pretty okay. The country that really stands out is Italy, where we have super growth due to the Superbonus and the scheme green restart. Germany for us, quite challenged. It's both a combination of competitive conditions with people fighting for volume in the heavy segments and also different price. Germany is still a challenged market. Russia doing okay. Romania, Hungary doing good. Poland, Czech, a bit slower in that area. The main currency effect is a bit the Polish zloty, but the main effect is the ruble that has weakened quite a lot. If you look into Asia, North America, U.S. doing well, India doing well. Canada's always a little bit more mellow and not reacting so quick down and up as the U.S.
Still in the negative territory in Q3. South Asia as a whole is quite challenged. Thailand, Malaysia, Singapore have had quite an impact on construction due to lockdowns and very, very strong measures. China doing okay, but not really growing. Which might be a little bit of a surprise to us. We thought in the previous call that China was out of it and would keep growing but haven't seen that. It's not a big business, so it's not a big impact overall, but with maybe a fourth or third would have been up in growth now. Slide eight, profitability. What you see there, obviously a good recovery in both businesses. EBITDA is up in spite of the lower top line, and I mentioned those factors before, and the EBIT margin is up also.
We have, due to that, some of our CapEx credits are a little bit delayed due to the challenges with the corona. Some depreciations haven't come in there. In terms of cash margin, the EBITDA, that's all good and healthy. Slide, what one is the next one? Nine. The insulation EBIT has come up, and there you see also some of the material costs coming in and travel and entertainment and all that obviously impact both the System division and the Insulation division. We typically during the year very seldom change transfer prices between the divisions. That means that the under absorption, over absorption, and material changes during the year, in most cases, our System will be within the Insulation. Then System score more on price and on overall volumes that they're selling, basically, in relation to their costs.
Good development on both sides. We are happy with that. Just so you know, when you have growth on systems, you don't get the same leverage because that shows up on the Insulation side . Investments activity, we haven't taken actions to slow anything down. We need the capacity in U.S. We are on that. Our forecast now is to start up somewhere around mid next year. Several hundred people on site still. Project as such on site has progressed, but it has been a lot of challenges getting people in and out of the U.S. via transit countries and quarantines and long waiting times. We also have in Norway, another project running where we are basically doing the project at the same time as the people is in some sort of quarantine in a hotel room, very restricted on site.
Challenging, but our crew is doing well and making sure we progress. Free cash flow, would really comment on that already. Net working capital fine. We haven't had any defaults on payments, and we have been good with the suppliers. The share buyback is continuing, and we haven't dropped into the debt either. Outlook, I have commented. Nothing dramatic. We just expanded, restricted a little bit the bands a little bit, but will be from about relatively confident there between 12% and 13%. Over to you for questions.
Ladies and gentlemen, if you have a question for the speakers, please press zero one. We will start with two questions per participant. Please respect this. Our first question comes from the line of Yves Bromehead from Exane BNP Paribas. Please go ahead. Your line is open.
Good morning, gentlemen. I hope you're all well. I heard a few coughing there, so I hope you're all safe and sound. Just a few questions from me. Firstly, I noticed in your report that you made some comments on competitive pressures in Europe. Equally speaking, when we look at your gross margin, they're up quite considerably, so it doesn't really seem to imply that you've suffered from it. I'm just trying to understand exactly what you're seeing and if you're concerned more on a forward-looking view or whether these pressures were offset by lower raw material prices. That's my first question.
My second one is looking ahead and I'm not necessarily trying to get your outlook for 2021, but I think we're all seeing that your raw materials are not necessarily inflating and the substitute materials, especially on the foam side, the industry has had to raise prices quite significantly. Looking ahead, is there any reason why you wouldn't be able to improve your margins even further ahead than maybe the high range of your guidance of 13% into next year? Thank you so much.
Yeah. Okay, let's start with the competitive pressure and then the margins. I will hand over to Kim. We have a slight positive net price improvement in Q3, and we have raw materials down. From that perspective, the aggregate business did fine. What we have seen, though, is that with the recent trend, if you look, for example, and U.S. is outside of this. The competitive pressures, we have a booming residential market in the U.S., and we are selling everything we are producing, and prices are good. Just as an example, in the U.S., we have seen residential really take off and the commercial segment being stuck. Basically, people don't build more car factories. Yes, Amazon is still building, but it's a big scale effect when they do it compared to when smaller players build factories.
You see this skewing of the business towards a bit more residential. That's a trend there. If you then go back to Europe, and it varies. You have neighboring countries where one is really growing and one is declining. If you look a little bit, my prediction, without giving a guidance, just an observation, I suspect that we will have residential renovation, high-rise, multi-unit, single unit, that they will have a little bit more of a boost in this, because the people staying in these houses want to invest in them, is do-it-yourself, but they also focus on residential and also residential energy efficiency. Then on the commercial side, and probably not hospitals, schools. That will still be going on the same end.
I think in normal commercial buildings, there might be a bit more pressure, and that's typical of we are selling flat roofs and sandwich panel with the material for sandwich panel. To some respect, maybe also ETICS. In that section of the heavy density products, where I foresee that we will see fewer big projects. We had a lot of big projects back in 2017, 2018. We saw a drop-off with the exception of Tesla and Amazon, but more and smaller projects and generally more hesitation. At the same time, when I look at that, I then see capacity increase in Russia from more in Poland from the Russian competitor Knauf have their French factory. We have Paroc coming online 2020. They put some capacity in the market. We might have the start of next year in Hungary of a small competitor.
All of this is more suitable for that segment. I think this combination means that we have seen some bidding from competitors that are quite low in this segment. That's what I reflect in that. We have seen some of it, and we are counteracting some of it, and some we haven't. If this goes on, I would, of course, take action to preserve our market share in those segments, and that's what I'm reflecting. Should also say the other, in light of all this, stone wool as a material, you might see the hearings now, the Grenfell hearings in the U.K. As a material, plastics is on fire, and stone wool or glass wool is, especially stone wool, circular material. I still think we're going to see a drift over to circular natural materials.
I'm very bullish on stone wool's role and growth as such, but it has attracted my investment, and that comes at the same time where I see a little bit of a slowdown in the market and, midterm, does the renovation wave impact the commercial sector equally quick when people sit and discuss whether we should have smaller offices. That's what I tried to capture with that statement. My message is that we would have to use our Neuburg capacity and then protect our share. Over to you.
Again, we will not talk obviously about 2021, but just some reflection on EBIT margin this year. This year, we had anticipated a higher level of depreciation at the start of the year. We had mainly the conversion of the oven in Norway and Moss was planned for early this year, and also, of course, the completion of the factory in Nybro. The Nybro factory did not include any depreciation in Q3, and that is only going to take place from Q4. Similarly, the Moss factory, due to corona situation, has also been delayed. There are some, you could say, some delayed or postponed depreciation from these assets that, of course, will have a full year impact next year.
Next year, as Jens said, when the factory in West Virginia is completed mid-next year, of course, in the second half, you will also see a higher level of depreciation next year. There's always a question whether the dynamics between, I think, a raw material benefit here, especially in the second half of this year, how long will that continue into the new year on one side, and then on the flip side is we have lower travel and entertainment and also lower marketing activities, and how will they rebound next year. On the other side, we know we have some initiatives to secure productivity in the year- to- come. We'll have to weigh those things up and balance and give you our best view on that in February when we do the announcement of the annual report. That was it, Yves, from our side.
That's really helpful. Maybe if I can just add a quick follow-up. Can you give us just an indication of how much extra D&A we should expect in 2021, just to have better understanding on the modeling side?
As I said, you will have to be patient until February. I mentioned the assets that is sold.
Okay. Thank you. Thank you very much.
Our next question comes from the line of Kristian Johansen from Danske Bank. Please go ahead. Your line is open.
Yes. Thank you. First question is along the same line on cost and specifically your raw material cost, which, as you mentioned, the inflation has been lower this year than what you originally expected. Is your fair assumption that as COVID-19 hopefully goes away, that cost inflation will come up next year? How does that play into the price pressure you're seeing, which does not seem COVID-19-related to the same degree? Should we expect price pressure to remain while cost inflation to go up next year? That's the first question. The second question is regarding the EU taxonomy. We saw on the draft that out on Friday that insulation products has been removed from the list. Just your view on why it has been removed, and secondly, what it means for your taxonomy eligibility.
Okay, I'll take those, Kristian. First of all, we always have that in this call about next year. Last year, we sat here this time of the year, and if I would have said then that we would have COVID-19 killing the top line for a portion of the year, that we would have all-time high stock price indices, that we would have the biggest forest fires in Australia and U.S. ever, and we would have the highest number of hurricanes, tropical storms from the hurricane season, you would have said, "You're crazy." right? So we have just put ourselves, disciplined ourselves that we give the outlook when we get to February, and I'm really sorry about that. Your assumptions are probably as good as ours, but we'd just like to limit it to when we get there.
Last year, February was too early because we didn't really know about COVID-19 in Iran, and it dramatically changed the year. I'm not going to comment that very much. Do you want to add something to the material prices?
No. I think we have touched upon it with the question from Yves. Again, let's wait until February because there are so many other moving things on the table.
On the taxonomy, just again to recap for everyone around that. The taxonomy that the EU is working on, that they have six categories, the category one for circular economy, hasn't been worked out, there is one for climate mitigation and adaptation. That means saving the planet from the climate change. If you end up in that category, that will qualify investments in that product for good purpose, that cannot impact how much money is spent on your product when people spend EU money and others. That's just a bit of background. If you start with the physics argument about this, so if you don't do insulation of buildings, you cannot meet the Paris goal. The physics of it is they can't say insulation will not play a role in this. That's just the physics of it.
When you get into this whole concept of, I'm reading here from a sheet I have, the two delegated acts. The two delegated acts are a bunch of documents that describe this. What's happening there is that insulation as a specific word has been taken out at this revision, but the whole area of insulation is included as an industry and a sector. This is work in process. When people then say, "Okay, so now we're going to take out insulation, disqualify the Paris Agreement," I would just ask for some patience. We have people interpreting this that there's actually a good thing that is not mentioned. There is a tactic to that. I will not go into the finer details. Fundamentally, I'm absolutely convinced that insulation will be eligible. Okay? Does that answer the question, Kristian?
That was quite clear, yes. Thank you.
Our next question comes from the line of Claus Almer from Nordea.
Thank you. Yeah, also a question regarding the taxonomy situation. Jens, you're right that insulation is still part of the draft paper. I guess the change is that you are not to meet a certain absolute criteria, but now to prove you're superior to other technologies. Given lambda is better for foam, the fear is at least that stone wool will be challenged by this change of wording. Is that correctly understood?
Yeah. I'm not worried at all. I'm not the least worried. Insulation stacks up fantastically against other measures. It's beat windmills and solar also from CO2 reductions. It's super good investment from a CO2 equation. When you get into this, you have Scope 1, 2, and 3. What the embedded CO2 of the plastics industry is the whole airline industry, future debt of CO2. When you start to go into the numbers and take account of circularity, you have the fire argument, longevity, and how it works in real life. Stone wool stacks up excellently, and that is without legislation today. We are growing the share of the natural materials, glass wool and stone wool already, and stone wool is attracting more investment because it works and it does the job.
When you go into this and you start to look into the melting technology of stone wool, yes, you need a little bit take care, but it lasts and it has a circularity to it. You see that it's a winner. It doesn't mean it will win every project. It won't win every project. All materials are needed. Personally, I think that plastic foam should not be in a house. We should use plastic for other things. It is a big material, too, and all of these will play a role. Okay?
Right. The link between Taxonomy and the Green Deal, and maybe even the renovation wave, how do you see that? Is there a link at all, or?
Yeah, I think there will be a link because there is such a big amount of money that you need to deploy whenever they start to deploy it. Therefore, I think that on the higher level, the bigger the money is, you need to allocate it by some categorization, and then it gets down to hundreds of thousands of small projects. I think that the Taxonomy somehow is linked, and it is good that people understand that if you invest here, it has to follow in benefits. I give an example. The fact is still, in a year, we have a factor two within the year of the CO2 reductions for the planet we do net of our production emissions. The more we produce, the better.
I think many of those things will become clearer with some of these structures, because you also look into the whole life cycle of the thing. Products that at the end of life emits as much as they emit when you produce them, that's going to be more visible as this progresses.
Right. Okay. It's just coming back, sorry about all these detailed questions, because now we talked about wind turbines and so on, but just looking insulation as such, given the things you are saying, then isn't there a risk at least that all those money will be favored by foam given their better lambda value?
No, I don't think so. You just have the hearings in all the high-rises, schools, hospitals. You have fire regulation in many countries. You have the longevity of the product. You see now, for example, in the Nordics, when you start to look into the circularity of the product, there is no circularity in that product. I think it's actually going the other way. I think it's going the other way because you can achieve.
Just continue. Sorry.
You can achieve the insulation of the building totally perfectly. You just need to make it a little bit thicker. I think the Lambda drag race, that was maybe five, six, seven years back. It's not the case. You need to look at installed performance and the whole slate of benefits of the product, and that's one of the reasons why stone wool is growing. I don't think this will come down to a simple one parameter Lambda race. You need to look into installed lifetime circularity and what it really does for the building.
I totally agree in all of that, yes. We're now only talking about taxonomy, and that seems to be quite single factor focused and so if you only look at that one.
Yeah. It's work in progress. Incredibly complex structure and too early to say, will it home in on one thing, a factor? I doubt it really.
Sorry, my second question, if that qualifies for a second question, given this competitive landscape as mentioned in the report, and there's also been a few questions regarding this is not a new message for ROCKWOOL. The situation you are mentioning in Q3, is that different from what you have talking about in the first half of this year?
No, I've said all the time that we need more stone wool because it's growing as a segment, and we like to at least keep our market share. That has been our message as the segment grows. We have invested in that, and we have invested enough to keep the capacity share of the whole thing when you look into those investments. My message maybe here is that when you see the shift, maybe over to residential and the type of assets that come aboard, you see a regional. How long that is hard to say because I don't know how the market will look next year. I just see it coming up because there are actually people switching on their capacity now in the next year, and they are starting to plan for that, and they've seen some price.
It's a regional issue. We are not talking about Russia, U.K., U.S. It's around Central Europe, Poland. That's where we see it. It's primarily heavy density.
You said you want to protect your share, which new message compared to past quarters, right?
Yeah. I think I always said that. With my pricing strategy, I've said that for five years, haven't I?
You said you want to be disciplined, and you don't want to compete on price at any cost. Now you're saying you want to protect your share. That's slightly different message than past quarters, I think. Is that correct? That is different message, right?
Yeah. Different. It's slightly different message, maybe, compared to very slightly different situation. The assets are here now. Not all of them. They are coming. The plant in France has started up. There is one more coming in Poland, one in Hungary, and now they are there. I have a market situation where in those segments, probably the demand is not growing as we had expected it, at least not now. That's the situation we have. In that respect, it's a different message because we are at a different point in time. I still, when we look at that expansion as a percentage capacity over, say, four or five years, I think all of that is needed. All of that stone wool will be needed.
Sure. Okay. Thank you so much.
Okay.
I remind you that if you want to ask a question, you will have to press zero one on your telephone keypad. Please note, we will start with two questions per participant. Our next question comes from the line of Brijesh Siya from HSBC. Please go ahead. Your line is open.
Thank you. I have two questions as well. The first one is on the end market you were talking about, a shift towards residential. Historically, you have been saying about a 50/50 end market exposure. Could you please tell us what's the current end market split looks like as that shifted materially towards residential? In relation to that, when you talk about this market share, and as well as the raw material price evolution, looking ahead into 2021, would you see a scenario like that played out in 2018 wherein you could gain market share from plastic foam? That was obviously at the backdrop of Glenfel and combination of this high MDI prices. Are you envisaging any such kind of scenario in 2021 where you could gain market share from the plastic foam producers? My second question is on the technical installation. You've been saying that the market.
Hey, Brijesh, let's take the first one because it was quite a lot of things in one question, I think. You can have the second one. I know we talked about it before this, where do our end markets, where our products go into residential versus non-residential, and we explained that many times. It is quite different region to region and market to market. As Jens said, we do see a general trend here in the COVID times that the commercial investments are maybe lower than they were before the COVID time, which could indicate that the non-residential part will not grow as much as expected. It's, again, very different region to region. Not something structurally different that we see. We cannot think about 2021 right now. Right now, we're just thinking about closing the year, and of course, planning for the coming year.
Again, Brijesh, let's come back to that in February, when we make the first outlook for 2021. Now your second question.
Okay. Thank you. Just on the technical insulation, could you remind us how big is that in proportion to your group sales?
I'm very sorry, but we don't disclose that, the individual business.
I think you also asked about this, we cannot really talk, because right now what we are saying is the competitive situations, it's mainly between stone wool players. As you said, yes, there are certain markets like in U.K. where I think the shift from other materials into stone wool is still taking place. The U.K. government is recently talking about strengthening the protection of high-rise buildings, lowering, you can say, the level from 18 m- 11 m, which, of course, would be a benefit for stone wool being the only non-combustible material that exists in the market. Those things in U.K. specifically are still happening, the shift here.
Understood. Thank you.
Our next question comes from the line of Laurits Kjaergaard from ABG. Please go ahead. Your line is open.
Super. Hi, Jens, Kim, and Thomas. I hope you're all doing well. A few questions from my side. The first one is in terms of Western Europe. I noticed that you don't mention France or the U.K. in either your statement or your presentation or your preliminary remarks. Could you just give a little bit of highlights there? Is it just completely flat relatively to last year, or what's going on there?
Yeah. Did you only have one question?
Can I ask one more time?
On the France and U.K.
Also.
Yeah.
That's my bad.
Okay. Perfect. No, France recovered quite well. It's flattish, and U.K. is already up and growing. Not dramatic, very similar. They have come out quite nicely. I think U.K. as a market has probably not come back up to the same extent, but we are doing quite well there because we didn't go into furlough. We have been quoting during Q2, and we get some benefit out of that because we've been working all the time. We never went into furlough. I think that could be. It's a little bit tricky to know what is market and what is just a recovery, and what are you doing. Are you doing better than the market, just the market, or the worse in these quarters because it's so dynamic?
I think in the U.K., the U.K. overall market has not required quite that much, but we kept working, got a couple of extra bids out during the downturn, and now we have the benefit of that temporarily.
Okay, just a follow-up question in terms of Knauf opening their factory in France. Well, it is open. Is product coming out of there? Is that what you're hearing? Also in terms of, let's say, the recovery well in France, the remark there being quite flattish performance. We're seeing more, let's say, political motivation for insulation. This gives some momentum to perhaps commercialize on your plans on building a factory in France. Just my second question in terms of depreciations, what you were talking about before, Kim, not that much extra performance here in Q3, not that much higher, relatively to, let's say, Q2. Here you mentioned there's been some postponements of both your Neuburg and your Moss factories. Could you talk about maybe Q4? Will we see quite a steep pickup there?
Is that sort of the uncertainty or the question mark relative in terms of, let's say, your guidance increase on EBIT margin? Is it mainly a question mark regarding your depreciation that you're a little bit uncertain about?
I will hand over the depreciation. We are not uncertain about depreciation at all. We know Neuburg has started up. The depreciation was starting in the next quarter after. If I take France and then Kim will talk about depreciation. France have a scheme, and it's a little bit uncertain what this 7 billion scheme means, and we have seen the white certificate. They have a scheme in play, and that is continuing now, but it's not the kind of boost that we have seen in Italy before and after COVID. Italy have added something. What we see in France so far on the ground is that it was a good market, and now they're opening up, and it's kind of coming back up. We haven't seen any effect of any additional measures.
As a market, we are positive about France because they put the focus on energy efficiency. The government have understood it. They've done all the maths. I think we are quite bullish on France as a market. The question of a plant has to do when do we need it, and then we have this between the countries. As you know, we have a piece of land. We have done a lot of engineering on that, applying for air permit, and then the precise timing and all the rest is governed by a number of factors, and also cleaning up and finishing the factories we have in progress now. The ones we are building. Depreciation, Kim.
No, there's not so much now is to follow on depreciation as Jens said. Originally, forecast included both depreciation in Q3 for Moss and Neuburg factory, and that both of them have not commenced in Q3, and they will commence in Q4 with depreciation.
Okay. Obviously, we have had quite nice weather the last three years. Are you anticipating maybe a cold winter in Europe, which naturally has some negative effects for ROCKWOOL? Is that maybe?
We leave it as we always do. We know quite a lot, of course, about October and November already. We leave a margin on there for December, as we always do. The last time we had a really bad December was in 2014, just a year before I started. We don't predict that, but I think we have ample margin here.
Yeah, I think the uncertainty for December is also, I heard, for instance, the German government talking about having prolonged Christmas holiday. It also depends on how the markets are reacting here over the holidays, whether they stop early to allow people to come back before quarantine, before actual Christmas. There are many uncertainties in December, which we just have to keep it a little bit.
I think the governments have really understood that you can run the building sites safely. They know that. We are not particularly worried about building site lockdowns and what they do, like we saw in Malaysia and for a very short period in Spain and France, governmental instructions to stop producing. It was very short period, but we had to do it. I don't think that's really a factor, but it could, of course, be that the construction companies do one of these that we have seen a few times, stop X on the day in December and don't start up between Christmas and New Year. It could happen, we have never been very good at predicting that.
Super. Thank you very much.
Our next question comes from the line of Cedar Ekblom from Morgan Stanley. Please go ahead.
Thanks, guys. I just got one follow-up question on some of the discussions that you've had on, or comments that you've had on market share. Can you give us a little bit more color on, you say that you see yourself increasing market share. Can you talk about whether you see that as ROCKWOOL taking share from foam insulation, or is that a case of?
Okay.
Or from your competitors? Just to understand where you see the push and pull on market share. Thank you.
What I think is happening is that there is a drift from plastic foam over to mineral insulation, both glass wool and stone wool. Where we see it's coming over, so that's not ROCKWOOL market share. The category can be shared. There you can see it, for example, what's happening in the U.K. that high-rises will not be allowed to have combustible materials. Probably schools and hospitals will not be allowed to have it. You have other countries like in Germany now, where when we look into ETICS, external wall insulation, where in 2014, stone wool had a share of about 14%, and now we are up at around 50%. You see this slow moving over from plastic foams into the mineral category, and where stone wool comes in on circular and fire performance and on density and some other factors.
We see that drift all the time. It might be the case that people on the foam industry stay different. Our view is firmly that that segment is growing and that EPS, for example, has been in a decline for a while. PIR and PUR probably doing reasonably well. On the EPS side, in some applications, we just see that it doesn't matter how they price, they kind of lose and people don't want the material anymore. That's quite a big segment. That's happening. Was there another question on share?
Yes. Is there anything happening between stone wool and glass wool, and is there anything happening with your specific position within the stone wool market that we need to think about when it comes to market share?
Yeah, I think in the stone wool market share, that's what I commented. There you see stone wool competition building new manufacturing facilities, and I thought in the heavy density where I want to protect my market share, I want to keep my market share, defend it. That's on that side. And then between glass wool and stone wool, you have this at glass wool typically is lower price, more indoor general building insulation. And there you see some shifts in different markets, but there isn't a massive trend anywhere. It's there is a little bit here and there by country. I would say, for example, in Denmark now, during the last, we have seen a lot of good growth in stone wool into general building insulation, for example. So there in the large segment, we have gotten a lot.
If that is all market growth or is that share gain, very hard to judge at this point. No big movements as I see.
Okay, thanks very much.
Thank you.
Our next question comes from the line of Frans Hoyer from Handelsbanken. Please go ahead. Your line is open.
Thank you very much. You mentioned the point about the stone wool capacity in Western Europe being expanded by your peers, and you indicated that the addition will be absorbed over a period of four or five years. Could you give us an idea of roughly what percentage expansion in stone wool in Western Europe is it that you see being added this, I guess it's over the next 12 months or so?
These are not my plants. I just have estimates. We typically refrain from commenting the specifics, but what I saw, and I think I mentioned that when I look at it, a couple of percentages from CAGR is covered with the expansion, and we expect the market to have that. I don't want to comment the capacities of those plants because I quite frankly don't know exactly what they are, and I don't know how much they can produce. I know, of course, roughly where it is. It is of course not massive amounts. The fact is that even if you bring in a factory and people start to lower prices to get business, if the market is not quite supporting that, an instinct is often to lower the prices.
Again, you talk plants in Poland, the one in France, small one in Hungary, those are the ones we are aware of.
Yeah.
Okay, understood. Second question regarding the implied guidance for the fourth quarter. I made it something like DKK 75 million-DKK 100 million EBIT in the fourth quarter. That's a wide range. In your language, I sort of detect an optimism that you will, or a confidence that you will end up at the high end of the range. I was just wondering, what are the swing factors that could justify such a wide range for the fourth quarter?
Yeah.
If you may be so specific.
Yeah. That's it. There are two swing factors at the moment. It's the lockdowns, which I don't think is a big issue now. I think it's December weather or building sites closing closing early and they do take a break, and we haven't been able to predict it. Therefore, I think our argument in previous years where we haven't narrowed our EBIT margin more has been the argument that after 2014, we had that impact. Of course, it was a lower EBIT generation, so December was relatively bigger. We have just said we refrain from narrowing the gap down too much and just leave it at that. There is nothing in this that we have turned more pessimistic or see more risks. It's just a normal situation when we get to this time of the year that we still have that December month.
That's all we want to reflect. We don't want to change. We don't want to go into more narrow guidance than we've done previous year this time of the year because a massive snowstorm could happen.
Okay. What was December like last year in 2019? How would you describe that in this context? We didn't have any lockdown back then, but there was, of course, early or late closure of buildings at that point.
We had a normal Q4 last year. Normal Q4, no massive snowstorm as far as I remember it. We don't comment the month. I guess the monthly comment by exception is December with this hazard, the climate hazard or the shutdown hazard. Last year was a normal Q4.
Okay. Thank you very much.
Our next question comes from the line of [Kim Tung OuYang] from On the Field. Please go ahead. Your line is open.
Good morning, gentlemen. Thank you for taking my question. My main question is actually on your CapEx for the next, say, couple of years, because I understand that you want to transform into a way greener melting process by using electricity, and you've got a couple of projects in the pipeline already from my understanding. I'm just wondering, what is your CapEx budget for this transformation, and do you have some timeline for the entire plan to roll out? Do you have any concern that it might actually dilute your return on capital employed for the next couple of years? Thank you.
Okay. We obviously have a plan, and we are working also some technologies. You might have seen now there is shift to biogas, what we do in Øster Doense in Denmark, where the net effect is more than 70%, together with the Moss project, 70% CO2 reduction in the Nordics, and more than that in Denmark. We have technologies we work on. On the one hand, the technology keeps evolving. We are doing a lot of research. We have a lot of people working on that, and we are running full-scale projects or pilots in our new technologies. That's happening. You also have a development of the grids around in Europe subsidies for CO2 schemes that can be really, really impactful and can decide investment decisions.
We have kind of framed it that these technologies we work on, this is where we're going to head, and we have goals for where we're going to head. At the moment we have to kind of detail the planning for the next couple of years. It's kind of a moving environment where countries, subsidies, electrical connections, availability of biogas, all sorts of factors play in. We have a trajectory forward, but we haven't yet said that we will do and invest today and go out and talk exactly how we do this now and what the timeline is and all the rest. We keep that in-house. On the return on invested capital, I think our primary optimization in the business is to create a great return on ROCKWOOL as a whole long-term.
It might be that when you do this, you might have a lower return on invested capital in the books, but you might have a great return on your total shareholder development, share price development. We will look into that. Like I said, we are not obsessed with taking return on invested capital down if it's needed, if it's the right thing to do on the business. That's just how ROCKWOOL is. Of course, we like to keep profitability, we like to keep our market share, we like to be a really well-run company. We have not announced a multi-year plan, and we are still developing some of the technologies. We're probably not going to say exactly how we do it long-term. We want to keep the options on our side also, so we are flexible with all the opportunities that come up.
I see. You're saying that you probably won't actually provide a guideline or a plan on how you're going to upgrade CapEx-wise? To upgrade your technology.
Yeah. We don't give a long-term guidance on that research, no.
Okay, great. Thank you. Another small follow-up question is on the competitive landscape as well. Actually, we've talked to some foam producers. They've mentioned their concerns on, say, the market share for their products because they are seeing a huge inflation on MDI prices. I understand that even though you compete mainly with stone wool producers, but overall, do you think that for example, 2021, you will have an edge over certain producers?
I.
Yes.
We have seen the MDI come up and down, I would say generally what we have seen mostly in PIR and PUR is that its position is quite in the premium segment. We have seen sometimes from the MDI drop that come down on projects. It swings a bit between the years, but we haven't factored in that they would raise their prices a lot and lose massive share. I think the bigger trend is more the use of foams and the fire properties, and that's more the long-term gain. Then we've seen over the years that this MDI goes up and down. It was down in 2019, it dropped.
Yes.
Yeah. Then we saw lower bidding from, especially PIR and PUR into flat roofs in some regions, for example, Poland. We lost a few projects on that then, but that was why that happened. People don't only choose on price, but maybe the market will swing a bit, but we haven't factored in that we will gain more because of that they have a bit higher MDI price.
Okay, great. Thank you, Svend Aage.
Our final question comes from the line of Mikael Petersen from SEB. Please go ahead.
Hi, thank you for taking my final question. This is regarding the mix of insulation provided for the market. You're talking about the commercial structuring a little bit. The first nine months of 2020 compared to 2021, can you share a little bit thoughts about the mix of the revenue dedicated for project business versus residential?
No, again, Mikael, there's not a uniform ratio to that similar to the end market segments. It is quite market-to-market, very different.
Okay, maybe a small follow-up.
As you know, we don't.
Just a small follow-up would be.
As we don't have. Okay, come on.
The tender activity for projects for, let's say, factories, I assume that is down compared to last year. Is that something that will affect the mix going into next year then?
I thought about it as a general trend, and here I discuss with friends that are entrepreneurs, and I simply think that in that segment, if you are not Amazon, you are not a logistics provider, you are not doing sanitizers and mouth protection mask. I think that new projects that we receive, smaller projects and not the really big projects, that this will create a bit of a vacuum in the pipeline and those segments that you can see in, say, sandwich panels maybe and flat roofs. That may well happen. I don't have any proof of that. I don't have the market report. I'm just looking a little bit at what's happening around me, and I think that that sector is, in a way, they haven't come up with lots of new projects while they were sitting home in corona. That's just an observation. Again, qualitative.
All right. Thank you very much.
Ladies and gentlemen.
Thank you.
We will now close the Q&A session. I will now turn over to your host for final remarks.
Thank you. My apologies to the analyst who wasn't able to ask questions during the session. I will follow up with you guys afterwards. Please be informed that on the 14th December, the ROCKWOOL Group will hold the next investor conference call dedicated to the ESG topic. Thank you for joining today's conference call.