Earnings Call: Q2 2021

Aug 18, 2021

Ladies and gentlemen, welcome to the conference call regarding Rockwell International's results for the first half year of twenty twenty one. My name is Thomas Halle. I am Director of Group Treasury and Investor Relations of Rockwell International. Today, I'm pleased to present CEO, Jens Biggersen and CFO, Kim Jong Anderson. For the first part of this call, all participants will be in a listen only mode. As a reminder, this conference call is being recorded. First, Jens Bergerson will go through our presentation and give you an update on the results for the first half year and second quarter of twenty twenty one. Afterwards, we will be ready to answer all your good questions. Before I hand over the words to Jens Bergsen, 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. Jens Piggerson, I will now hand over the words to you. Thank you, Thomas. Good morning, everyone. Today, we do this slightly differently. I'm sitting in Aarhus In Denmark, and the reason I do that is that tomorrow we start racing in the, say, DP Denmark, Grace. I will be on the boat this afternoon myself. And This is a branding exercise we do, become more known. And so far, This effort has worked greatly for us. We have made a couple of Videos of the previous events, for example, the 2 first videos where we mixed A bit of sustainability message, Rockford, with some information about events, we had 2,000,000 views. And I think up to this point, we never had anything that would have more than 100 of years. So that's a great step forward. We also noticed that with this, we kind of expand the brand Knowledge among future employees and our own employees too get proud from this. So it's been a very, Very interesting branding investment we have done so far with a very nice return, very motivating for us to be engaged in this. So I just if you find some time, watch some of this. It will be broadcasted on PV2. And there is also something you could call the Racing on the Edge, Episode 3. It's a Similar format to the one some of you might have seen on Formula 1, the Formula 1 drivers, but the similar series about this series on Netflix So on YouTube oh, YouTube, sorry, YouTube. Okay. With that, I would like to move to Slide 3 and to get into the numbers. We stepped into the year with a little bit of a slow start. And then in Q3, We saw some sort of B plus shaped recovery. And maybe the surprising element of what happened Was that we didn't only recover to pre pandemic level, but we saw Business activity above previous record, which were in 2019. So if you start with the top line, Half year, 11% up with almost nothing more growth in Q1, only towards the end. On the EBIT, EUR 201,000,000 year to date, underlying, if I take The Rockfone settlement that happened in Q2 twenty nineteen, that's 37% above 2019. And of course, it's 46% above 2020 there. 2020 Q2 was the worst, the most affected pro roma quarter, so to say. EBIT margin Up. And again, the 2020 reference is not so relevant. If I take the Wokron settlement up, it's more than a 10 Percentage point higher than in 2019, and that was a very good quarter. Moving into the quarter, you see those growth numbers there, 35% growth, New high quarter for us, good margin, flattish like for like versus 2019, 4 percentage points up versus 2020. In Q2, Simon, on Slide 4 now. But Taking the Wartfons U. S. Settlement out, we are more than a percentage point up on the EBIT margin. On the top line, what happened in that quarter was that we were quite helped by the system division that Grew. All the businesses grew, but the Specialty Broadband had a bit of an exceptional quarter. They We saw that competing growth substrate like peat and cocoa The difficulties being shipped from Asia, and that led to a substitution effect. And we also saw after some of the harbor Challenges that have been, for example, Los Angeles Harbor that in the Medical cannabis market, the distributors really wanted to restock to 100 bit more buffer, And that led to an exceptionally good quarter for Broadband. And When you come to EBIT, that EBIT is maybe surprisingly good because what happened After in Q1, we had almost no inflation. We had energy prices that were stable. Our material input costs were stable, logistic costs On a steady level. And then in Q2, we saw this burst of inflation. And you may recall that we talked about The moderate pricing strategy with the raw material pressures that we experienced there, We got the gap between price and inflation, but due to cost reductions in the factories, So mix element and then fixed cost productivities, the profitability came in quite Move on to Slide 5. Good growth. If you go down to the bottom right, the diagram there, we see that on Insulation, and again, I go back to 2019, for Mentor, I give you a column of SEK 1,000,000,000 About SEK 1,000,000,000 in for the half year in 2019. The Insulation business is up 5%. And I'm quite happy with that because at this stage, we did not we only opened up the Rand factory at the end of the quarter, and we had a pretty good 2019 on Insulation. And then on the System division, the comparable number in 2017 was The 3.17% turnover, and we grew 21% above that. And there you have the growth on effect, but also Rock On Rock and all the businesses, we really had a good quarter. And always, when we get into a Ramp up stage in that regard because we were running with a certain number of ships in Q1. We didn't build up that much Season of stock this year and the very drastic ramp up in demand in Q3. We had To ramp up, bringing more ships, go higher up on the capacity utilization, It takes a few weeks and months to do that. And we always put priority to system division, but they get their products. So very pleased with the System Division, but also very pleased with the installation step up because it was not low comparable. Move on to Slide 6. There in Q2 specifically, You saw roughly 7% growth over sort of 30% versus 2020 in Insulation is, Of course, good. But we must remember that was a very long quarter. It's about just short of 7% growth for the Insulation division. And the systems also compared to 2019 is up 30%, very good but Really good quarter from Jordan, Loch Hann, Lochbon. But all the businesses in the system duration have Well, good in the double digit growth. That's nice. Going into the regional development on Slide 7. To sum it up, I would say, In Q2, you see the normal little bit slowness, not negative, but you see a bit of slowness Sweden and Norway due to the vacation season and the tradition in the billing sector to slow down a bit. So there you have Single digit numbers and not so much growth due to the June, July Slowdown in billing activity and vacations, but fundamentally all markets in Western Europe, Eastern Europe, Russia, really solid growth. And in North America, everything double digits everywhere. And with the particular boom in the U. S. Where the residential segment It's reaching some sort of all time high. I think it's really, really growing. Generally, across the businesses, We see the residential segment grow very well. And then as we discussed at the previous call, Office buildings and that type of activities, we don't see much growth. Although we see now, for example, in France and Germany, That's starting to grow again after a long period of low activity. And then, of course, Things like logistics centers, the Amazon style type of constructions, They are growing very fast also, electric and power factories. Anything logistics, big box is doing really well. From a segment perspective, in Q2 with such a high demand for stonewall, So I guess all insulation materials and with some constraint still on some of the foam products, A lot came over to Stonewall. We took this certain and we've seen that increasingly as our competitors in Stonewall are Leading the lowest margin segment, which is the flat roof segment and We learned 2,007, 2008, but that's not a good idea. So we have we are not Dropping that from the mix, we see it as our responsibility to make sure the flat group suppliers Yes, stonewall, we don't want that market for foam. And therefore, we see quite a big increase on the flat roof, And that impacted a little bit the installation mix, but that's something we want to do and we want to maintain that. We do not see long term benefits where the but There is no stormwater flat roofs before that cut costs after a boom last time in 2007 and May 8, you feel that for me. So we continue with that. It was a mix Slightly skewed towards flat roof and the heavy evidence of this. Profitability, if we move to Slide 8, All good, I would say. Going back to Q2 2019, that settlement in North America, that was in System division in the sealing business, the Rockford business, so that comparable 20.7 percent is not quite fair. So there really is some improvement in the system division on margins. And there are a couple of factors. So that one factor is that They haven't seen the full inflation yet or the raw material increases because we have a system that will Slow that down. We start to adjust the transfer prices. But then generally, the mix and the pricing and the cost Position of the business, all of those all of that work we have done over the last year has paid off. So all the businesses have improved the margin. Broadband has a bit of a especially good quarter. We have good margin in that business, and that helps To kind of improve the system division margin. On the Insulation business, growth 14.3 percent EBIT margin, we are happy with that, especially as the mix is A little bit skewed towards a bit more flat roof than we normally do, big growth and flat roof. Of course, we are up on UPI? Yes. Jens, just a clarification. You are commenting on Slide 9 with the 2 installation system. This is Slide 8 where you have EBITDA and EBIT on the graph just so that Okay. But let's move I'm on Slide 9. So We comment on Slide 9. So I think generally, the EBIT improvement on Own Systems division is very pleasing, and I'm happy also with the margin on Insulation because The big raw material increase that we have seen that most of it has impacted the installation business. And in spite of that, thanks to factory improvements, productivity, fixed cost over absorption, And some of the personnel reductions we did last year, that then adds up to this good margin. Okay. We go to the investment activities on Slide on Page 10. Here, nothing in particular has happened. We've basically progressed a little bit Lower compared to last year, and that's because of different base on the North American factory where they have quite heavy investment last year. We did do an acquisition in Japan. They a small company north of Tokyo, Small sized factory and Try to favor all acquisition price, but I should also say that it's not going to be accretive. It's going to take until Early next year before we are up and producing a Rockwall product with our quality standard. We're going to upgrade the factory, and we have started that, and we have people coming on the ground now We'll start to plan that one out. But this was an opportunity that come up. And we have been active in Japan For quite some years, importing materials to the brand is not entirely unknown, But it's nice for us to get the small factory underground and start to develop that market. As you know, it's not a small economy. So Let's see how that develops. But don't expect the impact that is quick. It takes time in Japan, And we want to do a couple of things on that factor before we really start selling. It should also be said that The government of subsidies in Japan for in this region are high. So it's not going to be a capital intensive upgrade, but You will notice in the numbers, it's a very favorable support to Upgrading that factory. We will do that. And then they have kicked off the building the Construction of the new line in France, obviously, no shovels in the ground yet, but work has started off. And then the investment in more rock foam capacity in Poland is ongoing and Target is that we should start that line up end of Q1 2022. Slide 11, cash flow, nothing much to say about that. We have Positive effect, inventory is low. There's a positive effect on cash, but We would have liked to have a bit more inventory to include, but on the other hand, thanks to very good demand, we solved it all. So That's one. And then on due to the ramp up, quite high level of trade receivables, this slight increase there from The low 10%, above 11%. That's primarily due to the trade receivables. And then the net debt is still negative. So that's good. We did a slide trial. We did not discontinue the sustainability calls because we've had to cover the good set of topics. And for that reason, we added in the half year release. We don't do it in every release, but in the half year Now and then when we do the annual release with the sustainability report, we include some slides. And then If something in particular comes up, we might add in an ad hoc call. But half Half year repays for this now. So just to give you an update on our SDG Alliance Sustainability goals. So here, we don't have the science based targets Remember, we had an old goal on CO2 per ton produced, the CO2 efficiency goal that we set back in 2015, 2016. In addition to this, we have the science based target goal that is an absolute reduction goal Yes. But we also are progressing, and we will report more on that when we issue the sustainability report further next year. But if we just go through the progress of these goals, we start with the CO2 emissions. We are ahead of the plan. The biggest moves here were Norway and also the biogas in Denmark. That's progressing and we're going to keep doing that. But we are ahead, optimize land fill waste. Obviously, a lot of that landfill grades we want to put into it, if it's our own material, put it in and make product out of it. That's also ahead of plan. And we are rolling out the circularity scheme also so that we can take external waste material back, The recycling scheme, the rock cycle. So that's ahead of plan. That's good. Reclaimed waste linked to the landfill waste that's Also going good, water consumption ahead. Water consumption, but that's ahead of the goal is Needs determination because where we produce water, it's so cheap that you spend money and you Spend energy on saving something that really doesn't cost anything. And the way water is priced, that We don't pay more for water in the summer when it's running out to tell you to not use it for the lawn. And that's the way it's priced today with municipal water, but Maybe someone should think about that. But anyhow, we are doing the work and how good that progresses because We do use water and also being more circular in water is something we do on rainwater. So we are investing in that and it's not great payback. Energy efficiency of our buildings, you have one side, okay, how can you be behind on that? We are behind because During corona, it was difficult to get this with a boom in building activity and not having people in our own offices. But the programs are identified. We have set the money aside for it. And we do this in maybe a slightly different way to how you do it. I want the management one. Of the operational entity to be really, really involved in the project so that we learn How to renovate with our own products. So they are fantastically fun projects, but there's also a lot of work to do it It's not just handing it over to an architect and have it done. The whole team needs to be involved and understand how we can apply all of our product. And the picture on the right is our office in Ladbeck. This building, now we haven't included a before Picture, but that building was a really, really awful concrete structure. It would probably win The price is one of the ugliest buildings in the group. And what we have done here is that we have renovated it All with our own products, we have used rock panel, ventilator facade, epics. And on the top floor, we have added there, so we have increased the number of workplace. We have done a rock 0 floor on top because the building was so strong that we could add 1 floor by doing rock 0 walls. And we actually aimed for German Sustainable Building Council, TTNB silver certification. But when the building was done, We actually got the gold, and that's quite hard to get through the renovation. And we have had Many, many, many politician and municipal people visited Because with the new fit for 55, new directives or the ambition there with the higher The increased focus on energy renovation, energy renovation first and to not tear buildings down, This project has gotten a lot of attention. And the project run really smoothly. And in retrospect, it cost us a lot less and tearing this down, Thank you, new billings. We're very proud of that. Just to give you an example, in Denmark, I think there's only one project Last year, that's roughly gone in the whole of Denmark, and that was a new build project. So I'm happy with that. So Nice progress. And when we look at that energy efficiency of our own footprints, so to say, our buildings, we will progress with that, but We need to complete more projects and it's quite a lot of work. We will get better as we put some work. Slide 13, Really, really important slide. It's worth a full hour just to discuss this. But what you see now is that in the EU's ambition to be carbon neutral On NetCRO, that is a NetCRO position by 2,050 across the EU. They have put together a program called Fit for 55, where they address energy efficiency, it's a directive For that, emission trading system and the CO2 quotas, energy taxation directive And there's also climate action and social facility package, but there are a whole slate of things. And they all point towards any deficiency. 1st, Increasing the renovation rate of public building, widening the definition of scope of public buildings, Raising the efficiency targets per country per year from 0.8% to 1.5%, Increasing the cost of CO2 quotas, reducing the free quota. So everything basically speaking for More work in our area. And I can say with the new IPCC report, all of that works need We're done. Otherwise, there's no chance to stop the trend. And I would say, even if half of it happened, we're going to see a lot of it. And there is a lot of money to it. So there's a lot of positive things in that. If you look at the National Recovery and Resilience Spending plan, EU put together EUR 673,000,000,000 signed, EUR 36,000,000,000 of that is Already assigned to Energy Efficiency Regulation in 2021 to 2026. So there are a lot of Schemes and initiatives and regulation and directors coming here. They are not decided on yet all of this, but they will come. And I think there is one important insight when you look at all of these directives that it's only the Energy taxation directive that need a unified decision, Everyone said yes. The others need a qualified majority vote. So it's not enough that if 2 countries, we all know what countries might go against some of these, Say no, that's a matter because if it's a qualified majority vote, they will go ahead with it. And of course, they might be watered down a bit, but The sheer size of this and the direction is good news for us, and I feel it's moving in the right direction. And this will support Our business and Insulation. And we see this Big money also in North America, focusing on this in addition to the very buoyant residential market. So the Timing of our factory in West Virginia, I mean, we are now Moving as fast as we can to ramp up production and so far so good, but it comes at a good time. Okay. Outlook, nothing much to say about that really. Top line 17%. I have put in a small beware in my outlook. You have strong demand for many materials. So the one thing we need to be careful about is We need to get pallets. We need to get binder. We need to get stone, we can always get. But we need to be Active on the incoming side of the material into the factories, I don't see that Threatening the top line, there might be the odd interruption somewhere between now and Christmas, maybe in a factory because of a material short stop. That could happen, but that won't impact the number. A little bit what I warned for Richard, potentially in the construction market, if you have Other construction materials point aside, it doesn't come and we have a heavy winter, might decide Pause the project for a longer period and then wait for the material to be to arrive and then restart In the New Year. So I see a slight risk for that. I haven't really experienced the situation before. I don't know how likely it is, but I don't exclude it. And then on the EBIT margin, we did get through, Although we haven't yet priced in the market so that we fully match inflation, we don't We didn't do that in Q1 with mix and productivity and other improvements. We got to a good margin. I foresee that the beginning of the second half year, pricing will improve gradually. And then when we get to Q4, We're going to be in balance between inflation and price. And so that's the transition we are doing. We don't have the full price It's in place yet because we due to our pricing cycle for the year, which was Not doing so much in Q1. And then the inflation came, and then we had to raise our pricing ambition. That's underway, but it's all in hand. It's coming with some timing issues. So it's not Well on track. And then on the CapEx, I would think that on the 370,000,000, The challenge you have when you go up on full capacity, 5 ships is at some of the CapEx To get the outage to put it in can be difficult because we might rather produce. So it's a bit hard to say. But I would say we shouldn't exceed the CapEx because the machines are running so hard that it's actually hard to get success and do Some of the main, most of it. Okay. I think that's what I had to say about the slides. With that, I would like to hand over for questions. One. Our first question comes from the line of Ios Bromet from Exane BNP Paribas. Please go ahead. Your line is open. Good morning, everyone. Thank you for taking my question and good luck for the exciting boat race this afternoon. Three questions, if I could. Number 1 is on the price cost. Can you maybe help us to understand what are your expectations regarding the cost inflation in H2? And what Magnitude of price hike you've introduced in the summer, that'd be helpful. My second question It's on the shortages that you're mentioning. Can you just be a bit more specific? Are there any countries where you anticipate Higher risk than other countries? And also, have you included the risk of those guidance of those shortages in your Top line and margin guidance. And my final question is looking more medium term, You seem to be excited by the renovation wave and the stimulus with what that can bring as a tailwind for the insulation industry. I think it's quite clear The money seems to be here. But on the ground, can the craftsmen actually increase the amount of jobs That they can do from current levels? Or are they just running completely flat out? And it all depends on The hiring potential, which also looks quite difficult given where unemployment rate is today, which is quite low already. So what's your view on that? Is it feasible or not? Thank you. Yes. So I'll do 2 and 3 and then Kim with the 1. So I'll start with the short to this and what I put into my forecast. I have not Put into the forecast that we would have an early closure of projects because of shortages of Other building materials on the site, some of it is in. We see some of it today. But I haven't put in, in my forecast, a broad based. Germany decides to shut down 1st December all projects and go home for a month. I haven't put that in, but one. Normal ups and downs. We have a little bit of risks up and down as normal. So It needs to be something quite big. I just want to flag it. And those short and then short to this, on the incoming materials side, I think more or less, we are able to manage that across all countries. We run it weekly, Every material, green, red, yellow, we are very used to doing that and we find a solution. And sometimes if you have In particular, let's assume you have a customer say, I want a certain type of pallet and we don't have the pallet, then We can just produce another product and use we can work around it working a bit with the mix and the portfolio. So I don't see that be a big thing. But when that then leads into your third question, I think that's a very Every question you asked there, and it's very hard to find data on that. I think Car industry is booming. It's a bit slower to get People do call us in, factory workers, but that's still a manageable amount. We brought them in. And by the way, I should have comment that I'm missing the safety target. I missed the sector target, I should have said that. We have this target where we improve every year. What we see now when we bring people in Yes. With this flexibility we have, trips, falls, fingers, bringing new people in and getting used to Moving shifts up and down more, we also have a little bit more challenges to not have these slips and falls, one. And that is reflected in the safety target. So it might be that the 3 a rate of 3 lost time accident It's a very ambitious level with this flexibility we have. But just as a comment on that call, and that's one of the reasons we missed it. But I think exactly what you say. Evidently, the construction industry is able to install These levels of able to build and do what we are now. Will The installers and builders, will we be able to create additional ones to have the whole industry drive grow more? And what happens if it moves away with a focus on also now embedded carbon With 75% of the carbon in the building sits embedded in the material when you build it, The EU will probably and many countries will probably steer any inefficiency to renovating And try to get it away from newbuild, and then the efficiency might be reduced, even though there I'm not clear numbers on that, but that's what most of us believe. And then you sit dependent on construction workers. And there, it's very hard for me to foresee whether countries would be capable of Getting more construction workers, I'm cautious about that. I worried about that for years, and I think that's going to be a constraint We're going to hit at some stage. And I can't say how much more we can grow. I mean, the construction market can grow Before it hits that constraint, are we already there? Or is there another 10%? Or are there ways of adding more people to the industry? One? We will have to see how that goes. Over to you, Kim, on price and cost. Yes. Thank you very much, Yves, I think it's fair to say that the pricing impact in the first half has not been anything to speak of. We also didn't mention this as one of our, you can say, drivers for profitability in the first half. But clearly, in the second half, With the price adjustments we have made in the market, we do expect, as Jens said, a growing impact from pricing leading into, hopefully, an expected balance between impact of From sales price and cost inflation of input material in the Q4. We are still talking single digit Price increases in aggregate. So it is something that is not outrageously in the market. So I think that's so my expectation is that you will hopefully see an improved Slightly improved insulation market in this in leading into at least in Q4. Okay. Thank you very much to both of you. Thank you. Our next question comes from the line of Regis Sia of HSBC, please go ahead. Your line is open. Thank you. Congratulations on a good set of numbers. And I have two questions, if I may. The first one is on the capacity constraints you talked about In the press release, having many countries at full capacity. So could you please tell us a little more about what are those countries' Capacity constraints. And in that regard, if you can give us what's the current utilization At the group level, obviously that will be slightly lower in the U. S. Okay. So I don't give the Utilization level, sorry, we never do that. But I can just say one thing. We have free capacity. We can grow next year. What I'm more worried about is labor capacity on the construction side. I will be able to grow next year substantially, okay? But we need to start the year rebuilding seasonal stock. We can't have a quarter that we're running on 3 ships and things like that. We need to run at a high level, but we have more capacity. And we started up a machine in Norberg. We have still ships to put on around the whole year and freeze less capacity, and we have The lines are coming up, so we can grow. And the growth worry I have for next year would be if the labor is Not there to install and keep the construction market strong. Yes. And Jens, the constraint that we talk about in our report is sort of the general Constraint in the construction market because there are other materials, of course, that are that the construction market is depending upon. And thereby, we always become Sort of constraint and that's just if you're short of wood, for instance. Okay. So when you say substantial, would it be fair to assume that as you see right now, it's looking like At least the 10% growth is possible next year? I cannot say what the market is. I'm not forecasting That we I'm not forecasting for next year 10% growth. We will come with the forecast later. But what I want to say is, if the market grows 10%, I can deliver 10% growth. But I'm not making a forecast for next year, but it's not going to be my capacity preventing me from delivering the market next year, Okay. Understood. Yes. And now coming to the guidance on the 17% like for like sales growth or local currency growth, How much of that you think is driven by this market share shift both in insulation and in the Got on business. Any kind of ballpark you think is kind of driving that and rest all our underlying market improvement? Yes. I come again on that question. I didn't quite get it. Sure. So the 17% light local currency growth for 2021, In that, how much you think is being driven by a market sales shift from plastic foam as well as the golden Market share, you got it in Q2. So I mean any is that a quarter of that you think is coming from those 2 ships And rest of our underlying market improvement? I don't have a percentage for it, but When I look at the organic growth numbers, I think that the bid comes from that side and that glass wool and stonewall Benefits a bit from that, but the percentage number, I can't say. And then our experience with Grodan, I don't expect all Coca Cola and Pete substitution to go back Because what we found before is that the farmer some would go back Because they are cheaper products. But when you look at the total productivity output in relation to the cost, our substrate is Better. That's what we argue. You would expect that from me. But so we tend to see that when Quite few farmers that grow from Coca Repeat and try our material, once we've seen that, Many of them will stay. So I think you have some of that element, but it's a permanent substitution, but not all. But it's very hard to judge how much that will be that will remain. And the same at the same time, the substitution, We do benefit from the substitution from EPS with the high pricing. They have increased prices quite high I'm not sure to this. So we have benefited, but to get numbers on that versus the top of market size in the middle of the year, it's very hard, Very hard. I can say one thing though that the some of our growth we have had, Some of it is that we are growing well in flat roof because we have competition that The side, okay, flat roof is too low margin. We go on hectares and we go on some other heavy segment, And we don't go so hard on the flat roof. So there, we have had to step in and take more of, so to say, an unfavorable mix To prevent segments from getting substituted into custom form. So you have a little bit of effects both ways, I would say that there we have an internal substitution without this thermal supply. Okay. Can I ask one more question on capacity? You announced this France plant, which is obviously a large size electrical melter, which It's probably a first one for you. But we haven't got the kind of investment you are doing. Is there any Government subsidy involved in that. So if you can give a little more details on it. And how you see this The success about having a large electric melter in place by 2024 and how does that kind of Before you answer, Jens, just jumping in here. Analyst, please respect that we have two questions only. We have quite a long queue list today. I will let this one go, but next, please take two questions only. Thank you. Okay. So the large scale melter, I was up in Norway yesterday and the day before, and I looked at our melter. It runs really well. I think we understand the parameters. Fantastic, Kieth. So this step to do the French one, I see the big step was to make 1 in Norway this step here with the design parameters. We're not going quite well now, I think. So I see that as No, Rich. I could be wrong, but that's what I see. And we are producing really well up in Norway and West combined. So that's on the melter. And then normally in these times when you do that When you put electrical metering, you get some subsidy. But per year, we normally don't Talk about how much, but we thought no, I apologize, you might have EUR 5,000,000 to EUR 10,000,000, EUR 15,000,000 Subsidy, the Norway case was exceptional, but we just EUR 10,000,000. So It's not the size of where we go with the Meltzer. It doesn't impact the calculation that much. But of course, we appreciate it. And we go after, but we don't declare how much that is. And We don't give the CapEx value per plant. And the reason we don't do that, I just kind of give you some parameters that are good to know that If you make, for example, the stonewall plant and you go heavy density, The whole coal dam of such a plant can be small. It's easy to pack the evidence of the product. If you go Build a plant that is designed for residential and light densities, the downstream end of the plant looks entirely different with Much, much more equipment. And therefore, we have come to the conclusion that we should not reveal How much we invest CapEx in this front, but you will see the total numbers. And you will see how much Our capacity investments, what is sustainability investments and what are maintenance? The next question comes from the line of Christian Johansen of Stanske Bank. One. So two questions from my side. Firstly, on pricing in Systems. So you said, as a general remark, that there is very little impact from pricing in the first half. Does that cost systems as well? Or have you actually Maybe to get through price There you have slightly different because they haven't seen much inflation. We do price increases, but The inflation really took off. Inflation might be the wrong raw material cost increase and logistic increases. So the system division have benefited more from the moderate price increases that we already had in full swing Because they made those and they didn't have so much material cost increases. And but so they should be basically balanced the whole year, inflation versus price. Understood. And then I mean, second question along the same lines here. On this transfer pricing, So correct me if I'm wrong, but as I understand it, Systems is buying the stoma from installation at, you can say, prices which Doesn't reflect the increase you've seen in raw materials. Can you describe how much that boosts earnings in Systems? I hand that Going over soon to Tim. But these are things we adjust, but we don't adjust in the system In the ERP system, every month, we like to keep it steady. So we prefer to have Comparable numbers for a little bit longer, and still we need to do it from a tax perspective and all the right in the right way. So it means that we prefer to let Volatility move out of it, but to have the direction right. And of course, it should be right over time. It's just that when things happen so Swiftly, what we worry when we see that type of inflation is not that we put the controllers on doing Transfer pricing changed internally. We put the salespeople on getting the prices in the market to compensate. So Tim can put some more accurate words on that. But Tim? Yes. It is correct, Christian. We normally try Keep the tangible prices stable. System division also, you can say, buy some of their own raw materials like steel, fleece, etcetera. So they have a direct, Say impact there on market prices. We have decided this year because of the cost increases to one. On our transfer prices between Insulation and System, the impact in the first half has been very small. In overall scheme of things, less than a percentage points impact on Insulation margin. Okay. So we should expect all things equal to 1 percentage point lower margin in systems in the second half? Yes, than a percentage point. Thank you. Our next question comes from the line of Vasant Ari of Cornfield Research. Please go ahead. Your line is open. Yes. I would have two questions. One question on Grodan. Do you see the strong trends continuing in July August? And also, Grodan has very strong Q4, usually. One. And the question is that, is the market share gain that you get in Q2 sustainable? Or do you see if you could give it back Later this year, the shipping situation out of Asia is normalizing. And then second question is just on the energy efficiency of buildings. You're saying that you are late on improving your building. Do you see that happening with your client as well? Do you see a good backlog Because a lot of your clients could not were not able to improve their buildings because of the COVID restriction? Yes. Okay. Good question. So I don't comment on Broadband, but I think Q2 was a lot of growth to grow on also versus 2019, and we are Those three factors I mentioned are 2 factors, but 2 different other substrates. And so that and the stock dividend, that's one exception. But The underlying sustainable food production, increased productivity, Vegetable growing and medical cannabis is all growing, and I see that will continue. But what happened in Q2 was a bit exceptional. But I don't see that Broadband will not continue to grow, And we keep investing in capacity. They are a bit below the radar investments, but we do it all the time and we improve investments, more slabs, more blocks Because it just keeps growing. And we have seen this growth now for, what is it, 5 years. And then you have a regulatory impact In the U. S. For a while, when they regulate to them and legalize more, That actually slowed the market down because it became a bit confused how these new growers would act. So I think growth will continue, but then not quite the same pace, but it's a positive outlook. Then on the renovation Slow down, I think generally renovation from the nature now, but you see Italy, they really boosted it. You see it picking up. But in heat construction market on residential, It is a challenge, but it's hard to say what to compare with because It's not like we had the plan down to the quarter that we will do it. It's a conceptual phase. We do it, And we are doing enough product to meet our goal 2,030. I mean, we're on track for that. And then the midyear point, We are a little bit behind the straight curve, but I think generally, renovations are that way. They take a bit longer time And the conceptual stage is harder. And in a labor constrained construction market, it's even harder to do it because you need a certain Quality to the work you do, especially easier to do a new bid. So I think you could have seen more renovation if it wasn't COVID and all the rest, but it's still a good level. So we are happy. Is it fair to say that you got a good backlog when you're looking at your project business? We don't really have much of a backlog. We don't like to have The backlog, we like to have we have some frame agreements, and then there are some customers, Skanska, Amazon, others, that 1, we did directly, we quote, we win an order Tesla, huge project for us. And then you have a backlog. But this is still a relatively small Segment, the normal business we have is the bid for project to win it, plus the project segment. And the vast, vast majority of businesses, Yes, the business just spread the butter day to day to day in all backlog. Thank you very much. Thank you. Our next question comes from the line of Klas Almer of Nordea. Please go ahead. Your line is open. Thank you. Yes, also two questions from my side and I'll take them 1 by 1. Yes, moving to the Systems division, You talked about this transfer pricing impact, but should we expect that the EBIT margin that we have seen in the first half or second Q2 This is a new level of the company. Can you repeat the first one? We don't forecast margin by business. And we did do a work. We did a lot of work on System Division to put it in shape. We have done a lot, We get the benefit. And as you know, when you have set up a business and you grow and you get the productivity improvements, It pays off. But I personally don't forecast. I don't make a forecast. We make a forecast for all of it. We know what's happening. But I don't sit and do a forecast for the businesses. And then you have a mix element. And then the mix, since we don't have so much backlog, can move around. So I would expect the margin to be A bit lower set aside the price because of the mix was extremely rich in Q2. It was a very favorable mix. But again, I've been wrong a couple of quarters. And I give myself that. I'm okay to be wrong on that because I don't want to sit on forecast margins, but it could be a little bit lower and then you have a price transfer price effect, but you also have More pricing coming out, so but you shouldn't expect it to keep going up like that. Okay. But so broadly saying more stable plus minus. I guess that's what you are hinting. Okay. The second question goes to the insulation business where as you also your slide showed that the EBIT margin is down versus Q2 2019. And you also mentioned I think Kim mentioned that the pricing impact was quite limited in Q2, as you have solid volume growth and favorable pricing environment. So why is it actually is down? Yes. So it's exactly what we said, but you have a couple of things. You have Inflation went from 0 to terrible in a matter of a few weeks for us in Q2. And they carry that. But then we have productivity improvements, fixed cost improvements and our lean Cost reductions in the factory that compensate a fair amount, but not all of it. So the net is that we have Compensated a lot of the inflation through other actions, but not all of it. And that's why you see it down. Sure. That I understand. Just given this significant volume growth should give you better visibility in the Yes, yes. But there is also another factor when we sell more to system division, we see lower margin. Okay. So that's also part of the Yes, yes. Because that's a transfer price cost plus scheme. So we are super happy to do it, and we put priority to it because the total margin is fantastic. But Yes. Some of our operational entities have had a very big growth on internal supply. So they look a little bit worse on the margin. But the way we looked at it then, it's a mix issue in the Insulation business, but we separated. And then we see how did we do on the So on this is how we did we do on the internal. Let me judge the managers on that because we still really want all the internal tons to go to system divisions so they turn it So that's what you see, but nothing don't my view is we are on track with the pricing. We were a little bit it takes a couple of quarters to get up. Q4, we should be perfectly balanced. So I've That's out of the way, and we should be, in my mind, quite proud of what we had delivered on the bottom line in Q2 in spite of all these cost increases in calendar. So I'm happy with that Q2. But one thing is obviously the margin, but also in the absolute number, the growth is not that substantial Given the volume growth. But I guess I have asked my two questions now. Yes. Yes. Okay. Thanks, Claus. Thank you. Our next question comes from the line of Manish Birria of Societe Generale. Please go ahead. Your line is open. So hi there. So I have two questions. I will ask the question 1 by 1. The first question is that you said Pricing is up moderately, but I calculate, I mean, it seems to me the pricing is only up 0.5 percentage point in 2Q 2021. So first, is this correct? And also within your guidance of 17%, the comment that you made more pricing in second half, it Seems to me in the 17% guidance, something like 13% will be volume and 4% is price. So is this the right way to look at it? I would love to answer, but we don't answer to that granularity. Tim has the spreadsheet, of course, but we don't comment to that level. But There will be more pricing in the second half year than in the first half year. And in Q4, Inflation raw material increases, I want that balanced out with the pricing. Okay. And the repricing that is 0.5 percent, I mean, if you just quantify instead of moderately up, like is it like 0.5 percentage point in 'twenty one, the pricing impact? Tim? Yes. Manish, as Jens tried to say, we do not comment On that type of granularity, but it's when we say that pricing has only had very limited impact in the first half, Then it's limited, both negative and positive. Then you can do your own assessment. Okay. So I see your point. The second one is like at the start of the year, you talked about something like €15,000,000 of Startup cost, so how much has this manifested in the first half of this year? And also you have talked about, yes? How many questions now, Anish? You need the second one, yes. Yes. So start up cost. So, Tim, take the 1st stock up. There wasn't much stock up cost. The main thing is coming now in second half. But, Tim, Growth on market? Yes, exactly. It's absolutely true. The main difference to last year will be the start up of Ransom. And that was only starting operating here in the early part of second half, I. E, in July. So you will only see OpEx and depreciation coming in, in the second half. So that, of course, will have an impact. And we previously talked about That the start up of Wansch and Neuburg would have Slightly less than a percentage points impact. And I think it's the same thing with Vanssen. It will have and you will see that clearly On depreciation coming in and also fixed cost by just running the factory, that it does have an impact in the second half on margins compared to the first half. And we will not quantify specifically, but it's something that is between 0.5 percentage points. Okay. And if I can just squeeze in one more, like the depreciation you said will have an impact of 1 percentage point on margin. So of course, we have upgraded our sales numbers so much. So if you can just quantify this 1 percentage point in absolute terms, Because last time when you say it implied like €40,000,000 higher depreciation cost versus last year, so from €180,000,000 to €220,000,000 to €25,000,000 depreciation, But can you just confirm, I mean, how much in absolute sense the depreciation will rise this year? No. But if you have In the second half, between 0.5% and 1%, then you have anywhere between, you can say, euros 7,000,000 to, I would say, €15,000,000 So around the €10,000,000 plusminus impact, Manish? In the second half. Okay. Thank you. Thank you. And our last question comes from the line of Laurence Kier Gard of ABG. Please go ahead. Your line is open. Hi, Jens. Best of luck on the Boselator question my side, which we've spoken to where quite a lot of times before, is the penetration of Stonewall versus your competitors. And you mentioned in your report that there's completing installation materials where they're converting to stonewool in the market. Could you share the delta, so the price difference between, for example, the plastic competitors who's had a really difficult First half year with oil and plastic prices being extremely volatile and increasing and then the difference to, let's say, your offering to the market? I'd say like this. Like before we had EPS Really, really cheap. And it's still I don't think it's the price that drives the they have increased their prices. But its availability, I think that was impacted a bit, and that has Given more volumes. Then on the Piranpur, we have seen very significant price increases From that part and also short, yes. So I think that has impacted. And if they have increased their prices 10% 20% or 25%, I don't specifically know. But clear is that from a cost competitiveness, I think we have been in a quite good position versus them that normally come a bit cheaper than us. And Now that has evened out, and then there is a substitution. But I think also the general Shorter situation might have impacted what they focus on. And since that's 50% of the market or more, Exactly what they have gone for. But when I go through the numbers of those, I don't see an awful amount of organic growth. One? You don't see 30%, 40% organic growth. So I think the shortage situation might have been the bigger impact, Although price have made some impact on the progress we see. I have a feeling that most of the extra growth We have in the heavy segments actually because Stonewall competitors have not been the key To go into those projects, for example, the plateau of growth has been because Other stormwater suppliers have not been keen to take scarce capacity input into that segment. But we don't have an assessment at this stage. It's project by project, and it's just flat roof growing quite a lot. But it's not extreme. I mean, ethics is also growing really, really well. So Very hard to quantify specifically, but they have raised price. So number 1, wouldn't you assume that this has And very favorable for your business and perhaps there's a normalization kicking in perhaps already in the second half, but also next year Where this very favorable situation is not apparent and therefore that might have a little bit of pressure on your business? Yes. Maybe if it stays on this level, and that would swing back a bit, It's not a big impact on the business. We're talking we have many segments in the business. And let's say flat roof would go down with £30,000 it doesn't make a big difference. We would maybe go after some other business instead or keep the business. It's not so dramatic, but we certainly see it on the mix. And there are two factors in the Flat Group segment, as you said, 2 segments that are a bit extraordinary. On the other hand, I think in today's market, if we wouldn't have had that business, we would have sold it Somewhere else in a richer with a higher price, maybe in DBI, sold a bit more, Pushed a little bit harder, pushed a little bit more on renovation because what happens in the situation in this, we look at Italy, I think you can decide how hard you push in the market Because we have a certain capacity in the quarter. We are ramping up. We have certain stock. And there's no need To push sales in a certain segment, if we don't have the tonnes around, then that will be a delivery in December. So there's still quite a lot you can do. So I think that if the market activity stays on this level, I think both the volume and the pricing environment are going to be pretty good in the market. And just in terms of the competitive prices, you've previously said that you would rather have competitive prices versus other materials and competitors In order to increase penetration of Stonewall rather than perhaps just increasing your margins and increasing your earnings and cash Could we say is that tipping point somewhere where you've taken enough market share to say, okay, we will increase our prices and have a better margin Yes. But it's more about being rock wall. And you see us do these things all the Fine. And short term, you could have increased prices more. I could have shifted the mix. But I think it's not smart that flat roof suppliers can't get flat roof and stone wall and open up some segments to From where they haven't been in certain markets. So we take that So Billie, you know my view on margins is I want good margins, but I honestly don't care too much about That is 13%, 14% or 12.5%. I want to have good margin and ability To grow the business and have a sustainable progress in the business, I'm not interested in getting 15% margin and You know, exploit the situation 2 quarters to get some extra money there and then offset every customer in the segment because we are We can do that. My guys can do that if we want to do that, but we don't want to do that. We want to look at it and try to tune it So it works for our customers over quarter, quarter, year, year, year and keeps working. So we don't do what we did 2,007, 2008 because the recall of that was awful and it took us years to fix. So I've said that many times, that's how we like to do. It might not swing as much up, but it doesn't swing so much down either. And that's what we manifest here. Super. Thank you very much and best of luck later. Stay safe. Okay. Thanks. The read rates will start tomorrow And the final is on Saturday. So tomorrow is just practice races. Good luck. Okay. Thanks. We look forward. Thank you. As we have no further questions, I'll hand back to our speakers for the closing comments. Thank you. And thank you all for joining today's earnings call. Hope to see you next week or speak to you. Bye. Thank you very much. Bye.