Earnings Call: H2 2020

Feb 19, 2021

Ladies and gentlemen, hello, and welcome to the King's Pan 2020 Preliminary Results Call. My name is Maxine, and I'll be coordinating the call today. You may do so by pressing star followed by 1 on your telephone keypad. I will now hand over to your host, Jean Murtur to begin. Team. Please go ahead when you're ready. Thank you, Maxine. Good morning, everybody, and welcome to the 2020 preliminary results of King's van. We've got an awful lot to get through today. So we'll just deal with the results in summary, first of all. We'll move then to The issues surrounding the Grenfell inquiry and then we'll circle back to delve into some more detail on the business, our strategy And the results, etcetera. So if you've got the presentation in front of you, I'd ask you to go to slide number 3, which is titled 2020 in summary. No doubt all of you have got to this already. But despite all the turmoil last year in our markets For all kinds of reasons, the business delivered a revenue that was down just 2% at €4,600,000,000 And a trading profit that was up 2% at €508,000,000 and that was after taking account Of the repayment of any government COVID subsidies that we received around the world service after taking that into account The repayment of it rather after taking that into account. And then that all in total resulted in an EPS up 1% to SEK206. In summary, the Panels business experienced a decrease of 4%. And I'd say consistent with all the businesses, there was a very strong recovery through the second half and in particular in quarter 4. What we're dealing with right now is, I'd say, a similar trend, good start to the year that we'll come back to in some more detail later. But a significant challenge for the business right now is the is handling of very significant cost Inflation, which we expect this year, if it goes as we feel presently to be in the order of €400,000,000 of cost Increases. So naturally that represents a very significant challenge for us at the present time. And later in the discussion, we'll go back So in terms of the Grenfell inquiry, The inquiry itself commenced in May 2018. And obviously, it has attracted considerable commentary of Kingspan and our testimony late last year in particular. The report on module 1 of the inquiry was completed in October 2019 And a central conclusion of this aspect of the inquiry was that the PE cord ACM cladding On the exterior building was the primary cause of fire spread on the tower itself. Given the relative length of time the Kingspan staff Both past and present were asked to attend and input into the inquiry and the scale of the ensuing media coverage. It's quite understandable that there are some misunderstandings perhaps about our role in the Granfelt Tower refurbishment itself. It's therefore important for me to clarify that Kingspan did not supply any of the ACM and just 5% The installation beneath that on the building was inadvertently our product supplied by a distributor without our knowledge or our advice. Module 2, however, of the inquiry, which is where it's asked presently and where it was just pre Christmas, Commenced in the first half of twenty twenty and this module covers testing certification and marketing of products in the industry. It's in this phase that has attracted much of the commentary around us. We've cooperated fully as you'd expect And a number of process shortcomings, particularly in our U. K. Insulation board business were highlighted by us and submitted to the inquiry. During the hearings itself, and I'm referring in particular to late last year, a number of key issues arose, 3 of which Firstly, the historical behavior of some of our people In that particular component of our business, we're identified well aired and entirely unacceptable And completely against the long held principles that we've had here at Kingsman. Secondly, for a considerable period of time, the K15 product that's been much covered relied on an outdated test certificates dating back to 2,005. Again, this was totally unacceptable. But beyond unacceptable, it was also extremely disappointing insofar as that Didn't need to be the case. It was extremely poor process on our behalf. And that's demonstrated by us more recently Having achieved 15 passes, system passes that incorporate the K15 product itself And these are passes to the very demanding BSA-eight thousand four hundred and fourteen large scale fire test. And this also includes a retest of the oft mentioned 2,005 certificate. It's important to reaffirm our full confidence in the safety of K15 When it's used in systems that have passed, as I said, the BS8414 test. Thirdly, there was an accusation of Kingspan having rigged tests on competing products. And this clearly was well covered as well. So respectfully, this is inaccurate And has been widely misconstrued. In relation to this issue itself, Kingsburn was actually responding to what was a public invitation for submissions. So it's not that we are particularly proactive. We were responding to a public process that was ongoing at the time around what insulation or cladding would be used And our intention was very simple and that was to highlight the need for large scale fire testing no matter what the system composition. The test referred to was in fact a robust construction, which would have been and remains compliant under what's known as the linear route. Taking this course in our view was important an important matter for public safety. And we were Exceptionally taken aback by Howard Gosse Spun. More generally, we completely acknowledge that these issues, Although limited to a small part of our business should not have occurred and we apologize for this and have done so in the past. We're resolute as a team in our efforts to fully meet our obligations in addressing all of these issues and have been actively engaged for some time with this already. To date, a good number of concrete actions have been implemented to ensure this cannot occur again anywhere throughout the organization. These measures include a review that has been carried out by international legal firm, Eversheds, the recommendations of which have been published today. We have set up a Board Committee for Audit and Compliance, which was constituted in December 2020. We have appointed a group head of compliance reporting directly to myself. And that individual has tentacles through the rest of the organization through product compliance officers in each business unit right across the organization. That team will be implementing The international standard 37,301, which is a compliant management system right across the organization beginning in Q2 of this year. We have committed to frequent and timetables independent third party reviews of testing and certification, which incidentally is the case already In the vast majority of the business, also in insulation internationally, but predominantly across the installations panel group that is the way it's been for Decades now in fact, and we'll come back to that later in the discussion. We've implemented a new code of conduct, Which has been issued to all employees in October 2020. Separately, we have ourselves constructed Europe's most Modern Fire Test Centre at our Holywell facility in the U. K. And this is designed to accommodate much more prolific R and D in the future. Once it's fully bedded in, we expect that this resource will become available to the wider industry, really for the improvement of all. And then we have also started the process of embedding what will be an industry leading PIM, which is product information management systems across the organization, which will dramatically improve traceability of our products into the future. I accept that we have been uncharacteristically slow in the implementation of some of these measures, but can assure you that we are on this matter in anger now. These historical issues are in no way reflective of our wider culture and the ethos that we have built over the decades. The commitments to which We've given this and to which our people are giving this entire impetus is testament to that. And I have no doubt that we'll be a much better business on the far side of this. Many of you will know us for years and those that do will know that's the case. As regards remediation, it's a highly complex and complicated subject, which is getting more complicated, I think, by the day and by the week. There are 100, if not 1000 of parties involved. There are myriads of issues related to buildings, Not simply around facades or insulation, it goes way beyond that. Clearly, clearly the primary target in the rectification of any of this is around the facade itself, which as I've said of any of this is around the facade itself, which as I've said earlier is not a business Kingspan has engaged in. But we clearly remain fully cooperative With the whole process as we go forward. We've engaged been engaged on this for some time now. And just to give you a flavor for What it's meant for us over the last couple of years, what our process has been, etcetera. I'll just hand you over to Jeff for some further detail. Thanks, Jean. Understandably, we have been engaged across this issue for At least 2 years in the U. K. Engaging with building owners and their advisory teams on these matters. And in the majority of those engagements to date, we've been able to close out those discussions without claim. Because to Gene's earlier point, K15 is a perfectly fit for purpose product when it's used in an appropriate building system. So today, a fractional percentage of those engagements have resulted in claim. By way of further context, I would highlight that worldwide across our business, we have a warranty provision of €119,000,000 on our balance sheet as at the end of December 2020. And we reserve through the P and L account every year Approximately €30,000,000 of costs associated with warranties. And our approach to these matters Worldwide is the customer is first. If we haven't met an obligation to a customer in a market for a product And haven't done what we said we were going to do. We fixed the issue and we remediated. And we make due an adequate provision for that when we become aware of the issue. And the situation in the U. K. In respect of these issues is that the claims traffic Has been relatively low. As we go forward, it is reasonable To suggest that there might be further claims coming down the tracks, we can have no certainty on that. But if you were to take the annual cost that we have worldwide for warranty of €30,000,000 if that was to increase by €20,000,000 to €30,000,000 over time. That would be a very manageable issue for KingSpan. And I don't mean in any way To minimize or trivialize the issue other than to just highlight that financially this issue ought to be manageable And we will absolutely do right by our customers in terms of remediating any areas where we have a responsibility for that. That's great, Jeff. Thank you very much. Now if we could take you please to a different subject altogether, which is on slide And it's titled our mission. Just to remind everybody of what King's Pan is about, why we're here and what we intend to be doing in the future. So, yes, our mission is clear and that's to accelerate a net zero emissions future built environment. We've been on that path Some time and are very resolute in remaining on that path into the future. In terms of the absolutes of what's been achieved thus far, There's been 164,000,000 tonnes of CO2 saved or will be saved over the life of the buildings that we have already supplied in 2020. There are vast sums of CO2. Internally, from a net zero carbon perspective, 35% reduction in absolute scope 1 and 2 greenhouse gas emissions Achieved Since 2013. In the year just gone by, we upcycled 570 or the equivalent of 573,000,000 plastic bottles either into insulation or into other products. And this is done predominantly through our Synthesia business in Spain. And from a natural daylight and ventilation perspective, we've generated the capacity to create the equivalent of 9,000,000,000 lumens of natural light annually To the daylighting systems that we've been supplying. And from a conserved water perspective, over 34 gigaliters of rainwater Will be harvested from the systems that we produced only in the year 2020. So we'll come to more of this in detail as we go through, but they are the key areas that we're focus on as a business that drives our strategy and drives everything we do from day to day. Yes. And then if people wouldn't mind turning to Slide 7, Just talk a little bit about what needs to happen in order to meet the objectives of the Paris Accord and stay below 1.5 degrees increase by the end of the century. Buildings have a huge role to play in that with carbon from our buildings and construction accounting for about 39% of carbon emissions globally. And much of that comes from the building stock and the operation of buildings. And without addressing the energy efficiency of those buildings, We can't really hope to achieve those targets. And fundamentally, we have to address the building envelope in terms of reducing the energy consumption of buildings. And that has to happen to enable more general electrification of industry and reduce the pressures on the grid. So renovation is going to be a key tool in the fight against climate change. And clearly, we've excellent products within our portfolio to address and break down a lot of the barriers that there are to renovation in terms of disruption and losing space and losing detail and natural light into building. So That's very high on most agendas all over the world and we would be glad to support that. Next, if we could turn to Slide 11, just to talk briefly on our Planet Passionate goals and some of the progress we've made this year. 2020 was really a foundational year for the program. We announced our 12 targets at the end of 2019. We really built the strategies and the structures around the business to support achievements of those targets in 2020 and build the teams around to ensure that these happen. And their high targets are measured every year. They're tracked throughout the year and everybody has every division has their own targets with respect to meeting them. And significant progress has been made in the year that there's many obstacles around in terms of being able to travel, in terms of being able to implement things. So Some of the highlights I'd pick out is 7 rooftop solar PV projects, our installations were commissioned in 2020. As Jim mentioned earlier, we still managed to significantly increase the amount of equivalent of waste plastic bottles that We will recycle this year up almost 40% and last year at €573,000,000 and 21,100,000 liters of rainwater Harvested. And a lot more detail will come out on our plan of passion progress in our report later in March. Bank. And finally, just to talk a little bit about our global expansion on Page 13. To highlight the U. S. As a case in point, we've progressed our panel line in Pennsylvania and that's to support the ongoing conversion to high performance insulation and building systems in the U. S. We're also Seeing very strong demand for our OptiMORE products, so we hope to support that with Align by 2023, if not earlier. We continue to expand in Brazil as it converts away from traditional materials. So we're pretty much opening a facility there every year and saw strong growth there last year due to the new facility in Sao Paulo. And in France, we'll be opening a hub which will be Panels and Boards and that will be a showcase facility and we'd expect to have that done by 2022. And just to highlight plans to open a panel line and a board line eventually in Vietnam, expanding our presence or kind of expanding our foothold in the Southeast Asia region. That's great, Katrina. Great, Katrina. Thank you. Sorry for confusing you. We're just going to reverse back one slide to 12, which is titled Circularity and Quad Core. Naturally, circularity is becoming a much more prevalent theme and rightly so throughout the world. And just to maybe highlight We're at Quad Core. The Quad Core Insulated Panel fits into that. So first and foremost, I think most importantly, it's actually a reusable product. Just by its very nature, it's a steel foam, steel insulated panel. It's modularly constructed and can To be taken down and reused either in similar or probably even lesser important applications. So that clearly avoids any process of having to deconstruct the product and all the energy, etcetera, that's involved in doing that. We have a good number of examples where prior insulated What we mean by that. Going forward though, we expect to get much deeper into making this A much more deeply circular product in the sense of being able to take it back. The metal by its very definition, the Steel is 100% recyclable. And even presently, our products contain up to 25% recycled steel in any event. And then we have we've developed a process through our Synthesia business in Spain, whereby The quad core itself can actually be taken back to a polyol. And that polyol constitutes It's about 40% of what becomes the new blend. So we will be setting up our first take back center in the U. Okay. Probably in the Q3 and we hope to follow that by a 4th before year end in our Insulation business, More than likely in Selby in the U. K. So we're at the early stages of this. We'd be absolutely confident about how we can take back And either reuse or recycle materials into our products. And to be frank, we've never really had to Confront this so far because at a level of any serious scale, our products are relatively young. So they're not coming down from buildings. And obviously, we expect the average life of a building to be 40 years. But in reality, many of them can be much longer than that. So this is all about us being prepared for the future whenever that take back commences. But so far, it's not been a kind of necessary theme for us at Kingspan. But very excited about what we can achieve on that front. Then to move on to Slide 14, which is tied to key innovations, And actually a central part of our business all the years. Just to highlight kind of a handful of areas that we're focusing on at the moment. The power panel development has gone very well after being held back naturally a little bit last year. We expect to go live on the initial production of this around mid year. There's obviously a very lengthy testing and accreditation process the product has And just to recap what this is, is a combination of panel and solar PV. So it's around the theme of insulate and generates is where this product will be positioned. So you've got Your structure, you'll have your insulation, your water tightness and your power generation all in the single element. And yes, we'd be very enthusiastic about where we can go with this product in the future. And when you think that in 5 years' time, it's almost unimaginable that a roof will be built Without some form of power generation on it. And we'd like to get a head start on that by having a fully integrated product on the market. Hopefully by the end of this year if we can get through the accreditation. The Alpha core has been a little bit delayed. Again, good work ongoing, but that's been very reliant international collaboration. And this requires to be physically present, us in places and other people with us. And that has pushed it back a little, but we're trying to accelerate that again now. Quad Core continues to roll out. The second version of which we would hope to get to by around the end of this year and that will be all around improving on each of the quads And primarily on thermal and on fire. And that's something that's when we get going, will be launched initially in the U. K. And Ireland and then we'll roll it out from there. With regards to cool term and not to get too technical here, but in euro classifications there's A, B, C, D, etcetera. We expect to move the cool term range or at least the key product areas within cool term up to a standard B class By around year end of this year. And then our most optimum insulation from a thermal perspective is what we call Optimore. It's got an extraordinary thermal performance, 7 or 8 times more efficient than traditional materials that are out there. It's been it's relatively embryonic, but now it's beginning to get a foothold in particular applications And actually a very strong progress in North America in particular. And again around this year, we want to develop an A Class Or what's otherwise referred to as non combustible. So to have our highest performing insulins with non combustibility Will be our targets to achieve this during 2022. Now there's a whole raft of other developments ongoing throughout the organization, but We feel that these will be key features of the business moving into the near term future. So now I'd like to hand you back to Geoff to take you through the essential detail of 2020. Thanks, Jean. And I'm turning now to Slide 18 in the deck, financial highlights, just to run through the key highlights of 2020. So revenue of €4,570,000,000 down 2% year on year at constant exchange rates flat year on year. Trading profit of €508,000,000 up 2% or up 5% at constant exchange rates. As we referenced earlier, we took a decision in December To repay the furlough incentives worldwide, that was €17,000,000 And that's reflected in that trading profit number, the repayment of it. Our earnings per share of 206.21 percent ahead. We've proposed a final dividend of 10% of earnings or €0.226 and I'll come to our dividend policy just later in the presentation. A very strong metric during 2020 was free cash flow. So that was up 42% versus the previous year at a little under €480,000,000 Our net debt was Significantly lower than we would have guided back towards the end of last year. We came in a bit about €50,000,000 lower than consensus. Our leverage at the end of 2020 net debt to EBITDA of 0.4 times. Our trading margin was strong in 2020, 40 basis points ahead versus the previous year, and I'll come to the constituents of that by division in a second. Our effective tax rate was down slightly during 2020 to 16.3%, primarily due to the geographic mix of earnings. And we continued to generate strong returns on capital employed And making further progress of 110 basis points to 18.4% for 2020. And moving to the margin performance on Page 19. Pretty much every division recorded a Strong margin performance during the year. And there was a couple of key themes within that across the business. Firstly, we did benefit from Some raw material deflation in the earlier part of the year. And then secondly, from an overhead perspective, Particularly in the early stage of the year, some of the more discretionary overhead type items were curtailed for a period of time At the onset of the pandemic, but that normalized towards the back end of the year. By division, Insulated Panels continue to make progress, margin performance of 11% versus 10.4%. Within that, Quad Core continues to advance. Its sales grew by 33% during 2020. So it now makes up 12% of our insulated panel sales. Within Insulation Boards, an exceptionally strong margin performance 14%. The that margin performance will not be repeated in 2021. We'll come to the raw material piece, I'm sure, through the discussion. Light and Air At 7% was due primarily to the integration of a very significant development in the Light and Air division during the year, which was the acquisition of Colt, but the trading margin within that division is progressing to plan. Water and Energy It delivered a strong margin performance of 8%, a particularly good performance on the cost base of the business across all categories. Data and Flooring performed well, particularly strong performance in the data center segment. So margins there landed at 13.1%. So all of that combined to deliver a group trading margin of 11.1%. Turning to the sales and profit bridges on Page 20. You'll see those set out. Firstly, on sales, The principal constituents of the sales move year on year. Firstly, currency was a negative of 2% or €102,000,000 Acquisitions contributed 7% of our sales growth during the year at 3 €35,000,000 And underlying sales were down 7% or €316,000,000 And much of that It was in the earlier part of the year when we had the significant disruption associated with the pandemic. From a trading profit perspective, Currency was minus 3% or €14,000,000 year on year. Acquisitions Contributed 6% or €31,800,000 to profitability during 2020 and underlying profitability Down marginally, down by €6,600,000 Turning to free cash flow on Page 21, A standout year from a cash perspective. EBITDA, naturally the key contributor to it at €596,500,000,000 We had a very strong working capital performance. So working capital reduced by €107,000,000 during the year. Our working capital to sales ratio at the end of December was 8.8%. Now that compares to A 3 year average of closer to 11.5%. So I think there were some specific Issues that gave us a low working capital level at the end of 2020. Inventories Generally across the business, we're lower than normal. So we would expect the working capital percentage to normalize through 2021, not least for reasons of raw material inflation, which we've referred to. Other items on the free cash flow bridge interest outflows €21,600,000 tax payments of €89,700,000 net capital expenditure of €126,000,000 during the year, All combining to give us a little under €480,000,000 of free cash generation during the year, up from the €337,000,000 That we delivered in the previous year. In terms of how that played out on overall net debt, that's set out on the next page 22. So we started the year with €633,000,000 of debt and free cash substantially reduced that during the year. Our acquisition spend during the year was €46,000,000 So we ended the year with €236,000,000 of debt. Our dividend policy is set out on page 23. During 2020, we outlined that we were going to review our dividend policy. As part of that review, we formally sought shareholder views. And our objectives in assessing the policy Was to balance our dividend with capital allocation for longer term growth and to preserve our ongoing balance sheet strength. The view of the shareholder base generally was to prioritize The longer term capital growth, whilst also affording some space for annual income. Our outgoing policy That was a 25% payout. Our revised policy is to pay out 15% of earnings with effect from our 2021 financial year. And as an intermediate step, we've announced and are proposing A final 2020 dividend, which amounts to 10% payout for 2020 or a dividend of 0.206 $0.08 per share. Our return on capital profile is set out on Page 24. This is a metric which we drive through the business year in, year out. And we've recorded further progress During the 2020 financial year, our return on capital employed landed at 18.4% For 2020. Our sales by geography are set out on Page 25. And for What we've done on this occasion is given the extent of our European sales territory, we've given some further analysis of that. We've I identified 2 European regions, Western and Southern Europe and secondly, Central and Northern Europe. So the if you take Western and Southern Europe, it comprised €36,000,000 of our revenues in 2020 as compared to 33% of the previous year. Central and Northern Europe, pretty consistent year on year, 22% in 2020 versus 21% in 2019. The Americas, again, consistent year on year, 20% in 2020 from 21% the previous year. Britain comprises 16% of our revenues in 2020, down from 18% the previous year. And rest of world is 6%, so pretty much in line with the previous year. And with that, I will hand back to Jean. Thank you very much, Geoff. We won't labor through all of the divisions, but no doubt we'll get time to do that over the coming days. So we take you to Slide 32, which is titled Outlook. And as we mentioned earlier, 2021, we're almost 7 weeks through 2021 now And it started very well in fact. We would have noted that towards the end of last year, our backlogs were strong. Record backlogs in fact in a lot of countries. If anything they've got stronger through the 1st 7 weeks. So trading top line and bottom line, as I said, been very positive. The raw material issue, again, which we referred to earlier on, is absolutely a challenge. We our primary purchases are around steel and polyurethane related chemicals amongst others. And we're seeing dramatic inflation in both of those. And it's unusual for us to see it in both materials Concurring, but it's happening worldwide, very steep in some cases well in excess of 50% increase in a period of 6 months. So if this level of pricing inflation or what we expect through Q2 is to stick, There'll be a year on year increase of approximately €400,000,000 Now obviously, our approach to this is, as always been, to recover it. That effort is underway since quarter 4 last year. Naturally, you'd expect some lag, which there will be as We've got order. We've got backlogs to committed backlogs that will obviously be at previous prices. But In the past at least, we've always been successful in getting the job done and I have no doubt we'll get that done again this year. And then just more broadly, the balance sheet as Jeff referred to is in great health. And our appetite on the development front is as much or more than it's ever been. So we're well positioned to Well positioned to tackle what comes our way and to take whatever opportunity comes our way as well this year. So Maxine, we'll open that to questions now, if that's okay. Our first question comes from David O'Brien from Goodbody. Your line is now open. Thank you for taking my question. 3 for me, please. Firstly, you very clearly provided a lot of reassurance around Case 15 Testing. Could you elaborate a little bit more on the comments you made that you've reviewed the remainder of the cool term product range as well? Secondly, in regards to your commentary on positive trading year to date, does that include the U. K? And can you give us some color on that performance from And in the same breath, are we seeing any moves from rigid insulation to fiber? And finally, just on M and A, look, we've all seen the press speculation indicating the process you're involved in, in roofing membrane, which Subsequently transacted a multiple implying single digit returns on capital. How do you view opportunities in that market going forward? And given that there is a positive long term outlook there coupled with lower interest rates, do you have to reassess the multiples you're willing to pay to get involved there? Thank you. Okay, David. Thanks for those. We will start in reverse, if So in terms of yes, there was a widely publicized opportunity last year that we were involved in. The number got away from us. But the opportunity and in general, that kind of end market is something that we've You know, targeting for some time. We have a rigid board presence in there, but our membrane presence is limited to products like top deck, x deck and 1 deck, Which are actually progressing very well. But we need to get deeper into it. I guess like at a very broad level, We live up to around €2,000,000,000 of firepower. And do we have to review multiples? Quite possibly, although we still need to maintain discipline. We've been a returns oriented business Forever. And I think we clearly don't want to abandon that. But as you rightly point out at the current interest rates and particularly if we can secure 10 year money at extremely low levels that might enable us stretch a little more than we have done in the past. On trading overall, yes, like almost without exception, we've had a good start. Like very few markets I would be at par or below last year and that includes the U. K. So both the panels and the Board businesses in the U. K. Have actually Traded have traded well in the early part of the year. And the order bank for insulated panels, which Obviously, by its very nature, it needs an order bank because it's all bespoke is significantly up on what it would have been in February last year. You asked about rigid to fiber. And it's It's very clear in the kind of high rise residential applications in the U. K. In particular, there has absolutely been a shift. But that's been a mandated shift, I'd say, rather than necessarily a market shift. So that has been happening over the last couple of years. But more generally and just as a barometer, we as you know, we're the largest producer of mineral fiber cores insulated panels in the world and by some stretch Within our overall range. And in 2019, that represented 11% of our global volume. And in 2020, it represented 10% of our global volume. So I wouldn't be highlighting that as a shift really one way or the other, but it's definitely not a negative shift. And obviously within our Panels business, the Quad Core aspect of it has been the key highlight And it's now up to 12% of global sales and growing even more rapidly this year. Then in terms of The wider testing of cool terms as we've said, no issues of safety or materiality have been highlighted. There's been a historic marketing inaccuracy that's been well aired at the inquiry. That obviously came up. But that relates to A classification actually that since been replaced by what's known as the Euro class norms. And these are norms that they apply right throughout Europe and indeed the U. K. And we comply at many levels and through Across many different products and many different applications, we comply fully with the euro class norms. And just when we're on the subject of A wider review that we haven't managed to get through the entire organization because we produce 1,000 and 1,000 products. But what I can say to you is that the vast bulk of The group and in particular the insulated panels business is independently reviewed and validated Oftentimes several times annually. So this happens through bodies like Factory Mutual, United Laboratories, the Lost Provincial Council, Just to mention a few. And this involves regular site visits, samples being taken randomly off for testing. And that's been a process that actually for decades we've gone through in our panels business in particular, but increasingly in boards as well. And this process really provides this assurance is not just to us, but the wider stakeholder community around the performance of our products. So Yes, 3rd party assurance is the way to go and we'll be increasing that level of oversight in the business into the future. That's great. Thanks very much. Thanks, Evan. Our next question comes from Flor O'Donohue from Davy. Your line is now open. Thank you. Good morning, everyone. Hi, Jean. Hi, Jess. Hi, Trina. Thanks for all that. It was very comprehensive. I'll just stick with a couple. If I can go back to the raw materials, Thanks very much for giving us some good detail on that. Just wondering on the €400,000,000 is it correct to kind of suggest that effectively means you'd be looking to Push prices up this year by circa 8% to 9%. And then secondly on that, just where it's coming from, You obviously mentioned steel and chemicals. Is it pretty evenly distributed between the 2? Or is it more skewed towards 1 or the other? And also, I guess, just Remind us again of the bill for each of them in terms of what the level of likely spend is. Second thing then is if I May I also just go back to M and A? Just wondering in terms of the pipeline and what the outlook is for this year? I know you have a couple of deals there that are either Just about to close or in the process of closing. But just beyond that in terms of maybe deploying some of the balance sheet capabilities that you have? And then just as an addition to that, just interested to hear your thoughts on, you've obviously decided to put facilities in Vietnam, just Okay. So you got quite a bit in there. So from a raw materials perspective, yes, that'll be about right to say we'd be looking On average for increases of probably 8% or 9%. I think in some product categories a lot more Bearing in mind, we're probably not seeing this inflation as much in some of the other divisions. But yes, that's and that's a tall order incidentally. Our wish clearly would be to recover margin on the increase in materials as well. But naturally that will be difficult. Our starting point will be to get the €400,000,000 And initial indications are reasonably positive on that front, but it's a challenge as I said. In terms of proportionality, steel is definitely the bigger proportion, not just because of It's scale, but also in the level of increase. So essentially kind of what's happened here is that I'd say the industry got caught out a little as demand was lower last year. And I think demand has probably recovered in some areas more rapidly than they might have expected. And the capacity isn't coming on stream commensurately. So that's where the tightness exists. It will be interesting to see where Stila goes In the second half, let's just see how that evolves. From an M and A pipeline perspective, There are a couple kind of ready to go now as you pointed out. There's the Typical bolt ons still underway throughout the business and plenty of activity on that front as you'd expect. But overall, what it says that The pipeline is probably more lively than I've ever seen it. So the opportunity is there and we've obviously got the balance sheet scope To execute as well. So that's the position there. In terms of Southeast Asia, so we've been supplying that Predominantly from Australia, sometimes from Turkey or India, but predominantly from Australia. And it's very, very hard to actually Get any kind of deep foothold in the market from a distance. So Vietnam is an extremely interesting and vibrant market. It's an excellent distribution point for a lot of the Southeast Asia area. The key areas that we will be focusing on there is Food, Technology and Distribution. And they're all areas that our product sets ideally geared towards. So we just think it's We think now is the time where we would expect to settle on a site for the insulated panel business hopefully within the next month or 2. And then the insulation business will be hot on the heels of that. So it's we're up and at it. And we have a team appointed for the execution of that project During 2021, 2022. Just on the spends themselves, largest on that question and these are 2020 numbers and clearly in these inflation times a bit of a moving feast. Well, the spend for 2020 on steel was approximately €1,000,000,000 and on chemicals approximately €500,000,000 Both of those are 2020 numbers. Our next question comes from Yves Bromhead from Exane BNP Paribas. Your line is now open. Good morning to all of you. First of all, I just want to say congrats to Eugene and the success of King's Pan throughout So all the best for his well deserved retirements later this year. If I could, I'll have 3 questions. Sorry, thanks, Edin. Three questions on my side. Maybe number 1, just coming back to Grenfell, But also more generally to the wider high rise dwelling issues, including the kind of cladding scandal and the installation facade repair works outlined by the government. I just wanted to understand how you're thinking around sort of the provisions, the financial risk and if Kingspan could So be held liable, sorry, for some of the remediation works that needs to be done on those high rise dwellings, including maybe below 18 meters as well? My second question is just whether you've seen any damages and impact on your position with customers around More generally the foam insulation industry from that Grenfell issue, but also related to Corfirm in the UK and in Europe. And last but not least, my last question is on the UK and EU renovation potential. The UK has just Formerly announced sort of its new Part F and Part L of the building regulation. London is tendering for a €10,000,000,000 social housing renovation package, So quite huge numbers there. What is your view in terms of the opportunities for Kingspan in the U. K, but also in the EU in terms of renovation? Thank you. Okay. Yes. Thanks very much, Yves. So from a Grenfell and from the tower itself, it's obviously very difficult to speak about that in particular. I think We hopefully characterized pretty clearly what our position was on us and our lack of input in any respect Whether it was design, construct advice or anything on the tower, not to mention the extremely limited amount of materials. So that's a project that will take its own course. More generally as Jeff expressed, like the position is genuinely it's extremely complicated. I know what the government announced recently and obviously the focus of the government's announcement was very much around The ACM facades, like that's clearly been highlighted as the primary issue. And it certainly seemed to be The central point of what the government's announcement was last week or the week before. From our perspective, we've where our product Is not backed by proper large scale testing and certification or has been used in the wrong application as a result directly as a result of Poor advice from us. We will absolutely stand up and deal with those issues. But where not and where the product is completely compliant with What were or are the building codes? That kind of speaks for itself, Yves. But there's a long road to go here. There's, as I said, 100, if not thousands of parties involved. And bear in mind you all of this that Kingspan doesn't design anything and it doesn't construct anything and it doesn't sign off any buildings. It's never been our role or our responsibility. So It's deep and wide the issue. In terms of liability below 18 meters, that's not something we've encountered at all. We haven't even been challenged on it, never mind of liability. Whether it spreads today or not is yet to be seen. But I think lots of other things need to be taken into account, insulation, how it performs long term, What the implications are for the structure of the building, the cost of the building, there are lots of things that need to be taken into account, Not simply the fire subject, which is obviously one we major on. So we need to be careful with this. We need to also save energy For the long term as well and we've got the best solutions to achieve that. In terms of trends in cool term, unsurprisingly They would be under pressure in the U. K. And that's probably been over the last couple of years, Yves, To be honest, obviously, the product got dialed out of the over 18 meter. And naturally, you get some contagion into other applications. But interestingly, overall, the board business, whether it's PIR, XBS or cool term, is actually up And up quite materially year on year even for the 1st 7 weeks of this year in the U. K. So it's maybe shifting from one technology to another, That's our experience overall. Elsewhere, like in Europe, Western Europe up into the Nordics, very fast growing markets Focal term and that's been completely uninterrupted. If anything, it's actually accelerating. From a renovation perspective, the opportunity is clearly large for us. We're about 25% renovation as a group. And that's been growing as a percentage of our business. And I know historically we would have been seen as a primarily newbuild business, but our solutions go way beyond that. They've been growing. And I'm always slightly Skeptical of these measures and green deals and whatever. And our position very much is kind of bring it on and when it comes, we'll be able to assist with the solutions. So it's not something we bank on. Okay. Thanks so much guys. Thanks, Yves. Thanks, Yves. Our next question comes from Gregor Kluglitsch from UBS. Your line is now open. Hi, good morning. Thanks for taking my questions. Can I just go back on sort of the M and A side? I think Obviously, you kind of called out a healthy pipeline. I guess I'm interested whether anything more strategic there. I mean, obviously, Firestone Would have been on the membrane side, but if I recall, now dating back a few years, obviously, there's obviously a few strategic areas Such as membranes, but also industrial insulation. You kind of wanted to make a bigger impact and obviously, I would say not very much has happened since then. So Just maybe flesh out your appetite or whether there is anything larger out there that could kind of move the dial on those particular areas. And then maybe going back, so just to be very clear what you're saying on the product side. I mean as far as just to understand on the Mid rise buildings, we understand in the UK, 18 meters plus, your product isn't being used at all. What's your exposure to that sort of suite of 6 storey? And is there anything happening in that regard? Is there any market share loss that you can see? And then maybe one on the Q1. So you've highlighted a few times, it's quite strong. Could you put some numbers around How strong is the Q1? I appreciate by the time we get into March, you'll be lapping Kind of COVID comps, but as it stands today, are we talking double digit growth organic? Just whichever way you'd like And maybe one small one on CapEx, if you could just guide us, that would be helpful. Thank you. Okay, Gregor. So just from an M and A perspective, as I always expect, plenty of bolt on activity. Obviously, it was there was a bit of a drought last year because there Clearly logistical roadblocks, but we have a fairly full pipe of kind of small to medium sized bolt ons that have Historically worked very, very well for us. And from a strategic perspective, you're right. We've highlighted for some time membrane and industrial. If you recall, at the time, we said this was our long term view of completing the envelope. It wasn't something we were expecting to be imminent back whatever 3 or 4 years ago. I suppose our intent became very clear late last year. It's a pity we missed out on that. There hopefully will be other opportunities in that sphere, small, medium, potentially large. And I think the same applies for industrial. That remains very much part of our scope. We're probably running up at close to €200,000,000 of organic revenue in Our industrial insulation business covering pipes and ducts and applications like that. So organically, we've actually been growing very well in that area. And yes, we're intent on moving that along at pace and working on some opportunities there. From a product perspective, above 18 meters, you're right to some extent. But we do actually have a product called K Roc in the range, which is an OEM Produced Mineral Fiber Products. So we are actually active in the above 18 meters, although we might not shout about it. And we intend to grow our position in that area through that. And as I said earlier, when we get around to eventually having the Alpha core product. That's going to be key. So we do have a presence in that and also in our insulated panels solutions In some cases and indeed with our dry design facade solutions, we're predominantly over 18 meters. So we do have a presence in that area. Just on trading to date, Gregor, and I have to stress it's early days. We're very early into the new financial year. But in the 1st 6 weeks, our sales were ahead by approximately 20% versus the 1st 6 weeks of last year. And order intake globally in our insulated panel business is up by a similar quantum in the first 6 weeks as well. So it is a strong start to the year, but very much early days in terms of 2021. And a couple of extra trading days. A couple of extra trading days in January, absolutely, in terms of the way the trading calendar fell. Okay. And that's organic, right? That's organic. Total organic. Yes. Okay. Thank you. And the CapEx? CapEx for 2021 is €150,000,000 approximately. Group. Our next question comes from Arnaud Lehmann from Bank of America. Your line is now open. Thank you very much. Good morning. Quick question, if I may. Firstly, could you say a word on King Pan culture? Appreciate for any business you try to find the right mix between pushing for more sales volumes, but also Sticking with compliance and regulations and as you highlighted, there was issue In the UK Board's Business, could you please explain, coming back to basics in a sense, what is the culture of King's Pan? And how can we feel confident that this was really a localized issue with the UK board business rather than a broader Issue with the culture of the company. That's my first question. Secondly, just coming back on M and A. Could you give us an indication of the multiples you paid, I guess, for the last few deals? I'm thinking of Colt, Terra Steel, Trimo and I think Caedome that you announced today. I'm assuming this was kind of single digit EBITDA Multiples. And am I right to understand from one of the previous question that you would be ready going forward to Go towards kind of double digit EBITDA multiples for larger acquisitions. And just coming back, if I may, On Jeff's comments around claims in the UK, I think you say you spend on a rolling basis €30,000,000 a year on claims globally. And if it was to increase by €20,000,000 to €30,000,000 that would be manageable. And that's a fair statement, but where Do you think going to €50,000,000 or €60,000,000 a year in total is your expectations or that's just a scenario analysis at this stage? Okay. Okay. That's a bit wide ranging now. So in terms of culture, So you'll be aware that the origins of the business and very much today the ethos in the business It's family oriented. And it's always been the way. And like coming with that, you'd expect Honesty and integrity to be absolutely central to our culture and it is and always has been. Alongside that, obviously, we're a business. It's a demanding environment. It's very entrepreneurial in its style. But none of that should ever be confused with creating pressure to do things That we shouldn't do or to cut corners or to do anything like that. It's a demanding environment at all levels. Like it's demanding about What we make, how we make it, how good we make it, how we sell it, how profitable we want it to be, it's demanding at all levels. It's not demanding over on the right hand side of the equation or the cost of the left hand side of the equation. That's not the way it is. It's never been the way it's intended to be. And rightly or wrongly, we've worked on a basis of trust probably more so than we should have I'd say it demonstrably more so than we should have. So I think trust is still something that's key to have between people and particularly in the type of culture we have. But we clearly need to be more systems robust to be able to be belt and braces around that and not just rely on it. So to be quite honest with you, We got caught out on the trust equation here and it's as simple as that. That's the long and short of it. And Yes. We'll be absolutely resolute in ensuring that the principal of the business gets re embedded, if you like, in that area of the company. So It was a big letdown for us, probably much more so than it was for anybody outside, I can assure you. In terms of multiples, We're probably buying at an average, I'd say, of 8 ish At the outset, it's probably been where we've positioned things. Some are lower, some are higher for obvious reasons. Whether we get pushed to The higher multiples are not it's very hard to buy high profile assets probably for 8x at the moment. There are some very decent businesses that can be bought at that and indeed below depending on what end sector it is. But some of the more higher profile deals that get auctioned, it's difficult to get them at that. So we may have to brighten up a little in some areas. Arnaud, if you wouldn't mind just repeating that last question you had in respect to claims. We were competing with a drill here in King's Court, so I didn't quite hear it. Sure. Happy to hear this building activity happening in Ireland. Very, very important, yes. Absolutely. No, I was just coming back on your comment in the introduction. You said on the claims that you were spending about €30,000,000 a year Globally. And if it was to increase by another €20,000,000 or €30,000,000 that would be manageable. And I think that's a fair point. But I guess my question is where does this €20,000,000 to €30,000,000 increase is coming from? Is this just an example? Or you think that's a realistic outcome With what's happening in the UK? What I would say, Erno, is that that number at this point It's nothing close to a run rate. We incur across all markets currently about €30,000,000 The claims experience in the U. K. Currently in respect to the issues that we've spoken about at the moment is very, very low. So it was more to just outline that in a scenario where The claims experience was to increase by €20,000,000 or €30,000,000 That's a situation that KingSpan could adequately handle. But it also has to be stressed that that's not something that we're currently seeing at this point. So we remain very much Tuned into this. And to repeat the point that was made earlier, where Kingspan has an obligation to a customer And has responsibility to our customer. We will absolutely step into that and deal with this as we do in every other market around the world and have done so for many, many years. Our next question comes from Lush Mahendra Raja from Berenberg. Your line is now open. Good morning all. Good morning. Thanks for taking my question. I've got 3 questions, if that's all right. The first is just On sort of the dividend and sort of capital allocation out there, I know you alluded to it at the H1 results. But I guess, why are you doing this now? I know you've already given us CapEx guidance for next year, but should we anticipate an acceleration in sort of organic investment and sort of new factories Going forward and particularly in the out years. Just secondly on Coolfirm and sort of getting it to a B class. Presumably that still can't be used on high rise buildings, but does that add any additional scope elsewhere in terms of other buildings, Whether for the linear route or large scale testing. And then just lastly on raw material inflation, Historically, that's sort of increasing share of core term in the mix is sort of offset a lot of that raw math inflation, particularly in MDI. Is that something we could expect again? Or is it or is the sort of more general broad based raw mat inflation going to mean we shouldn't see that this year? Thank you. So yes, I'll start just with the raw material piece. You're right. Last time out when the MDI went completely crazy, it was an opportunity For conversion actually up into Kulturm. We would clearly see the scope for that depending on how high MDI rises. But Right now, we actually don't expect it to get to quite as lofty a level as it did a couple of years back. But if it does, We have the scope. There was also conversion at the time into XPS and EPS on the continent depending on what the applications were. So Yes. We obviously have a spectrum of materials that we can substitute if that's the case. And in particular, if the raw material becomes short, Which was more the issue last time out. So we got scope there. In terms of CoolTerm Lush and B Class, We actually have a product currently that does achieve that in one of the applications. And it's more to try and Get that not across the entire range, but more across the all of the critical applications. From a high rise or above 18 meter if you like perspective, the product is sold in robust systems day in and day out Still and if anything it's actually increasing its share in some markets. So the B classification product With the right facade is an extremely robust solution. And like I know It's not the time for certain markets to be considering that. But I can tell you from an absolute performance perspective, it's extremely robust when it's Partnered with the right external facade material. And then CapEx? CapEx, Yes, CapEx for 2021, approximately €150,000,000 I think that's probably a reasonable run rate going into 2022 at this remove from that. So I suppose the currently we have in excess of €2,000,000,000 of development capital available. So Naturally, the lion's share of that over time will be deployed by way of on strategy M and A will be the significant piece of it, And we continue to organically develop the business as well at that level. Okay. Thank you. Thanks, Lars. Our next question comes from Yassine Tari from On Field Investment Research. Your line is now open. Yes. Yes, sir. Good morning, gentlemen. So a couple of questions for me. You're talking about increasing your price by 8% to 9%. Can you hear me? Yes, yes, can you hear me? Yes, we can. Hello, can you hear me? Yes, we can hear you clearly. Can you hear me? Yes, perfect. Yes. So you mentioned okay, perfect. So you yes, perfect. So the idea I think is that you mentioned that you were increasing prices by 8% to 9% In your insulation business, but the question I have is that do you think all of it will stick? To what extent are you comfortable sticking to this, let's say, 90% price increase if it means that you will So that would be my first question. And my second question Would be in addition of the raw material inflation, do you see any availability issues for MDI? I understand that one a couple of MDI plans, for example, one in Texas has been shut down. There might have been some Also related to Brexit to get some MDI into the UK. Could it impact your capability to supply your customers? Okay. And have you another question? So those would be my two questions. Okay, okay. Asim, so on the inflation, as we pointed out, Jess, 8% or 9% across the piece, I think in some product Hello. Okay. Can you hear us? And maybe move on to the next person. Maxine, can you hear us? Yes. You're standing loud and clear. We seem to have a problem with Yassine's connection. So maybe if I can You can, okay. So yes, Yassine, We do expect the prices to stick. No, no, I can hear you. I can hear you very well. All right, Maxime, would you just cut him off please and we'll answer the question. Please continue. Thanks, Yassine or Maxine. So yes, we do expect if you can hear us, Yassine, we do expect the prices to stick when we eventually get them embedded. And in terms of market share, it's not our expectation to lose market share. That might be the case in the early part of the effort to gas increases that can happen. But ultimately everybody else is going to have the same inflationary experience and it's to such an extent I don't think they have an opportunity but to pass them on. You're well up to date in terms of the MDI issue in taxes. Couple of days ago BASF declared force majeure on their MDI plant in the U. S. And that obviously is creating a little bit of tension. As things stand, we're not aware that we're going to be cut off, but naturally we'd be very mindful of that. And as I said in the earlier answer, that we'll be looking at product substitution if that does become an issue. Thank you. Our next question comes from Cedar Exelon from Morgan Stanley. Your line is now open. Thanks very much. One follow-up question on remediation. Appreciating that there is quite a lot of uncertainty. Is there any information that you can give associated with The percentage of revenues or an absolute revenue number that may be linked to selling CoolSurn products that Didn't necessarily have the right safety certificates associated with it. I don't know if that's a number that you guys have run internally that you could share. Yes. And I don't mean to be in any way kind of not answering that question, but It's very complicated. Like the we've done a huge amount. Like I mean the K15 products and I'm joking now is the most tested insulation for high rise in the U. K. By some stretch. So we have a very extensive bank of live and valid tests and certifications. We won't know until we go through building by building Exactly what the construct is. Does the certification cover it or not? Did that have anything to do with King's Pan in the 1st place? Was it our advice, etcetera? There's a lot of moving parts in it. And to be honest, we just can't answer that question. But as Jeff said, our experience to date has been well covered. Yes. And the only point that I would add to that is that at its peak, K15 sales annually would have been €16,000,000 per annum. So that was the quantum of it at its peak. Clearly, it's a lot less than that now. Perfect. That's very helpful. Thank you. Thanks, Judith. Our next question comes from sorry, continue. No, you go ahead, Martine. Our next question comes from Bijaf Sheer from HSBC. Your line is now open. Thank you. Good morning. I have two questions So first one is on margin. Would you be thinking about going back to around 2018 kind of Credible operating profit margin for this year, considering the significant raw material increase, which we are kind of experiencing right now. And the second question is about the volume. You have seen a great start to the year. Does that mean that we are in for a recovery of 2019 volume in 2021? Well, just on the margin point, I think given the lag, Which is part and parcel of the recovery effort. It's unlikely that we will repeat the margin performance of 2020, which was 11.1%, that's an unlikely margin for 2021. It's more likely to be Mid 10s, 10.4%, 10.5%, allowing for that lag. That's our best sense of it at this point. And the second question. And volume and could we recover to 2019? It's far too early in the year to really call that. But like already the volume actually is ahead of 2019 in fact Across most businesses. But as I say, we've had a particularly good start. We had the benefit of an extra couple of trading days in January. But I think encouragingly our intake is has been strong. And obviously in the insulated panels business that kind of gives us 2 to 3 month view on things as well. So that's encouraging so far. Thank you. Okay. Thank you very much. Thank you. Our next question comes from Rajesh Pataki from JPMorgan. Your line is now open. Yes. Thank you. Good morning, all. First question I've got is on order book that you mentioned. Good level of order books in the final business. How much of that is supported by the pre buying activity that you mentioned at the Q3 trading update? Or if I try to put it another way, the underlying improvement in the underlying position order book position, if you can give some color on that, that would be helpful. The second question is on the provisions and claims. The incremental provision of €20,000,000 to €30,000,000 potentially, Is that essentially aimed to cover an increasing proportion of potential claims in the UK alone? Or are you considering potential claims in the business as well. And lastly, on the wages, if you can provide some color on how you see The wage cost piece evolved this year, particularly given there were salary cuts globally for a couple of months during last year. Thank you. Thank you very much. So just in terms of the backlog, you'd be right to suspect some pre buying. There's it's very, very hard for us to distinguish between what is and isn't, except what we've been seeing is this level of intake has been Pretty robust for the last 3 or 4 months. So it's not something that's been just very recent. As I said, we'd be encouraged by it continuing through January February. So Honestly, it would have been a concern of ours in Q4 last year, but we'd be encouraged by the progress in the at the beginning of this year. So yes, there's some degree of it, but as long as somebody keeps pre buying, that's the main thing. Yes. As regards the claims piece, Rajesh, the additional €20,000,000 to €30,000,000 that I've mentioned just To absolutely emphasize, that's not a run rate we're currently seeing. It was more just to outline if that were to happen, The adequacy of our financial position and being able to deal with that. So we just have to take that as it comes and address it as it comes. But that's the situation on that. As regards payroll, during 2020. At the onset of the pandemic, we implemented some very significant Short term pay reductions across the business, we reversed those in the second half of the year in light of the trading performance of the business. So that's We're back now to a normal run rate from a payroll perspective. Great. Thank you. Thanks, Josh. Maxine, we take one more question, please. That's it, is it? We have no further questions. So if you'd like to continue. No, that's fantastic, Maxine. Thank you very much. And thank you all for joining us. No doubt, we'll be speaking over the course of the next days weeks. Thank you. Thank you. Thank you. Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.