H+H International A/S (HH) Earnings Call Transcript & Summary

Good morning, and welcome to H+H's Conference Call for the Full Year 2020. My name is Andreas Holkjær, Investor Relations and Treasury Manager. Joining me on this morning's call is our CEO, Michael T. Andersen; and our CFO, Peter Klovgaard-Jørgensen. This morning, the annual report for 2020 and supporting documents, including the presentation for this call were uploaded on our Investor Relations website. During today's call, management will present the annual report for 2020, after which there will be a Q&A session. Please note that this conference call is being recorded and will be made available on our Investor Relations website. Before handing over the call to Michael and Peter, I would like to direct your attention to the disclaimer on Page 2. During this call, the Executive Board may make certain forward-looking statements regarding various matters related to our business and company that are not historical facts. Such statements are based upon the current expectations and assumptions and are, therefore, subject to change certain risks and uncertainties. Many factors could cause actual results to differ materially. For further information about the risk factors, please see the annual report for 2020. And with that, I will now turn over the call to Michael.

Thank you, Andreas, and good morning to everyone participating in this morning's call. Today, I will go over a few highlights from the year before moving on to an update on our strategic progress, our sustainability efforts and the outlook for our core markets. Peter will then provide additional color on the financial performance for the year as well as our financial expectations for 2021. Now please turn to Page 3. 2020 turned out to be an extraordinary year for H+H, our employees, customers and partners across all our markets. It was also a year in which we continued to make meaningful strides on our strategic growth gearing and demonstrated the strength and resilience of our business. In the year with such extraordinary market conditions, I am proud that we have been able to deliver the second best EBIT and the highest ever profit after tax in the history of H+H. This is, to a large extent, a result of all the dedication and hard work from the employees across the organization, and I want to extend my sincere gratitude to everyone in H+H. Now please allow me to mention a few financial highlights for the year. In 2020, we delivered organic growth of negative 6%. EBIT amounted to DKK 332 million, which corresponds to an EBIT margin of 13%. Profit after tax amounted to DKK 251 million, which, as mentioned, is the highest ever result in the company's history. Capital expenditures were DKK 134 million, and our free cash flow was DKK 219 million. Financial gearing at the end of the year was 0.4x EBITDA, well below our long-term financial target of 1 to 2x EBITDA, demonstrating our continued solid capital structure. Now please turn to Page 4 for an update on our strategic progress. Since this introduction in 2014, a key part of H+H's strategy has been our ability to act as a consolidator in the European AAC and CSU markets. Through the effective integration and organization development of 22 factories acquired since 2014, we have shown significant progress on our growth journey, adding close to DKK 400 million in group EBITDA from a total of DKK 1.1 billion in M&A investments. In 2020, we made meaningful strides on our continued growth journey with the acquisition of a majority ownership of 1 AAC factory situated in Germany. Combined with the existing CSU factory in H+H's network of factories in the eastern part of Germany was further strengthened and now provides better access to the Berlin market. H+H will continue to pursue opportunities to restructure and consolidate its core market and remains in a unique position as German legislation presents favorable acquisition conditions for smaller, midsized companies. H+H has both the financial strength and a proven track record of integration and restructuring on the many acquisitions we have made over the recent years to continue this journey. A key focus for H+H has been to navigate through the uncertain times caused by COVID-19 while defending the group's margin levels. The year has proven the robustness and scale flexibility of our business, which, combined with the solid execution of resilience plans, demonstrated our ability to defend the long-term margin target through the pandemic. Further, we have, during 2020, seen good results from our continued consolidation efforts in Germany, which has shown a significant step-up in earnings. These results include higher market penetration, improved capacity utilization in the acquired plants and synergies related to both sourcing and sales channels with positive impact on our margins. Looking ahead, we are expecting increased cost pressure in the coming years from growing inflationary pressure, mainly due to increasing costs of emissions allowances. Identifying waste and eliminating it from the production process have enabled an increased factory output and have thereby offset cost inflation in several areas. During 2021, we will continue the continuous improvement program with increased focus on energy efficiency, productivity increases and savings on raw materials. Next, we recently established a new group innovation function, which includes resources dedicated to the innovation of our products and services. This includes a special focus on the improvement of the CO2 capabilities of walls as well as improvement of customers' productivity during the assembly of our products. Further, the new function will be investigating application methods that are more suitable towards the repair, maintenance and improvement market with special attention to manage efficiency improvements. H+H remains committed to supporting the sustainable transformation of Europe cities and communities by developing products and solutions which increase the energy efficiency and lower the life cycle of CO2 emissions of buildings. I will get back to this matter later in the presentation. First, please turn to Page 5. In a year characterized by several uncertainties, it was very satisfying to see that we were able to meet our long-term financial targets for EBIT margin, ROIC and financial gearing. Given the positive developments in recent years and the current outlook for 2021, we will be raising our ambitions and therefore, increase the long-term target for ROIC from 12% to 14%. With the underlying market trends of continued demographic growth, urbanization, structural undersupply of housing and governmental stimuli programs, we are confident in the prospects for the continued growth. Turning to -- now to some additional comments on our sustainability efforts on Page 6. Buildings are significant source of energy consumption and greenhouse gas emissions which cause the climate change, one of the greatest challenges faced by the world. In 2020, H+H reached an important milestone on our sustainability journey with the release of our first stand-alone sustainability report. Also in 2020, H+H committed to joining the UN Global Compact. In the report, we provide links to the UN SDGs, where we believe we can have the greatest impact and we communicate sustainability information in line with recommendations from Nasdaq and the SASB standard. The report marks that we have set a target to achieve net zero emissions from our products and operations by 2050, and I would like to provide some additional color to this on Page 7. A life cycle analysis undertaken in 2020 on our AAC and CSU units showed that H+H is on a path to achieve net zero and possibly net negative emissions by 2050. In 2021, H+H will develop a net zero emission road map for its products, which will include building partnerships with cement and lime manufacturers to test their low carbon products and reduce H+H Scope 3 emissions. Beyond the Scope 3 emissions, the analysis showed that H+H has the opportunity to reduce its Scope 1 and 2 emissions by switching to boilers running on renewable energy, making sure that electricity and heating come from renewable sources and by using electrical hydrogen powered vehicles for transportation. The next step on our sustainability journey is to develop emission reduction road maps for our products and operations, and we expect to submit these science-based targets approval as soon as possible. Next, please turn to Page 8 for an update on our safety performance. In 2020, employee health and safety was even greater. There was an even greater focus due to the COVID-19 pandemic. During this time, we have been able to ensure business continuity while improving our safety performance through our continued focus on zero harm and well-being of our employees. Most of H+H factories remained in operation during the COVID-19 lockdowns, but under restrictions that comply with advice and requirements from national health authorities. The exceptions were our factories in the U.K. which were fully closed for approximately 3 months. Procedures have been introduced for tech employees from infections, including separation of shifts within factories and providing flexible work from home arrangements for office-based employees. H+H had 0 fatalities in 2020, making the fifth consecutive year with no fatalities across the group. LTIF was on par with last year's at 6, but still reflects a significant improvement from 16 in 2016, and we remain committed to reducing the LTIF by a rowing 50% over a 5- year period to 3 in 2024. At year-end, 12 out of 29 factories has been incident-free for a period of at least 2 years and 19 locations recorded 0 incidents in 2020. Moving now to an update of the current market conditions on Page 9. Generally, the winter month has had an adverse impact on the construction industry in early 2021 with several postponements due to the poor weather conditions. In Germany, the outbreak of the COVID-19 pandemic adversely affected the economy with declining GDP and increasing unemployment rates. However, the construction market was relatively unaffected as it was considered a vital industry. Germany continues to face the challenges from a structural undersupply of housing, driven by growing urbanization and general demographics. In 2020, the number of building permits were roughly unchanged from 2019 with a significant pipeline of committed buildings awaiting completion persists due to a lack of installation capacity. In the low-rise segment, growth is restrained by a lack of building plots and skilled labor, and there is no immediate solution to these challenges. For 2021, the low-rise segment is therefore expected to remain on par with 2020 while the high-rise segment has seen a slow start in 2021 due to the poor weather conditions. However, house building remains on the political agenda in Germany, and the overall macroeconomic outlook remains positive. The demand outlook in Denmark is strong, driven by an increase in demand for housing and holiday homes. In Sweden, activity has been slightly declining, and H+H has therefore chosen to consolidate the Nordic region to 1 unit in order to better utilize its back-office resources. The AAC and CSU markets are developing positively in the Benelux countries and Switzerland, respectively. Turning now to the U.K. market on Page 10. Here, a growing population shortage of affordable homes and a shortage of available land continues to drive a structural undersupply of housing. Recently, we have seen the trend of private house builders evolving their product portfolio as a response to the market in many areas moving away from the cities. In 2020, this development accelerated likely as a result of the COVID-19 pandemic with fewer flats being built and larger to test old houses in increasing demand. Brexit and its impact on consumer preferences are ever present and are still difficult to predict for 2021. However, as more than 95% of H+H production costs in the U.K. are domestically sourced, the short-term impact is expected to be limited. The British Government continued its effort to cope with the structural undersupply of housing through government stimuli programs, including Help to Buy and the stamp duty holiday, which has recently been extended to the end of June 2021. The government remains committed to increasing the housing output to 300,000 dwellings annually, but this journey appears to have been prolonged as a result of COVID-19. Next, please turn to Page 11 for an update on the Polish market. Here, the market remains characterized by increased competition and pricing pressure due to new entrants. However, H+H benefited from the market consolidation achieved in 2018 and was able to utilize its differentiated product offering to mitigate this impact and maintain its strong customer relationships. For the developers, the number of permits in the high-rise segment indicates a slightly declining demand outlook for 2021. For individual investors, the number of permits in the low-rise segment indicates a mildly increasing demand outlook. This concludes my prepared remarks, and I'll now turn the call over to Peter for an update on our financial performance in 2020.

Thank you, Michael, and good morning from me also. Please allow me to take you through the numbers for 2020, starting with a summary of our financials on Page 12. 2020 was a challenging year for our entire organization, affecting our business operations and increasing our exposure to a number of financial and operational risks. In such an environment, I'm pleased that we delivered an EBIT of DKK 332 million, which was at the midpoint of our original guidance range from the beginning of the year. Further, we implemented temporary policies for tighter cost management and imposed a general prudency in spending throughout our organization, allowing us to maintain our EBIT margin despite the overall lower volumes. Profit before tax significantly improved as 2019 was negatively impacted by a noncash effect from cumulative translation differences recycled through P&L in connection with the divestment of our Russian activities. In addition, we continued our strong cash flow generation to DKK 219 million of free cash flow generated, driving a further deleveraging of the company with financial gearing of 0.4x EBITDA at the end of the year. On Page 13, we will take a closer look at the revenue for the year and for the fourth quarter of 2020. The overall revenue growth for the year was negative 7%, mainly as a result of a significant decline in revenue in the U.K., driven by lockdown measures. Organic growth in the U.K. was negative 27%, driven by lockdown measures as well as a minor impact from foreign exchange rates. Revenue in the Central Western Europe region increased by 17%, positively impacted by the acquisition of the Aircrete factory in Laussnitz as well as a strong organic growth of 9%, driven by both higher volumes as well as higher prices. In Poland, organic growth was negative 4%, mainly driven by lower volumes, especially in the CSU business, driven by increased competition and overall lower demand. Pricing in Poland remained unchanged relative to 2019 as the firm pricing discipline was maintained. Overall, organic growth for the group was negative 6%. The negative organic growth was partly offset by a very strong Q1 2020, where weather conditions for wall building were very good. Q4 2020 revenue increased by 3%, mainly as a result of a very strong quarter in the Central Western Europe region with high demand and a high construction backlog as well as continued efforts to continue our pricing strategy. Moving on to Page 14 for a review of our full year earnings. The gross profit amounted to DKK 836 million compared to DKK 877 million in 2019, corresponding to a gross margin of 31%, which is at the same level as 2019. The strong gross margin is supported by a highly flexible cost base with around 80% being variable as well as continued pricing discipline. EBITDA before special items declined by 3% to DKK 521 million. However, the EBITDA margin before special items increased by 1 percentage point to 20% as a result of a positive price development as well as effect from resilience plans implemented as a response to COVID-19. EBIT before special items declined by 9% to DKK 332 million, corresponding to an EBIT margin of 13%, which is at the same level as in 2019. Please turn to Page 15 for a bridge of operating cash flow to free cash flow. Operating cash flow amounted to DKK 425 million compared to DKK 369 million in 2019. This 15% increase was primarily a result of a positive working capital development, but was partly offset by a relatively lower EBITDA year-on-year. Capital expenditures amounted to 135 -- DKK 134 million. While we initially expected a higher CapEx level for 2020, we quickly reevaluated our CapEx spending as part of the resilience plans introduced in the wake of COVID-19. These plans included the postponement of the construction of a Polish CSU factory in the year later in 2021. When subtracting other cash flow from investing activities, free cash flow amounted to DKK 219 million in 2020. On Page 16, you will see the development in our net debt and available finance. Our net debt declined by a total of DKK 177 million to DKK 230 million at the end of 2020, strongly supported by our solid free cash flow generation. From the total net debt -- of the total net debt, lease liabilities accounted for DKK 102 million at the end of 2020. The significant reduction in net debt led to a reduction in our financial gearing of 50% to 0.4x EBITDA before special items, well below our long-term financial target of 1 to 2x EBITDA. In February, we extended our committed bank facility by 1 year and it now expires in April 2024. H+H has a committed bank facility of DKK 1.1 billion, with an additional uncommitted accordion facility of DKK 595 million. Combined with a cash position of close to DKK 500 million at the end of the year, this provides H+H with significant firing power to pursue further acquisition targets as well as a low financing risk. Now please to turn -- turn to Page 17 for a brief comment on the decision to initiate a share buyback program of up to DKK 100 million. The decision by the Board of Directors to initiate the share buyback program is supported by a continued strong free cash flow generation, which has led to deleveraging of the company. The current level for financial gearing is well below the group's long-term financial target of net interest-bearing debt of 1 to 2x EBITDA. While acquisitive growth remains the key strategic focus for H+H, the Board of Directors continues to prudently balance further investments in growth with returning value to our shareholders. Given the headroom to the long-term target for financial gearing and the sound cash position, there is an opportunity to return capital to the company's shareholders while still maintaining the ambition to pursue attractive opportunities on the company's ongoing strategic growth journey. The share buyback program is carried out with the objective of adjusting the capital structure of H+H. It is expected that the shares bought back will be proposed canceled at the Annual General Meeting in 2022. Now please turn to Page 18 for an update of our investments in the coming years. Since 2011, capital investments in existing production facilities have been kept significantly below depreciation levels. Such a situation is, for obvious reasons, not sustainable in the longer run, which is why larger investments in existing production are to be made over the coming years. H+H sees several production areas where additional investments offer a good business case, such as for the selected Aircrete and CSU plants in Germany and the production plants in the U.K. outside Borough Green. Further, we see increasing upside from additional investments in the current CSU plants in Poland. None of these will be full factory upgrades, but rather more focused upgrades within specific parts of the manufacturing chain. H+H considers these investments timely care with expected payback of 3 to 6 years. Further, because sources of PFA in the U.K. are becoming increasingly unpredictable, as the country is generally moving away from coal as a source of energy, we will be investing in a conversion from 100% PFA to a more flexible solution which allows for the user sale. These investments come in addition to the previously announced -- communicated ESG-related investments of DKK 50 million of over 3 years. For directional guidance, the annual run rate CapEx level over the coming years is expected to be around DKK 200 million, 1/3 of which is related to maintenance investments while the remaining 2/3 are related to the areas shown on the slide. Before handing back to Michael for closing remarks, please turn to Page 19 for our full year financial guidance for 2021. Organic growth is expected to be in the range of 0% to 5%. EBIT before special items is expected to be in the range of DKK 310 million to DKK 370 million. The guidance reflects the assumption that the COVID-19 pandemic will not have any material impact on construction activity levels or supply chains. Further, we expect foreign exchange rates, primarily the British pound, the euro and the polish zloty to remain at the end of February levels. Finally, we expect prices for energy and raw materials to increase at greater levels than the current inflation. I will now turn over the call back to Michael for closing statements.

Thank you, Peter. Please turn to Page 20. 2020 was a challenging year for us all, mainly as a result of the global COVID-19 pandemic. In such an uncertain environment, I'm very proud that we were able to deliver the second best EBIT and the highest ever profit after tax in the history of H+H. In addition, it is truly pleasing to be able to see the benefits from our continued consolidation efforts positively impacting our margins, which we have been able to maintain through the pandemic despite the overall lower volumes. Finally, in 2020, we reached an important milestone on our sustainability journey with the release of our first stand-alone sustainability report for 2020. In the report, we show that our products are on a path to achieve net zero and possibly net negative emissions by 2050. Finally, as Peter highlighted, we have a solid financial position backed by a robust balance sheet and a strong cash flow. Over the recent years, this has enabled H+H to pursue attractive growth prospects and investments, and we will continue to do so in 2021. While acquisitive growth remains the key strategic focus for H+H, we continue to prudently balance further investment in growth with returning value to our shareholders. H+H is aware of the cash generation and general deleveraging of the company. And while our acquisition pipeline remains intact, the Board of Directors has decided to initiate a share buyback program of up to DKK 100 million. And with that, we are now ready to take your questions. Operator, please.

[Operator Instructions] Our first question comes from the line of Kristian Johansen of Danske Bank.

I have a couple of questions. So first one goes to the U.K. So as I understand it, the U.K. chance was out yesterday in its budget with the extension of the stamp duty holiday until June and then a further extension until September at a lower level. Can you just, one, confirm whether this is reflected in your guidance or not? And secondly, give your view on what you expect this will mean for the market?

We mentioned it also in our presentation, Kristian. So it is reflected. I would say that when we came into the year, we actually believed that the -- that we would have a very uneven demand pattern in the U.K. with a very high demand in the beginning and then a decline in the second quarter. What we see now is that in consequence of this announcement, which was anticipated by the market, by the way, we have seen in the beginning of the year that the expectation is now for a more normal demand profile in the U.K. going forward. Overall, I would say that, of course, it is a positive sign for the U.K. And if it does not per se constitute an upside to our guidance, at least is maybe taking a little bit of the uncertainty away. So we see it as a very positive development.

Okay. Understood. And then just on your acquisition strategy, whether you can give us an update on the progress and talk through the percentage targets.

Yes. I think that for us and for our activities last year in Central Western Europe, COVID-19 played a big role. And what we can say is that in general, all delays that we've seen because we would have hoped to have been able to close 1 or 2 deals last year. We can attribute that 100% to COVID-19. We have as potent and a pipeline for 2021. And our view on -- say the possibility for us to carry on is more positive now because we see that also the targets are starting to change behavior in consequence of 2021 -- of COVID-19, which means that we are finding, say, alternative ways of coming into dialogue with you. So if you are as optimistic and as certain that we will succeed as we did a year ago just before COVID-19 per se.

Okay. So none of these talks have sort of terminated and is that how we should read it as well?

Yes.

Very clear. And then just some household questions as well. So you guide sort of a run rate of DKK 200 million in investments, but you're not guiding specifically for investments in 2021. Can you just guide us a bit to whether we should expect that DKK 200 million of to be reflected in, in 2021 or whether it should be higher or lower?

As you know, in 2020, we originally planned for a higher CapEx, but it was postponed as part of the resilience plans. That also means we have a little bit of a backlog from 2020 that we initiated towards the end of 2020, which means that we get fairly well off the ground in 2021. And that also means that the sort of directional guidance that we provided of DKK 200 million going forward is to be seen year-on-year.

So this is the level we should expect around that level in 2021? Is that actually?

Yes. That's correct.

Okay. Perfect. And similarly, on net working capital, you reflect that as a key component of your strong free cash flow. What are your considerations around the development of net working capital in '21?

I think overall, first of all, we are very pleased with the development in 2020. It has been a turbulent market. And we're very pleased with our efforts to remain stable and with a positive upside in 2020. Of course, there may be deviations year-on-year. And you know if you finish one year well, then, of course, it can impact the following year. That's sort of the nature of it. But we are committed towards maintaining a stable net working capital. And thereby, I would not expect big changes as such. In general, our payment profile on the customer side is quite strong and similarly, on the supplier side. And then, of course, you have the inventory which is also a fluctuating part. So that's tying into demand and production towards year-end predominantly.

And our next question comes from the line of Laurits Kjaergaard of ABG.

Michael, Peter and Andreas, congratulations on a good result again. You're guiding on DKK 310 million to DKK 370 million in EBIT which versus last year was DKK 330 million. So it seems quite limited earnings growth on EBIT level. And when we look at the pre-announcement that you did for Q4, it seems that the drive for the beat on 2020 was the administration costs which were quite low in Q4. Could you talk a little bit about what's happening there? And what can we expect in terms of your 2021 guidance in terms of headwinds in gross margin and perhaps some operational efficiencies?

Yes. Thank you, Laurits. So first of all, in general, around the lower end of our guidance range, we do know that there is a strong competition in Poland, particularly around CSU, which remain overall a little bit uncertain. It's early in the year. And in general, that demand is low. And with a tough winter season, then that even more clouds the picture. So there is uncertainty around that competition and how it will end up impacting our business. And should that come to a pricing pressure, then obviously, that will have a direct bottom line impact on our business. And thereby, that is one of the key drivers in the potential reduction in EBIT over 2020. In addition to that, I also want to bear in mind that we did do strong temporary resilience plans during 2020. Some of those, of course, can be carried forward, but there are also some that is more one-off and things that from an outset would not like to simply carry forward as such. And then finally, I would say that during 2020 we did receive around DKK 14 million from government furlough schemes in the U.K. and in Germany. And of course, we do not expect to be able to receive such government schemes in 2021. So in general, I think everybody will appreciate that there is a little bit of uncertainty. Looking towards 2021, we still have a COVID also going on, which could impact consumer confidence, et cetera. So there are some potential negatives out there which we include in our lower part of the range. On the other side, we also have a higher end of the range, which would indicate a stronger price development in Germany and Poland and also a stronger rebound in the U.K., getting closer to 2019 levels.

What level of compensation schemes that you realize in administration costs for Q4?

I don't have the specific breakdown between administration. I believe -- on cross-sales and administration, I believe it was around DKK 5 million or so.

Okay. Fair enough. That explains it then. Maybe another question on the M&A progress that Kristian was asking about in your reports, when we could dig a little bit further down, you mentioned that you could be interested in expanding, let's say, your product portfolio for this apartment wall building segment that you're doing and also exploring new markets outside of the one in Germany that you've been discussing. Could you give a little bit about the flavor, what we should expect? Is this already a 2021 thing? Or is this sort of a -- let's say, an ambition for the longer term?

I would say that our first priority, since those are opportunities there are to focus on our known product categories and there is also sufficient targets. But there are 2 things that will happen if you look at it in a longer perspective, let's say, 2, 3 years. One is that we could surpass the EUR 500 million threshold, which makes it difficult for us to continue consolidation at least inside Germany. And the other one is that we run out of options and are looking at continuing growth and building on the platform we have built off. When we talk about adjacent markets or going into new markets geographically, we did that when we entered into Switzerland through the Heidelberger acquisition. And we are open for expanding into new markets if that is a consequence of acquisitions that we are making, where we buy off assets or companies that have cross-border activities. We have also said that if you take areas where we have direct sales synergies from either proximity or either -- or being in the market with the sales company, those areas could also be a target for us. As you know, we do sell into Czech already. We do set into the Benelux counties already. It means we already have a foothold there. And if there would be available opportunities for us in our -- what we call the lime stone business will be open for that as well. But going into new product areas, it's not the first priority for us right now.

Okay. Maybe just a last question in terms of the first thing you're talking about, Peter, in the low end of your guidance, you talked about CSU competition in Poland. Obviously, we've had opening up some more competition at the Scinawa area. And I've heard previously that you've been discussing to distribute materials in other parts of Poland. Is this still the case? Or is still also, like say, active in other places outside of where they're located?

So you're absolutely right. Our competitor opened a factory, a brand-new factory are very close to Warsaw and thereby added the market capacity by around 10%. And their focus remains around the Warsaw area. And with particular CSU, we have the benefit that it doesn't transport very long. And because we have a better geographical footprint of our system of plants also means that we are able to focus on other parts of Poland. And that strategy is what we did during 2020 and I would say also did quite well. I think we came well in -- out of 2020, where we were able to actually maintain our pricing and losing a little bit of volume, but still at an acceptable level. And of course, we will continue the same strategy during 2021 and thereby utilizing our broader footprint and continue to defend pricing when possible.

If I may just add to that, if you take it a little bit longer perspective, a 2-year perspective, I think it's very important that we now reinitiate the construction of the CSU factory of in Reda because in Reda that constitutes a very unique position because the distance between this Tri-City area and the nearest producers of CSU is quite long, which will, say, in the midterm, give us a very strong position in the northern part of Poland.

And we have a follow-up question from Kristian Johansen of Danske Bank.

A couple of additional questions from me. First of all, we are seeing commodity prices excluding these days. So maybe if you can just take the most relevant input cost for you and let us know what you are seeing and to what degree you are hedging a lot?

So our predominant input cost relates around cement and lime and there, we have not seen the same amount of loss as potentially world is right now experiencing. And then as such, we do not have a hedging of the pricing itself. But of course, we do ongoing negotiations. And typically, these go on for up to 1 year at a time. And as you know, we have, over the past couple of years, been centralizing more and more of our procurement efforts and thereby, also taking advantage of gross order activities. So moving more into a category procurement methodology. And this has helped us in getting a better buying power with the suppliers. Of other areas, of course, we are looking at the price of oil. We had distribution costs of around 10% to 15%. Some of it is paid by the customer, but also some of it is paid by us. And here, we have seen a gradually increase during 2020 in the second half. And we have been, in our outlook assumed that oil prices are back at 2019 rates.

Okay. That's quite clear. Then just on the weather impact here in Q1, can you just help us to what extent you have seen your key markets being impacted? And what is the opportunity to catch up on any sort of lost volumes side?

Well, it's quite funny because when I started almost 10 years ago in H+H, everybody said that was impossible to predict the volume and -- but you should always be looking at first and second quarter as one when you predict because there was so much change between the quarters. But we must say that we have to go back to 2012 or '11 to see as big a weather impact in the first 2 months as we have seen this year. And that means that we have, across our footprint, seen very severe down to mostly snow and also very low temperatures across our footprint. It has had an impact on building activity levels. It is believed that in most markets there will be a good opportunity to catch up on that. If you look at the U.K., if you look at Poland, if you look at the Nordic countries, generally, there will be a catch-up and we think that can also be quite fast. So the only uncertainty that could be -- if you take longer for Germany because we know there is a capacity constraint in Germany. And therefore, any catch-up in Germany may be more prolonged than what we have -- what we will see in Poland and U.K. and in the Nordics. Currently, we believe that, that catch-up will happen throughout the year but of course, there's always an uncertainty related to it. What is good in Germany is that despite the fact that we have these building order portfolios, history shows that 99% of all buildings are actually fulfilled. So it's not lost sales for H+H in total, but there is a level of uncertainty in it, but it is in our guidance. It is also when you look at our lower guidance in one of those factors that we have looked at.

Understood. Very clear. And then lastly, just these DKK 50 million in sustainability-related investments you plan to do over the next 3 years. Can you give us a bit more detail on what it is that you are planning for?

Yes. We could say, from an overall point of view, the most of the investments we are doing are focusing on say, the most important ones of focusing on reducing our use of resources. So it is either energy consumption, could those be water consumption, electricity consumption that we are focusing on the recycling of heat, could be insulation, could be new electrical equipment that has lower consumption and so forth. And if you look at the sustainability report that we have issued, you consider we actually manage also to drive down those consumptions. And it is not just a matter of us remembering to turn off the switch and release the office. It is a factory where solid investments that is actually improving. Now you -- I just want to say that you used the word, EUR 50 million (sic) [ DKK 50 million ], I wish you were a larger company to invest that much, but it is a Danish one we are talking about that.

[Operator Instructions] As there seems to be no further questions. At this time, I'll hand back to our speakers for the closing comments.

Okay. Yes, that concludes our presentation. Thank you very much for the questions. Yes. You can find all links on the website. And then as you know, you're always welcome to reach out with further questions if necessary. Looking forward to see you soon.