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

At this time, I would like to welcome everyone to this H+H International Q4 and Annual Report for 2025 Presentation. [Operator Instructions] This call is being recorded. I'll now hand the call over to your speakers. Please begin.

Thank you, and good morning, and welcome to our conference call for the annual report of 2025. My name is Niclas, and I'm the Head of Investor Relations and Treasury. Joining me this morning is our CEO, Jorg Brinkmann; and our CFO, Bjarne Pedersen. Yesterday evening, the annual report and supporting documents were published and uploaded to our Investor Relations website. During today's call, management will present the annual financial report, 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 after the call. Before handing the call over to Jorg, I would like to direct your attention to the disclaimer on Page #2. During this call, the Executive Board will share future plans and expectations for our business that go beyond historical facts. These forward-looking statements rely on current assumptions and therefore, come with some risks and uncertainties as many factors could change their outcomes. For more information about these risks, please see the 2025 annual report. And with that, over to you, Jorg.

Yes. Thank you, Niclas, and good morning, everyone, on the call, and thanks for taking the time to dial in. Let's proceed with some key numbers for 2025 on Page 3. So what you can see from our overview here is that we had another flat year with 2025. So looking into volume development, minus 1%, but you can say we operated in stable markets actually. So no big recovery, but also no further decrease in activity, which is good. So a solid foundation, I would say. A little bit we did on the pricing side to pass through inflation. Inflation was not big, but this is important for us and the principle of the company to make sure that the inflation we see, we pass that on to our customers, and that is where the 0% organic growth comes from. In that environment, what was important for us is to further improve the business. And you can see we ended up with an EBIT of DKK 112 million. This is DKK 50 million more than we've delivered in the year 2025. Where is it coming from? It is coming from our continuous efforts in improving our businesses. We were talking about initiatives like, one home, and I come to that a little later. But we can see that these initiatives really help in improving our businesses. And then especially in Germany, there, I'd say we are working a little bit more -- a little tougher actually to really change the structure, and I come to that also later. But for sure, also the German business has improved compared to the last year, but not on a level that is sufficient now, and we're going to talk about that a little bit later. So next to financial numbers. And also on sustainability, we made some good effort. You see that our emissions came down 3%. For sure, there is an environmental aspect of it. But then also economically, it's a high motivation for us to bring these emissions down because a 3% reduction in emissions means also 3% less energy usage. And we are working continuously on improving the energy consumption of plants. As you know, we were closing plants over the last couple of years, concentrating volumes in fewer plants. All this is helping to reduce the energy consumption, specifically on a cubic meter basis, but then also ending up in less CO2 emissions specifically. And then finally, safety. As a manufacturing company, it's important to really make sure that we are operating in a safe environment. A number of 0.9 is from our perspective, this is a leading figure in the industry, and this is what we're living up to, operating in a zero harm environment. And I think that was another really good year when it comes to safety. Given that there's a lot of changes in the network of the plants, I think it's a good outcome. So with that, let's zoom in a little bit deeper into the regions. And what I would like to do with you is having a view more on what's the situation in Germany and then how is the situation in the other countries. And I think you can see that from Page 4. So what we are not doing is actually we're not disclosing all of the numbers by region. But we think it's important to really share that there's different dynamics in the various markets we are operating in. And then I start with our businesses in the U.K., Poland and Switzerland; we are seeing a really strong performance from these countries. And what you can see also from the graph here is the building permits over the last couple of years. So you see that also the U.K. and Poland, they are still trending 80% below the historic peaks actually. So the markets have recovered, 20% less on an 80% level. But the markets have recovered a little, but far away from these historic activities. However, when you separate the businesses and you just take Germany+ -- Germany+ in this case here is including the Nordics and Benelux countries we are delivering from the German plant network. You can see that the group is on a 12% EBIT margin. So I think it's quite strong actually and showing that the underlying businesses in U.K., Poland, Switzerland are operating really on strong performance despite that there is still a big volume gap to what we had in the last couple of years actually. So I think it is showing actually that there is good activity and a really strong performance from these markets. Poland, for instance, and I want to highlight that here actually. I think it's one of our markets that is performing really nicely. In Poland, if you adjust for volume, we have never seen such strong returns and high margins in Poland, even not in the years '21, '22, which is showing that all the work we put in holding plants, concentrating volumes, improving our margins that this is really -- yes, it's really landing in our earnings and our results. And we are very happy with our markets in U.K., Poland and Switzerland and also what the teams are driving there every day. There's another side to it, and that is our German business. So what you also can see from the graph here is that the market recovery in Germany, and we have talked about that often, is really behind the other markets. You see a roughly 20% gap actually in recovery here of our market. And that for sure, puts the market in itself in a difficult position. We're seeing high overcapacity, quite intense competition with fighting for volumes, and that is the environment we are operating in. So it's one explanation of why it is more difficult actually to really build that recovery in the German market. That is why last year, we have changed the structure in Germany, and I'll come to that a little bit later. But it is -- part of that is that environment that you can see here on that slide. But if we go a little bit deeper into the situation in Germany and where we are, let's look into Page 5, which gives you a little bit better overview of our German business. So before we talk about current priorities, and it's also a slide you have seen our Form 2 journey here. I think it's just showing of what we have done in Germany from 2022, where we started, up to 2024. So you see we've reduced the number of plants from 15 originally down to 11. Price is fairly stable, I think, which is important actually to mention that, but it also shows that competition is tough. The number of employees is significantly down. So it's more than 200 employees that we had to lay off in Germany. And then we've managed more or less DKK 200 million on fixed costs out of the P&L. And this on top of inflation that we're also seeing through these 3 years, I think it's quite a remarkable result that was needed actually to really make sure we're adjusting the organization to the current market condition. And then last year, we did a massive change of our strategy, and we reorganized the company from a nationwide approach to a regional approach. Why was that needed? As you know, like we did in Poland, we were on a strategy to consolidate the market like we did in Poland a couple of years ago. We were doing lots of acquisitions, but we also had an infrastructure in place that was quite costly actually to deliver and to build that nationwide supplier. With the current situation and then also our market position, we are only #3 in Germany. This structure simply didn't fit the reality anymore. And that is why we've decided to change that and are operating now in a regional profit center structure, which we've implemented last year in July. We believe it's the right structure. However, structure is only the initial step and what now comes is commercial execution. What the team is working on is to implement around the chimney strategy. So what we really want is producing products locally for local customers. And so what we're going to do is living on our standards, which is partners and wall building, it is driving home, but all this not on a nation level, but on a local level. And this is what the team works on. So what you will see is a continuous improvement. This is not step change. It's nothing you do overnight, but it will be continuously improvement driven with a very clear focus on cash flow. And so we are running actually Germany with a little bit different focus and dynamics here, making sure that there is a positive cash flow coming from Germany. That is our priority, and we think we have the right recipe here now to get Germany into a better situation. And then when the market is further recovering, we think we're going to also see the results from all the work we have done over the last few years, but also what we are currently doing. Leaving Germany, looking a little bit into the other markets on Page 6. So what you -- what is important here is actually that in all these countries, Switzerland, Poland, the U.K., we have a leading position. This is different than the #3 position in Germany, but we have a leading position in these markets. And this is also part why the results are extremely good actually from these markets. As I showed also here, we are still facing with some challenges actually. I mean we were reporting about less volumes in the fourth quarter in the U.K. We looked into building permits coming a little bit down in Poland. So it's far away from stable and really super good conditions. However, what we are doing is here, we are taking the conditions for granted and concentrate on what we can influence, and that is our own performance and the power of our own organization. The key initiative we are driving is our HOME initiative, which is our operating model for excellence. It is the way we run our plants according to lean principles. And so what you can see is we've launched it 2 years ago. What you can see is here that the net hours, which is the availability of our plant network has nicely improved actually over the last 2 years with a 10% improvement in 2025, which is really nice actually, and this is part of why margins are improving in these countries. So we are happy to see that. Also, what we've done is we've reopened the Pollington 1 plant in the U.K. It's a plant we have completely shut down and cooled down and mothballed during the low volume years. So we've opened that. And yes, I'm quite happy to see how a crew with 60 new people is operating now back to old standards and performance. So I think it's quite a success actually that we're reopening that in fairly short time. And it also shows that we have the ability actually to adjust capacity in the network. And then when markets recover, we can also open up these plants again. I think it's a good proof point actually of the flexibility of the network. And the last point, we have upgraded our plant in Pulawy in Poland. This is part of the closure of our Warsaw plant. Pulawy is close to Warsaw. It's an important source for the Warsaw market. And so what we've done over -- we started mid-December and finished that work just 2 weeks ago, we've reopened the plant again, put some debottlenecking capacity in here and the plant will operate on 20% higher capacity now and bring the unit cost further down, quite attractive project, and the team is now in the ramp-up phase for the next couple of weeks. But I'm happy to report that everything worked to plan in time, budget and without accidents, and that is what counts when we do CapEx projects. What is our focus for 2026 in these countries? It is really living up to our promise being partners in wall building, going together with our key customers and really doing business together with our key customers and driving markets that we're going to continue doing that. Then for sure, it's about working on our continuous improvement base. It is further driving home, 130 hours is good, but it is not world-class yet. So there's room for improvement, and we're going to tackle that. And then for sure, it is further fostering our leading position and driving results no matter what the market situation is. I think we have proven that we are agile in different market conditions. And this is what really guides us in these markets outside Germany. When you go to Page 7, and this is a little bit the underlying situation. So it's more the market perspective. And I want to give you a little bit of a glimpse here of what we are seeing currently in our 3 core markets, for sure, and Bjarne will cover that a little bit later. The weather actually quite significantly hit us in January, February. So I'm happy when I look outside the window here and see that there is sun and plus degrees. So that's certainly good for our business. But anyway, these 8 weeks hit us. But I think it's more important now to speak about the underlying in these markets. When you look into the U.K., there we're looking into the registrations. They are up 11% last year compared to 2024, quite a positive number. So we're seeing some activity here actually. Also when we talk to our housebuilders customers, I'd say they are fairly positive for the year. I think no one expects like a significant uptick in activity, but a quite stable year backed on that there is a demand for housing in the U.K. What's certainly helping is an interest rate. I mean, the interest rate came down in 2025. In the last announcement, there was no cut, but however, 3.75% is okay actually for housebuilding. And so with that, I'd say, if I summarize it, stable conditions in U.K. There's the next review of the budget on the 19th of March. So let's see if we see anything further stimulating the market here. But so far, we believe in quite stable conditions. And yes, there's stable customer relations and trust. And so we are confident that we can operate in a stable market here in the U.K. Poland. Actually, we were seeing towards -- yes, in the second half of 2025, you can see it from that graph here, building permits came down a little bit in the U.K. It's important to zoom in where that is coming from because that average number of 9% that comes -- majority comes from developers, bigger projects, which is more affecting our CSU business. The one-family housing and the private sector actually increased in building permits. So this development will have an impact on our product mix in Poland, but this is factored into our planning. So we're expecting more to see more on the ASC side and then most likely a little bit less activity on the CSU, which is more for the developers and multifamily houses. That is what we see. December, another interest rate cut -- reference cut to 4%. Actually, it came down nicely, which is also stimulating the market in Poland. However, still fairly high if you compare it to other EU countries. But overall, also in Poland, we believe in a stable market, which is a blend of ASC and CSU as I laid out. And then Germany, I mean, for the last few years, we were only seeing a negative trend of building permits in Germany. I mean, even if you see this blue line picking up here, you see it was all below the 0% line. So yes, not a really great picture. And then towards the end of last year, we were seeing this slightly changing and improving a little bit. And I think the first positive stimulus here that permits were up 12% last year compared to 2024 after really 3 years of only downward trending. I think it's the first positive sign. And then also the government tried the first, let me call it, baby step to reestablish a support program. It's not a lot of funds actually. But anyway, there is small things happening, which is important for us to see. You know there's always a time lag between a permit and realization. That is why we are not sitting here and believing that there is a significant uptick in Germany. However, from our belief, not further going down, and it's first signs that the market can be -- can improving actually. So that is why we're expecting also for Germany, quite stable environment, maybe a little bit more friendly than it was in the last year. For sure, the general German economy is impacting that and also the confidence is on the consumer side. I think this is the biggest watchout area, and this is certainly different to what we're seeing in other countries. So we need to also factor that into the equation. But overall, if we take our countries and you deduct the weather effect, we're seeing a fairly stable environment going forward. So with that, a little bit zoom in, in Germany, the other markets and then the underlying market development. Bjarne has the numbers for you.

Yes. Thanks for that, Jorg, and good morning to everyone on the call. I would give some more insights on some of the financials starting on the next slide, Slide #8. We have the top line development that should be seen in the light of an organic growth of negative 5% in the fourth quarter of '25. Much of that is stemming from the U.K., we did an adjustment to our guidance back in October, where we flagged that we saw a slower market in the U.K. in the fourth quarter. So if you look at the left-hand side of the 2 illustrations, you see that we have a volume decline of 3%. That is driven by the U.K., the CWE region fairly flattish, but Poland also continued a good track record that offset some of the negative volume we saw in the U.K. If you go to the right-hand side of the illustrations, that's the revenue, so minus 6% on the revenue. So besides the organic growth, there was 1% on the FX as well. If you look at the U.K., you see a fall -- decline there. Then you see Poland having an increase, so they get a higher share of the total revenues. So that also means we have a little bit of headwind on the country mix effect when you look at the organic growth. And then you see that the CWE region is going backwards, which is mainly due to the tough pricing situation that we see particularly in Germany. The organic growth was 0 for the full year, which was in line with the adjusted guidance we had back from October. On the next slide, which is #9, we just have a short illustration on the margin development. We came in at 22% for the fourth quarter. So that is more or less the base we've seen throughout the year. The comp figure from '24 was a little bit inflated by some one-offs. In the fourth quarter, we did some stock build. So despite the sales volume going down in the U.K., we have 3 factories in full operation over there. So we did a deliberate choice to continue running and then we built some stock and then we have adjusted the shift set up, so we have less output in the first quarter. That helps a little bit on the nominal earnings, and that's also back to Jorg's point, we ended up in the upper range of our guidance. So that was driven by, let's say, good output and then also, let's say, tight cost control that we implemented after our latest guidance adjustment. On next slide, #10, we have an illustration of the cash flow. And I think there are 2 things to highlight. First of all, it is that we have done this conscious stock build, that's the DKK 95 million you see as the third bar on the chart. So that's, of course, a hit to the cash flow. But then also an underlying driver as well was this factory that we're upgrading, Jorg alluded to, we have built stock so we can live through a period where it was out of service and then also cover the ramp-up period, which is currently ongoing. As a consequence, our net interest-bearing debt is increasing. We are ending at around DKK 200 million -- sorry, DKK 800 million. It's an increase of around DKK 200 million during the year. And then we have a debt gearing, which is higher than we had expected from the beginning of the year. We are not at 3%, but we are getting up in the territory. We're, of course, also watching that very carefully. On the next slide, we have some background information in order to outline some of the assumptions around the guidance that we put out last week. With the weather impact, we had significantly depressed sales in the first 6 weeks of the year. Factories could not run due to the low temperatures, conveyor belts were simply freezing. We had building sites that were shut. If they at all could get to the building site, they couldn't glue the blocks together due to the low temperatures. So a significant impact to us. So there are 2 elements in the, let's say, the financial impact that is that we simply have less sales, so we make less money from that. And then further, due to the stock build we did last year, we are destocking and that always had this swing. So last year, we got a little bit help on the earnings in the fourth quarter because we built stock. Now we are destocking and that then have the opposite impact. And then we are operating under the assumption that we only see a limited recovery throughout the remaining part of the year, and that is based on the assumption that when the construction companies are back on site, they continue, let's say, on their build rate, which they are currently because we don't see a [indiscernible] hot market that, let's say, puts them under pressure to increase the build rates. So that's also a key assumption for our outlook. And we have some more details on the outlook on the following slide, which is Slide #12. Last week, we announced that we expect organic growth from negative 5% to 0% and then an EBIT in the range of DKK 50 million to DKK 100 million before any potential special items. On the organic growth, it's important to stress, we do see a small price increase across our markets. So consequently, the volume decline is, let's say, an offsetting factor and the driver for the negative organic growth. So with that, I think we should hand back the comments to Jorg before we go to the Q&A. On the next slide are the key takeaways.

Yes. Thank you, Bjarne. So for me, 3 key takeaways. First, hope you can see the really strong performance in Poland, U.K., Switzerland, which are still also affected by lower volumes. But in that new scenario, actually, we really found our way of delivering attractive margins and really improving the business. And I hope this underlying 12% EBIT you see for this adjusted group outlook is showing how strong these businesses are even in different market conditions. Germany, it is still a challenge for us. And we've done the restructuring. And what is really the focus now is the commercial transformation and really focusing on cash. That is our key priority for the German market. And then I think what hopefully you see is that our HOME initiative is working. So it's not only that we're talking about it, but it's really delivering outcomes and improving the network, especially in U.K., Poland and in Switzerland, which is good to see. And yes, there's more to come from that. And with that, let me open the call for questions.

[Operator Instructions] And the first question will come from the line of Sebastian Grave from Nordea.

I have a few. I'll just take them one by one. So first of all, thank you for a very thorough presentation, especially also digging a bit deeper into these winter effects that you highlighted. I guess I was not the only one being a bit puzzled about the number here, the DKK 70 million. It's quite a large number indeed. And I understand that it assumes lost volumes and a fixed building rate when the construction sites get back on track. But I mean, I guess it sounds a bit cautious to my ear. So I just want to ask, have you had any sort of delivery challenges where your competitors haven't? Or is there any elements of that suggesting that these volumes are lost? Or could there also be a scenario where the construction companies will ramp up production here post -- or the better weather and you will get a sort of a positive effect here start spring?

So to answer that question, no, we don't see that. It is really -- I mean what you -- the industry we are in, right? I mean all of this is happening outside. And simply, this is a very simple explanation. When there's frost and it's minus temperatures, we simply cannot glue blocks together. This is dangerous because joints are not holding actually. And there's a very technical reason for why you simply cannot building. And that is different. When you're in other industries where you have more renovating products, it's more inside, these things can continue, right? But we are exposed to weather and it's simply -- actually, we also don't allow it. You cannot build in negative temperatures. And that is the main reason why throughout January and February, it was almost impossible in many geographies in Europe not to build. And then the U.K. was a little different. We saw -- there's one picture and there are lots of water. So it's not that we couldn't deliver. We have the availability. We have to stock, that was not a pure demand issue. Maybe one reason why the effect is higher is that as Bjarne alluded to, there's one thing that is a 25% less volumes, but then there's also an effect on the plant network because there were some plants we couldn't operate that were simply frozen. I mean, in Poland, we had minus 20 degrees. We simply cannot operate a plant when it's that cold. And then the second is that in some plants, we started later out of the winter break and the Christmas break simply because we have full stock yards and also we're looking into cash. So that is why I'd say it's not only a market effect, but you have also this additional DKK 25 million-ish coming from the network.

And do you sense that -- have your peers experienced the same sort of production issues in the quarter?

Well, I can't comment on that specifically. But the dynamics that are the same for the whole industry. It doesn't matter which products you're using, you simply cannot glue blocks together in that environment. And the second is no matter who owns the plant, at minus 20 degrees, it's challenging for everyone to open and run a plant actually.

Sure. No, I understand. My second question is on energy prices, which obviously are back on the radar here with European nat gas prices up having doubled over the past couple of days. Maybe Bjarne or Jorg, you could add some more color to the dynamics here. As I recall, the energy consumption is about 10% of your production costs. And as I also recall, your hedging policy post 2022 are now more sensitive to spot prices than it was previously. So maybe you could just talk a bit around energy prices, hedging and the sort of all else equal margin impact from the current price developments.

Yes. Thanks for that question, Sebastian. If we start with our hedging policy, it is a rolling hedge that we do for the next 12 months. So in the near term, we have the highest share of our hedge, and then we will need to, let's say, replenish that as we go through the months and the quarters. So for the short term, we are, of course, monitoring very closely what is happening. Commercially, we need to pass on those costs to the market. That's, of course, always, let's say, a battle out there. If we look at the total cost, as you allude to, we're in that range that you indicate -- a not insignificant part of that is a fixed component. You have transmission cost, you have fixed fees to the providers and you have some taxes. So that means the variable part is not the full amount. And then of the variable part, there we, in the short term, have a robust hedging position. But of course, at some point in time, we want to prolong that into the latter part of the year. And then we will see how the geopolitical situation has developed and where the energy markets are at that point in time. So for the short term, we are not concerned about it. We want to take action. So we make sure we get fully covered, both passing it through to the customers and then also make sure that our hedges going forward leaves us in this risk position, which we deem manageable. So for now, we are comfortable in the situation.

Okay. But just so I understand correctly, does this mean that -- are you fully hedged in the next 12 months? Or how should I listen to this?

No, we are not fully hedged. We hedge a proportion of it. It's around 50% we are hedged for the next 2 quarters. That means for the other 50%, we have to carry it into the market, and that's what our commercial team will have to be working on.

Okay. Got it. And then my last question is just on the medium-term targets, which you draw here in connection with the report. So maybe just talk about the timing of doing this and maybe share some of your thoughts around the medium-term margin profile of your business.

Yes. I can take that as well. We have had this, in particular, 12% EBIT margin out there for a couple of years. And you've now seen some of the numbers behind it. We have been working towards also getting Germany into that territory, but we see it needs more time. So I think with the communication we are putting forward here, we have tried to give the clarity that we see the businesses in the U.K., in Switzerland and in Poland being able to deliver that even with the holding cost. And then we are on a journey where we have the adjusted setup in Germany, and it will take some time before we get back to that. But the way we have presented also in the annual report is we showed in connection with some historical figures. So our aspiration is to make sure with the underlying initiatives like the one project, like HOME and so on that we have given time in the cycle are able to deliver better margins than we have in the past. But it is the uptick in Germany that is the big question mark. We've seen some of the building permits now alluding to a nice growth in that. We know it takes some time before it hits the marketplace. So instead of us claiming something around the timing, we more leave it up to you and your intelligence on when you see that will be kicking through.

The next question will come from the line of Kristian Tornoe from SEB.

Yes. Also a couple of questions from my side. If I just may get back to the energy exposure. So maybe just to clarify, your guidance, I assume, is based on energy prices sort of the recent increase, right? So you haven't assumed any effect from this increase we've seen recently in your guidance. Is that correct?

That's a correct assumption, yes.

Great. Then if I understand you correctly, you are essentially saying that, obviously, you are partly hedged. And for the part, you're not hedged, your commercial team needs to work with, i.e., you need to go out and raise prices to compensate. Is there any way you can quantify any of this effect? So just assuming gas prices stay at the current elevated level, how much do you need to raise sales prices?

To compute a little bit faster then it is not big amounts because getting back to that, if we say the energy costs are, let's say, around the 10% mark of the total production cost. So we are talking a few percent.

Okay. So if you can raise sales prices by a few percent, then there is no gross profit impact. Is that what you're saying?

Yes, on top of the other pass-through we are fighting to get.

Sure. All right. But obviously, coupling that with, I think, Jorg's earlier comment that in Germany, you're seeing a high overcapacity and intense competition in Germany, also from the slides, you said that volumes in Germany were stable, but your organic growth is substantially negative, I assume prices are down. It seems that it will be difficult at least for Germany to go out and raise prices in this environment. Is that a fair assumption?

Yes. I think it's obvious that it is where we are most challenging. And with the overcapacity and the low building activity, yes, it is challenging. But then fortunately, we have some of our energy costs hedged in. And also, we are sitting with fairly high stocks when we get out of the first quarter. So you can say the effect might not, let's say, stay elevated for all of the year. There will be a push of the cost into next year for the things we put into stock. But definitely a key task to work on.

And the market is working on it. And then I think this is when we talk about the around the chimney strategy that is exactly supporting it because that is the area where we are most competitive. Distribution cost is a fairly high amount of our total cost to the job site. And that is why we are working on the strategic shift and not doing business everywhere, but doing business where we are most competitive. And it's less a pure pricing question. It's more a question of margin and customer mix and right product mix where the improvements are coming from.

Okay. That makes sense. Then on the SG&A cost before special items, It's DKK 72 million in Q4, a decent step down. Is there any one-offs in that number? Or is that the run rate we should look at? And if the latter is the answer, should I then take sort of DKK 72 million and multiply it by 4 to get a good estimate of the base for next year?

It's a good starting point, but you will see some costs kicking in. We have the normal, let's say, salary increases coming through after the first quarter. And let's say, with the restructuring done in Germany, there probably will be some of it that we will need to build back. But it's a good starting point. And then if you're a little bit, let's say, aggressive on your inflation, you get there.

Okay. That makes sense. Then special item costs for 2026. Are there any of the initiatives you have taken at this point in time, which should sort of yield any special items?

Can you repeat the question, Kristian?

So I'm really just asking for what level of special item costs should we expect for '26?

Well, for '26, we are not, let's say, guiding on any special items. We have predominantly our asset held for sale in the balance sheet, which is a consequence of the impairments last year. we have impaired it to what we see as a fair market value. Should we be able to sell some of that with the profit or the opposite, depending on the magnitude of that, that might be posted as special items. But it's more we see as we go. We are in the sales process. And depending on how that develops, we will evaluate that on a quarter-to-quarter basis.

That makes sense. So there is no planned restructuring, which would trigger special items as things are looking right now?

That's correct. Great.

Then my last question, financial gearing. So based on your guidance, where should we expect the net debt to EBIT to go at the end of '26?

End of the year is -- we are fairly confident around that part of it. It is more that we -- particularly end of the first quarter, based on the weather situation, that's probably where we see it being at the highest point, but all well within the agreements we have and something that we are managing very closely. So we don't see that as a critical issue. But as you indicate, end of Q1 will probably be where you would be seeing the highest number.

Okay. And can you quantify where you expect it at the end of the year?

End of the year, reasonable flattish that also we expect -- if we can get to a 0 cash flow for the year from the operations, then you have an impact from the asset sale that might help us a bit, but that's a little bit uncertain on the timing on that in which quarters they kick in. But towards the end of the year, if you say you get the DKK 84 million in, you should see a lower debt position than our starting position.

Makes sense. Great. I know I said that was my last question, but I actually just reminding myself here. So just a clarification, Jorg, did you say volumes were down 25%? Was that for the group in January and February? Or did I not hear you correctly?

No, this is what we're expecting for the first quarter actually.

Okay. So the assumption for Q1 is volumes down 25% year-on-year.

Correct.

[Operator Instructions] The next question will be from the line of Anders Preetzmann from Danske Bank.

I just have a few follow-up questions. So going back to the natural gas and its impact on your overall COGS, can you just please reiterate for me that you're saying it's around 10% of total COGS in general. I think I looked it up that a couple of years ago, you mentioned that it probably was a bit higher than that, maybe close to 20% of COGS. So just to be sure, energy prices is 10% of cost of goods sold.

It is energy cost, as you say, it's both gas and electricity in that area. That is where we are now. I think if you go back, we have had some elevated gas costs a couple of years ago. But on a, let's say, also long-term historical basis, this around 10% is a good indicator.

Okay. For total energy cost in general, correct?

Yes.

Okay. And if we can move back to the guidance as well, very helpful with the details for the weather impact here in Q1. But are you able to maybe reflect a bit on what gross margin expectations one should model into the Q1 results?

It will depend a little bit on the pickup and also on the output we get from the plants. But let's say, staying at the 22% that we have had, let's say, as a kind of a base for last year is challenging. It will be a big hit that we see in the first quarter. So when you look at the phasing, you should expect this hit from the DKK 70 million hitting in the first quarter. So if you do the math on that, you won't get to 22%.

Yes. Okay. That's very clear. If we move on to the assets that are for sale right now, I mean, just a bit quickly going into detail what is sold off? And when do you expect these transactions to take place? Is it something we can expect in the near future?

We -- it's portfolio of the closed down activities, and they are both -- in nature, all of them are of, let's say, there's no significant amounts in it. So it will more be -- hopefully, we can see something coming through at least in the second quarter and then potentially something in the third and fourth quarter as well. We have ongoing processes at different stages. So we are fairly optimistic that something will come through, but the exact timing is always difficult to judge when there's an ongoing due diligence process and so on.

Okay. Just a final question from me then. You stated in your report and you also mentioned it a bit now, but just to be certain, free cash flow for the full year, you expect it to be positive, including the asset sales. So does this mean that we should expect negative free cash flow if you do not sell any assets?

That would be highly likely. And of course, it depends a bit on where we are in our guidance range. But if we don't get any asset sale through, it is likely we end up at negative free cash flow, yes.

As we don't have any more questions in the queue, I'll hand it back to the speakers for any closing remarks.

Yes. Thank you for everyone dialing in this morning, and wishing you a good rest of week and all of us a good year given all the challenges in the world that we are dealing with. Thank you.

This concludes the conference call. You may now disconnect your lines.