Kingspan Group plc (KRX) Earnings Call Transcript & Summary

Good morning, and welcome to the Kingspan Preliminary Results 2021 Call. My name is Katie, and I'll be coordinating your call today. [Operator Instructions] I'll now hand over to your host, Gene Murtagh to begin. Gene, please go ahead.

Thank you, and good morning, everybody. Welcome to the 2021 results call from Kingspan. We'll head straight into us, if you don't mind, on Slide #3, which is titled 2021 in summary. So we had a very strong year. Revenue grew by 42%, which resulted in a trading profit growth of almost 50% and equally an EPS growth of 48%. So really particularly strong. As we had indicated right through the year, there was really a period of very unprecedented raw material inflation, dramatic on all fronts. In Kingspan's case, obviously, steel and chemicals are the primary materials that we buy, and we experienced increases that we've never experienced before. So naturally, there was an awful lot of pressure on our teams around the world to try and recover that. And I think the result would demonstrate that, that was recovered successfully through the year, which was really a great achievement. From a volume perspective, the 2 key product areas, insulated panels and insulation boards grew by 13% and 11%, respectively. And naturally then layering on to that, the price increases resulted in those businesses growing by 45% and 50%, respectively when the pricing was factored into it. The Light & Air business grew by 24%, obviously significantly boosted by the Colt acquisition and later in the year, the Skydome acquisition in France. Water and Energy grew by 29% and again, a lot of inflation in here. But unusually, the Australian business actually suffered a lot, and this was particularly driven by the COVID situation in Australia. So that has had a tough time and we'll continue to have a tough time in the year ahead. The Data & Flooring business grew by 22%, again, reflecting the strong access we have to the data center market globally, that naturally continues into this year well into the future. And then from a capital perspective, we invested a total of EUR 714 million, which was around EUR 500 million on a series of acquisitions and then significant CapEx, which as we go through later, is going to continue for the foreseeable future as well. As part of that, Logstor store was the single biggest acquisition, which gives us a very attractive platform in a growing area of district heating and in the future, district cooling. So that business has performed well, and we expect it to perform better again this year and into the future as the district heating concept catches hold in the future. Since period end, and we announced this morning the acquisition of Ondura, but in total, we've committed EUR 800 million in 3 acquisitions since the beginning of this year. The largest of it, which is Ondura, gives us a, I would say, a -- well, a first springboard into a long-stated ambition of being in the roofing segment as in membrane roofing in particular. So it's a significant global platform, significant presence in France, Germany and other markets across the world. And as I said, it gives us a springboard into what we believe will be a very attractive and very synergistic platform for Kingspan. In addition to that, we've signed an agreement to acquire a business called Troldtekt in Denmark, which brings us into the natural insulation space and into the acoustic insulation space. Again, a new platform for Kingspan, and we will be immediately increasing the capacity in that business by about 60% over the next 12 to 18 months. So that business has been growing at approximately 20% organic. And again, we'll be expecting to at least continue growing that business at that pace. So 2 very attractive platforms there. And then thirdly, we acquired a smaller business called THU in Spain, which, again, will just plug into the local activities that we have in Iberia. So that's 2021 in summary. And the last 6 weeks of this year in summary. So I'll hand you over to Catriona now.

Good morning, everyone. I think many of you know the trends that drive us and create momentum in the business. So we skip through some of those mega trends to Page 13 and just give some of the highlights on the progress in our plan and passionate program in 2021. Another year, great progress. It's been 2 very strong years of implementing projects across the business to improve our impact on the 4 key themes of carbon energy, circularity and water. Again, we reduced our carbon emissions this year by 4%. But clearly, there was a lot of growth in the business. So that's a significant achievement. When you look at it in terms of intensity, which accounts for some of that growth and the reductions are even more significant. So almost 30% in carbon, 15% in energy intensity, down over 30% in landfill waste and 14% in water intensity. Obviously, inflation did feed into that a little bit, but I think we can all agree, a very strong progress. And we will have our Planet Passionate, our second year report out in March, which we'll highlight and give detail on some of the great initiatives that have been implemented across the business by the Planet Passionate team and the Greater Kingspan team through 2021. And I give it to Gene.

Thanks, Catriona. I'll take you now to Slide #15, which is titled Global organic expansion because there's an awful lot going on in that space. So during 2021, we commissioned 5 either new facilities or entirely new production lines around the world. Of note, would have been the zero-emission cool term facility in Sweden. The light and air, Center of Excellence in Ireland. We started a second panel production units in Russia and in Brazil, where we've been building effectively on whole new greenfield facility per annum actually has been the pace of growth in that region. So that was a lot of activity. And at the moment, we've got essentially demand internally for 25 new facilities or stroke production lines around the world. So we're working through all of those projects with the teams. We've effectively mapped out the pace of which they're going to be introduced and you can kind of read for yourself what's on the slide, but very significant requirement in North America across the insulation and the insulated panels businesses. Same goes for the central part of Europe, Central France, where we're building a group center of excellence in a city called [indiscernible] near [ Clermont ], And that's well underway. And we're also going to be introducing new pipe insulation facilities in the middle of Europe and in the U.K. So an awful lot of activity underway. Obviously, we're pushing east as well, and we're planning to establish 2 facilities in Saudi Arabia over the next couple of years. We're underway with an insulated panel facility in Vietnam, and we expect to layer on to that next year or probably the year after an insulation board facility. And then down in Australia and New Zealand, where currently constructing a mineral fiber insulated panel plant in Sydney, and we expect to build a greenfield facility in New Zealand where we've had a very strong sales presence, both in the panels and insulation boards businesses for a very long time, but we need to support that now by local manufacturing, and that will get underway over the next 12 months or so. So essentially, really, as we expand and as we acquire the demand for new facilities and further organic expansion tends to snowball really. That's been our experience. In terms of key innovations, which is the following slide, we'll just take you through a few. We've got many. But from an insulated panel perspective, we would be launching the long-awaited power panel essentially any day now. We're just waiting on final approvals to come through. But the product is ready to go. The initial facility is commissioned in the U.K. and we're working on building a specification bank for that product, which so far has been actually very encouraging. So alongside that, we're going to be introducing a business stream called Rooftricity, so just to distinguish between both, the power panel is the product, and we will just sell that as we normally do. And then Rooftricity is where it would be essentially a funded solution where we will supply and commission a project for a building owner. And in return for that, we will get a power purchase agreement, and then we will package those facilities up and essentially sell them to a funder. So that's a very similar model to what we had in Kingspan Energy going back 4 or 5 years before the feed in tariffs were taken away. But between the panel itself and the Rooftricity concept, I think this will be a very interesting organic platform for us going forward. A number of initiatives underway in terms of fire. A class OPTIM-R. So OPTIM-R is our vacuum insulated product. It's going very well. We expect to build a new facility for that actually in our Winchester campus in the U.S. over the next 12 to 18 months. And we are well underway with getting A classification for that product as well. Kooltherm B, we'd like to get that across a significant portion of the range. It's already available in the Netherlands and in Sweden, and that will be also coming to the U.K. and Ireland within the not-too-distant future. QuadCore, I omitted to mention just from the inflated panels perspective, QuadCore sales grew by around 60% at a revenue level, and it's now comprising 16% of our global insulated panel sales, which is very important from a specification on margin retention aspect. And from a fire perspective, the cold store product and QuadCore 2 recently achieved a fire classification of 120 minutes which is really groundbreaking for a non-fibrous product. And again, we hope to be pushing that through the organization over the next few years. AlphaCore, we've spoken about at length. I think that kind of that and the A class OPTIM-R essentially morph into a similar project. We expect to release a product into the cavity applications in the U.K. over the next 6 to 9 months. And then from a log store perspective and our district heating side, we in 2023, we will be launching a green power pipe, which will be kind of essentially close to zero carbon products, using steel coming from the H2 facility, which we're investing in. And then obviously, the lower car polyols and MDI, et cetera, in the form. So there's a lot of very exciting projects underway to complement the organic growth of the business as we go forward. I'm now going to hand over to Geoff to give you the real detail.

Thanks, Gene. So moving to the financial highlights on Page 20 in the deck, just to give the key summary highlights in the first instance, group revenue is up 42% to EUR 6.5 billion, trading profit up 49% to EUR 755 million. That translated down to earnings per share growth of 48%, delivering 305.6 cents. Our final dividend is EUR 0.26 a share, bringing the total dividend for the year to EUR 0.459 compared to EUR 0.206 total dividend in 2020, that EUR 0.459 total dividend is a 15% payout, which is consistent with our policy guidance for dividend. Free cash flow was EUR 127 million in the year, and I'll come to the components of that shortly. Net debt increased to EUR 756 million. As Gene already referred to, it was a significant year for acquisitions. So I'll come to that in a second in terms of the financial impact. Strong margin performance in the year, up 50 basis points to 11.6% in the face of an unparalleled environment from a cost perspective. Our effective tax rate increased by 90 basis points to 17.2%. That really reflects the year-on-year geographic mix of earnings. And that rate of 17.2% is our guidance for the current financial year '22. From a leverage perspective, net debt to EBITDA at year-end was 0.88x. And also a particular highlight from the results was the ongoing incremental improvement in return on capital employed, up 110 basis points to 19.5%, particularly pleasing in light of the fact that we committed in excess of EUR 700 million of capital to acquisitions and CapEx during the year. Turning to margin on the next page on overall profitability. You'll see on the left-hand side of the page that trading profitability has doubled since 2017. From a margin perspective, on the right-hand side of the page, up 50 basis points at a group level. Divisionally, Insulated Panels had a very strong margin performance up 130 basis points year-on-year. Strong operating leverage, 66% sales growth in QuadCore. All of those factors contributed to a strong margin performance. Insulation had a positive margin performance of 12.4%. The 2020 comparative really is an outlier during the early stages of the pandemic, in particular, overheads were curtailed very significantly, which meant the percentage margin was unusually high in 2020. Light and air, having regard to the longer lead time of its order backlog, the recovery of inflation is longer in light and air. We're already seeing that come through now in the early part of '22. So we expect to progress the light and air margin during the 2022 financial year. Water and Energy, good profit growth year-on-year. Australia, as Gene mentioned earlier, was a struggle during '21, but nonetheless, a decent performance overall divisionally. Data & Flooring 11.9%, which is reflective of the 3-year average trading margin of that business, very good profit growth year-on-year in the division. On the next page, just to bridge the sales and profit lines on the left-hand side of the page just to deal with sales in the first instance, acquisitions. So overall, sales were up 42%. And of that, 12% was contributed from acquisitions or EUR 530 million. So the likes of the annual impact of Colt, the acquisition of Logstor, the acquisitions of Terasteel in Southern Europe and Romania among other acquisitions contributing to that EUR 530 million year-on-year revenue impact. Underlying sales up by EUR 1.4 billion or 30%. And in very broad terms, that 30% is broadly volume of 11% and pricing year-on-year of 18% or 19%. From a profit perspective, on the right-hand side of the page, acquisitions contributed at 57 -- a little over EUR 57 million. And underlying profitability was up 38% or a little under EUR 190 million year-over-year. Free cash flow is dealt with on the next page. The strongest driver of free cash, clearly is EBITDA. We had a very significant increase in working capital during the year and just to deal with that. In the first instance, we had a very low level of working capital at the end of 2020. So you'll see on the top right-hand side of that particular page. Our working capital to sales ratio at the end of 2020 was 8.8%. Inventories were hard to come by due to supply chain constraints towards the end of 2020, which meant that we really were lower than was ideal for the business. The average working capital to sales ratio for the business is about 12% overall. We have the opposite side of that coin at the end of '21, where we actually took the opportunity to build inventory to give ourselves the security as we came into the 2022 financial year. And we expect -- we fully expect the working capital level to ease back towards normal levels of 12% of sales as we move through the year. So very crudely, if you look at that EUR 430 million working capital movement in the year, the movement to average is EUR 150 million of that EUR 430 million. So that's the 8.8% at the end of '20 going to the average of 12%. We had very significant sales growth of EUR 1.4 billion in the year, which we had to support with working capital investment. That's EUR 170 million of the movement. And the movement beyond the average at the end of 2021 going to 13.8%, that's about EUR 110 million. And that's the element of it that we expect to flow back through cash flow during the current financial year. The other significant items on free cash flow were our tax payments of EUR 127 million, net capital expenditure of a little under EUR 164 million during the year. Then bridging to a net debt on the following Page 24. Our acquisition spend, you will see of EUR 540 million during the '21 financial year. We also had a modest share buyback during the year of -- at a cash cost of EUR 47 million, and our dividends paid were EUR 73.5 million. So all of that led to a year-end net debt of EUR 756 million, or leverage of 0.88x. Our return on capital deployed metric is set out on the next page 25. So you'll see a very strong profile and strong performance during 2021 with strong capital deployment in tandem with that. And then on geography, setting that out on Page 26, just the key geographies all recorded very strong year-on-year growth during the '21 financial year. So Western and Southern Europe, up 36%; Central and Northern Europe up by nearly 2/3. Americas up 39% and Rest of World up 25%. So very strong sales growth pretty much in every market around the world.

Great. Thank you very much, Geoff. There's lots of detail by business stream there is no doubt you've all read through. So we'll just maybe move to the outlook slide. So in essence, the current year has started very well. Naturally, we exited last year with a particularly strong order backlog in our Insulated Panels business, which was up about 28%. That's obviously supporting the strong start, and it will support the strong first half, we have no doubt. And from a raw material perspective, the -- there was, I'd say, some reduction experienced, although not to the extent that might have been anticipated. And in some areas, in fact, we're seeing that harden again. So it's difficult to call, to be quite frank, exactly where it goes. But you can rest assured, we'll be honest whichever direction it goes. But for the time being, we'd be essentially factoring in broadly flat raw material cost base from where it is right now. But as I say, it's difficult to call. And then from an order intake perspective, again, in the key categories, it's pretty much flat year-on-year, which is not a bad position to be in bearing in mind the pace at which order intake have been growing this time last year. So we're well positioned, strong backlog, an attractive pipeline, but obviously a very unpredictable future on many other fronts. And that essentially captures the formal presentation. And now we're happy to open it up to the floor.

[Operator Instructions] Our first question comes from David O'Brien from Goodbody.

Three, if I could, please. Firstly, we've seen some draft legislation released in the U.K. in the last couple of weeks, if we get your early views and that would be helpful. Secondly, in terms of the Ondura deal, it's a new segment and market for Kingspan. Could you frame the size of that market and the potential for how the Ondura platform could expand over the medium term? And then specifically on your what are the key strengths of that business and within the market itself. Finally, just you've outlined, Gene, that the order backlog is up 28%, could you maybe give us a sense of the pluses and minuses within that number over the various regions, please?

Okay. David. Okay. In terms of the proposed legislation in the U.K. Obviously, it's very early days, and there's a very significant process underway across the entire industry that's been very well covered, I would say. I'd just like to reiterate, like we're out going over the past necessarily, just from a product perspective, it's important still to bear in mind this that Kingspan had no direct involvement in the tower refurbishment itself. And that's despite, I would say, relentless portrayals to the contrary, that's not actually the case. And from a product safety perspective, the product K15, again, has come under an awful lot of attention. And it's actually -- it's a completely safe product when it's used correctly. It's the most tested products of any insulation type in large-scale testing in the U.K. and it continues to be used in considerable volumes right across the world. Of course, it's a complicated process, multifaceted right across the industry. What I would say in terms of our own involvement in it, where we welcome the constructive engagement. We obviously realize it has to be brought to a solution, and we're absolutely prepared to stand by our products and our customers where that need be. Geoff will take you through maybe some of the experiences we've been having, in dealing with inbounds and with product claims and stuff like that. But in the vast majority of cases, we've been able to satisfy people as to the integrity of our products. But anyway that needs a solution, and it needs to be industry-wide. And as I say, will contribute to us proportionately. From an Ondura perspective, this is an area we've been enthused about for some time. It's very much a central part of the completing the envelope strategy that we rolled out some years ago. We have been involved in roofing naturally through our insulated panel business, and indeed, our board businesses for many years. So we have a significant presence in roofing per se, but not in the membrane roofing area and to a smaller extent, in the breathable membrane area, which this also brings us into. So it's a first step in a vast market. So you asked, David, what size. It's just extremely big is how I categorize it. And the runway for Kingspan, both from a membrane perspective and from a product bundling perspective is extremely significant. So what we don't want to be in waterproofing per se, we want to be in waterproofing where it's going to be insulated beneath it. So we've been able to drive that combination sale. And obviously, we've got the global footprint with our insulation board business to be able to complement this and the planned organic expansion and indeed further acquisitions in this area. So we see it really as an area with a very attractive runway into the future. On order intake, on order intake, I'd say -- as I said, it's been broadly flat to kind of pick week areas, I'd say the Benelux and France have probably been unusually weak. And I'd say that's North America, South America, and the U.K. have actually been reasonably strong if you were to pick what's going on in the regions.

Yes, David, I might just pick up on -- just on the provisioning piece that Gene referenced in respect of the U.K. issues. I suppose, firstly, and understandably, over the last number of years, we've had significant engagement with building owners and their advisers in respect of buildings that issue. And it's worth emphasizing that in the vast majority of those cases to date, we've been able to give the appropriate engineering and other comforts necessary. I think I said this time last year, and I'll repeat it again, we can't discount or rule out the possibility of future claims coming down the tracks, but they ought to be manageable. We've had a long stated warranty policy of standing behind our customers and our products. And in respect to this issue, our approach will be identical, if there's an issue on Kingspan, we will deal with it. Specifically in relation to the warranty itself, our global warranty provision at the end of 2020 was EUR 119 million, global warranty provision at the end of '21 was EUR 142 million. And the increase in that provision year-on-year actually had nothing to do with the U.K. matters. The year-on-year movement there has been negligible. And I suppose it's worth also just adding into the mix of issues for consideration here. Just the context of K15, the level of sales between 2009 and 2018 in the U.K. in every application was average annual sales of GBP 10 million on average each year over those 10 years. The sales of K15 prior to 2009 were negligible. And as Gene has already outlined, K15 is a perfectly fit for purpose incident when it's used correctly. So much of the commentary has focused on K15, but just I think the materiality of it is worth just highlighting for additional context.

Our next question comes from Arnaud Lehmann from Bank of America.

Firstly, I guess maybe 3. Let's start with the refund business trends, if I may. It sounds like you're talking about a more stable order intake so far this year. I remember back in November, you were thinking about 10% decline year-on-year. Is it -- have you seen a sequential improvement? Or are we talking about similar trends in order intake with just maybe a different base effect? That's my first question. My second question is on pricing. So I understand you're happy with the current level of pricing across the board. I appreciate it's product by product and country-by-country situation. So could you give us an indication if we stay where we are on pricing, what is the residual pricing effect in 2022 from the price increases we implemented in 2021, if you could give us an order of magnitude? And lastly, in insulation boards, you mentioned potential investment in stone wool production. Could you please elaborate on that? I mean it's a somewhat capital-intensive and energy-intensive production process. So what are the rationales for this investment?

Sure. Just to deal, Arnaud, with the first 2 parts of your question on recent intake trends, we did highlight in our November update that we had seen some softening of order intake towards the back end of last year. I suppose following very, very significant order intake growth in the year-to-date prior to that. So 2021 was an unusual year where orders were placed very, very early indeed. And as we reach the end of the year, the market was digesting that. I think also we -- what was evident for much of the end of last year was, I suppose, among some elements of the customer base a wait and see approach being adopted in relation to pricing and expectations around raw material prices. As we've moved into the early part of this year, I think there now is a recognition that raw material prices are at elevated levels and probably for longer. So Gene referenced that we've so far this year, if you take the first 6 or 7 weeks intake levels broadly flat for those same weeks this time last year. So that's reflective of those trends, but also reflects a very strong backlog coming into this year of 28% growth. As regards to pricing itself out of necessity, we had to drive through very significant price increases given the level of inflation inflicted on the business through 2021. So versus this time last year, naturally, prices are higher than they were because the raw materials are much higher than they were. So in the first half of the year, that pricing dynamic is broadly mid-teens versus the first half of last year because of the year-on-year price moves.

Very good, Geoff. Thank you. Arnaud will take you and all on the call to Slide 9, actually, if you could, just to answer your -- the third part of your question regarding stone wool. So Kingspan is -- we have an extremely broad palace of insulation options available as it is. And we see ourselves as being a provider of the full spectrum. And for reasons that are technically clear. So there are products that do better jobs in some areas than others. And actually, the overlap of where they compete is relatively confined. So if you take it from left to right there, you can see that you've got obviously natural installations, which we have now entered with the acquisition of Troldtekt, and we'll expect to be ramping that up significantly not just in the acoustic insulation form, but we will be expecting to use the knowledge within that organization to be able to get into wood wall installation as well, which is a growing category. So you can expect to see Kingspan taking a significant position in that area as we go forward. And then as you work across there, you've obviously got the legacy materials of mineral fiber and obviously, the more advanced ones where we've been focused on more specifically. And in the case of stone wool, it's not in the remotest form a shift in direction from us. It's just we -- as it is the largest consumer of this material in the world via our insulated panel business, which maybe isn't all is fully appreciated. So as that segment grows and as certain applications for mineral fiber grow, we want to be effectively sure of supply, ultimately is our interest in it. So that's essentially why we would be in that. Fully appreciate your position incidentally on the energy intensity of it. We'd be extremely mindful of that. And in fact, it's it may well be even difficult to get planning for a process like that as a result. But we'll be mindful of that. And if we are to do it, we'll be doing it in a much more energy-conscious fashion than, I'd say, most of the existing incumbents do.

Our next question comes from Flor O'Donoghue from Davy.

Just a couple from me. Firstly, if I can go back to the Ondura deal. Just wondering the EUR 63 million EBITDA that you referenced in the [ Rooftricity ] acquisition. Is that representative of its performance? Or is it an outlier? I'm just trying to get a sense of it's kind of performance over the years because clearly, on the basis of that EBITDA, the acquisition multiple is very attractive. Just on that deal, I guess, in general, is there synergies with the management team being staying on, et cetera, or things like that? Secondly then, just you've given us a sense of this before, just on the cost side, what your absolute bill last year would have been in terms of steel and chemicals, that would be appreciated. And finally, just a very quick one. CapEx guidance, I'm not sure whether mentioned yet, but just, Geoff, maybe a sense of the CapEx guidance for this year, if possible?

Yes. So just on the earnings for the Ondura business is 1 that's been under construction itself over the last 3 or 4 years, both organically and through acquisitions. So I suppose it doesn't really have a long history in totality in terms of what its earnings trends have been. But it's -- the EUR 63 million is where it hit last year. That was a reasonable improvement on the prior year. But yes, like in typical form, I'd say we'd point out that it was a good year for the sector right across the piece. But actually, it would be our intention to take it from there forward. But yes, it's -- it was a good starting point. From a management perspective, it's an extremely impressive team. They'd be fully aligned with us strategically in terms of where to go with the business. And we think from a synergistic perspective, that's all going to work out extremely well.

Flor, just on the raw material spend. Just for all kinds of commercial reasons, we're just not going to get drawn on the specific extent of the spend other than to say we had in excess of EUR 700 million of inflation across the business in 2021. I think the other point worth highlighting that's related to it is from a margin perspective, margin performance in 2021 was strong, up 50 basis points. We could expect to see a little bit of margin give as we move through this year. On CapEx, our CapEx guidance, excluding any of the acquisitions that we've announced that for 2022 CapEx of EUR 180 million to EUR 190 million in the current financial year.

We have a question from Yves Bromehead from BNP Paribas Exane.

If I could just come back to Ondura, which I'm sure you're excited about. I just wanted to maybe understand, I mean, if we -- you mentioned that you would like to use this as a way to bundle, I guess, your board and the insulation and the membrane, sorry, together. If we look at some of the competitors that actually do that, the margin tends to be mid-teens to sometimes 20% plus. So I mean if this business was sort of put into the board business, should we think about sort of the level of margin that can get to those levels? And also, do you have an ambition of how much of your roofing insulation needs to be sold in future with the membrane versus the more typical distribution-led value chain? That's my first question. My second question is on your innovation, including power panel. I mean, is it fair to assume that this could be more tilted towards non-resi renovation and existing buildings? And can actually a building owner use just a panel and put it -- a solar panel and put in on top of an existing insulated panel? Or does he need to remove the existing insulated panel and fit it with the new power panel? That's my second question. And last but not least, coming back on the sort of comments you've made on wood fiber and stone wool. I mean historically, I think Kingspan has always been devoted and the strategy was always about the advanced material that has the best thermal performance. Is it fair to assume that the way you think about the market in the next 20 years is that actually the consumer sometimes cares a bit less about the similar performance, but more about sort of the natural aspect of what you call natural materials being, for example, wood fiber. Is that the decision driver for you?

Okay. Okay. You've got a lot in there. So we'll maybe start at the end. So from a stone wool perspective, again, it's about the full spectrum. From a -- it's not that we see, as I say, any shift in that direction. In fact, I believe the opposite is the case. But from an internal consumption perspective, around 12% of our global insulated panels incorporate stone, and that's actually been the same for the last 5 years. So we don't see any shift necessarily there. From a Board perspective, I'd be fairly certain that advanced materials have been taking significant share at a square meter area of building, not tonnes to be clear. I'm not talking about tonnes of material in square meters of building I'd be absolutely certain advanced materials have been taking share. And from a thermal perspective, it's an interesting point you raised. I think there are all kinds of trends and that we see here and there. natural, and I would not include stone and natural, by the way, because that's pretty exaggerated stuff. But from a timber perspective, yes, we would see opportunity. But again, the reason we want access to a full spectrum is products have advantages and they have limitations. And the same will go for the natural materials. And we should just always bear that in mind as well. I think a critical thing as well is that what we're entering a phase now where it's not going to be about does your product do what it says on the tin on entry. But does it actually do what it says on the tin when it's actually in place. So it's not about saying a product meets a certain spec has built. It's going to be, does it actually reduce the emissions in the -- over the life of the building that a product should. And I think that's going to be where the emphasis will be in the future because it's all about emissions. And we believe resolutely that advanced materials will stand the test of time much more so than traditional products when it comes to that aspect. From a -- if that's okay. From a power panel perspective, there's a new build and there's a refurb opportunity. Well, power panel stroke Rooftricity. So from a newbuild perspective, it's crystal clear. It's just a new roof. It's a fully integrated single fix system that gets you away from the second fix and all the complications that comes with that. From an old roof perspective, it won't be about removing panel leave because panel actually is a relatively young product when you look at the population of buildings that's out there. So it's going to be generally old, old underperforming traditional built-up systems and [indiscernible] roofs and stuff like that globally, where they will be cleaned off and replaced with a new power panel. And actually, the -- from a funding perspective, the Rooftricity model will aim to be able to deliver a new roof with solar integrated with an absolutely minimal, if not 0, capital outlay for the building owner from the get-go. So it's going to be a very attractive solution. I'd say we're at the early days of it, but we'll see where we get it. And then from an Ondura store roofing membrane bundling opportunity, there's a couple of areas. Naturally, the flat roof membrane, bundling it with various types of insulation is clear because in almost no cases is the membrane supplied without insulation. So in new build, obviously, it's going to be included and refurb regulations now in most markets are demanding that if you're refurbing the thermal performance of the building has to be brought up to today's standard. So where the membrane is going, there is an insulation of some type. And naturally, we play in that space. And that will be our intention. You'll know from your understanding of the market that the bundling model is, by far, the prevalent model in North America, where it's actually much less so almost nonexistent in Europe. So the scope there. And then also from the corrugated roofing perspective and the Angeline product range, we would see opportunity to actually bring in, albeit lower grades of insulated panel through those channels. So it won't just be board. We will be hoping for opportunity for insulated panel penetration growth through the Angeline channels as well. You asked about margins, I'd say it's too early for us to be putting numbers on that.

Thanks much, Gene for that. Thank you have a good beginning.

Our next question comes from [indiscernible] from Morgan Stanley. .

I have a couple of them, please. I know you talked about H1 pricing? I'm just thinking, assuming the raw material flat from now on, what does that mean for pricing in H2? Second question is on trading margins both 2020 and 2021 above 11%. I know that you say going through this year, it might give a little bit of gift. But in general, going forward, should we now consider Kingspan a structurally higher margin business? And then the last question is on M&A. So the 3 deals you announced so far this year are not in panels. So can we take this as a message that future M&A would also be more focused on the building envelope. And then can you give any indication on the scope for M&A spend going forward?

Okay. I'll just take a couple of those. And from a pricing perspective, it's relatively straight forward from our perspective. And like our best view is pricing is going to be broadly flat if materials stay where they are and will naturally flex the business accordingly depending on where that moves. So we clearly want to be competitive, you know to go the wrong direction, but we obviously want to recover if they go up. From an M&A perspective, you're right, it hasn't been insulated panels. We've obviously got limited scope because of the position we have in that business globally, but there's obviously tremendous organic growth potential in the insulated panels category, and that's been demonstrated once again actually in the year just gone by. But like I wouldn't say that -- there are no insulated panel opportunities because there are -- when you consider our presence in -- as you move further east, we have a very limited presence, and there's great opportunity there longer term. So -- but I would say from a number of deals perspective, obviously, it will be in a minority as we go forward and develop into other areas.

And just on the margin, as you rightly highlighted, it was very strong in 2021, up 50 basis points. I think for 2022, our expectation would be that the margin would stay north of 11%, but there might be some concession beyond the 11.6%, but should stay a nudge above 11%.

And how do we think about that going forward? So is this now structurally above 11% business going forward?

We have temporarily lost connection with our speaker line. Please standby whilst we try to reconnect. We've reconnected with our speaker line. So please go ahead when you're ready.

[ Katy ], I think over to you, we just finished the question from Pam. So whatever the next question is there, please? Sorry about that, everyone. .

No problem at all. So we take our next question from Rajesh Patki from JPMorgan.

I've got 2 questions, please. Firstly, just on the cash flow, clearly, working capital moves were quite a major contributor to the rise in net debt. And I mean, if you can add a bit more color around the inventory moves. Was it more around your stacking up raw materials to ensure no supply chain concerns going forward? Or was it a bit more softer-than-expected volumes that led up to buildup of finished product? And in addition to that, I think you have talked about CapEx as well. So -- and on top of that based on the transactions that you've announced so far, where do you expect net debt to end up if you don't make any further transactions this year? That's the first question. And secondly, given the evolving legislation in the U.K., have you seen any change in the enforcement of regulations? And if you can provide some color on the office for product safety and standards decision to temporarily hold the sale of K15 a few weeks ago?

Okay, Rajesh, I'll take the working capital point in the first instance. As I highlighted at the outset of the call, working capital levels at the end of 2020 were at historically low levels because we just couldn't get our hands on supplies like many other industries during 2020, supplies of most things were short and our business was no different. So our working capital to sales ratio was 8.8% compared to our long-term average of 12%. As we moved into 2021, and again, supply chains, as you know, were disrupted hugely, not only in our industry but across other industries as well. We took the opportunity to build up buffer stocks in very uncertain times when supply chains were less secure than they might have been in a more normal year. So that meant our working capital to sales ratio at the end of '21 was 13.8%. We fully expect that to normalize to 12% as we move through 2022, and that will release about EUR 120 million or so of inventories. As regards the debt implications of the transactions that we've announced on a pro forma basis, we're not exactly sure as to the timing of completion -- so perhaps the best way to look at it is on a pro forma basis, if you were to layer in the EBITDA of the acquisitions and the cost of the acquisitions, that will take our debt broadly to EUR 1.5 billion and our leverage to about 1.6x now. And evidently, we would expect to generate cash as we move through the year. But that's the shape of the profile.

And just your reference to the K15 thing, just to be clear, our K15 sales in the U.K. are negligible. And with respect to the recent OPSS procedure relates to a technicality rather than an issue of safety. And however small, the sales of K15 are, it will be on the market within a matter of weeks in any event again.

Our next question comes from Manish Beria from Societe Generale.

Yes. So my first question is a very easy one. The M&A, I mean, are you done because you've done this big acquisition. So is it over or if something comes along very interesting, you can still flex your balance sheet? This is the first one. . The second one, I'm also trying to see the price cost. So how was the price cost in 2021? And as I understand, I mean, basically, second half, you had price cost that was positive, and now the raw material are stable, pricing also stable. So basically, the first half will also be price cost positive in that sense. So do you guide, I mean, the full year '22 would be price cost that will be positive? This is the second one. And the third 1, I'm just trying to understand your panels business a little bit. So what is your key competitive advantage here in the panel business? It is only the advanced insulation or also the relationship with customers, our designs or our execution capability and things like that?

Okay. Okay. From a -- from an M&A perspective, no, I'd never say we're done. Like that's a continuous process rather than [indiscernible] that just goes in chunks. So obviously, we need to see these 2 larger transactions true. There's naturally going to be a number of months of process involved in those. But no, we continue to keep actually an extremely healthy pipeline of opportunity around all of the areas that we've talked about in the past.

Yes. And just on the price cost dynamic, as we've outlined earlier, we had significant inflation during 2021. The recovery of the inflation was very strong during 2021, the price cost dynamic in 2022 could be that we end up conceding a modest amount of margin during 2022 of up to 50 basis points. That's our best sense of things, having regard to the mix of products and the mix of markets that we're in. But that's generally the shape of it. And it's difficult for us to be much more specific than that.

Yes. And in terms of the panel attributes, like they really are multifold. So you highlight, obviously, the fact that advanced insulation is a key aspect of it, which it is. I'd say speed of build is hugely important. And actually, that's becoming a more important feature at the present time, naturally with labor shortages and if you can get them, the cost of labor has risen so much. So typically speaking, an insulated panel will install at around half the time of a traditional buildup system. So that has been and will continue to be a significant advantage of the product. Obviously, the aesthetics that it offers versus, for example, tilt-up concrete, which tends to be a pretty single dimensional appearance. The profiles and colors and all the variations that we can offer are actually pretty infinite with an insulated panel. So from a design -- an external design perspective, there's a huge amount of advantage in it as well. And then as we mentioned on an earlier point, been able to guarantee an over life performance from an energy perspective in a building is going to become, I would say, an area increasingly focused upon. And with an insulated panel that's something that can be achieved, whereas, obviously, with traditional insulants, that's a total impossibility.

And just a clarification. So you are talking about giving away margins but not really the price cost because if you give away 50 basis points, that can still mean price cost could be positive because -- because you mentioned, I mean, the first half pricing will be up mid-teens. So full year may be up 7%, 8%, and there is volume. So you apply 11% margin. So probably you reach a trading profit of 7.80%, 7.85%. So that still means I mean, price cost is positive rather than negative but of course, a negative impact on the margin. So is this the right way to think?

It's difficult for us to untangle all of that. And there's a large amount of the year still to play out. And none of us have any certainty around raw material moves other than we expect the key inputs to remain at elevated levels for the foreseeable. But we do expect, as I say, some modest margin concession just in light of the strength of it during '21. And beyond that, we can't model it with any specifics beyond that.

Correct. And -- but just to clarify, you don't intend to cut prices, the top line pricing from here if the raw material stays here?

Yes, that's absolutely right. We're not price cutters.

[Operator Instructions] Our next question comes from Brijesh Siya from HSBC.

I have 2 questions. The first 1 is on the market share. You talked about stone wool category is 12% constant over the years. But if you look at the insulation board volumes in the last 2 years, it's basically flat if we compare 2019 and 2021 on a like-for-like basis, whereas your competitor has kind of grown somewhere around 10%. So when you look at the overall market, how do you see the market share moving in the last 1 year or so? And if you have any kind of recent trends to highlight? And the second one is on the B Class Kooltherm, which you launched in Netherlands, if you could give us a little more flavor about how that sales is going on? And what percentage of it is kind of contributing as a total overall sale of the board business?

Yes. Yes. I'm really you confused with your point on the -- so from an insulated panel perspective, the fiber category is pretty constant. And from a board perspective, we've absolutely outgrown. I think -- I kind of guess who you're referencing, but you don't actually get volumes split from that organization. So I'm not sure how you could conclude what you just have, what you get is tonnes. So as I was saying earlier, we -- you've got to measure volumes in square meters of building area, and I will be more than certain that advanced materials are gaining significant share worldwide. I don't even know if you get tonnes. But, yes.

As regards volume growth over the last couple of years. I mean we've had -- I mean there've been 2 remarkable years in so many ways. I mean our insulation board business has advanced evidently very significantly through 2020 and 2021.

Understood. And about the B Class Kooltherm?

Yes. So that's just an emerging category. As I said, it's on the market in Continental Europe and will be in the not-too-distant future in the U.K. and Ireland and in North America, in particular applications. So yes, we'll just continue to advance our solutions as we always have.

This now concludes our Q&A session. So I'll hand it back to our speakers for any closing remarks.

Thank you very much. Obviously, over the next couple of days and weeks, we'll naturally be in touch with you all individually. So thanks again.

Thank you.

Thanks, everybody.

Thank you all for joining. This now concludes today's call. You may now disconnect your lines.