Rockwool A/S (ROCKB) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the ROCKWOOL reports on the first half of 2020. Today, I'm pleased to present CEO, Jens Birgersson; CFO, Kim Junge Andersen; IR, Thomas Harder. [Operator Instructions] As a reminder, this conference call is being recorded. I will now turn the presentation over to your host. Please begin.

Thank you. Welcome to the conference call regarding ROCKWOOL Internationals' results for the first half year of 2020. My name is Thomas Harder, I am Director of Group Treasury and Investor Relations of ROCKWOOL International. I'm here together with CEO, Jens Birgersson; and CFO, Kim Junge Andersen. First, Jens Birgersson will go through our presentation to give you an update on the results for the second quarter and first half year of 2020. Afterwards, we will be ready to answer all your good questions. Before I hand over the words to Jens Birgersson, I must ask you to notice Slide #2, which is the forward-looking statement. Please be aware that this presentation contains uncertainties. Now we can go to the next slide, which is Slide #3. Jens Birgersson, I will now hand over the words to you.

Good morning, everyone. It's Jens here. Yes, I've done -- given a couple of interviews this morning. And it seems like I don't know if it's in our building or generally, but we have had echo, some problems during all of the calls, not big ones. So if you don't hear something I say, then don't be afraid to take it again at the end during the questions. And then also, when you ask your questions, be -- try to speak a little bit slow and clear because it's something in the air today. So if we -- before we go into the standard presentation, I just want to expand a little bit of the background to the quarter. Firstly, a recap of Q1. We had a good January, February and a good start of March and then corona started to impact. We got through the quarter flat. And we did give you the sales in April of around minus 20%. And what happened during the quarter was that you saw in the quarter a steep decline then, minus 20%, pretty poor April, towards the end of April that started to come around. And you also saw some of these, I wouldn't say, panic actions but dropped action. So it happened in the first half of the quarter, all building sites in France were shut down, but there are a couple of countries in Asia, where factories were ordered to be shut down. And so we had more turbulence and then the countries got more and more used to it. And we took the approach for this quarter, we had a couple of objectives. First of all, with our financial possession, net debt-free, we went into it without any angsts, without any worries. And we said we're going to be the rock. We're going to navigate this in a steady manner. We're going to keep, of course, paying the dividend and keep going on the buyback, and we did do that. And we also said that in the choice between subsidies and deliver even a few banks and customers -- will be delivered to customers. So the numbers you see here, we haven't got governmental subsidy money in there. We have some very small amounts in some German-speaking countries. But fundamentally, subsidies is not what we steered on. We focused on customers. And we were able to deliver. And then to keep our people safe. So there's a whole slate of actions in the factories to separate people. And we have had very few cases across ROCKWOOL. And then in the office, we have 3 gears to find for the company: gear 3, everyone in the office; gear 2, half the crew home, half the crew in the office; and gear 1, everyone home. And we switched early into gear 1. And again, that has worked quite well, no technical glitches. And maybe this is the third call in the last -- since March or something that I had a problem. So this has generally worked. We also said that we will focus on doing a better job than we did last time. After the financial crisis, we saw that ROCKWOOL maybe lost the most of bottom line when the top line went down. So we have actually prepared for this. We did a [ fire drill ] last year. We have worked on increasing agility and flexibility. At the same time, we have avoided actions to reduce everyone's salary. We did do a small salary increase. We see this as a glitch. Yes, it's crazy times, but we wanted to manage it as we normally would manage any drastic impact on [ demand ]. So that's how we approached it. That means that in terms of laying people off to preserve bottom line, we kind of have an ambition to preserve profitability but not maximize profitability. And on prices, we said steady in the boat, keep the pricing. Okay. So if we then look at the numbers, what that resulted in, about 7%, 8% down, I'm on Slide 3. 7%, 8% down on the top line in the quarter with more, of course, in Q2. Q1 otherwise would have been a growth quarter. EBIT, 11.2%, down compared to last year but still double digit. And then on cash flow, we typically have this build up at the beginning of the year of net working capital and seasonal stock. And we managed that. And then of course, trade receivables went down since we didn't grow, we declined. And that helped the net working capital. We kept a really big focus on overdues and haven't had really any [indiscernible]. And for a period, a few invoices were delayed. But generally, we have kept that in hand. We move to Slide 4, Q2. First half, 5, 6 weeks of that quarter were the toughest April numbers you have. May was similar and then it started to improve and stabilize. And you also saw that the drastic actions were less drastic out in the countries, big variance of what happens in markets. And I don't normally go into countries, but just to give you a flavor and start with North America. Canada, keeping steady, U.S., up and down, mostly down. In the Nordics, you could see Denmark jumping into double-digit growth. And we actually have to step up capacity in Denmark. And then you have markets like Italy, they shut everything, and we were down there close to 100% and maybe was 1% left of activity. So you had the huge variability of what happened in the market. Across the board, if customers need product, we delivered. And we didn't have logistics problems on the incoming and the outgoing. And we saw raw material prices go down, obviously, no travel cost, no hirings and all the other measures, and we took out shifts wherever we needed and offloaded those costs. Also had good cost savings, more cost savings through efficiencies. The factories run with very high degree of efficiency actually in the crisis, tells something about our people. Move to Slide 5. And if you look at Insulation and Systems, Systems got through it a little bit better. And the reason for that was, I would say Grodan obviously not affected by this. They kept growing throughout. But also Rockfon and Rockpanel have done comparably well. So that's nice. And in the Insulation segment, I mean, the countries that have a complete stop on the building sites for a couple of weeks have obviously impact. And our conclusion is that we didn't lose any market share during this time period. Move on to Slide 6. And there, you see actually that Systems in the quarter, it took also a bit of downturn. It hit worse and bigger on the Insulation side, as expected, because we have growth on that place in other markets and some other segments, too. And Slide 7, regional sales development, starting in North America, Asia and others. In Asia, we have quite a decline. China came out of it and then it went down again. So it has been flickering around but didn't come back in the [ beat ]. It kind of came up and then down and it has been -- it's not fully back in China, which maybe surprised me a little bit. It's not so big for us. And then you saw South Asia, India, taking very strong measures and so the impact on the business. Yes, U.S. is what we all heard quite up and down. I should also say though that the U.S., when you look into the construction sector, people are quite optimistic about the measures coming. So it hasn't been -- it has been a decline at times but not a big panic in the market. People are quite optimistic about the future. Poland, Russia, Romania. Romania, less so, they slowed down a bit. Russia had cities and parts that, where they did complete lockdown also in Poland. And you have some smaller countries actually growing throughout. Romania, even though the decline, of course, not dramatic. And in Western Europe, you could see basically, the more south you came in Europe, the more drastic the decline. So in Italy, Spain, France, once they shut, they really shut. And then in the Nordic and Norway, more drastic in the measures also on building sites. We were allowed for most of the part to continue our construction in Norway on the new melter in Moss. But quite a few things were shut down in Norway. Germany, so in between quite heavily impacted. And they took firm measures. And there were areas where operations we have to take off shift some of that, but the market went down quite significantly. Profitability. Of course, we didn't -- though there is a very deep value chain we have, when you go down closer to the breakeven point, it doesn't scale proportionally. We have costs that we can't move out. But largely, we have taken quite a few actions without being overdramatic and preserved quite a healthy margin and positive cash flow. And I'm happy with the double-digit margin in Q2, considering the top line decline. And it should be noted also in these numbers that in 2019, we had EUR 10 million one-off for the legal settlement in the U.S. So the decline overall in EBITDA was 23%, 28% like-for-like. Move to Slide 9. Some of the businesses in Systems division preserved profitability. So the like-for-like EBIT margin in the Systems division went from 15.3% to 12.4% and from 11.2% to 8% in Insulation. So that's, I think, acceptable. The investment activities. Our spirit has been to keep going, then maybe push a little bit more some sustainability investments. And I will say a couple of investment hasn't gone forward. But we decided to keep the projects we have and it is going, so more big change on that. Slide 11, cash flow. Net working capital, very strict focus on not overbuilding stocks, what has been done, we have controlled the stock weekly as we normally do. And then on the net working capital, the EUR 40 million there, that's with the decline in top line, we then reduced the trade receivables, obviously, and bunched together and then we get to that reduced net working capital. We kept going the dividend payments. Obviously, we bought those shares at much -- under safe harbor, of course, but at a much lower rate than we're standing now. That's on track or it's ahead of the program. And in spite of the performance that can be made normally and we have invested with the dividend and we did a share buyback, we are still net debt-free at the end of Q2. On the outlook then, we see basically we continue to be agile. We are ready for anything. We are restrictive on costs and inventory management. We keep doing what we are doing now and what we have done in Q2. And when we look at the market, we feel relatively safe to say that it will be better in the second half than in the first half. And we see in some markets very steep improvements, for example, Italy, and other markets more slow improvement. For example, in U.K., there is quick decline and seems to be a slower recovery. That doesn't necessarily mean that we will have a slow recovery because we have such a small market share still and the change in regulation and the increased depreciation of higher noncombustible insulation has kept going. So I think we can mitigate some of that. But generally, we see in our countries come back up. And that led us, if we move to Slide 14, that we could -- in the annual report, we had the first guidance on the 5th of February and then the 2 suspended periods there that, on EBIT investments, we just revived the previous guidance and then we have lowered the top line to mid-single digit sales decline. And that's based on what the second half year is a bit better than the first half year and month-by-month. But we'll see what happens. But we expect the markets to improve going forward. With that, I would like to hand over for questions.

Before we do that, Jens, I'd just note that we understand that some of you were not able to access some of the presentation, feel free to ask questions referring to the slides, and we will cover it during the Q&A session. Thank you. Operator, I hope you are there now.

[Operator Instructions] We have our first question from Kristian Johansen from Danske Bank. [Operator Instructions]

I will do my two questions then. Firstly, in the project segment, what level of delays have you seen in projects and tenders and so on, which could potentially have an impact into next year?

And the second question?

Sure. Second question is regarding action by governments in the countries where you're exposed on energy efficiency renovation. I think last time you reported, you mentioned that there is a new program in Italy. Has there been any other movement in any of your other markets?

Okay. So what we have seen on the projects, I would say we saw a pause of 3, 4, 5 weeks on a number of projects in the countries where it stopped. So it's hard to say that when France stopped for 5, 6 weeks, the projects stopped. And now afterwards, that is a catch-up effect. And so now those projects, they want to accelerate. So we could pretty much say that they deal with the amount of lockdown that the building size will stop. And that's all that happened. And then we haven't yet seen, since there is a backlog of other projects, like big projects, they have been bid. And that has been -- that work has been kept going. And there's quite a big backlog in most markets of projects bid. We haven't seen that really change. My question is what will happen, say, next year? Are companies generating new projects that we will see in 6 months? That is my question now. We haven't seen much to the stock, the projects and projects lower activity and projects coming out for inquiry. And so I think people have just kept doing. And then it's the next round of investments that then is yet to be seen if there is a vacuum coming there in some segments. Is that okay, Kristian, the first question?

Yes. That's very clear.

And then on the government actions, I'd expand that into the whole EU thing now because then you have that as a base because I think that's a topic. So if you now look at the EU budget 2021 to 2027, it's -- [indiscernible] is EUR 1.8 trillion. That is 60% higher, roughly 60% higher than the previous 6-year budget. And it includes a number of things. First of all, this had this recovery facility next generation of EUR 750 million. It also has the recovery and resilience facility of EUR 670 million. About half of that is grant and half of that are loans. And those -- that money needs to be deployed relatively quickly. And then it has normal public element. But some -- whatever way you look at it, there is a good EUR 700 million, EUR 800 million of increase that is for a green restart or something like that on the economy. Out of that, and this is our interpretation and we follow this tale, but 40% is preserved for climate action and a green restart. And there are also some elements in there being discussed, for example, a tax to finance the grant piece [indiscernible] with the potential tax on plastics, on plastic bins. So there's massive amounts of money. And then we see, for example, the U.K. that have done their own thing. It's about [ EUR 2 billion ] for restart and energy efficiency and some smaller amounts, too, so also non-EU countries. And then of course, in the U.S., it's such big numbers that we can't really see how it comes. But generally, it's a positive spirit in the U.S. that, that money will go somewhere and will go into the construction sector. So I think that the awareness to get runway -- and then also, there is a target now doubling the renovation rate. And by October, the membership country should come back and tell the EU how they want to do it. And then there is a link between what they do and the central money and [indiscernible] others. So fundamentally, a lot of good things. But then if you look then at the countries, where have you seen anything in play? And I'm not sure that it's an EU-related thing. But you look at Italy, Italy is already in positive growth territory year-to-date after the horrible stock. They are very quick up. And they have put a very strong -- it's 110% subsidy of energy efficiency renovation. And we clearly see it in our business in activity and all the rest. And then if you look at a country like France, they are aware of the need for renovation. They have the White Certificates Scheme. And they're restarting it. So we don't expect France in our segment to come back to being on a lower level. But then you have countries like the U.K., where, for example, the furlough they did was made in a way that it actually forced some companies that could have gone business. We didn't do it. We kept working. People that went on it, they actually were forced to almost shut down their companies. And that had a negative effect on the economy, let's say, maybe some jobs. And so the U.K., for example, are more hesitant how they will do it. But in summary, when you look into next year and the outlook, we have seen some actions. We are pretty certain that countries like Denmark, France, Italy, Spain also have a scheme, they will probably jump back in and be quite quick on it. They have simple schemes to do. And then you have other countries where you can be more hesitant because it's going to take longer time to link the money to the projects. So we follow this, hard to say, but there's clearly a positive push. And some of the money also have a shorter best before dates. So you need to deploy some of these recovery funds before 2022 or '23 start. Before 2023, a large portion of some of this money needs to be committed to products. Obviously, you can't execute all of it, but you have to commit it. So I think we will see activity and then we see the whole variance of different governments vary in their scale of doing schemes that they can deploy, Italy leading the way, I would say, at the moment.

Our next question comes from Yves Bromehead from Exane.

Unfortunately, I missed the whole presentation. So sorry about that. I'm not going to try and pinpoint some slides, I will go straight to some Q&A. So my first question is just on the general situation today. We are actually hearing that July and August were relatively good months compared to 2019 and even compared to expectations during COVID-19. And that has apparently led some restocking across the channels, which is making the insulation industry quite tight. It feels that this is especially the case in the U.S., where price increases have been announced. So I just wanted to understand if the situation is also relatively similar in Europe. And therefore, how should we think about price cost and if that's going to remain supportive into H2 even after the new capacity is coming on stream? Second question, obviously, it's great to hear all these new investments towards renovation. But we are hardly hearing anything on the new housing side. So I just wanted to get an understanding of when you speak to the house builders and also to some of the distributors, what are you seeing and kind of what is your, let's say, views on this as we go towards 2021? And of course, the catch-up effect, how do you think is the new housing will trend like?

Yes. Okay. So on the price/cost, obviously some capacity is coming online. If you look at the announced increases over a 5-year period, maybe stonewall the current plans, when I look at -- you're talking 3% CAGR capacity increase in the market with all the announcements we have seen. But obviously now, this year and next year, there are some projects which we're doing. And you are right on the U.S. There -- first of all, U.S. is extremely patchy. You can have one state in a complete different mode than another. So you can almost not talk about -- like the South behaves very differently to New York [indiscernible] afterwards. So we see everything from complete stances to building and tight supply. But generally, we have at least seen that Owens Corning, [ the glass wool ], have announced a price increase. So we did a price increase in the first half year here. And we have a traditional speaking to that. We don't announce a back-off. So that's the U.S. situation. But again, it's incredibly patchy. I see house builders now being quite optimistic in the U.S. also on newbuilds. But we see this start and stop and wish to get the business going. But then again, if too many people have corona, you can't run the factories, you can't run the building sites, you need to take care of the people. Otherwise, the economy doesn't work. So still a little bit of a gray cloud but some optimism. And then we go into Europe. I think that since -- short term, I mean, everyone have managed their capacity in the downturn. And short term now, people are getting back on the progress and they want to finish them. So we see demand coming back. And we see every week basically that now they are back. And then the question is will it ultimately be on 100% of last year or below or above? But it will be better than the first half year. So I think that seems to be happening. But our general approach to price is to stay steady in most segment on the price. Did I cover your questions for that?

Yes.

So our next question comes from Mikael Petersen from SEB.

I wonder if you could give any flavor on the month of July, if you saw a pickup from June. I know that you mentioned that you saw that demand is rebounding strongly. But if you can give any figures on that or maybe try to explain what geographies are moving faster than the others.

Yes. I mean I don't -- I can't comment a month. We were -- since we got back to the same EBIT moving guidance and then -- as we had before and then we gave the top line guidance. And you know what March -- that the first half of the quarter was quite down a lot. I can only say that it's not improving. But then in our business, you are probably better off looking at the overall construction industry because they average things out. We can be impacted of -- where July is a 2-day shorter month, impacted to the holiday strategy this year in France. So just a couple of days. So we typically don't care too much about a month. But what I said in the guidance, the situation is improving and it's happening gradually. But that doesn't mean that you still don't have the -- you still have those workday variations between 1 year and the other. So we don't tend to look too much at the month, but it is improving.

Okay. And then my second question, in relation to your staff cost, assume they're up year-on-year. But due to the higher decline in revenue, I wonder what is driving this? Is it hiring for the people for the German expansion in the U.S. factory or...

Yes. We -- it's a mix of things. So on the blue-collar side, we have been quite good at adapting to the capacity, which means increasing some and lowering some. So on that side, productivity has been kept. Then we are hiring -- I mean, we started up Neuburg. So that's for -- that we staffed up. We're staffing up. And then we have had also on the projects just getting people into the U.S. for the projects [indiscernible] complications. So that's some of the fact. But I should also say that our spirit for this quarter -- we did do the salary increase. Our spirit is to adapt in a sensible way by markets so that we keep raising white-collar productivity and we remain competitive. But we didn't put the requirement on ourselves to do that within the quarter. So that means that the level of adjustments we have done on the white-collar side, we don't do that based on a blip that the market stopped and we haven't really gone after subsidies. So that means that you see that effect. But then per market, when we see where the market dial in, the target we have is to preserve productivity both in the office and on the shop floor.

Our next question comes from Brijesh Siya from HSBC.

I have two questions as well. The first one is on Germany. We did see that a couple of other building material companies report a strong June as well. But you are kind of sounding like things are not as strong as others talk about. If you can just dwell a little more into whether any end market issue there which you are facing and probably the other places are not. And the second one is on cost savings. If you can tell us whether you have done any kind of cost savings in H1 or any broader plan to do over the course of the year, whether that's been temporary in nature or would be kind of a more longer-term permanent picture.

Okay. So I will not comment on Germany in detail. But you can say that Germany has not had a sharp re-up, but it's doing okay. And it's interesting to see when, especially in our segment, that incentives for renovation on that is -- there's a huge amount of building permits and there is a restart. But now with the incentives that they put in place, they have now a place to do energy efficiency renovation. We are driving that with our own employees. We are providing consulting. And we already have quite a few employees that are going to do it with their houses. So that is just starting up. But generally, Germany has managed the country, I think, for safety. And then I don't know which specific building material segments that have been growing. I can't comment that. But I just see that Germany -- traditionally, Germany is normally quick out of a crisis. And I don't think we have really seen it start yet. But last time in the financial crisis, France was a little bit quicker out and then Germany came and then they came up strongly. A year after, they're back in our industry quite well. So let's wait and keep monitoring Germany. Cost saving then. We -- I think we are now on -- we have driven operational efficiency and got cost savings there. We are also selling some material. And then per country, local managers are looking into the productivity. And we have plans for that. But there is not a big central program. It's just adapt to what the local market circumstances are. And when we look at the market, we don't want to sit permanently with lower sales per employee. We want to keep slightly increased volatility, which means that in some businesses where we are growing, we are hiring. In others, we are reducing or -- and of course, we have a higher increase. So we do it maybe a little bit slower than some other companies will do, but we do it sufficiently and we preserve competitiveness.

Our next question comes from Claus Almer from Nordea.

Also a few questions from my side. Jens, the first question goes to how you are managing the business, given the combination of a demand picture that is improving as you also have mentioned today, but also, I guess, still a lot of uncertainty about COVID-19 and a possible second wave. That will be the first question.

Yes. So how we manage the businesses, I mean, it's the same [ holy ] element, we try to run a full system with a defined protective buffer on inventory. We don't focus on subsidies. We focus on the customers. We had [ inside ] sales in place, so we could move our fleet sales force on. We could work more on digitalization. For example, when customers didn't need so much attention, we deploy those people to accelerate some of our digital initiatives, which means that we actually kept people that were not out selling and they worked to prepare some other digital initiatives, like e-commerce and payment, CRM and other things, and we progressed that quite a bit. So if we can accelerate the thing we need, we know we need, during a crisis instead of letting people off to do that. Going forward then, I want to set up the business so that we don't want to be optimized for a quarter. That's not how we manage. But I want to hit -- so what we do know is that we in an agile way match the demand of the products and we think ahead and then that next year, whatever next year may throw at us, we will be well positioned to have good productivity and the right cost level by market. And that's how we see it. And that's the local, a couple of principles. We ran a hybrid actually last year, where we analyzed back the financial crash 2007/'08. So we had also changed some of the labor contracts, the way we approach it. And the idea is to be on the same productivity level and competitive in every market. And that's how we deal with it. And therefore, I don't announce a big program. And this is just business as usual, match the local operation with the local demand and make sure we can meet whatever happens.

So you say you expect to business as usual and not, let's just call it, crisis we had 3, 4 months ago. Is that why the way we should think about your day-to-day...

Yes. I would say this, not business-as-usual principles. So that means all the principles we have, we have kept straight through. And I still have -- the offices still run in gear 2, half the crew at home, half the crew in the office. If you have a second wave in a country, [indiscernible] or people don't use masks, then we might go into gear 1. But this kind of normal management, the principle for how we manage the business and keep delivering, that's the same. And then the fundamental principle that we're going to keep being competitive, to keep our productivity and competitiveness, that's very important. But we don't optimize it for a quarter. We optimize it for the different levels, the [indiscernible]. And in some markets, you might have a negative impact and then you have some market that will be growing, where it's just normal for us to be holding back on resources and raise productivity. So it's not dramatic. Does that explain...

Yes. Absolutely, Jens. The second question goes to cost inflation. We have seen a number of cost, like energy and so on, is starting to increase again. How do you see this? And how is that reflected in the guidance?

Yes. It's covered in the guidance we have. But I think for the year, we see a decrease, net over the year. But we have covered that in our forecast.

Sure. Okay. But you see it is down. As for the full year, you will see a positive impact this year?

Yes. That's right.

Our next question comes from Frans Hoyer from Handelsbanken.

Just if you could help me out with your pricing, I think you said that you have continued your pricing tactics, increasing them gradually, maybe not so much during -- I guess, during the Q2. But you have stuck to that, yes?

Yes. So what we did was we did in most markets and segments a price increase. It varies, of course, Grodan has a different market to Rockfon, et cetera. But we have basically stuck to that. And then on the project pricing, we are selective. We typically get the orders onto premium. But we are a bit more flexible. But we don't jump around too much. Remember, last year, we had the price decline in the home market in Poland. So we are trying to work that back up. And then distribution segments, where they have still demand, we have done an increase. And I should also say, in the middle of the crisis, our focus was not on announcing price increase or anything like that, just keep deliveries, keep taking care of the customers and help them. So that's pretty much how we see the year. So now with the cost situation, it's not a price here. The challenge for this year would be to keep it steady and keep the price quality up.

And second question on the market. Precisely because you've kept your factories open and you have kept being available, providing availability to customers and so on, unlike some of your peers, have you a sense of your market share progression during this period? And to what extent might that earn you some brownie points with customers that you can maybe hold on to some of that market share gain?

Yes. A market share gain on projects because you're the only 1 quarter here responding, that's maybe not a market share gain. But we have had a couple of markets where people haven't even responded to the inquiry. We have responded and that's the only day that, of course, you get the orders. So that's a very special circumstance. But -- and then on the distribution segment, to keep -- we have also done other things. We have done product trainings. We have launched in a couple of markets e-commerce because they were still sitting up at desks and there was good time to do that. So we have kept working. And now the NPS score, it's going to be incredibly hard to raise it. We've done 5 years in a row. But we've gotten a lot of positive feedback from the customers. And that's pretty much -- I mean, we are a supplier that want to have top quality and top technical support and be down to earth, a real supplier that they can count on. And that goes for everyone that buys us. So I think -- at least I've got a lot of positive feedback. And I've got not got a single complaint from a customer in the last 4 months that we have let them down. So I think that has been good. And then if you look on the Systems division side, there were a couple of segments there where for quite a while, we were the only supplier in Europe that could deliver. They were no huge amounts. But if you have a product and you get to the interior ceiling, and that's the last bit you need to finish a product, even though it's only 150 square meters, it matters to get out on the site and finish the snag list. And we did that. So I can't see that we've got negative points, at least. I only have got positive.

Anything around the bad debtors or anything like that developing in -- among your customers?

Yes. So what you saw in some markets, that people stopped paying for a while. You could see it in France and Spain. We were in dialogue with them. And it was just the way it happens. And then we kept the dialogue. And I think we managed that we haven't had any defaults. But there was a period in certain countries, where people just stopped paying invoices. We had cash given after it and maybe reached the point where it was critical the customers will need to pay. But this is this balance between do they really need the cash, at the same time, our policies should pay for product they had. So -- but this has come through without -- we haven't crashed anyone for it and we have gotten the cash over time. So we are satisfied, even though it was maybe a few days late.

Our last question comes from Laurits Kjaergaard from ABG.

Congratulations on the solid results despite the volatility. I have two questions. The first one is on Germany. When we talk about the Neuberg production line, on what date can you communicate when that should be up and running? And how much can we expect it to contribute to the second half? I mean it's quite a significant production line and it's a production line you didn't have last year, obviously. Could you give some figures into that?

Yes. So I can say it's up and running. It's up and running. We have started it. And the idea now is that we will -- since it's a very cost-competitive asset, we will -- and they have like a [indiscernible] in Southern Germany. So it doesn't really change the capacity outlook. We have spare capacity in Germany. Now we get the new asset that have a lower cost position. And the way we use it is to bring in -- to use the new line. Of course, when we have startup, we try to beat the record of getting that part but still debugging start-stop, a bit fixed. It's all good, but it's the normal teething issues. But I think we will have a good startup. And then we bring in the business to the sweet spot, and then we just cut out capacity elsewhere, a shift in some other plants so that we optimize the geographic coverage. So that's what we see. So you don't need to see it that we have this capacity. And that's been rematched capacity with demand and now have a new asset to do that. And then of course, we hope Germany come back in good, big style so that it really had something on top. But Germany is now coming back up. And we need to see how fast and to what level that happens.

Just a quick follow-up. Did this exercise that you're mentioning now, did that contribute to Q2?

A little bit because when we take out -- I mean, not really because you start up, you have high-end full shifts and all that. But probably the German plant has a negative impact from a cost perspective in Q2. And we talked about that, Kim has so far given you the numbers. So you see a negative impact in the quarter that we had planned and we expected. But of course, when we take shifts off in Germany when the market went down, we do that in the least profitable asset for the business. So we have optimized, we always do. So I would say the plant is a negative in the quarter. And then over time, it turns into a positive. But of course, we have the depreciation coming in. But from a cash perspective, it is a very competitive asset.

Okay. Good. And then my second question is just on this EBIT you're guiding around 12%. Obviously, October and November, you've previously communicated are your highest selling months. And I'm not sure, have you put your foot on the brake in terms of personnel cost during the first half? I mean how are you prepared to handle sort of the higher selling months? What are your assumptions on those months? Do you have enough capacity? And in that regard, I see external costs are down 25% in the quarter, obviously not a lot of traveling going on, maybe not a lot of marketing. But can you operate your business at this level? Or can we experience sort of a significant pickup during the second half on external costs?

So how we set up the business is that, of course, we have a break on the hiring. So every hiring is -- we have a certain attrition. We have a break on the hiring, but we hire. I mean, for example, we needed 3 more digital people for a particular implementation. Rather than using consultants, we find great people, we hire them. So everyone we hire, we look at. And then not an awful amount of traveling going on and that's going to continue. I mean we do travel, but every travel is approved by quite high up in the system. I travel myself but with a mask and the kit and all the rest. Then on marketing, I would rather say we do a step up. We have adjusted competence in what we do. But for example, we work quite a lot now on renovation and how to deal with this and how to understand for this. And that's marketing doing that. So we are giving full gas on marketing.

And just on this...

And then for personnel...

Yes.

Yes. And we have had the break on hirings. We only pick really what we need. And then of course, what is not seen that is actually, in one market, we can have a reduction and then we hire more people in the other and then it looks quite even. But we are navigating that. And every local business should be set up for the business. So that's the principle in it.

And are you prepared for October and November? Or do you expect to hire more for those brands if there's not a second wave?

Yes. On the blue-collar side, we have the whole range of flexibility schemes. So in some places, we have temporary employees. In other countries, you have an agreement with the employees since years, where they actually flex days between that time of the year and other times. So they can -- if they go home 1 day a week, all of them, they only work for this. And then you catch it back. So we are quite equipped for delivering. But there could be maybe one line somewhere that can't meet it. But that's not the spirit. We go in with this that we should be able to deliver all of that, of course. [indiscernible] I think we can.

Our final question comes from Manish Beria from Societe Generale.

Yes. So I have this question. Can you please provide the split of building insulation demand in Europe by new build and renovation, at least on the market side? And when I mean the market, I'm including all sort of materials, it's mineral, wool or it could be plastic. So can you provide the split?

Yes. I mean it's not one split for Europe. We don't provide the split. Obviously, we have a split by country. I mean I never look at the number for Europe. I look at the -- since we have a local factory for the local market and 90% of our business is not export in our System division. But the rest is basically -- yes, within the same customers. So we look at it by country. And we know it quite well. But I don't have a European split. And we don't sit and kind of share this because we don't find that material whether they're available and they have people working on it, so we tend to keep it for ourselves.

But I have some update like -- because I have talked to some other people. So this is something like 2/3 will be newbuild and maybe 1/3 or 40% will be renovation. So going by your presentation you're reporting, you see it like you have 50% split between newbuild and innovation. So just wanted to see why you have a higher percentage basically than the market. Is your sort of product [indiscernible] renovations? Or just trying to see because renovation will help, I mean, if you have a higher percentage.

Yes. I think that varies widely by country. And in the newbuild, we also have a big project impact, which is called flat roof. So therefore, some people might say that big boxes with a flat roof, yes, it's newbuild, and you get quite different percentages if you look into other commercial newbuild and residential newbuild and renovation. So it depends a little bit how you define your discussion. But I wouldn't -- it varies by country. Going forward, we love newbuild and we love renovation, both of them as much as...

Yes. And also, the second question is probably like maybe you have done some sort of analysis on what the payback of the insulation is by [indiscernible] -- maybe like if you do only the facade, so what is the payback? If you do the interior wall by insulation, what is the payback, maybe the basement or the roofing? So the payback would be quite different because you have an initial cost and then there is particular energy saving [indiscernible] than maybe the facade is more energy saving. So do you have any number for the payback for different element of insulation in different part of the building?

No. We obviously have people that can calculate that. And it varies a lot. So you need to look at a specific project. And typically, the payback for insulation, I mean, from a CO2 perspective and planetary perspective is really short. But the economic payback if energy prices are low and the investment, they're quite long, but it still makes a lot of sense to do it. Then of course, when you get to the Italian case, the payback for the government, obviously, you bring people to work. You make the houses nicer. And the payback for the people, only in the apartments when you have the government subsidy becomes, yes, almost instant, you get a nicer house and you don't pay for it. So it varies immensely. And in Germany, for example, you see that [indiscernible] renovation of residential houses typically slows down when the scheme is finished and then they wait until the next scheme comes with a payback that's better. But it's not one calculation and it's not average. But without subsidies and that -- it is a longish payback to renovate the whole house and insulate it. It's a big project, which is a very good payback, although it's not in a year or 2. But if you come into -- let's say you do technical insulation in a refinery or a chemical plant, there, you're talking paybacks of 3, 4, 5, 6, 7 months. It's very easy to see it. And the normal house is more slower payback. Thanks. Maybe we should take -- I mean we messed up or tech messed up on us a little bit at the beginning. I think we take one more question. Is that fine?

If there is one, yes.

If there is one more question, we take that. Otherwise, we -- I can hand over to Thomas here.

Our next question comes from Pierre Rousseau from Barclays.

Basically, your EBIT margin guidance isn't the same as where it was at the beginning of the year with a much lower volume growth outlook over the full year. So my question is on productivity savings and the cost structure in general, do you feel that you could be a little bit more demanding and then have more cost savings in the future and in the mid-term? That's my main question.

Yes. So basically, what that forecast says compared to the previous guidance is that we lose a bit of top line. We don't have anything dramatic happening on prices. And then cost, material cost, fixed cost is being reduced. And that's basically the picture. So we include some cost saving in that. But depending on how 2021, the outlook for that, we will have an eye on what the cost level needs to be for next year. So that's a decisive factor. But I feel confident about delivering around that 12% this year with the actions we have in our [indiscernible].

Okay. Pierre, did you have another question? Or was that the question?

Yes. Maybe if there's time, just on the raw material tailwind. Just to help us understand the margin performance, could you give a rough quantification of how much that was in the quarter?

Kim, maybe you take that one, Kim. Are you there, Kim?

Yes. Pierre, was it the more materials categories? Sorry, I was just answering with my mic muted.

The raw material tailwind overall that you had in your cost base in the quarter, if you could quantify it.

Yes. No, we -- I mean, you can look into, of course, our details in the accounts, where you have broken up on the raw materials and production material cost. And you will see in the quarter, there is, of course, some benefits and also in the half year. And as Jens said, even though energy costs are starting to come up, we do expect that in the second half, we will still continue to have some benefits from the raw material cost in the second half, which has been incorporated in our outlook of the 12% EBIT margin.

So with that, I hand -- that was the last question. We have time for -- we are 10 minutes or a few minutes over time, not 10 minutes. So over to you, Thomas.

Thank you. Thank you for joining today's conference call. And please be informed that on September 18, the ROCKWOOL Group will hold the next investor conference call dedicated to ESG. I hope you all will participate. Thank you.