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

Ladies and gentlemen, welcome to the conference call regarding ROCKWOOL International's results for the first quarter of 2021. My name is Thomas Harder, I'm Director of Group Treasury and Investor Relations of ROCKWOOL International. Today, I'm pleased to present CEO, Jens Birgersson; and CFO, Kim Junge Andersen. [Operator Instructions] As a reminder, this conference call is being recorded. First, Jens Birgersson will go through our presentation and give you an update on the results for the first quarter of 2021. Afterwards, we'll be ready to answer all your good questions. Before I hand over to Jens Birgersson, I must ask you to note 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.

Thank you, Thomas. Good morning, everyone. To sum up the quarter, it's relatively uneventful. It's a positive quarter. The year started a little bit slow. We have -- some segments are quite dependent on weather. And you may recollect that in January, February, we have quite severe winter in especially Germany and France, also up here for a while. So we saw quite a slow stable start of the year. And then end of February, I will say, March, you saw an acceleration across the board. And we will go more into that. But with few exceptions, we basically saw everything starting to come up. There are some small European countries that didn't really start to accelerate and Southeast Asia didn't really accelerate, it still declined. But apart from that, you just saw a notably better business environment. From our side, we stepped into the year with a certain capacity plan. And a certain run rate. And this is the time of the year where we tuned the production not to demand, but to a targeted stock curve. We bear on that. And then the acceleration week-by-week came and also the outlook. And that meant that we got quite busy with ramping up ships, adding ships, getting people back in on the production lines. And in the meantime, we pulled down some stocks to deliver the market in March. Notable also was compared to what we saw in November, December for the year on raw material cost and price. We had an outlook that was relatively moderate and a little bit of slower restart and then it started off with this input material to plastics that took the jump, MDI, I think, 70%, 80%. Wood -- lot of raw material increases, gas, electricity, started to happen very suddenly, so we took a relook at our pricing strategy and we started to get busy with us doing that. Out of the 2 businesses, System division and Insulation, good margin on insulation in spite of the inflationary effects and not so much price in the top line. And then on System division, they were a little bit more spared in terms of raw material increases, and we also have some price in the market, so you could see more of that coming into the bottom line. So that's fundamentally the summary of the quarter, more growth towards the end of the quarter. And then the margin, 13.3%, we are very happy with that. That also covers the depreciation increase of EUR 5 million. On EBITDA margin, you don't see that. But here, obviously, you have it. So happy with both the top line and the bottom line. We move to Slide 4. Growth relatively evenly spread between installation and system division, so 7% and 5.5%, 6%, quite some big currency effects, dollar, ruble will be the main ones. But generally, good demand in both businesses and higher demand towards the end of the quarter. We take the next slide. Western Europe, starting in the north, include also U.K., the U.K. kept going very strong. In the Nordics, Denmark is clearly the strongest market. Finland also did really well. Sweden, Norway, a little bit slower, but growing. And then in terms of continued trends with the super bonus, we saw Italy just keeps growing at a very high rate. Of the more Central European countries, Germany clearly had a slower start but they also had the worst winter. And then in March, we saw very encouraging growth. Eastern Europe, Russia, good healthy business climate, and we grew with it, and we are highly loaded, there is a limit to how much we can grow. Romania, the new factory, it has had a very good start-up. We are ahead of our growth schedule, is already providing really good returns. So we are happy with that. And it produces well. So that's nice, big currency effect from the ruble. North America, Canada healthy, U.S. booming, absolutely booming. And here, we simply can't live more than we did. We are loaded next month. We are starting our test over this weekend. But next month, we start to kind of seriously do hot commissioning of the new factory in West Virginia and mid-year, early third quarter, we should be starting to produce there. And that's absolutely needed now to get the delivery times down again to an acceptable level. So the -- if we would have had the factory half a year early would be nice, but at least it feels very timely now. And it's on track to get up and running. Profitability, Slide 6. EBIT margin, I commented already, and there you have the depreciation effect, good over-absorption of cost. Fixed cost down, obviously, we don't have much travel at the moment still run in most countries, less than half of the white collars in the office in most places. And generally across the -- low productivity improvements across the board. We also had some effects, we didn't see much on gas increases, for example, in Q1. So all good on that side. Profitability by business segment, I already commented, Slide 7. Good performance by Insulation to cover some of those increases on raw material costs. And yes, we have some price in there. But very pleasingly good productivity improvements and good cost control. So that kept that double digit. And then the big step-up in system division, 7% growth. Good cost control, some price increases in there, and then they haven't seen much raw material increases. So they get least the volumes. So that's what they came up. Some mix in it, but not really, it was growth across all businesses, very pleasing. Q1 investment, new for today, I think we are now showing you the green part. We did EUR 17 million of sustainability, and Kim has plotted this backwards. And in our calls later, we can discuss it a bit more. But I just want to this. I mean, maintenance is to keep the plants running and maintain them, just like servicing your car. Capacity is self-explanatory, adding new capacity. So what's in this sustainability investment green area. Basically, we have defined it that when an investment or CapEx is mostly purposed towards meeting 1 of our 6 sustainability development goals, then we put it in here. So that means that if we were to change like we did in Moss, the melting, but we don't increase the capacity, but it works, that's a green investment. And I'll give you some example to just make it a bit tangible. For example, in a factory, heat recovery, heat exchangers, connecting to a local district heating grid, that sustainability. But also safety, for example, safety routes, fire safety installations, safety in any respect that we -- is sustainability because we have a home work that we run an hazardous business. Reduction of CO2 emissions, what we did in the Nordics with respect -- or other emissions after burners, curing upgrades, et cetera, that serves to reduce emissions. And then you have waste treatment. When we invest in something where we can say, put more waste into our plants, reduce landfill or invest to reclaim more waste in the process from other industries. That's also green investments. And then the whole area around water, saving water, circularity of water, not having it evaporating a way. Often, those investments can be quite expensive. Stopping the leaks, is not very expensive. But when you start to put in circular system to save water in a country where you -- value doesn't pay for municipal water. Some of those investments are great in terms of water selling, but from a return perspective, they are not impressive. So that's how the green investment works and how we classified it. And Kim and Thomas will explain more later on. Cash flow, nothing notable on that. I think they're best to effect a bit less CapEx and then with the acceleration in the business, the kind of run down of inventory, freed up cash. I would not prefer to keep the inventory, but on the other hand, I also love the fact that the market took off. So that's why the cash came up a bit. We always have negative cash flow at the beginning of the year, but it's less negative than normal for a very positive reason. Outlook, we changed that before this. We haven't -- we assessed that before we issued the last announcement, of course, and nothing really has changed our double-digit top line, 10% to 12%; EBIT margin around 12%; and the investment level around EUR 370 million. So that's the same as we said, also 2 weeks back. With that, I hand over for questions.

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

I have 2 questions. So the first one is on the guidance. Your 10% to 12% volume growth -- total growth. If you could split that into volume and price, and related to that, if you can even let us know how that upgrade is looking in terms of market gain and in terms of underlying market growth?

Okay. So Brijesh, Jens here. I never give the volume and price. And I will not do that at this time either. But we have not factored in -- we still have a moderate price increase assumption. We have the inflationary repressors or the raw material price increases. And I still look at this year that we will increase price a little bit more than when we talked, say, before Christmas, because inflation was low, but I see the compensation of the inflation as a mix of productivity improvements and price. So still have a moderate price assumption. There is not a craze. So it's very proportional to the volume growth. So that's on the volume. And then on the market gain, I see that on a flat trough, for example, you have quite high price increases on the plastic form. And that means that more business going to come to Stonewall. So due to the pricing strategy and that the plastic forms have gotten impacted much more severely, I think, I don't know for sure, but I suspect so by raw material increases, I think that we haven't factored in a certain number, but I suspect that you will see stone wool and ROCKWOOL, due to our capacity availability, get some market share due to those factors. But it's upside on positive, but we haven't factored in anything dramatic in that, okay? Does that answer your question, Brijesh?

So you mean to say that this 10% to 12% growth, it's mostly the underlying market growth and you still haven't factored in any of this market share gain?

Yes, but it's a little bit hard to say because the market growth of the total insulation market, I look into what we see in stone wool and -- but if you then go back and look at the total market, mineral wool plus the plastic foam, I don't know if that market would grow 10% to 12%. But I see that -- with our run rate and our forecast, I definitely see that we should be able to grow 10% to 12%. But I suspect that you will see a lower growth in the plastic foam due to how they have been impacted on raw materials. So -- and that is, in a way, a market share growth, but it's just that the composition of the market change due to the cost structures this year.

Okay. Understood. And the next one is on your competition position. I think you have pricing pressure in key markets like Poland, France, Germany, Hungary. Can you could -- or could you please elaborate on that because of this change in dynamics, you are seeing less pressure in those markets? Or anything different you see from what it was in Q4?

I think maybe overriding comment is that in the previous calls, we have spoken a lot about the extra capacity in Poland in stone wool. We talked for a while about the new factory in Hungary, but it seems to be delayed again from a competitor there. But you have the extra capacity in Poland, so I would say that the concerns for a big pattern about getting -- finding customers for the factories that has been reduced, due to that the market has started up much more positive than maybe we predicted 6 months back. And then we collect also that what they do in Italy, that seems to be going very, very strong, and we still have quite a long run rate of the EU money or the renovation and the energy efficiency coming. And I don't know how many of you got your vaccines already, but we already see some level of opening up and most of you probably, of course, you in the U.K. have it. But here in Mainland Europe, most of us haven't gotten it. So there's still a positive effect there. So I think fundamentally those markets looks a bit better because of the underlying demand across the board as well, okay?

Our next question comes from Yves Bromeheard from Exane BNP Paribas.

I guess my first one is on the capacity utilization with the level of growth that you're seeing in the increased outlook on the top line. Can you maybe point us towards a comparison with the peak of 2018? Are we in a situation where with the low stock environment, we're sort of back to where we started before you have all those capacity coming through? That would be my first question. My second question is on the fixed costs. If we look at the personnel cost and the amount or the number of employees in the business in Q1, there isn't really any addition to that versus Q4 or even the average of 2020. So I was curious to understand if you need to increase the amount of headcount in the business as you're lapping through the year with the new capacity coming in the U.S., or if the current run rate is the one we should assume? And then my final question -- sorry, do you want to respond to those, and then I'll come back to the last one later?

Yves, I think we do -- you also ask us 3 questions, man, and after that we go to 2 questions. So list your third question.

All right. Sorry. And the last one on CapEx. Just trying to understand with the amount of demand that you're seeing here, how should we think about potential future growth investments, you've got 1 plant in France, which you haven't really announced anything on, you got 1 in Sweden, what's next after that?

Okay. So let's start with capacity. Compared to 2018, we have Romania up and running. We have done several investments on the system division. We have Rockfon expanding capacity. We have West Virginia now starting next month. We have done work in the U.K. We have done a couple of step-ups in Poland, and we have the Norberg. So we have more capacity than 2018. So that's really good news, and we're going to need it. The capacity we see now with one exception, we can't supply the market in the U.S. at the moment because we need a new factory. So delivery times are 140 days, but we are solving that, hopefully, in the coming months. In -- the challenge in Europe, I mean, it's doing well, but it's fundamental that we go from, in some factors running Monday to Friday, 5x24 or close to that, a 3 shift pattern. And now we need to go to 7x24. And that's always a recess. So -- and we are busy with that and supply is tighter in some corners. But fundamentally, we have the capacity to do it. And then there could be some areas where we need to ship further, and we have the normal discussion about logistic cost on that. But it's more the derivative of the curve, how quickly it grew, that creates some challenges, but we are doing pretty well on it, and it's all hands on there. So taking that back to your headcount, if you look, for example, in the U.S., we have hired 90% of the people we will need once we start-up and if we increase the ship, we need some more. So for most of those, we have hired, we did reduce a couple of hundred jobs last year on the white-collar side because we shipped, for example, more into Eastern Europe, we do some improvements in the structures. And some of those we plan to hire back. But then also when we go from, say, 5x24 in a factory to 7x24, you're going to see an increased headcount. But if you then relate the personnel expense, blue and wide color in relation to the top line, nothing dramatic will happen. We will grow more. We need more hands, we need more sales. We need a few more things. But you can be relatively sure that you see a good productivity improvement in sort of revenue per employee this year. Compared 2019 and this year, you will not see a worsening this year, as I predicted, even though we have several new factories starting up and some of them, obviously, West Virginia will not absolutely not be full this year. It will run a very low level in relation to the capacity. And yet we have a lot of staff and overhead there. But in spite of that, I think we have a good productivity here, okay? Then on CapEx, we have a plan, and I don't want to run ahead, but we have a couple of macro trends. If I look at the economics of Europe and U.S. and I cannot tell too much about the business cycle. But my simple take in it, we could be relatively sure that we have 18 to 24 months of good business, good economic cycle. I believe that's a fair assumption, could be longer. There's the stimulus packages or the rest. But I think we have a window of happy market. What happens after that, to the general business, I can't say, I mean, you would know better than me, I've never been through such a situation. But we still have the macro drivers for our business. And that is the climate challenge and saving energy and renovating houses and creating jobs. So I think that one is a long trend. And then if we look at the long trends into our System division, okay, Rockfon, for example, is growing well, but offices, maybe not quite as before. The other type of business is growing. So I think we have macro trends on both sides. And that means that -- and we will have further discussions on that. That, combined with a fuel transition over the next 10 years to meet our science-based target. That means we are probably more geared to staying on a CapEx level that is not -- you're not going to see EUR 200 million from us because with the size of the business we are now, to grow, we need to build plants, and we need to do a few, and we need to do the green investment, and we need to maintain. And that needs to keep going, okay? I think that covered your questions.

Our next question comes from Laurits Kjaegaard from ABG.

And congratulations on your preannounced results. I was wondering about the comfortability in the double-digit growth that you're guiding now. You mentioned yourself an uneventful quarter with 6% organic growth in Q1. And it's no secret that your business has quite low or short visibility even in your markets, which you've also mentioned before, Jens. So in addition to that, we have quite low easy comparables -- or not easy comparables for the second half of 2021. I was wondering how you could talk about your comfortability in this 10% to 12% organic growth given that you, in the past, have said that you have quite low visibility?

Yes. I obviously don't have a big backlog, but I see the order activity. We see the projects. We have the stimuli. We're all going to get vaccines. I feel comfortable that 2021 is a better year than 2019. Yes?

Okay. That makes great sense.

There are so many trends, they restart. And the trends for our products, installation, not only stone wool, it -- they're all on the positive side, plus this post cage or post-war experience, I believe we have a better year than 2019 on the top line.

Would you be on the careful side then on your guidance?

Our -- the guidance, as you know, that it's not like Kim and I sit and -- no, we look at run rates, and we have done this now quite a few quarters together. So we do the best estimate, and we don't want to mess around and downgrade. I don't think we even did that at the end last year, we delivered our guidance at the end, I think, almost. But this is what we believe today, okay?

And also thank you for the CapEx split, very appreciated. I was just wondering about the new capacity. Can you share about the top line contribution that you're now expecting from, for example, Jefferson County, and perhaps Norberg and Romania, which you didn't have last year. So what I'm essentially asking is, what's your assumption about the underlying growth of the new volumes that you now have versus your expectations in your previous guidance from the new capacity to your considerations now that you're a little bit further along on, for example, Jefferson County?

So 100,000 tons, EUR 100 million. That's roughly plus/minus, obviously, it's different for System division. But that's the rough view and we still have some capacity in Norberg to grow with, obviously, the whole U.S. plant. And we won't even touch that this year because simply to ramp it up so quickly. Romania is already quite far along. So it helps. What I will say like this, we have capacity in ROCKWOOL so that we can deliver that growth, and we could also grow again next year for sure, okay?

The EUR 100 million is top line contribution from West Virginia in 2021?

No. I'm not saying that. I'm talking about the general rule. If you add 100,000 tons capacity, you should probably get around EUR 100 million top line when you fully loaded it. But I did make a statement on by when we fully loaded it because we build a factory to build it up in -- it should last for 3, 4 years. It's not smart if we build a factory in the U.S. in 2.5 years, and it fills up in 1 year, and then we need another one and we are in a shortage. So it's a big factory to be built, but just the relation is roughly that.

But have you changed your assumption about how much contribution you have in 2021 comparative to when you gave your previous guidance?

No. But we had a lower top line last time. We didn't change so much in the U.S. because U.S. was already booming when we had the last guidance.

Our next question comes from [indiscernible]

Yes. So a couple of questions. So first, you said that you anticipate pressure on production capacity in the coming high season quarter. Do you think that this is going to be the case for other mineral wool player? And are you considering second price increases in this environment, which is where you see a lot of inflation? Then my second question would be on -- if I look at the CapEx as a percentage of sales in 2021 is probably going to be close to 13%, 14% of sales versus an average of 10% of sales in the past 20 years. When we look at the next 10 years, do you think the CapEx as a percentage of sales is going to be closer to the 14% in 2021 closer to what we see -- or closer to what we've seen in the past 2 decades? And then my last question -- sorry.

Okay. Should I answer those?

Yes.

So on the capacity, I think -- I don't track the loading. I obviously don't know how many shifts run on that. But I think typical for the industry is that when acceleration happened that quickly, and they are in the same market. I think everyone will have some -- I mean you don't change from 5x24 to 7x24 in a factory overnight. Some people might already have been on that, and then they just sit there, and that's what they can produce and they maybe can improve it a bit with portfolio they run in the factory and what segments will focus on that. So that -- all of that will be going on. But I think everyone will -- with such a quick incline and the fact that the prices of the foam has gone up. I think in mineral wool, generally, you will see price increases. And you would see some capacity challenges why you step up the full 100% capacity. And remember, some of our factories are running on 100% for a period of the year every year because we love producing, and shipping immediately goes out because it's so bulk, we don't need that, we don't want to have too much stock. But now I think everyone will realize that you might have to stay on absolutely 100% along the time of 7x24. And then 7x24, you can also -- depending on when you did your maintenance, if you did your maintenance, the bigger ones last year the 7x24 can be run for a bigger portion of the year. And that's very hard to judge how people plan that. We certainly tried to do maintenance last year. In the place where we could get people to do it. So that shouldn't impact us negatively this year. Then on the second price increase, we have some businesses where we have annual cycle, but I would say most of our businesses have every 6 months an adjustment. So that's absolutely open. And in some cases, we have already decided to do a second half June price increase or August. All the countries are a bit different, the pace is different. So absolutely open for doing that. It's already happening in some businesses or already been announced in some businesses. Then on the CapEx, we invest against the growth curve, and we also need to increase our investments in the green sustainability, the fuel transition. And we didn't do that historically. We didn't do fuel transition projects to give an example on the green investments. Historically, we built a certain type of melter, and when it ran out, we replaced it. So I don't want to answer whether it's 13% or 14%, so 11% or 12%, but the thing I would say is I don't see if the growth is -- if we are growing, and we have this until 2034 to reach the sustainability goals on the science based target, we have said that we would go below that, okay? And then I said at the last call, [ Yasin ], I think you are new to this call, have we spoken before?

Yes, I was [indiscernible]

Okay. Okay. But we have said also that Kim and I, we are considering when this -- when we get out of COVID and corona and all the rest, and we see some stability, again, that we throw some extra clarity on that, so that you know a little bit more. But at the moment, in quite a turbulent growth environment, and we are still working on technologies, we don't want to go into further details because we think we would confuse.

And then my last question would be, I think part of the renovation at least in housing is coming from the fact that people are staying at home and are doing some renovation because they've got nothing else to do. Do you believe that as the population gets vaccinated in the U.S. and in Europe, we could see a reversal and people spending more money on travel and leisure and a slowdown in activity next year?

I think what you have, you have the stimuli money that goes into delivering country targets. So I think I think renovation have every potential to stay on a high level, although they [indiscernible] those home personal renovation might go down. I think we're going to see a busy construction industry. I think we will see money going into renovation. We ourselves are renovating our offices now around the world, running some really nice projects. But I think you're going to see a competition between new build hands, for new builds, and labor for renovation. And it's always hard to pitch who wins of those 2. And I think it will be running on quite high capacity utilization. So I don't see, at the moment, at least, a risk that it falls back very much due to that we go back to work. I think it's the balance between new build and the other side and where the renovation gets the arms and legs they need.

Our next question comes from Mikael Petersen from SEB.

You were talking about March where you saw like an acceleration of activity and so on. I'm not sure if you can talk a little bit how looked in April and maybe in May, if you've seen the same trend of countries recovering and activity is picking up as well?

Okay. So Mikael, I'm not going to come on April or May. It will be a mistake by me to do that. We never do. But I basically saw -- I mean, let's say like this, we saw January and February depressed by -- I think, at least for us by weather. Maybe in January, nothing much happened. But in February, definitely a certain weather effect. And then in March, the business stepped up. And if you look at our guidance, mathematics of that means we are not forecasting that the market suddenly stepped back on January and February.

Okay. And then I have a second question that's regarding the pricing in the U.S., you're talking about you cannot deliver more in the U.S., assuming that the utilization must be high. Can you talk about how the pricing environment is in the U.S., if the demand is so high, are you able to increase prices throughout the year? Or how do you view the competitive environment over there?

You can -- I mean, glass wool is increasing prices, and you can increase prices throughout the year, yes.

Our next question comes from Frans Hoyer from Handelsbanken.

So I was interested in your comments regarding the dynamic between oil prices, home prices going up and this spilling over into -- positively over into the stone wool demand. And I was wondering, are we -- is this the normal dynamic that you're talking about here? Or is it -- are we reaching some sort of inflection point where this dynamic gets stronger?

I think I'm not -- I'm an expert on the downturn in oil and gas. I worked 2 years in that industry. But what I observed from it is that after a period of low business, that industry often see a reset of the price. It could be a production problem shortage, whatever -- something happens to demand and there is a supply shortage or mismatch between demand. And then the prices on -- in this case, I mean, the 2 I know is -- one of the materials that goes into polystyrene and then the MDI. And they jumped up due to a number of factors with 70%, 80% over a couple -- 3, 4 months. And we have seen that happen before, and we have also seen it normalize. I don't think we should expect that to stay forever. It depends, of course, what happens with the overall economic cycle, if all different business segments go well, also in other industries, then you can expect the price level will not go back very quickly, but I'm not an expert on that. Steel prices, for example, when I speak to steel guys, I say it will stay high until the next crisis, that's what they predict, but I can't read this. So we have a price effect now. But then I think the bigger effect and the one I'm more interested in, this is good, of course, if we get this business, but the one I'm we're interested in is that we stop using single-use plastics in insulating buildings. That is the trend. And we see in the U.K. with the fire requirements where you talk not only about insulation, you start to look at insulation value, fire, recyclability and end of life CO2 emissions, those 4 factors, that's the one I care about and that we don't only talk about raw materials as an insulation material. It's much more than that. And that speaks in our favor, and I want that trend to go, and I want people to realize that that's how we should look at it to meet the climate challenges, so yes.

Okay. And on the issue of moving from 5 to 7 days, 3 shifts in 7 days, is that something that is -- I mean, I guess you've been running 7 days in parts of the operation already. And -- but it sounded like there is a shift in the percentage of output that is coming from 7 shifts as opposed to 5....

Yes, so how you run the business, that's why we have the negative cash flow in the first quarter. We typically use the low month to set the stock curve. And then we kind of optimize the stock curve with the demand for the year to optimal way of running a factory. And we also want the factories to have a bit extra capacity. That's how we go into January, February, March. And we steer on the stock curve. And then now demand happened very quickly, the increase. Then we draw down the stock. You saw it on the -- and then, of course, we need to catch up with the step-up before we run out of stock. And we can't stock every. We have products made to order, and we have products that you can make to stock. So it's a bit of a -- we know how to do this, but it's not entirely elementary to figure it out. But we have very strong processes for that. And here, we needed to do it, and it's nothing unusual. But then -- and we also have a labor population with trained people on the outside maybe the mix of permanent employees, people that actually lags to come in and work only during high seasons. They have another job during lows. So we have that set up. The challenge this time is the speed of it. We need to be quick. And the other is that whenever you are close to car manufacturing -- the guys don't like me to simplify this much, but that's my greatest simplification. If you have car factories around and suddenly, everyone starts to buy a lot of cars, then it takes a bit longer to ramp up, okay? Because when the car companies hire people, they hire people that are good at it and they pay much more when they really need it than when they barely need it. So we have some of those, but that's all normal stuff that we go through, nothing unusual and we love running the plants 7x24. But of course, we don't want to be with a factory footprint where every factory we run on that because that means we will not have enough to cover next year's growth.

Yes. But it sounds like there is a step change either late in Q1 or into Q2?

No. No, but the ramp-up was quick. Because we have delivered on the stock curve, and they have the ships done. And then instead of a 3% to 5%, we end up with double that growth at least. That, of course, means that we need to step up the underlying run rate of the factory. And that, as I said, it was a broad-based increase, which means they are -- U.S., we ran full already. But in some of the others, many, many factories got touched. So we had to put all hands on deck to plan how we do that. And then as you know from before, we have the philosophy that our regular customers, even if we haven't the capacity just around the corner, we will ship in material, and we make sure that we do our utmost to keep them whole, okay? And if that means that we have to ship from Denmark to Berlin for a few weeks, then we do that. That's how we see our job, okay?

Our next question comes from Manish Beria from Societe Generale.

Yes. Congratulations on the very good quarterly update and also the guidance. I have 3 actually. The first one is on the cost of goods sold. That I see, I mean, the pricing inflation impact of 5% there. So basically, the price impact of COGS has led to 5% increase there. So can you just first confirm that if I'm right, in Q1, it's 5%. The second is how do you see because the raw mats and energy cost is rising quite fast. So how do you see for the rest of the year this COGS inflation? So this is the first question. The second one, I wanted to just see your comment on the North plant of France, so do you see the capacity ramp-up there? What is the competition dynamics? I mean, are they too aggressive there? And the third one also wanted to confirm on your CapEx. You just said, I mean, but I didn't catch fully. So do you mean like the CapEx could be something like 12%, 13% for the next decade because the demand is going to be very, very good for the ROCKWOOL industry?

So I will take question 2 and 3, and then Kim will take the first one. So I'll start and the -- the competitor's plant in France hasn't changed the market very much because the market is doing quite well. And as I mentioned in my kind of broader description due to the increased demand everywhere, those new plants and also our own increased capacity that we have in Poland and Southern Germany, I think the impact in the market has been that we were probably fortunate to have them to able to deliver the stone wool. So that's my observation. Then on the CapEx, I don't want to give you a percentage. I said I'd come back, but I would -- with the green at the end that we have, I caution against lowering the 11%. But then I don't want to say if it's 12% or 13% or what it is. I mean we're going to stabilize the situation, but we need to keep investing in capacity as the business keeps growing. So that's as much as I can reveal there on the numbers. On the cost of goods sold and energy costs, et cetera, I hand that over to Kim.

Yes. Thank you very much, Manish. As you know, on our hedging of input costs, we do buy forward, both energy and coke 1 quarter. And for the first quarter, the situation was that we, in fact, the coke prices did not increase over last year. But all other energy costs, electricity, gas, and the oil-related raw materials that we are using plastic films and binders, they did increase. And we do expect they will increase also for the remaining part of the year. So I think you can expect the inflationary, you can say, the impact of that will be more visible from second quarter onwards.

And this 5% calculation for Q1 is correct, right? I mean, on the COGS, just from the inflation part?

No, no. Not on the COGS set. We secure the COGS prices a quarter -- a quarter out, so the COGS price for us were secured in Q4 last year. And there was no meaningful inflation on the COGS prices compared to last year in our quarter 1.

Because -- because when I look at your financial, I mean, the COGS is up 7.8% Y-o-Y, your revenue is up 3.3%. So I do the difference, 5%, to get the pricing inflation there?

The COGS, not the coke. I was thinking about the coke itself. No, the cost of goods sold is up, but it's also about a mix, but it is up in Q1, but not as much as 5%. So I think you can expect more increase in cost of goods sold going forward. I think the first quarter increase in cost of goods sold was more a matter of mix than anything else.

Okay. Okay. I understand. And you say, I mean when the COGS will increase for the rest of the year, probably, the pricing will also be more dynamic, so we shouldn't worry so much about the inflation, right?

That's our basic assumption, yes.

Our next question comes from Claus Almer from Nordea.

Sorry about circling back to some of the former questions, but there's been a lot of question regarding the cost inflation. So maybe you could say how much should you increase your ASP this year to fully compensate the cost inflation from a full year perspective? That will be the first question.

But I didn't even say I will do it only with price. So we're talking with the price effect, my price, input material effect, my productivity improvement, we should compensate so that it's all good for us. And then for me to sit and guide, we talked about the second price increase. I said, I want to be rational and quite predictable with the customer, but I also have my options because we could also see a situation that the inflation goes up even more than we have in our current forecast. So I can't answer that. But in terms of dynamic with the levers I have, we should be able to manage it, okay? So that's as much as I can say, Claus. And I know that then creates a problem in the spreadsheet because we don't know exactly what the number is. But if you know the cost and the productivity improvement, you -- yes, you might see slight margin impact, but you have our bottom line guidance.

Sure. Okay. I was mostly talking about how it is today. And then, yes, obviously, there could be more inflations later this year, but it was more like how does it look today. But I guess you are not going to get it closer.

No. But what I'm saying is that we'll manage it with productivity improvements and price. We -- it happens suddenly and we deal with it, and we have an extremely well-trained organization and working with that. And I hope the customer also knows that we are not we are not going overboard. We are doing it professionally. And that's our intention also this time. And so far, so good.

Maybe, Jens, if I can ask in another way. So the way you are steering your pricing, you must have a ample headroom versus a foam. So are you just increasing the prices according to inflation, but there's a really good room for raising price because it's becoming so much more expensive than stone wool and you don't want to take full advantage of that situation?

Yes, it's quite a tricky equation. I mean, fundamentally, we apply market-based pricing, the value of the product. But we want to be a reliable player year after year after year. In 2007, 2008, ROCKWOOL raised prices with 20%, 25%. I don't want to do that. Customers don't forgive you, it's not serious business to me, at least not how I see it for ROCKWOOL with what we are. So we are open to that inflation might change compared to the quite high assumption we have. Now it might be higher. I don't think it will be lower. And then we might have to adjust. And in some markets, also, the plan is that we have the first price increase that is in place and the second is quite normal from within the country. So that's how we work it. And then plus/minus EUR 10 million in the balance between price, raw material cost, productivity. We have many actions in the company. We will work on cost productivities, et cetera. So we steer it as we go along in the year, but at the end, we want good, sound market-based pricing, and we want to not do stupid things in 1 year, okay?

That makes a lot of sense. And then, Jens, sorry, again, about another question about CapEx. You said something about EUR 200 million was that mean -- this would be the low level or it will be below EUR 200 million? How should we...

No, no, what I said is, with our growth margin, we're getting -- we're a company between EUR 2.5 billion and EUR 3 billion. I'm just saying that we had 11% historically. We did a 30-year study 3 years back, or whenever it was. I'm just saying you're not going to get down. You look at last year, we didn't go down EUR 200 million CapEx. We just kept working our investment as much as we could, but it wasn't so easy during corona. So I just gave an example that don't expect that we'll be down to EUR 200,000 because, A, we are a bigger company. We keep growing. Yes, some year we might not be growing so much, like last year and last time was 2008, I think Lehman Brothers. Otherwise, we grow. And we have the sustainability. So we need to invest. So we're not going to be on the EUR 200 million level. That's what I said. So it was not the number you should use. It's just don't hope for us getting down to those levels because the growth is there, the sustainability is there, and we just need to keep investing in the business.

Sure. Okay. So my question regarding CapEx is more how are you really working with Capex? So we know it takes 2 or 3 years to do a new plant. And you're talking about 18 to 24 months of good activity and who knows what's going to happen after that. But I guess, in 2 years down the road, you not have a lot of available capacity left. So how are you planning CapEx in 2, 3, 4 years down the road?

So we have -- I mean we work a lot with that. And because you could say like this, the ambition is, and that's hard when the market grows as much. The ambition is that you plan scenarios with the CapEx and the capacity and your draw curves and all the rest, but you want to have a float so that you have enough capacity to supply also a optimistic market growth scenario, and that we have enough capacity so that we can switch a plant off and do a fuel transition. So my reasoning is I always want to have a bit of spare capacity, yes. That's my reasoning -- yes, that means we trigger investments well in advance, and that's what we intend to continue to do.

Okay. So we're getting close to that point where you need to do the next steps?

Yes, but we are doing the next steps all the time. We are just building a big thing for Rockfon. We are building for Grodan. We are starting up the second of the 2 big plants. I mean, we keep doing it all the time. And then, of course, we don't necessarily announce everything we work on, but the idea is to keep the capacity buffer going forward, that's the objective.

Our next question comes from Cedar Ekblom from Morgan Stanley.

I've got a few follow-up questions on the growth story. Can you give us an understanding of whether at the end of this year you would expect all of the new capacity that you've added in the group to be fully ramped up? And if not, how much incremental capacity do you think you'd have spare into 2022? And that's just in terms of thinking about local currency growth potential into next year if we have a more normalized demand picture. The second question is, would you be willing to give us some detail on how much of your 10% to 12% local currency growth is driven by new capacity coming online this year, new volumes, so we can get an understanding of your underlying market growth? And then the third question is, how easy is it to squeeze incremental volumes out of your footprint? Is your asset base such that you actually have to make quite large investments on a sort of go-forward basis? Or can we think about squeezing out an incremental 3% to 5% volumes every year from a brownfield perspective and not needing to make those fairly lumpy investments?

Cedar, incredibly good questions and incredibly difficult questions you have asked because we are confining what we release. But fundamentally, when we look at the stone wool plant over the last 3, 4 years, we have worked very systematically on raising the maximum capacity of the plants with -- quite significantly without big investments. So that's the whole culture and is a methodology we work with. You can't do 3% to 4% to 5% every year forever. But we have done very good progress in the last years, and there's still some more to do. Then on the new capacity, I mean the ones coming on, Germany was a big one. West Virginia is a big one. Romania was a half size one. And then in Poland, you can say all of it like a big one, I guess. U.K., somewhere in between, but we almost doubled the capacity there. So those are the ones we have been doing. And they are there now. And then we are doing in China, we're moving one factory, and that doesn't really increase our capacity, but we have capacity in China, it's not a co-market. So those are the main ones we are doing, and that is aimed at staying ahead of the game so that we have within the horizon that we come out with more capacity if the market grows. But then, of course, if you have a market that grows 10%, 15%, 2 years in a row, we untraveled because we don't have that much spare capacity with this type quite asset-intensive plans that we have. But we have been very good at getting more out of our plants. But -- so that -- I guess, that's as much as I can say on those questions.

And you're not going to give us any detail on how much of the 10% to 12% is new volumes?

Come again on that one?

So your guidance this year of 10% to 12% local currency revenue growth. Would you be willing to give us some color on how much of that number comes from adding volumes in the U.S., adding volumes in Germany, Poland, et cetera?

No, we are the only company in this industry that talk about countries. So we don't give it, for competitive reasons, we don't see a benefit of giving it because no one else gives it. And we don't want to give that.

Cedar, we have also previously talked about once we start-up the new factories, obviously, it is an advantage to get a load on those as fast as we can. And then we take out shift if there's not the demand, just in a season we take out shifts in some of our existing factories. So we don't track sort of this new capacity, what is not -- what is existing capacity.

Okay. And if demand stays where it is or if your sort of view on demand materializes, would it be fair to say that those new facilities would not be fully ramped up by the end of this year that there may still be a little bit more flex in that footprint?

Yes. But we -- we often have an overlapping footprint. So it's not like Norberg, in Southern Germany is a factory that makes a product that no one else can do. It might have some products that way. So our objective with the Southern Germany factory has been to ramp it up to full capacity as soon as we can because a very, very good asset. And then we take a few other shifts off in other factories. So we work with a network model where the factories are nodes. And then we have the customers spread out. And then we optimize the network, yes? So it's a slightly different business model as opposed to that you say, now we build a factory for this product, and then we fill it up. Romania, for example, we were supplying a lot into Romania, and we very quickly ramped it up, and then we brought some capacity home to Croatia and that capacity we use in Italy. You see? So it's very, very difficult to talk about an independent asset. I guess, an independent asset where would we have that?

U.S. might be the most...

No, they are all connect -- we really don't have independent assets. There's almost always overlap between the service ons of every factory, okay? Just so you know, the coordination and the model we run to run it is a network optimization tool. It's not the individual factor, of course, the factory men run the factory, but we optimize the whole network.

One our last question comes from Pierre Rousseau from Barclays.

Yes. And the first question would be on the pricing strategy. It seems that your competitors have high inflation. It seems that you have 1, 2 years of good demand growth. So is there any way for you to get more than moderate price increases? And do you think there could be upside there? The second question is on the margin guidance. To me, it seems that if you achieve the top line revenue growth that you guide for, the margin guidance looks quite conservative. So I was wondering if you could explain the various cost items that could impact your margin negatively this year. I think maybe the supply bottlenecks from freight costs, some cost inflation. Do you think you have any quantification of the margin impact of the of the one-offs for this year? That would be helpful.

Okay. Pierre, so I take the pricing, and I hand the margin one because a lot of it is start-up costs and depreciation and loading levels, so Kim will take that. On the pricing, we want to be a long-term -- we have talked about the drumbeat pricing module approach over the last 5, 6 years, 6 years. And we have done that some years a bit more, some less, but every year something, and we try to reflect the margin of the -- there's absolutely an opportunity to walk out and increase the price. I think I could increase the price with the high percentage if I wanted and get it to the bottom line this year. But my objective, Pierre, is the drumbeat pricing with a clear logic to how we price and the fact that every year, we come with the price increase, reflecting inflation and the market value of the product. And that's how we see it. And I'm not -- I don't want to step out of the year with inflation made us look like a company that didn't perform. That's not my objective. But I'm not interested in raising the price with EUR 100 million 1 year and bring it to the bottom line as a great pricing. And the next year, I have every customer in Europe feeling that they exploit the situation. And that's the difference in some materials and industries you work in one way and how I feel we should work with ROCKWOOL is that way. And that means that sometimes, I've gone out and done a 2% to 3% price increase when we had deflation in -- historically, because I think the profitability level wasn't right of the product. It was underpriced. And we did that. And this year, I don't think the challenge is to make price increases, I think, is to be a good supplier and do an appropriate price increase. That's how we see it. Okay, over to Kim on the margin.

Yes. Thank you very much. On the margin, Pierre, in terms of one-off, you know the sort of the most obvious one is, of course, depreciation coming in. And we have already in our early guidance said that from the Norberg plant and from the Ranson plant, there will be additional depreciation very close to 1 percentage point of sales. I think even last -- in the February call, we even quantified it around EUR 25 million to EUR 30 million additional depreciation for the full year. Of course, the Ranson plant would only come online in the third quarter, so you will only see that impact in the second half of the year. And then we've also said, that's the same thing, the situation hasn't changed, that there are start-up costs, both on Norberg and for Ranson, that is kind of a one-off in the first period of your start-up. And we have also quantified that earlier to approximately 0.5 percentage points margin impact. So those are sort of the one-offs that we talked about early on, and they haven't really changed. It's the same thing. That means the underlying you can say, performance, the guidance upgrade is really not so much different one-offs, but it's really the underlying performance that is better than what we have assumed.

Okay. Understood. So you're not seeing a lot of extra costs from bottlenecks, like freight or the low inventories or...

Those -- they have been incorporated our margin guidance already.

Okay. And maybe a very small last one, if I may. On the margin step-up in Systems, I think in Q4, you had mentioned that there was some mix impact in there. And then in Q1, we have a very strong margin again. So is that the new kind of level that we should expect from you going forward?

I mean, the margin in Q1 was really good. Kim and I target what we guided. And then over the year, depending how hedging and price schemes came into place, you can have the margin jump around a little bit with the quarters, but we should deliver the full year guidance. And you might see a quarter that is really, really good and some maybe a little bit lower or you don't see any of those quarters. And quite frankly, we don't calculate to that level because we know roughly what's going to happen and we feel confident how that guidance will hold. And then we don't plan so super careful around the markets because it's subject to a negotiation when it kicks in, and we don't run amongst the central spreadsheet on every item. There, we look at where it's trending and what the end point and the total for the year will be, that's how we steer it. So I wouldn't comment the next quarter and the quarter after that in terms of margin. Just say that we feel good about the bottom line guidance we have done, and we want to deliver that one.

There appears to be no further questions. I'll hand over back to the speakers for any final remarks.

Thank you. Please be informed that on 8 June, the ROCKWOOL Group will hold the next investor conference call dedicated to ESG topics. Thank you for joining today's earnings call.

Bye, everyone.