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

Ladies and gentlemen, welcome to the conference call regarding ROCKWOOL International's results for the full year 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 full year and fourth quarter of 2021. Afterwards, we will be ready to answer all your good questions. Before I hand over the word 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 word to you.

Good morning, everyone. It's Jens here. Looking at the full year, we reached the top line of EUR 3.1 billion. And we are quite happy with that. It's a good growth, mostly volume growth, we achieved 2021 and Q4 with almost an explosion on an energy crisis, an explosion in inflation and raw material cost increases was quite a challenge. So we were -- we are quite happy with -- that we could bring that home. I will come back to the quarter in a bit but we saw raw material and energy prices increase with close to EUR 100 million in a quarter, and it jumped up very quickly. We had a lower number, we thought it was accurate but it just kept increasing, extremely volatile. When we look at the full year also on the EBIT margin, 13%, that's impacted by the 2 new full-size plants. We have the Norberg one in Germany and Ranson in West Virginia U.S., the impact of those plants in the year is about 0.5 percentage point of EBIT margin. Should be said, though, that they have started up really well, and they are producing a lot already. So we are very happy with them. And the timing was good, but it has still had a slight negative impact due to the startup. We will see that disappear during 2022 this year. If we move to the next Slide #4, I just want to spend some time on sustainability goals and our progress in that area. In 2015, we started out -- we started to think about how to set goals that make sense from a sustainability perspective. And in 2016, we announced the goals that you see on this chart. And the goals were -- had 2 kind of milestones. One was an intermediate goal 2022, and one 2030. At this stage, we did not know about science-based targets. And therefore, the CO2 emission goal is CO2 emissions per tonne produced, while on the next page, I'll come back to the goals we published later that are our science-based targets. But if I were to sum up how we are doing on this, I'm very, very happy with the progress, and we are ahead on most goals, and we will hit our goals 2022 with maybe the exception of the safety goal, where I will come back to that and discuss it a bit. So we start from the top left corner, the emission intensity. The goal by 2030 was to reduce the CO2 emissions per tonne produced stone wool by 20% and 10% by 2022. And last year, we reached already 16% reduction. And that has happened with quite a few actions on primarily the melting technology and how we melt stone wool. And to give you an example in Denmark, where we rent -- we started to use biogas after some -- quite some work to get that technology to work. It works really well now. But in the last say, 5, 6 years, in Denmark, we have increased production with 30%. At the same time, we have reduced the emissions of CO2 per tonne produced with more than 80%. So just in Denmark, we have saved 100,000 tonnes. So that's nice. And we will keep investing in this, but we feel increasingly confident that we have the technology. If we go down to water consumption, we use a lot of water. And we had a goal for saving 20% by 2030. In most of the countries, so all the countries water is very, very cheap. So when you look at the investment case for saving water, it is not so good, because it's cheap to buy. But we have anyhow decided that we're going to save water, fresh water because we use a lot of it. And also here, we are ahead of the plan, a 15% reduction in 2021 and the intermediate goal was 10%. And this has been done in 2 ways. One, on the one side is disciplined, making sure you don't waste it. And on the other side, it circular investments and collecting rain water and other things. So good progress also there. 2016, we decided that circularity is a key, key metric for a building material company. And the background to that is that 1/3 of all waste on the planet is from the construction industry. And in terms of per individual, the biggest amount of material we use is fundamentally our houses. So we then defined a scheme that we now call ROCKCYCLE. We didn't have a brand back in the day. We define how many countries we are going to launch this in. Now we just recently launched in Croatia, Russia and Spain. It involves quite a lot of work to put the scheme in place. It's not just to issue paper that we're going to do it. You need to be ready to take it back and you need to know how to run the factories with a high recycled content. So basically, I think we are leading the way in the construction industry and the insulation industry with this. And this -- I should also say that although it's required a bit of investment and effort, this has been quite rewarded from the customers. So it's a nice one. Landfill waste was another one. We put ourselves a goal to really reduce the amount of waste from a factory we put in a landfill. We have managed to halve that so far. And this is mainly a matter of being disciplined, increasing yields. And whenever we have cutoffs and other ways that we feed it back into the new product. And so that has been progressing well. On energy efficiency, if you look to the right, it may look like we are far behind the goal. We have -- this is our own buildings, basically to live as we learn. We have so far reduced our -- improved our energy efficiency with 19% reduced consumption kilowatt hour per square meter by 19%. The goal is to reach 35% by next year. And that looks like a big gap, but we actually have projects being constructed now. So we have a very good chance of hitting that. It has been very good to see, for example, how we renovated some very old offices in Gladbeck, Germany, and we got a very high and good energy rating, and we managed to reduce the energy demand with 83%, and that's a good result. It should also be said that we use this to learn how to do renovation. Yes, we get help from the outside, but we use our own product, and we involve our local teams deeply into getting the renovations planned and executed on. It doesn't mean we are there, putting in the installation with our people in the office, but we are thinking it through in how we designed offices. Safety, lost time incident ratio that's lost time incidents per million man hours. Here, I probably made a mistake. I put a target to improve 10% by a year and we missed that last year and it's fundamentally 2 operational entities. We had a very big ramp-up of people, and we have had a -- haven't managed to bring down the amount of lost time incidents. We have also brought onboard last year a lot of new people on that have had some impact also. Next slide, please. If we then look at the science-based target. And here, the goal and the metric is slightly different. You have a base here, and then you have an absolute emission reduction and that's CO2 equivalent. So methane and other Factor 25 or 27 gases. So all the emissions are also included here. So they're weighted with the greenhouse gas potential they have. And this is a very challenging goal because we need to compensate for the growth we have, and we need to reduce it. So we have set the goal to reduce on Scope 1 and 2 with 38% by 2034 and 20% on the part of the business that we are not in control of the Scope 3. And you see a minus 1 there and a 0 above that may look like we are not making a lot of progress, but another way of looking at it is that we grew 19% last year, obviously, not all of us of that somewhat price. But considering that we increased the top line with 19%, and we basically kept the emissions stable that's very encouraging because it's a lot of emissions that we would have generated with that growth with ROCKWOOL, if we've just taken 19% more, that 19% more out. Slide -- can't see the number here. If you go into the quarter, a record quarter in many respects, but the EBIT margin a little bit depressed. We have a difficult comparison because Q4 last year in 2020 had a very favorable mix, and it had also lower -- no inflationary impact, deflation of our dividend say. So that was a very good quarter. But the 11.2% is below where we would like to have a quarter. And if we looked at it, we can see that the EUR 90 million to EUR 100 million inflation raw material and energy it just came too quickly. We had a price increase in play that we started to move into, we started in Q3. We were aiming to balance this out with the forecast we have for Q4, but then basically, the inflation on the energy crisis kicked in, and it more than double the number we expected. I should anyhow say with efficiency improvements, really big ones in the operations, over absorption, fixed cost absorption, we have managed to compensate a lot. So we didn't at all let that EUR 90 million to EUR 100 million inflation pass through to the bottom line. So I'm happy with it and I still see that going forward, we expect another step-up in energy prices, raw material costs, et cetera, in Q1 in early of the year, and we keep increasing prices and have given us about 2 quarters to get back, thereabouts to get back to good margins. We have reflected that in our outlook. On another comment there is to free cash flow. Very happy with the output from the factories in Q4's record output. And we have invoiced a lot in December, a big December, no winter storms. And that means that has impacted our net working capital, we are not worried about that. That's a good thing and a very good thing is that we've managed also to build seasonal stock. We managed to build finished goods inventories. So if you looked at the price in the quarter, we raised prices towards the end of the quarter, we were up about 10%. But with the volumes, we also got impacted by the maximum volume rebates from customers so that kind of ate away a bit. But generally, the pricing actions worked well, it's just that there is a lead time from when you know the inflation, what we have assumed so that hurt us a bit. But the work continues and we already have more increases coming in January in Q1 and Q2. Moving to Slide 7, sales. The majority of sales in growth is from volume this year because the pricing actions started in the second half of the year, and the majority of the pricing has been done in Q4. Both businesses grew really, really well when you look over the whole year. And I should say that on the Systems division, the growth is quite evenly spread out across the businesses. If we look more in depth into Q4, nothing special about it, but you probably have a question on the lower systems division growth. There we had destocking a portion of the business where we had some very, very strong Q4 business the year before. Q1, Q2 in 2021 also, and then destocking happened. So in North America, Grodan had not at all the same development. That will come back, and there was also some other businesses -- or 1 more business ROCKWOOL North America had a little bit of a slow quarter and it's all back again. So no worries about that. Slide 9. Going through the regional development, obviously, Eastern Europe and Russia tremendously strong. Nordic strong, fundamentally you -- quite pleasing that the Asia is back with quite good growth, but that's from a lower level. And in North America, the insulation business and all businesses with those exceptions I had, they grew really, really well. Here and there, there is a country that maybe only grew single digit as really not many countries. And then it's normally because we prioritize capacity in some places. So we have not planned the deliveries and we couldn't deliver, but generally fantastic growth everywhere. Energy prices, you see this, you could call this energy crisis, I think. We sit -- we have talked about that we sit without being really hedged. We want to price it in. And of course, when it jumps up like this, it's hard to change the prices that quick. We changed a little bit on our contractual model, so we can be quicker now. We have increased the frequency of price adjustments. And my expectation is that the volatility on the energy will continue that now at the beginning of the year, we see a further step-up on inflation. And then perhaps after that, it should taper off a little bit, and we are then back to some sort of permanent inflation that might not be quite as extreme as what we've seen there -- here. We are not too worried or we aren't worried about that because we just need to price it in. And of course, life is a bit easier if it doesn't jump, it steps on EUR 40 million, EUR 50 million, EUR 100 million. But I think you see smaller steps now, but it's still not to a level where we can say it's 5% or 6%. And it's across the board, it's binder, it's logistics, it's all the energy types, basically everything now. There might be some exceptions. I think wood pallets have come down. Yes, it hasn't really, it's just leveled off on either. Move to Slide 11. Difficult comparable because Q4, as I said, was very, very good. And the margins here have been impacted by the inflation. We didn't cover all, but generally, I think we did a good job with the time we have. Next slide. Profitability by business segment. For those of you who do the maths, we've never had the opportunity to discuss that these margins are also including internal sales. So it doesn't -- you cannot tell it with the total margin of the company so easily. Here, Systems division has obviously pricing inflation, the same as I've already described. But on Systems division, we have also had the mix issue, mix issue that impacted profitability quite a lot. That's what we think is a short-term effect, but the mix in addition to the price made the systems division have a lower-margin quarter. Next one is this the CapEx. We spent about EUR 300 million. And we have now gotten into the drumbeat of showing the sustainability investments. And to give you a little bit of a feeling, we have spent a little bit more than EUR 90 million in sustainability investments. More than half of that is related to melting. We are investing in -- we did invest in a melter in Norway. We are doing some upgrades in some other plants, be it transition, our coal -- or 1, 2, 3, 4 coal base melters to gas last year that cost a bit. And then we are also busy building the new plant in China where we move to green energy. We haven't started it yet, but that has also been quite some CapEx during the year. So all of that, I would say, a bit more than 50% if you include China is where we are improving the CO2 footprint of the business. Then we have building efficiency improvement, quite a few projects, 1 here in Hedehusene, Poland, Czech Republic, Belgium and we completed some other projects, but some of those are not finished yet, but that's towards that 35% building efficiency improvement that's happening. And then we have a number of other projects that could be safety, health and well-being and also smaller sustainability projects. Lighting, for example, we are changing in many factories the lighting system to reduce electricity consumption. Slide -- the next one, please. On the Cash flow, as I said, seasonal stock, we managed to build it, and we are happy about that, nothing to worry about on net working capital, it's just inventory and trade receivables. And we are still net debt-free so maybe with the increased interest rate, we don't pay very much negative interest, but maybe we can get out of that now, at least if the rates increase a little bit. Moving to the outlook. People focus a lot on the risk I write about. We have flagged that the economy could slow down due to the whole building materials industry or also energy crisis impact the amount of new starts, renovations. You have the geopolitical obstacle course, you have potentially higher interest rate. You have a lot of things. And the point with listing some of these was not to discuss when and if they would happen. What I actually try to say with that is that we have excluded those. So basically, what we are assuming here and what we feel confident about is that the market will continue quite well. We should be able to grow a 15% to 20% of top line. This year, we'll have obviously a bigger price component and a smaller volume component in that outlook. And we need a little bit more time through Q1 to adapt to these 2 step-up quarters in inflation. And after that, we should be through and have good profitability in the business, and we are shooting to deliver around 13%. Investment level due to the announcement in mainly France and Russia, and also more green investments, about EUR 500 million. So that's the outlook. So we keep going strong, and that's really what we forecast here. Next slide -- so 1 more. Yes. We have 1 extra slide is the A and B share. Maybe, Kim, you comment that?

Yes, the Board has decided to propose for the AGM a permanent conversion bite for the A shares into B shares. More details about that will follow leading up to the AGM. We are working on the technical, you can say, issues behind this. But this is what is being posed for the AGM.

We're ready for questions now.

[Operator Instructions] We have our first question, it's from Yves Bromehead, BNP Paribas Exane.

I have 2. I guess the first one is, Jens, your last comment on the outlook was quite reassuring and optimistic, in fact. Just so that we're on the same page, can you confirm what you -- I think what you said is that your outlook excludes any volume decline scenario in H2 2022, which was one of the risks that you flagged in the annual report? Is that correct?

Yes. We have a lower volume outlook, that should be said. We haven't said it would go like it grew in quarter fourth, but it's a positive volume development. And we haven't included that the market will slow down and stop our economic burst. So I confirm that. So we see the year at the moment in quite positive light. And I just flagged the risk to demonstrate exactly what you said there.

Okay. And just as a follow-up to that first question, I guess one thing that would be really helpful would be to understand if your price/cost scenario is quite optimistic, what is the actual run rate of the operational efficiencies that you're extracting? Because ROCKWOOL has been doing that now very successfully for the last few years but you never really quantify it, could you give us a bit of a numerical number on this?

I'm really sorry. I can just say we are really good at it, and we had a fantastic year last year. I didn't expect us to be able to save that much last year. And -- but remember, we also factor in productivity improvements where we managed to keep everything constant and produce 15% in some of the factories. So we count it as cost per what we produce and then outright cost we get rid of. So I'm not willing to quantify it, but it was a very good last year. We are not aiming for the same high number this year, but I don't think we have to, but it's still a substantial number, and we go after this number every year. But I'm not able to give a number.

Okay. And my second question would be on the melting technology. As you shift toward electricity, can you give us some color in terms of the impact on the OpEx and the return on investment? And how does taxonomy come into play when it comes to the CapEx and the OpEx of using renewable or electricity versus coal?

I mean at the moment, you don't -- as you saw in the Danish case, it's a very dramatic reduction. But we don't see the taxonomy really impact at this stage. At this stage, we still have the ETS system. We have quotas. Yes, you're going to have the U.K. now stepping out of that. So you're going to have a cost. And then almost all our business is eligible to the taxonomy. We have the traded goods where we are not eligible. So we don't see that impact the business so much. What we see it impact is that the customers, the big construction companies put requirements on it and increase our sales, okay?

Okay. And on the OpEx side of using electricity versus coal, given the price of electricity...

This is, of course, let's say like this, if you took the electricity price 2 years back and the coal. And you average maybe 4, 5 years, you sharpen the technology. There is no big difference. But that's, of course, if you sit with a quarter where the electricity cost EUR 800 per megawatt hour, then it will be more expensive with electricity. But if I give the example of Norway, we have had reasonable electricity prices. The technology is competitive. But it mustn't of course, cost EUR 500 per megawatt hour, then it's less competitive than coal.

The next question is by Kristian Johansen, SEB.

So Jens, when we spoke in November, you said you wanted to increase prices to recover gross margin. And now you say you need 2 more quarters to do that. So firstly...

No, I didn't say that.

Okay. So what did you then mean by your additional 2 quarter comment?

Down 1 quarter, 1 quarter left.

Okay. So essentially, you should be recovered by Q2 on the gross margin?

Yes.

And when you say recovered, I mean what level are you satisfied with? Is that sort of a level we saw in Q2 last year or...?

I don't have a external number in mind, perfect. But back to a sound level, it's too low now.

Okay. Understood. And then for Q1, should we expect the gross margin to stabilize? Or is the risk for it to decline further?

The volatility at the moment -- I have price increases out already for Q1. So we have a higher price already, and we keep increasing it and we keep doing so, and we keep an eye on the inflation. But the market is incredibly volatile at the moment. But -- so you have a further step-up of inflation in Q1 compared to Q4. It's not another EUR 100 million, but our estimate is that it's quite a substantial number. And we keep working it up to target price level, and then I have some volatility. So that's what where I leave it. But I can say we are pacing well, and then we can't exactly say what the inflation will be because it's so volatile at the moment. I haven't factored in a Russian gas effect in this. I haven't done that. I just assumed a certain level and we are pacing. So it would be -- it's fair to say it's not a worrying quarter, but it's a challenging quarter because it's so volatile, but we are getting up there and we should hammer through and there is some variability because we don't have hedges now. We just play -- the only exception is the coke where we have our normal mechanisms. All the rest, we just buy as we go along now, okay?

Okay. That's fairly clear. And then just in terms of what you have done on prices, you mentioned you've raised prices for Q1 and then you have announced price increases for Q2 as well. Is that correct? And secondly, do you need to raise prices further in Q3 and Q4?

Yes. First of all, some markets is -- we've changed some of the contractual structures with some customers who before had annual price. We have not changed that, and we have a certain number of weeks to adjust it. So it's not only done by quarter. Some of them have a price increase in February. Some have 6 weeks lead time, it's a little bit different. But we fundamentally move up prices now all the time, yes, and we have announced for January, and that's ticking up. And then we have, in many places, the price increases out for the beginning of Q1 but we also have reservations, and we say that as we move forward, we will clarify what else is coming, but we are not this year doing anything that we say is the Q2 price increase, and then it's nothing more. We keep it open this year. So we could do more price increases later. And a fair assumption would be is that we have to do that, but we can deal with it because now the system is up and running.

Understood. And I guess it depends on inflation as well. .

Yes, very much.

So maybe -- yes. You said you expect to have recovered gross margin by Q2. Should we then expect gross margin to trend flat for Q3 and Q4? Or is it still an increasing profile you're looking into?

I want to deliver 13% bottom line yes, or EBIT. And so we -- it's so many things flying around for Q3 and Q4. We will run the P&L in a sound way and balance growth and price and inflation. But it's so many variables that we don't have a clear rule, but we want to have the profitability on the EBIT level solidly back in the second half of the year.

The next question is by Brijesh Siya, HSBC.

I have 2 questions as well. So the first one is on the competitive landscape. Now that you have raised your prices close to double digit or even more than that as we speak. And how does that compare with the plastic foam? I mean invariably that number going to have expanded a bit between the gap between you and plastic foam. Have you seen any kind of market shift back which is looking unlikely given your guidance of strong volume growth still continuing in 2022. So any color on that would be helpful.

Yes. Okay, Brijesh. Just a quick answer is we haven't seen much because the MDI pricing, they have -- one of the main raw materials and also, of course, all the other materials are used up. So we haven't seen that peer and peer, for example, are more aggressive or they have pushed up price and stayed high. And then the question is do they need to go higher or not? I don't know the cost direction, but the MDI prices, for sure, are on a high level still.

Yes. I mean, certainly, that number is not going up compared to your cost base, which is constantly moving up.

No. Yes. But they did -- I think they did increase a lot, a lot before us because they've impacted before us. So you could say in one way that we are catching up, catching up. We got it a bit later.

Okay. Understood. And how about the competition within stone wool market? Is there any of them not behaving the way they would have done it with these cost increases?

We do what we do. And that we have done every year the last 6, 7 years. This is a different level and there will be some people waiting. There were some people not doing it. There will be people doing it. Our experience is that everyone would see -- feel these costs, there's nowhere to hide. So I would expect that price increases -- and we have seen that in many markets will need to follow for everyone producing stone wool because they have the cost situation. Then I also think that the demand situation at the moment is such that it is quite tight and therefore, I can't really see any good reasons for not passing on this inflationary cost. But -- so we haven't worried too much about that. We are still behind the real inflation, so we feel we do this for a very good reason.

Understood. And my final question is on your over-the-cycle targets. Previously, you were kind of mentioning that you would be growing 1 percentage point higher on the construction market. That number is now missing. Does that mean you will be growing higher than the 1% spend before?

Maybe we missed that number. At the moment, we actually have -- it's tricky to define the market outlook for the construction market. We couldn't find an outlook that we could say, okay, this is one. And therefore, we skipped the number. But our ambition is to grow, let's say it like this. We want to grow faster than the other ones with a little bit. We want to do better than the market. And we think energy efficiency and our application should better than -- grow better than the average market. And we should be growing a little bit better than competition. So that's where we still see it. But it's very hard to measure at the moment because it's -- some markets is just growing incredibly. And you wonder is this the market or is it just our segment, it's quite hard to get data, what's really going on. Housing starts though is quite high everywhere and then we have some countries now that are good that is -- with the energy efficiency renovation or at least starting to getting to play.

The next question is by Cedar Ekblom, Morgan Stanley.

I'd like to dig into your CapEx and volume growth potential in the medium term. So firstly, on the French and the Russian expansion, when do we think about that capacity becoming available to the market? Is that from 2023 onwards? Or is it going to be a bit later than that? And then also, you said in the annual report that there will probably be plans for the CapEx to be a little bit higher over the next couple of years. Would it be fair to assume that there would be further projects related to capacity growth that we need to start thinking about putting in the model. Basically, we put in higher CapEx, but how do we think about the organic growth potential on the other side of that?

Yes. So Cedar, thanks for your questions. So the capacity, if you take the 2 main ones, Russia, Vyborg and Soissons France, you're talking real volume in the market 2025, then you might produce a little bit before there depending on the schedule, but that's when you can kind of put the chunk into the model. We have capacity and improvements, so we can grow on to that. And yes, with what we see for stone wool and what's happened to the market with circularity stone wool, we see that stone wool should be growing. And that means that we need to have an increased CapEx level for the coming years. A, to be ahead of capacity; and b, because we do this with the footprint, the energy transition to reduce the CO2 footprint. And there, we have a program. And we have -- I think we have mentioned that we typically think at the moment of about EUR 100 million. You see we spent EUR 92 million, might be a higher level, but we need to keep investing now to get capacity and also keep -- we have ramped up on engineering resources to be able to do these projects. And one aspect of our approach to it is that we like to build quite a lot of that capacity ourselves because we see it as intellectual property to learn how to build these plants to keep learning and building the organization. So we have ramped up engineering resources and we keep doing that because we don't like to outsource much of it.

That's really helpful. If you just allow me 1 follow-up. So with that capacity hitting the market 2025, does that mean that the peak capacity for those projects is actually more 2023? And so CapEx should not really go down into 2023 at all impacts it could be higher.

We don't guide for CapEx in that year yet, but we have flagged several times. And then depending on when you do the main bulk equipment purchases for a plant, you can move quite a lot of money between the years. So I think the way to think of it is that I don't know how you do if you look at it really per year because how we do is that we have a number of projects and then we have an engineering capacity and then we manage against that. And then the actual CapEx you see will -- can jump around quite a bit. But if you average it out over 3 years, you're going to have a higher level on average. So I can't say whether 2023 will be ex lower, ex higher because I simply don't spend time on that now. But I know that the level we are working on, we want to continue to get ahead on the carbon footprint reduction, unification and capacity.

The next question is by Manish Beria, Societe Generale.

So my first -- I have 2 questions. Yes. The first question is on the margins. So it seems like you are guiding 13% EBIT margin despite inflation, I mean. So it seems like -- so if we try to say this is a bottom or the new floor for the EBIT margin over the cycle because we are able to sustain despite the inflation these type of margins. This is the first question. The second one, if you can breach this EUR 500 million CapEx into growth, maintenance and sustainable CapEx?

Yes. Okay. So I would say for the cash, if we start with the last question, going forward, you have quite a lot of roughly the same split as you have EUR 100 million sustainability, EUR 100 million maintenance and the rest capacity. So it's roughly the same split as before. Then if we come to that margin at the bottom, we don't guide where there is the bottom. But we felt that to go into this year with the ambition of delivering around 13% is a good one because our ratios were quite well and then make sure we grow. Obviously, if you have a tougher first start of the year, the rest of the year needs to operate on a higher margin, so we get there, okay? But I wouldn't say it's a new floor. I mean inflation is not the reason actually to reduce margin if it doesn't happen, I did now with massive, massive amounts in such a short time. I feel even with inflation, we should be able to maintain our margin. But of course, it is -- it will be the same percentage price increases as inflationary increases you need to pass on. Otherwise, you do margin. You can't you can't just pass on the amount. We need to pass on the same percentage. And that can be a challenge for some businesses, but I think we can do that.

Just a small correction, you need only half the price increase to maintain the margins because if raw mat increased by 15%, if you increase the price by 7.5% because your gross margin is shifting.

Yes, yes, you're right.

And there's one clarification. I mean because you're building 2 plants here, Russia these -- I mean, these 2 plants, France and Russia. So here, I mean, because these 2 plants will have cost you maybe something like EUR 250 million in total, I mean, because it's EUR 750 million sort of CapEx I mean it's EUR 120 million for each plants, so EUR 250 million for 2 plants, but you are already guiding EUR 300 million in a year. And you say, I mean, maybe there will be more in 2023, '24. So how should we think about this growth CapEx? Why is it growth CapEx is so high at EUR 300 million?

We are also investing in the Systems division businesses.

Okay.

So Grodan and Rockfon is quite a lot of investment, more than EUR 100 million.

Okay, I see. Yes.

The next question is by Yuri Serov, Redburn.

Yes. So my first question today is you already talked about the volumes. Can I please try to get some numbers out of you. And I'm not looking for precise numbers, just order of magnitude, right? So in 2021, your sales went up by 19%. Some of that was price. So I'm guessing volume was circa 15% or so. And for next year, you're guiding 15% to 20% sales and higher proportion will be through price. And we're talking about double-digit price increases. So if I take 10% off of that, that suggests to me that volume is going to be something like 5% to 10%, is this about the right level of magnitude?

Okay. So for 2021, we said by far, the majority -- I mean, you have 2 quarters with no price and made price. So you will obviously have the vast majority or the majority's volume 2021. And then I can go as far to say that for this year, with this level of inflation, with that growth number we have given, the majority is going to be price. But I'm not going to say how much the volume is. But with those assumptions, you take half off, you get the range from that is lower than the price. Yes, that's right. But I'm not going to go into more details on that.

Okay. So the majority is price.

Yes, yes. That's right. That's right.

So you say, take half of, yes.

And then also to clarify this with margin. When I say margin, that might be sloppy. I'm talking about the percentage. I want to secure the percentage. And if you go up on the gross margin, you need to increase much more than half to preserve the profit margin. I mean, as a percentage of sales. And here, we also have a catch-up to do because we haven't passed on all the inflation we have seen. So we don't -- we need to do more than half the inflation on the top line on price, okay?

Okay. I understand. Listen, the second question is on a completely different topic. Yes, in the U.K., and it's not a huge market for you but it is sizable. We have this famous letter from [ Mr. Gold ] to the insulation industry asking to come up with the solutions for acquiring crisis. And he's looking for a monetary contribution from the industry, okay? Now obviously, ROCKWOOL's products does not contribute to the acquiring prices, but I'm not sure we the government actually understands that because the letter is addressed to all of the insulation industry. So I wonder how that is likely to impact you? How are you engaging with the government? What are you talking about? What do you think the outcome will be for you?

Yes. I mean the solution is quite clear. You need more ROCKWOOL and stone wall. And we are speaking with the government to explain that we did not contribute to that problem in anyway. We have been fighting what was going on in the U.K. for quite a while. Without attacking others, just explaining this is not right. And we have gotten tremendous growth because of that because people recognize the product. So I'm not worried about that. But you have a point, the letter is kind of everything was sent out. But that's quite normal in politics. It happens, it makes the point, but obviously, we are not part of that.

But do you think you will be able to extricate yourself from this discussion and become immune from any charges that the government may impose on the whole industry?

I mean we are discussing how you renovate buildings and we need to work on capacity to deliver stone wool.But why should we pay for something that the phone producers and others created, that's not our job.

No, I entirely agree with you, but I just wonder if the government imposes a levy on the insulation industry, will they be able to exempt the likes of ROCKWOOL from the levy? I mean, is that even possible that...

Again, if there is -- not saying that's the case. For me, that would be very peculiar if that happens. But no matter what you do there, the top line requirements to deliver ROCKWOOL going to be there. If someone said, okay, we need to contribute 3% of revenue to a fund. What's going to happen is going to sit on the price and we're going to deliver ROCKWOOL. But I don't think that will happen. This is more -- politics often goes like this. It goes out clear message. The point was made, and there was not a single person calling us when that went out and said, ROCKWOOL, you have a problem with this. It's very observant that you saw that he directed to the whole industry, but all the phone calls we get is, of course, can you deliver all of the stored those are the questions we get. So I think it's quite widely understood, but let's see.

The last question for today is from Claus Almer, Nordea.

A few questions from my side. The first, Jens, goes to pricing, and I know there's been a lot of question about this. But is there any key market regions or subsegments where you see a fundamentally different pricing dynamics either on a positive or a negative direction? That will be the first question.

I could say, I think the low-priced market made bigger percentages because they were lower down. And then when these energy increases came, it kind of hurt the lower-priced markets more. So you saw a bigger percentages there. But I don't really see any market. You have some segments like the steel prices went up and then down and you actually have a price reduction, but that's very normal in the grid market that if the steel prices go down, it's kind of almost indexed. But generally, I will say, market are up. There is one market that is super tough in every respect, and it doesn't matter so much for us because we are small and that's China. You have the Olympics games with almost a complete lockdown. We cannot get into the country. There is no relatively low market activity even though it has started to grow again. I would say China is the exception.

Okay. And then a question regarding the 2021 performance and guidance. You had a guidance saying minimum 13% EBIT margin, and you delivered 13%. I don't know, we should not look too much into the specific details as such. But revenue really performed well, and you gave guidance in mid-November, I think, as I recall. So what really happened with the margin in the last few months...

What happens was that I sat with a challenge maybe of EUR 40 million odd, maybe EUR 30 million to EUR 40 million inflation. And then in a matter of weeks, we have some sort of almost of an energy crisis, and I see almost EUR 100 million. And so I'm quite happy. And then when it's within a 10 percentage point of that, I felt we did well. We compensated all of that and we managed to get the prices up quite quickly. Our original plan was a really comfortable one, but I kind of lost it, but I was still on the mark. But -- so it was a big number that came on top from the point that we spoke.

Right. Okay. It was not like you -- as you had this tailwind, so to see from the revenue that you did some extra investments and the like in Q4?

No. I mean we had this -- it was dual things. You have that inflation energy crisis, whatever we call it, that are spread and jumped. Then we had a jumped in volumes also. We were in 17%, and suddenly, we just have to give gas on the factories. And then we went into more volume rebates because they were still in place, some of them. So all of this led to that -- it was basically just a run -- increase prices and run and deliver and make sure we did that. And while we did that, by the way, our NPS score in spite of these very big price increases, I didn't expect that -- it went from it went from 53% to 54%. And I think part of that was not because they love that we passed on price increases, but they knew that we did it for good reasons. So they knew we were still on the back foot because it happened so quickly. But we delivered and we started to get back to really good output. So I think that was a little bit rewarded in our customer survey that we delivered on our contracts.

Okay. And then just my final question goes to your comments about the CapEx going forward, where you also are highlighting Asia to be in your focus? Where in Asia as you said, China is a difficult market. I guess it's not China. So what are you actually going to do in Asia?

Yes. I mean it's relatively limited. I mean, in Asia now, we have the new plant in China where we do a transition. And then we have acquired -- yes. So it's not big things, Claus. But we have the new factory in China that we should start up this year. And then we acquired the business in Japan. And there, we have -- it's a fantastic scheme. The government has told us that as much as we invest, they will invest. So our plan is to make use of that and upgrade that factory. And in the scale of Asia, those are 2 quite big moves but they are still relatively small compared to when we talk about the investments in Europe because it's not jumbo factories. These are relatively small factories, okay? But we will invest in Japan to bring that one up properly.

And is that a stone wool country? Or it is nowhere?

It is a stone wool. I mean it's a huge economy, but it's like a niche stone wool market. So it's going to be a long and slow road to we have been exporting to Japan for gears, but this is a long road to kind of really bring in high-quality stone wool and start to establish stone wool as a bigger category and Japan is slow, but they appreciate the product already in some segments, but we need to increase it. For example, in general building insulation today, you more or less you don't use stone wool and we need to push into that, but it will take time. So it's one of these patient games, but I'm very happy that we have a bridge head now.

I think that was the last question for today. So ladies and gentlemen, we would like to thank you for all your good questions and the audience for listening in on today's call. We appreciate your interest in ROCKWOOL International. Please be informed that on the 3rd of March, the ROCKWOOL Group will hold the next investor conference call dedicated to ESG topics. If you have further questions, please feel free to reach out to me, Thomas Harder. You know my contact details or you may find them on the Investors section on the corporate website. Jens, Kim and I thank you for joining today's earnings call. Have a great day.