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

Good day to everyone. Welcome to the conference call on ESG topics and the ROCKWOOL Sustainability Report 2022. My name is Thomas Harder, I'm Director of Group Treasury and Investor Relations of ROCKWOOL A/S. Today, I'm pleased to present CEO, Jens Birgersson; CFO, Kim Junge Andersen; and Director of Public Affairs and Sustainability, Anthony Abbotts. For the first part of this call, all participants will be in a listen-only mode. As a reminder, this conference call is being recorded. First, we'll go through our presentation of today's ESG topic, the ROCKWOOL Sustainability Report 2022. Afterwards, we will be ready to answer all your good questions. Jens Birgersson, I will now hand over the words to you.

Thank you, Thomas. Good morning, everyone. We are happy to be here. Again, we have reduced the number of sustainability cost before we run these more frequent ones. Now we have the annual one, and the main speaker today would be Anthony. I will cover a couple of topics to start with. If you first look with our primary handprint in the world, we will come into the footprint also, is to drive energy efficiency. And the way we look at this is that it's a triple win. We sometimes call it the C model that it has social, economical and environmental positive impacts. We could see that if we just apply the building directive that has been decided upon to achieve the Paris climate goals by 2030, 2034, that would mean that 40 million to 50 million buildings over the next 10 years would have to be renovated in the year. Looking at that, those 50 million buildings and the number of people in Europe that live in a house that suffer on the fuel poverty, that means almost all the income goes to heat in the building, so they can't afford it, doing 40 million, 50 million buildings would -- if you choose the right buildings, would remove 50 million household from fuel poverty. And if you assume European statistics, there are 2.2 people per [ building ]. That means you have almost 104 million people that would be brought out of fuel poverty. And there, you have an example that on the one hand, obviously, you create a lot of jobs when you do the renovation. You have the environmental impact, but you also have the social impact, and you would be able to address that almost 1/4 of the EU population that live in under fuel poverty conditions. If we look at the market at the moment, we conclude that many industrial segments are still doing fine, but we see a quite drastic decline in many European countries in the residential segment. And we think that, that would be a good opportunity to use some of all these huge funds that exist in the EU and start to work towards those targets because the labor force, if not freed up yet with the current trends in the construction industry, we believe that soon, we will get to a point where you can shift our resources from those new builds that don't happen into renovation or energy efficiency renovation. Another observation is that since September 2021, we have seen this very volatile energy prices in the EU. And when we sum up the amount of direct support that have been provided to residents facing energy costs that are too high or at least so high that the government feels the need to subsidize or pay out money to soften the burden of those energy costs, that money, those funds would have been used across the [indiscernible] EUR 700 billion. And if that money instead would have been used for renovating and improving energy efficiency, you would have basically touched [ 80% ] of all buildings in Southern, Central to Northern Europe. That's astonishing. So just in less than a year, EUR 700 billion of subsidy has been paid out, and that would have paid almost 1/10 of the renovation, which is also -- would be a good step forward. So in general, we think that if now the decline in the construction market continues and goals are kept and the U.S. determined to deliver on the building directive and the climate goals, and we will see increased activity from that. Over to you, Anthony.

Thanks, Jens. So if we move to Slide 3, sustainability highlights, and then again to Slide 4, we consider 2022 to be a strong year for tangible sustainability impacts. We've now met all 5 intermediate sustainability goals that we set back in 2016, having a baseline of 2015. We'll get back to those goals later in the presentation. To mention a couple of areas, we've made significant improvements within energy efficiency of our own offices. And we have also achieved improvements in regard to the decarbonization of our own factories. We appreciate the recognition that we got from Corporate Knights here at the start of the year. Corporate Knights there producing global sustainability rankings based on corporate sustainability performance. We were ranked as the 16th most sustainable company globally and #1 among building product manufacturers. And then we can also mention two prestigious awards that we received in the course of the year, one in France, one in Denmark, both associated with our Rockcycle services, and we'll get back to the Rockcycle services later in the presentation. If we move on to Slide #5, sustainability ratings and indexes. And a general level, our ESG ratings are good. On top of receiving the recognition from Corporate Knights, for the first time, we improved our rating for MSCI. We now have a [ AA ] rating. What we do know, of course, as most of you also know, methodologies are not harmonized when it comes to ESG ratings. And as a result, the weighting and the focus varies from rating agency to rating agency. And I think we've mentioned it at previous calls, underlying it here, what's important for us is to focus on what is most material. And of course, that can mean that we're not aligned completely with some of the different rating agencies. If we look at the different methodologies, then Corporate Knights, for example, the product handprint, in terms of green revenue, is scored very high. For other ratings, the focus is predominantly on the footprint. One metric that we consider remains particularly immature, is the carbon intensity metric per revenue. This metric typically is based only on Scope 1 and 2 emissions, which means that companies that have outsourced the majority of their production, they're going to be performing best. And clearly, we consider the best way to benchmark, when you look at that particular metric, is to, of course, also include Scope 3 emissions. However, we understand, in some sectors, the disclosure of Scope 3 emissions is still not prioritized. We move on to Slide 6, sustainability progress, and again, to Slide 7. This is also some statements that we have iterated in previous calls. It's important for us, though, to underline it and to highlight it. It's important to say, for example, that we base our sustainability disclosures on facts and often they're backed up by third-party references and methodologies in order to ensure credibility. We had external insurance for 6 of our sustainability goals last year. And in the course of '22, we extended that scope to 7 sustainability goals. So that the ones we added is related to Scope 1 and 2, SBT. And we've also added or extended the assurance scope to cover diversity and governance metrics. And of course, going forward, we're going to continue this assurance and increase the scope. We move to Slide #8. We added, in the course of 2022, an additional SDG that we want to commit to and work actively in contributing towards, that's SDG #14, Life Below Water. Why do we do that? 80% of marine and coastal pollution originates on land. That's a lot of pollution, a lot of waste. And since 40% of the world's population lives in coastal areas, it matters how we build new buildings. It matters how we renovate old buildings, and it matters what happens with the construction waste that's coming from those buildings. And therefore, we believe that everybody has a responsibility to ensure that we're protecting our oceans. And one of the things we've done in the course of 2022 is establish a collaboration with the Ocean Disclosure initiative. And this will give us more insight into understanding the impacts that we have on the ocean through science-based guidelines and metrics. And going forward, of course, our efforts to reduce greenhouse gas emissions through the use of our products in the value chain, they're going to help to protect life below water. Water management within our factories further support our efforts within SDG 14. We're constantly reducing freshwater use. We ensure that there are no processed wastewater discharges into the environment. And it's important to note here that water consumption in the mineral wool industry is much lower for other materials. And then, of course, last but not least, we're able to recycle processed water in closed-loop systems, and that means that water is either staying at the factory or it's being treated at municipal wastewater treatment stations. So often, most of the water, it's evaporating from the production process. If we move forward to Slide #9. So I mentioned at the start that we have 6 sustainability goals, plus the 2 science-based targets that we introduced back in 2019. If we look at the performance of our 6 sustainability goals, then we met all 5 intermediate goals, 2022, in the course of the year. And that, we believe, is a very good achievement. We set these back in 2016. We consider them to be very ambitious. And therefore, we're proud that we got across the line with these. And we'll go into a bit more detail with -- in relation to some of those later in the presentation. One goal we would like to highlight here is the CO2 emission intensity goal. As we know, carbon intensity is not the same as absolute emissions. It's basically CO2 emissions per ton stone wool produced. And that is also why we set science-based targets in 2019. So we have also goals on absolute emissions. But it's important to underline here that improving carbon intensity is a prerequisite for achieving our science-based targets. And in 2022, we achieved a 17% improvement, and that's compared to baseline 2015. And that means that we're getting extremely close to already achieving the 2030 goal of 20% improvement. And what's contributing to that improvement, it's continuous focus on energy efficiency, it's our technology innovation in the melting, and it's our circularity efforts. If we move to Slide #10, over to you, Jens.

Thank you, Anthony. We had a goal or we have had a goal and we probably need to reformulate that a little bit, going forward. But to reduce the lost time incident frequency ratio with 10%, that is the number of lost time incidents per million man hours. We had good progress in 2022. It's quite hard from this level to work it down. But obviously, that has completely overshadowed that. We had a fatality in Poland. What happened there was that a piece of material got stuck in a machine. And when that happens, if you want to remove it, you stop the machine, you switch off the power to the machine and you put the padlock on the circuit breaker, and then you can then remove it. And that's a procedure we have had always, I think. And our machines are big and continuous processing machines. So they keep running on as you stop it and you switch it off. What happened here was that the person, the victim here switched it off, but forgot to switch off the power. So the machine restarted while he was in the machine. So it's very, very tragic. This has led us to rethink a little bit our approach. So we will continue to work on lost time incidents. But at the level we are now, the economic impact of that is obviously insignificant. There's very little few days that are lost because people are injured. And when you look at the type of injuries, a lot is trips, falls, cut the finger, relatively minor things. So we're changing the strategy a little bit, and that is that we now focus on really, really going after serious incidents and to simplify our framework. It doesn't help when you have instructions for how to work safely down the stairs. And at the end, you have so many instructions and guidelines that you lose focus on the dangerous things, the things that can lead to serious injury or even a fatality. So we have reworked that, and we have also gone in with an approach to increase the accountability for serious incidents and also that everything serious or all work around that reaches my desk all the time. We don't have many, but if we see something, we see that it happens and we go in, in all the factories and try to remove the risk altogether. So we are -- we will see now if we manage to improve this going forward, and that is basically the shift we have done. So yes, we met the goal, but it's completely overshadowed that we lost one of our employees.

Thanks, Jens. So if we move to Slide #10, I mentioned the science-based targets in one of the previous slides, so progress on that compared to 2019 baseline. Then we reduced absolute greenhouse gas emissions. So that's CO2 equivalents, Scope 1 and 2 by 4% and Scope 3 emissions by 1%. Remember, our overall goal by 2034 is to reduce absolute emissions in the life cycle equivalent to 1 million tonnes CO2 equivalents, 1 million tonnes. And that doesn't take into account growth. So that means that any growth needs to be carbon-neutral. And we know, going forward, that our decarbonization trajectory will not be linear. There'll be ups, and there will be down between now and 2034. However, our continued focus on conversions to low-carbon melting technology, coupled with commissioning factories based on electrical melting technology, will have significant impacts on carbon emissions, going forward. A couple of examples from what we achieved in 2022. Most recently, our newly opened factory in Qingyuan, China started study operations using electric melting technology. And we expect, when we're in full production, that we'll be able to reduce annual CO2 emissions by more than 60% compared to the decommissioned factory it replaces. Elsewhere, our manufacturing facility in Mississippi, USA has successfully transitioned from coal to natural gas during 2022. And we expect that we're going to be able to save up to 30% in CO2 emissions, annually due to our melting technology. And that means now, today that both our U.S. factories are running on natural gas. If we move to Slide #12. I mentioned at the start that the last intermediate goal that we still needed to meet in the course of 2022, that was energy efficiency on our offices, we got across the line. We managed, in the course of '22, to finalize the deep renovation of 9 offices. And that meant that we achieved an overall energy efficiency improvement, compared to the baseline of 2015, of 39%. In order to do that, we're achieving energy efficiency improvements of up to plus 80%. And to date, we have renovated now 17 of our offices globally. We consider this to be quite an achievement, particularly considering the delay impact that came from the COVID pandemic. And our experience with doing these renovations demonstrates, and Jens talked a little bit about it at the start, deep renovation makes sense socially, environmentally and economically, providing healthy workplaces for our employees and generating significant carbon emission reductions compared to new build. If we look at CO2, we can come with one example here, and that's at our the renovation of our Nordic headquarters, where a third party calculated that the renovation actually reduced CO2 emissions by around 45% compared to if we had demolished and built a new one. And finally, I would like to say that not least deeply renovating our offices is, of course, giving us more know-how and better -- helping us to better understand how our products can be used and the positive impacts of those products. If we move to Slide #13, so circularity. We've talked at previous ESG calls about the role of circularity. It's extremely important. [ I've underlined ], and she said once that the carbon emission reductions that we need to achieve to get to carbon neutrality in Europe in 2050, that needs to come -- 50% needs to come from circularity actions. And when we talk about circularity at ROCKWOOL and, of course, recycling through our Rockcycle service, it's central to our ambitions. And in 2022, we increased the numbers of countries where we offer our take-back services to 19. So we managed to add Finland and Romania. What's important here is that when we tick the box and say that we offer our Rockcycle service in a particular country, then there's a set of criteria that these countries need to meet. And that criteria is audited by our external auditors. We also increased the volume of stone wool that we recycled by 6% compared to the previous year. So to date, we are now recycling 68,000 tonnes of stone wool through our Rockcycle take-back systems. In some markets, our recycling services is a USP. I can give you one example. In 2022, we won a renovation project for a 28,000-square meter renovation of a -- by a large housing association in Berlin, and we won that project mainly because of our Rockcycle offering. And there's, of course, increasing focus, from a regulatory perspective, on recycling and recyclable products, again, in Berlin. The government has amended the regulation on procurement and environment for public buildings, so that from 2024 only reusable and recyclable insulation materials in public building product projects can be used. And here in that regulation, Rockcycle is specifically mentioned. In 2022, we also up-cycled 680,000 tonnes of waste material from other industries. So it's important to remember that for us, circularity is not just about Rockcycle. It's an important part of it, but the fact that we're able to also up-cycle, recycle material from other industry, and that's leading to an average non-virgin content of products of 25%. And of course, that percentage will vary, depending on the product. So circularity is more than recycling. We talk about the fact that, of course, our material is nature-based, originating from an extremely abundant resource, volcanic stone. And of course, the fact that it's durable, durability, lifetime performance is also a parameter that is often forgotten within circularity. Our products have a performance of over 60 years without deterioration, which is not something you can say about all materials. And of course, it's fire-safe. It doesn't contain flame retardants. If we move to Slide #14. We have talked many times in the past about the fact that our water intensity goal is one of the most challenging of our sustainability goals simply because water is so cheap, and therefore, there's not an immediate economic incentive at our factories to improve water efficiency. However, since we set the goal back in 2016, we've had a continuous management focus on water savings. And that's resulted in a 14% improvement compared to baseline [ '15 ]. That's slightly lower than last year but still well above the intermediate goal of 10%. We also carried out a water scarcity assessment that we had previously carried out in 2017. Here, we identified a total of 5 ROCKWOOL manufacturing sites that were located in areas of high or extreme high water stress. And of course, going forward, we're going to have extra focus on these sites. It's important, however, to say and underline that in all cases, the factories water usage is estimated to be immaterial, using less than 1 per mille of available water in the relevant basin. If we turn to biodiversity and what we've been doing within the biodiversity space, so we manage risks to biodiversity-sensitive areas from our factories through compliance to environmental permits and conformance to our own standards and environmental systems, management systems. In 2022, we carried out a detailed mapping to determine the location of biodiversity-sensitive areas on or in close proximity to our global stone wool factories. We managed to identify special biodiversity value on a number of our manufacturing sites. And going forward, we're going to be looking at enhancing such areas by initiating specific biodiversity enhancement projects. And one example of that is -- or an example of a potential for doing that is on our U.K. site, where there's good opportunities of increasing or improving the connectivity of the different ecological areas that are on that site. If we move to Slide #15, so moving to the social area. We carried out a number of actions to strengthen our work within the social area in 2022. We strengthened our commitments to human rights in a number of ways. A couple of them won a revision of the group code of conduct, which sits now with the Board of Directors and an approval of a strengthened dedicated human rights policy that's replacing our former human rights commitment. And what are our commitments to human rights there supporting the UN Universal Declaration of Human Rights and the 10 principles defined in the UN Global Compact? They're conducting human rights due diligence through a dedicated due diligence process, and we moved along in that space in the course of 2022, continuously identifying, preventing and mitigating impacts, both in our own operations and value chain and of course, having the dialogue with potentially affected groups, and that can be both internally and externally. What we did also in 2022 was conduct a risk assessment to identify salient human rights risks, which are listed on the slide. And that resulted in assessments -- specific assessments in Malaysia and Thailand. And that -- and the conclusion from that was that we develop some new group guidelines associated with temporary employees that are contracted by recruitment agencies to ensure that they -- those people, they have the same conditions as our full-time employees. We move to Slide #16, so diversity in business ethics. So when you look at our performance in 2022, our level of gender diversity at middle and executive management level, that remains stable compared to previous years, at 28%. We have a goal between 25% and 35%. Ilse Henne, who was elected to the Board in the course of 2022, resulting in the 2024 goal of 33% of shareholder-elected board members being women. And we handled in the course of the year 11 qualified whistleblower cases. When you look at the whistleblower cases, they involve corruption, health and safety, harassment, fraud and policy violation. And we've carried out investigations into those cases, and it has resulted in 4 people being dismissed, 4 employees being subject to disciplinary actions. Other cases resulted in policy and internal procedure changes. So that was our sustainability performance and overview and highlights from that. And we would now like to turn to policy development. So what's happening in the policy space, particularly relating to ROCKWOOL. So if we turn to Slide #18, a conversation that we've had for quite a while now with you guys as it relates to taxonomy. It's important to say here that taxonomy and the regulations around taxonomy are still not fully mature. There are still guidance documents that are being developed. And as a result, it's -- there are still interpretations that are being made around how to assess not [ least ] taxonomy alignment. In the course of 2022, we calculated that 87% of our revenue is taxonomy eligible. And then what we did was that we carried out a Do No Significant Harm assessment in order to determine the level of alignment. And here, we had to assess compliance to 6 areas, those 6 areas are listed on the slide. Our assessment showed, based on our current knowledge and the interpretation of the regulations, that for 5 of the areas, we are fully aligned. Although for a number of the criteria, we will need to do further investigations. One example of an additional investigation relates to climate change. We analyzed two alternative climate change scenarios, a high physical impact scenario, which is 4-degrees C, and a so-called rapid transition scenario whereby climate warning is limited to 2-degree C. And here, we looked at two time horizons, 2030 and 2050. What the analysis showed was that whilst the physical climate-related risks across our global manufacturing sites will not change significantly for either time horizon or either scenario for that matter, in the foreseeable future, new potential climate-related risks have been identified at certain sites. And therefore, our task, going forward, will be to collaborate with relevant business units to ensure that mitigation plans for all applicable physical climate-related risks are in place and assessed at regular intervals. For one of the criteria, and that's the criteria relating to pollution prevention and control, we identified the use of one chemical for the binder, formaldehyde, which was covered by the taxonomy Appendix C. We then assessed the use of formaldehyde to qualify for the derogation essential use for society for the main part of our product range as there are no better alternatives to guarantee the needed performance that are acceptable for environment and health. However, for part of our light stone wool product range, we identified alternative binder solutions that exist in the market. And therefore, it was our assessment that the essential to society derogation could not be claimed for these products. And that resulted, therefore, in a lower taxonomy-aligned revenue than the taxonomy-eligible revenue, equivalent to 59%. We move to Slide #19. One of the significant changes in the course of the year, from a regulatory perspective, related to the solar rooftop initiative, which is a legal amendment to the energy performance building directive, which is basically phasing in the installation of solar energy installations on buildings, and it's a legal obligation. So it means that on all new public and commercial buildings larger than 250 square meters, solar panels will need to be installed from 2027. And then that will -- that scope will be extended to existing public and commercial buildings in 2028 and then on all new residential buildings from 2029. We expect now that based on this, PV panels will likely be the standard on all future flat roofs. When you look at the insulation market volume of PV flat roof, then it's estimated to be around 30 million square meters per year in 2030, increasing to 50 million by 2040. What's important here is to emphasize the importance of fire safety when we're talking about PV panels. PV panel installations are an ignition source for roof fires. They radiate heat back to the roof, covering increasing fire spread and intensity. And PV panel fares are actually very difficult to extinguish. And it goes without saying that stone wool use below PV panels protects the building from such fires. And maybe a last comment, a number of insurance companies, and you can see the quote there from Allianz there on the slide, a number of insurance companies, they discourage the installation of PV systems on industrial and commercial buildings with combustible roofs. We move to Slide #20. As you're probably aware, there's also been quite a lot of developments within two main areas from the EU policy side that has an impact on our business. The one is the Energy Efficiency Directive, and the second one, the Energy Performance in Buildings Directive. If we take the first one first, the Energy Efficiency Directive, then what the EU Parliament Council and Commission have agreed on is the need for a binding 2030 energy target. That will be the first time this will be binding. And compared to existing legislation, that will lead to an additional savings of about 100 million tonnes of oil equivalent in 2030. And that goes on top of the additional savings that are already being achieved by current legislation. And just to put that into perspective, that's 6x Denmark's annual energy use. Now when you look at the Energy Efficiency Directive historically, then it's focused only on central government buildings, which is less than 0.5% of the building stock. And the requirements, going forward, will be to increase that to all types of public building. And therefore, we expect the directive to cover about 3% to 5% of the overall stock. When we look at the EPBD, the Energy Performance of Buildings Directive, then it will be introducing mandatory minimum energy performance standards for Europe. So that means approximately 250 million buildings that will be covered by this and ensuring that the least efficient buildings are renovated by the mid 2030s. There's different positions when it comes to the EPBD. The commission, the council and the parliament, they have different ambitions. The commission, they want to renovate Classes F and G, with the exemption for historical buildings and secondary homes. The parliament wants to also include Class E, whilst the council is interested in getting an overall improvement that is equivalent to average Class D by 2033. So there's different positions. But what we do expect, irrespective of which position is followed, that the EU renovation rate will be doubled. And more importantly, we expect that there will be more focus on deep renovations with the co-benefits that, that brings. For us, the key point is that this legislation leads to a steady financial, administrative and logistical support for renovation over the next decade. So it provides predictability. And at the moment, there is quite a variation within the different countries. You have countries like Holland that are clear leaders, 30% of the stock -- building stock has to be renovated by 2030. And then you have other countries, for example, Italy, that have used massively subsidies, but then encountered difficulties and decided to cut back support. So having that harmonized long-term support and focus, that is important. If we move to Slide #21, we've given you there 6 examples of what's happening in member states, different member states. The picture varies. Overall, it's important to say that about 10% of the EU recovery funds have been allocated to renovation. So overall, the EU's '21 to '27 budget provides about EUR 110 billion for renovation, which is more than double the previous benefits on the previous budget. The benefits are obvious, but the governments, they still need to support scaling up the renovation programs in order to deliver meaningful results. In Germany, around EUR 2.5 billion has been allocated from the recovery funds for renovation, but the domestic budget for that area is much higher. It's around EUR 15 billion. In Romania, Romania is planning to renovate thousands of public buildings, a lot of these, the big Soviet era apartment blocks. But of course, it's important to ensure that these are in-depth renovations, and we're seeing good examples that not least in Lithuania that is requiring renovations up to Class B. Spain, if we look at Spain, then the renovation budget has increased at least tenfold. But administrative and technical capacity to allocate and spend the funds, that still needs to catch up. But we're seeing positive signs. For example, in Barcelona, they've set up a one-stop shop, which is staffed by architects and experts from other organizations, and this is helping to support homeowners in giving them technical support and practical support when it comes to applying for funds and identifying workers that can do the work. So I think that's all I want to say on the EED and the EPBD. If we move to North America and the Slide #22, so the U.S. Inflation Reduction Act, IRA, $370 billion has been allocated to the U.S. climate action plan. That's the largest investment in climate change mitigation and adaptation in their history. When you look at the IRA, then it consists of a number of different programs, which are meant to reduce energy costs and increase the use of renewable energy and grow the American-made supply chain of energy-efficient products and services. There's a number of different incentives, which are designed for both new and retrofit construction with different target audiences. When we look at the IRA, then we see the biggest role -- the most important role that it's playing is increasing awareness, in general, about the benefits of energy efficiency. And of course, this is coming from the federal level, but we also need to be aware that there's a lot happening at the city level. We're seeing good examples of local legislation, driving renovation in New York, in Boston, in D.C. and in Chicago. And they're requiring various types of energy benchmarking and building performance standards, which are above and beyond anything that is actually driven by the federal government. And what's important also to emphasize here is that these cities, they also have high-performance building hubs that have been established to provide local support to the building industry to achieve these citywide climate goals. So there's a lot happening also at the city level. Okay. That was the section relating to policy. So if we move to Slide 23 and to Slide 24, over to you, Jens.

Thank you, Anthony. So looking forward, now we have reached a halfway mark. And as Anthony said, we are quite proud that we delivered on those because when we define those targets back in 2016, we didn't have a super clear path or a plan for everything we said we should be able to do this. So that's good progress. And now we haven't changed the goals. Obviously, if we can deliver on them earlier than 2030, we do that. But we're going to keep working. Going forward, we see also that we need to separate a little bit now the sustainability reporting. We have had audited numbers for that we report to you. Now we see the reporting burden increase massively due to new directives, more sustainability numbers that needs to be audited on financial numbers basically, going forward. And it's important that we manage to do that on the one hand without losing focus of what matters. So on the one hand, we get more bureaucracy, more things to audit, more -- I would say, some of it relevant that we will audit, but we need to keep focus on our goals. If we sum up 2022, what we did on the handprint, and that's, of course, the #1 thing we do, the sold products, we delivered 2022 per year installed, we've saved 19 terawatt hours. That's a lot. That's a number of nuclear plants, depending if you divide by 10,000-kilowatt hour per home or 20,000. You're talking 1 million to 2 million home or 2 million to 5 million people, the energy for those people that is just gone. So that's obviously great progress, and they're motivating. And that will keep ticking in to continue progress towards our 2030 goals and the 2034 science-based target goal. At the moment, we have an annual plan of about EUR 100 million, and that we want to keep investing in downturn, upturn, booming conditions, et cetera, just keep doing that. And the current one we are doing, the biggest one at the moment is the Flumroc ramification of the plant in Switzerland. And that's in full progress. And after Christmas, we start with the commissioning of that. Now it's high season soon, and we cannot do a switch over or start that up. All of those projects where we go for greenification, we need to make sure we have green and affordable power into the plants. We are doing quite a few investments where we are prepping the plants for replacing fossil fuel with electricity. So some of the projects we do is just thinking ahead and investing in power plants in countries, where we are sure we can get green electricity. We have announced 1 greenfield also, in addition to -- since last we spoke, and that is in Romania, where we will build another line. And again, it will be a green line, driven with renewable electricity. And that would be just parallel on the same site to our plant in [indiscernible] about 80, 90 kilometers north of Bucharest in Romania. So that project, we haven't broken ground yet, but we have the ground, and we are starting that project up. So that is a green fit, so to say, that is coming now. And our intention is to keep expanding capacity also, in spite of that, for example, the residential market in Europe is down at the moment. We just stay steady on the course and keep making our footprint green as we move forward at a steady pace. Thank you.

So we are ready to take questions if there are any. Please go ahead.

[Operator Instructions] Our first question will come from Cedar Ekblom with Morgan Stanley.

So I have a quick question just as it relates to the renovation that you're talking about for buildings in Europe. Do you think it matters that ROCKWOOL sells a single product in general, when it comes to the renovation opportunity? When you talk to your customers, about renovation and in your own examples that you've had of renovating your own office blocks, how do you position yourself as a single product producer? And then, I don't know if you're willing to make any comments obviously on what's happened in the Danish [indiscernible] over the last couple of days as it relates to the operations in Russia. I don't know if you'll make any comments on that.

Yes. So thank you, Cedar. I can comment on both of those. No problem. Yes, I don't think -- a lot of product is sold via distribution, sold via building markets or big box or whatever. So I don't think it makes a lot of difference if you are a one-stop shop manufacturer or not because you don't have the outlet. You need so many things for renovation. And you have [ flaws ] to the building sites. But then they're going to be different segments. So if you look, if you're going to renovate a flat roof and you're going to have solar on it, obviously, there is a big advantage to have stone wool because it's only noncombustible solution for a flat roof. So if you renovate the roof, if you do a facade, it's going to be an advantage to have, is the combustibility, and circularity could also be a big issue. So I don't see the one-stop shop really matter that much in our -- and when we do our own [ products ], of course, we source the insulation and the acoustic ceiling from ourselves. And on the other things that we need the renovation, we just get the contractor to deliver. So I don't see that.

Can I just -- yes, can I just ask before you go on to the Russia thing, so you made a good example of the solar roofs, right, and you need stone wool there. But if you were selling the full solution rather than selling the stone wool maybe to someone else that then creates the solution and on sells it to the customer, do you leave margin on the table? So I appreciate you'll still be very levered to the growth story. I fully understand that. But in not selling the solution offering, is that leaving margin on the table for someone else to capture that then goes to the customer and sell the solar roof with your stone wool integrated in that offering? [indiscernible] the position...

My view on this, I mean my first 2 years was on the building side. So when I was graduated as an engineer, I spent 2 years in Africa on a site. And my view actually for construction is that there are industries where the solution gives premium margins. But my experience is that being a solution provider, if it means to take a turnkey responsibility, very often means lower margins. So I think solution turnkey, there are not many players around that have proven that they earn more money by putting all together. On the other hand, when you have a solution, let's say, we have one in Germany, it's called Conlit, for pipe insulation, where we have the hangers for tube piping. We have the tape, we have the fall. We have all the -- it's like a collection of products to complete the job, then I think you can see that you grab more of the margins. So it depends a little bit. But at the moment, if you look at ethics, there we actually offer the stone wool, and we have 2 units that actually manufacture the plaster and all the things you need for it, almost all of them. And again, that business is quite tough and margins are not very great. So I'm not convinced of that solution strategy. I believe you need to have profitable products. And I don't think it hurts to have several products in the package. But I don't, for example, say we would make more money on a flat roof or have better chances if you had the membrane, for example, the way the market is structured today. Should I move on to Russia, Cedar? It's a bit of a big topic. So basically, Denmark and the rest of the world are a little bit different. And in Denmark, the discussion that came up in conjunction with the anniversary was that we had been -- we should have known after Crimea that it would go bad with Russia. And therefore, we shouldn't have had any business in Russia. So it's kind of a moral aspect to it. And our view there, we absolutely didn't suspect that Ukraine war would happen. I was, for example, in a economic forum in St. Petersburg, together with a 1,000 international business leader and probably 50 -- top 500 CEOs in the world, and [indiscernible] was there, we absolutely didn't believe it. So it has been a lot of the morals of we should have known. If you look at the sanctions from the illegal annexation of Crimea in 2014 up to the onset of the war when the 2022 sanctions, the [ 10 90 ] packages started, the sanction at that stage was for dual-use products to Crimea. And dual use means that you have a product that has a civil application but can be used to suppress human rights or launch terrorist attacks. It's defined like that, but basically that the product can have a military use. Stone wool has never, still is not classified that's that. No wonder, I mean, a soft material that insulates against heat and coal, does what it does. So there hasn't been any sanctions that applies to us that we are in breach of. And then they started and the business authority, I think, they're called, it's called [indiscernible] I think it's called the business authority in English. They went out to the press and said they would launch an investigation. And we learned this from the press. We were very surprised about that. And we have received a letter. And it's general questions in the letter, and we are very confident in the coming days, we will respond to all of that and get that out of the way as I see it because we have, at all times, been in full compliance with the sanctions. There's also been this talk about that we have delivered products to nuclear-proof buildings and all this interior wall installations like a project back in 2015, where the Defense Ministry bought ROCKWOOL insulation through normal distribution and put it in interior walls, double gypsum interior walls and also put it under the floors to reduce noise between different floors inside the building, absolutely doesn't nuclear proof the building. So a lot of those, I regard as quite sensational stories. And it has made a lot of headlines here in Denmark, and we don't see it anywhere else. We take it serious, we answer it, and we will address it all. But it's -- we are very confident about that we stick to all sanctions and we are not in breach of anything. Then if we go back to the fundamental approach we have taken for staying in Russia, and that is, a, we don't feel we should reward next-level oligarch or the Russian state or whoever gets it, a future competitor with a multibillion dollar-worth world-leading asset with our latest technology. Don't feel, that reward is the right thing to do. We also see that by taking royalty and dividends out of Russia, we can't see that it's better for the world that we do that and that we leave it in the country. And we also have quite a substantial rebuilding approach contributing to Ukraine. And then the whole tech transfer at the moment, we are 4x bigger than #2 in stone wool globally. Those factories in Russia are state-of-the-art, the best we have, ranked one of the top 5. We simply don't want to lose that. And where we leave it at the moment is we are there to absolute labor sanction. If a sanction would come up to say that we are not allowed to hold the shares for those assets, we would of course, take action on that. But we don't feel it's a good approach to give those assets away for [indiscernible]. So we maintain that, and we are dealing with these issues in the press. And that questionnaire, I would call it a questionnaire and the question -- we don't interpret that as very deep questions that have [indiscernible], but we will respond to that and come back to that, and I'm confident that we will clear that up.

Have they asked you for a client? Like is there a timeframe? Was it just open in...

I think we will be able to respond with in a couple of days. And then with governmental authorities, I think what, 4 weeks, 6 weeks maximum or something like that but -- at the most. But of course, we are interested to get this out of the way, and we have every intention to be transparent.

Our next question comes from Brijesh Kumar Siya with HSBC.

I have two questions and primarily relates to -- one is on Russia and other one is the little things. The first one is on Russia. I mean the press does talk about the Russian operations of [ line data ], are you -- have you kind of -- if I have heard it clearly with -- to your answer to Cedar, is that you have kind of these products being bought from a distributor and not any of your Russian counterparts were involved in supplying those to the military establishments per se?

Okay. It was a very poor quality line, but I think you talked about distribution to military and sales to military, right? In Russia. Was that the question?

Okay. I was just picking whether any of your colleagues in Russia are involved in supplying that to the military or a state body...

Yes. So before 2014 -- we're talking 10 years back in time. We -- the last 10 years, we have not had any direct customer relation or invoicing to military, just to be clear. We changed that already at Crimea, illegal annexation. And I can't say that we had any business before. It's not our model. So there are two cases there. For example, if you do an interior renovation in Moscow of a public building, this happened to be a defense building, they buy from distribution or a specialty distributor. But in Russia, since we are a leading supplier in the specification, sometimes a specification because they should be renovated with stone wool of ROCKWOOL type or it could be the name of the competitor, that's quite common in many markets. But standard products, you just buy it in the market. So that's the case. Then we come with the military vessel or -- it was a supply vessel, I think. There you have a structure in Russia that we have never had direct relations with the shipyards. They buy through a marine supplier of approved products. And again, it's bought through distribution. So there has never been an invoice. So what is the insulation typically to a boat? It is around hot pipes. So around hot pipes, we have a tube in about -- it's like in processing plants. And actually, the portfolio is very similar that you use for refineries, you put it around primarily hot pipes. And then you have another product between compartments to -- so especially like an interior wall with two layers of something hard and then you have a piece of fire, noncombustible stone wool in between. And then another product you see a lot in bases that you have a flat slab of stone wool, it could also be glass wool, but obviously, not from us. But you have like a chicken neck on it, so you can mold it around ventilation duct or something. So those are the type of applications. And obviously, none of them are dual use still today, I mean, we don't have dual-use products. There is no military application, and they're doing a relatively mundane tasks. So there is no direct relation. It goes through distribution. And as I've said, per day in Europe, excluding Russia, we ship more than 14,000 packages of stone wool, and distribution is selling. And we have, on the other hand, to be very careful. If you see a new customers or an old customer in some countries, in Middle East, some other countries at outskirts of Europe, if they ramp up demands for what they buy today and we don't know the end product, we will not deliver. So we have a process for that to stop gray imports and stop that as far as we can. But of course, 14,000 packages per day is, in any market, we are not in control in all the end use of it. But again, remember, it's not a dual-use product, according to the EU. It's just the basic building material, right?

Understood. And just to clarify one thing. How much is your distribution sell when you compare the total sales in total? So would you say the distribution channel is close to around 80%, 90% of total sales?

It depends, Brijesh, and it depends per country, and I will answer wrong if I try to say per country because in the U.S., for example, you have a big box portion. When you come to Poland, you have a lot of project business because people build so many square, big commercial buildings. And there, you typically bid projects to contractors. So I can't say. But generally, we have relatively small direct sales ourselves. I mean on the marine side, in Russia, we have nothing on sales. And now we stopped the products. We don't produce them anymore. We don't sell them. On the construction side, there are some direct project business with installers or contractors that do insulation work. But generally, we try to sell via distribution. But I can't give you any percentages because I don't have them in my head, and we don't normally talk about that. But all channels exist. And depending on what segment growth, it flows around a bit.

Got it. And that's pretty clear. I just had one last question. It's on -- about the recyclability. And you have kind of aggressively expanded to 19 countries. But when I look at the volume growth or the recycling of the volume, it has only grown 6% this year. [ Anthony ] said last year was plus 23. But nevertheless, considering that you are already in 19 countries, it should have grown much faster than this. Could you please talk to us what's the kind of real issues there? And then what are the plans to overcome that to make sure that there's a strong kind of recyclability [indiscernible]?

Yes. Thanks, Brijesh. So you're quite right. So we've expanded to 19 countries, recycled volume increased by 6%. What you have to remember is that when we start offering these new services in new countries, then circularity can be still relatively immature in those countries. So just to give you one example, landfill prices, which is a key driver for making our service attractive. If those landfill prices are still relatively low in some of the countries, and that will be the case in Romania, for example, then it's very difficult to persuade contractors and other stakeholders within the building industry to use our service because it's much cheaper for them to get rid of the waste and send it to landfill. So what's important here is that in parallel with us expanding the number of countries where we offer this service, we are also active in trying to get more proactive regulations in place, both at the EU level but also at the member state level, to drive this because we've made it very clear to policymakers if we're serious about circularity, there needs to be clear financial incentives. But it doesn't stop us from offering these services. We want to send a clear signal to the market that we can take back this material. We want to take this material, but we need to have more conducive regulations in place in order to drive this. We can see for sure that things are changing. Germany, for example, is introducing new legislation in 2024, where recyclable products cannot be sent to landfill. We thoroughly support that. We're seeing that move in other countries as well. And the EU, of course, is very serious about driving the circularity agenda. So this will change over time, but it can take a while before the volumes pick up in certain countries.

Your last question will come from Zaim Beekawa with JPMorgan.

Just quick one to do with the sustainability CapEx. I just wanted to sort of understand whether the full burden of that falls on you or similar to kind of the cement industry? Could you actually apply for grants and receive that from the government, given the benefits from that?

Yes, I can start, and Anthony can maybe add a bit. Yes, you can, not in every place, receive a grant. But in many places, you can. And obviously, that you factor that in, but we try to kind of do it in the order of -- and sometimes the ground can be quite big, actually. And Anthony, I'm sure you have some examples. So we try to do it in the order of -- and it's not the one more important than the other, but the fundamental is we want to do it in a place we know we're going to continue to produce. And we want to do it in a place where we can get the [ electricity ] and is green and it's reasonably affordable. And then when we have done that, then we go in and try to apply for grants. And we have been -- we have had varying success on that. Sometimes we have received quite healthy grants and sometimes zero. But I would think that there are quite a few countries where you can receive considerable grants. And then, of course, the other aspect is you might not get the grant, but you could very often get a tax allowance and tax benefits. And that might not show up in the CapEx, but you see it further down in the net income. So that you would almost always find a way to get something of that. Over to you -- are you fine, Anthony or...

I mean, one example of where we did get a grant that was in Norway with the Moss electrical melter, I can't remember the -- was it EUR 10 million? And that was a collaboration project with Innova, and that was because it was a pilot project. It was the first time that we were building such a large electrical melter, the largest in the sector. And that's why we were able to get that funding. But as Jens says, it depends case by case, country to country. There will be different opportunities. And of course, we're looking at those opportunities every time we're making decisions to convert.

Thank you. At this time, we have no further questions in queue. I'll turn the call back over to our host for any additional or closing remarks.

Thank you. Jens, Kim, Anthony and I thank you for joining today's ESG investor call. 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 A/S. If you have further questions, please reach out to me, Thomas or Anthony, you know our contact details, or you may find them in the Investors section on our corporate website. Have a great day.