Rockwool A/S (ROCKB) Q4 FY2025 Earnings Call Transcript & Summary

Hello to everyone. And with a little bit of suspense, I welcome you to ROCKWOOL A/S' conference call regarding the results for the full year and fourth quarter of 2025. My name is Kim Junge Andersen. I'm the CFO of ROCKWOOL A/S. Today, I'm pleased to present CEO, Jes Munk Hansen. [Operator Instructions] As a reminder, this conference call is being recorded. First, Jes will go through the presentation and give you an update on the results for the full year and fourth quarter of 2025. Afterwards, we'll be ready to answer all your questions. Before I hand over the word to Jes, I must ask you to notice Slide #2, which is a forward-looking statement. Please be aware that this presentation contains uncertainties. Now we can go to the next slide, which is Slide #3. Yes, I now hand over the word to you.

Thank you, Kim, and good morning to everyone. I start on Slide #3. Overall, we consider the full year result to be positive, and the full year revenue increased by 1.1% in local currencies, slightly above expectations due to a good finish to the year. Acquisitions made back in October '24 accounted for 1.2% of growth. The group revenue grew around 3%, 2.7% to be exact, excluding the Russian business. As you all are very aware of, on January 13 this year, Russian authorities installed external administration on our 4 factories in the country, thereby taking control of the business there. Consequently, the value of the net assets and liabilities related to the Russian subsidiaries of EUR 392 million was written down to 0 in 2025. For more information about the financial performance of the Russian subsidiaries, please refer to Note 1.5 in the annual report. Moreover, at the end of this presentation, we have prepared an extra slide with the numbers to help you establish full transparency on this event, and we will walk through that at the end of the presentation. The EBIT margin before the Russian value adjustment ended at 14.7%, down 2.8 percentage points. Of that amount, the Russian performance accounted for around 1 percentage point. And additionally, one-offs, including 2 factory closures and the Flumroc incident also contributed to the margin decline with about 0.6 percentage points. We maintained good pricing discipline and benefited from stable input costs. On the other side, we invested heavily in several areas, including capacity expansion, decarbonization and digitalization. Overall, we find a good -- this is a good result given the very challenging market conditions in 2025. Further, on Slide 4, group revenue, excluding Russia, increased 2%, mainly driven by North America, South Europe and our OEM business and Rockfon. We're pleased to inform that production is again up and running at the Flumroc factory in Switzerland. And I can confirm that the incident was not related to fundamental e-melter design or proprietary technologies. The production incident did, however, affect overall revenue growth in Switzerland. The Q4 EBIT margin ended at 11.8%, excluding the Russian value adjustment. The Q4 EBIT margin was negatively affected by the Flumroc incident with around EUR 4 million and the decision to close the oldest of our 2 factories in China with around EUR 15 million in impact. Slide 5 that talks to the full year revenue. Total revenue in 2025, excluding acquisitions, was broadly in line with 2024 in local currencies. As noted on the previous slide, excluding Russia, revenue grew 3% in local currencies. Price increases accounted for about half of the growth. And then to a change in our segment split. Before we move on and talk about the segment performance, it's important to note that we have changed our segment reporting. RO North America is now managed under the North American insulation business, and Lapinus has been allocated to another insulation business, namely our OEM. The changes reflect market structures as insulation and Rockfon North America share overlapping customers and channels. And in practice, Lapinus operated as an OEM business and, therefore, now is consolidated into our OEM business within insulation, also called Core Solutions. As a result, around EUR 140 million of revenue has been reclassified from Systems segment to Insulation segment. All quarterly figures have been restated accordingly and can be found in our annual report. Insulation segment grew 3.4% in local currencies, excluding Russia. There was solid revenue growth in North America as well as in Eastern and Southern Europe. This was offset by low single-digit decline in our main markets, namely France and Germany. The Systems division delivered a fairly stable top line in 2025 despite a challenging market. And Rockpanel delivered a solid growth, where Rockfon in Europe and Asia remained stable, while our Grodan business declined mainly due to a weaker cannabis market in North America. And I'm just looking at the technicians to make sure that everything is good. Yes. Thank you. Slide #6. Group revenue increased 2 percentage in the quarter, excluding Russia. Insulation revenue grew 2.1% in local currencies, excluding Russia, and growth was driven by the Insulation business in North America, our OEM business, in particular. Revenue decrease in the U.K. and Switzerland due to the Flumroc incident pulled the numbers down. In the Systems segment, the year ended on a positive note with revenue growth of 1% and a good commercial momentum going into 2026. Rockfon Europe, Asia and Rockpanel performed well, while revenue in the Grodan declined. Let's take a look at our regions for the quarter. In Western Europe, revenue declined with 0.5 percentage points. The good growth in Southern Europe was offset by market-driven decline in the U.K. and the production stoppage, as mentioned, in Switzerland. In the United States, we continue with good growth in Q4, while the Canadian sales improved after having some difficult quarters. In Eastern Europe, revenue grew 4%, excluding Russia, with solid growth in Poland, in Hungary and in Romania. In Asia, revenue declined 5%. Sales in China, Thailand and Malaysia decreased, while Japan and our important India market continued to grow despite the Indian factories being in a sold-out situation. A few comments on our profitability in Q4 on Slide 8. The margins in the quarter were impacted by several large developments. First of all, the China factory closure and the Flumroc incident had 2 percentage points negative impact, while the lower performance in Russia had a negative impact of around 1 percentage point on our EBIT margin in the quarter. Regarding China, due to the dramatic industry overcapacity and a systematic -- or systemic unattractive construction market, we decided in December to close the oldest of our 2 factories in China as part of optimizing our footprint. In addition, the factory was coke-fueled and facing sustainability investments that were not economically viable in the current Chinese market. The closure resulted in a restructuring provision and impairment of the assets of EUR 15 million. The Flumroc incident caused a lengthy production stop. While stopped products in the Swiss markets were sourced from other ROCKWOOL factories, although with reduced profitability. The incident has in total caused a loss of around EUR 19 million, of which EUR 15 million has already been covered by insurance in 2025. The continued slowdown in Russia also had a significant impact, which was partly offset by continued deflation on raw materials and moderate tactical sales price increases. Let's look at the profitability by business segment for the quarter. Looking at profitability by segment, EBIT margins in Insulation was down 5 percentage points compared to last year, impacted by the closures, as just mentioned, in China, the Flumroc production incident and a slowdown in Russia. In addition, it should be noted that the comparison numbers from last year include the EUR 8 million gain from the sale of the Baltimore warehouse back in Q4 2024. In the Systems segment, EBIT margin decreased 2 percentage points, mainly due to lower sales to the cannabis market in North America, higher depreciation following recent capacity investments and limited ability to pass on prices in an increasingly competitive environment. A quick look at our investments for the quarter, where our biggest investments in Q4 related to the construction of new factories in the United States and India as well as the second production line in Romania. And of course, our expansion of our technical insulation production line in Marshall in the U.S. The sustainability investments mainly related to the conversion to electric melting technology for 2 production lines, one in the Netherlands and one in France. Moving to cash flow on Page 11. For the quarter, the net debt position landed at EUR 168 million, mainly due to loss of cash in Russia of EUR 243 million. Free cash flow decreased EUR 13 million compared to the same quarter last year, mainly due to lower earnings, a less favorable working capital development and higher investments. The negative development in working capital was mainly due to planned stock building as well as timing differences in other receivable related to VAT and prepayments. And this time, we have added a few more talking points to our sustainability in connection with of course wrapping up the 2025 achievements. So Slide #12, starting with our most important, which is safety, which remains our top priority at ROCKWOOL with, of course, having an aim of 0 fatalities and 0 serious accidents. However, during 2025, 2 fatalities were reported from our Russian business, a place where we, of course, have no insights on exactly what has happened and have had no chance to follow up on these incidences. In addition, in the group, we have had 5 serious incidences. Nevertheless, we still have improved the overall lost time incident rate, though we clearly still have more work to be done on our safety performance. On other sustainability measures, we are progressing very well, both on the SDG-related goals with baseline year 2015, and you see that here in the left column and the science-based target related Scope 1 and 2 with 2019 as a baseline year, and you see that here in column on the right. The most important thing today is to highlight on the SDG side is our Scope 1 and 2 CO2 emission intensity goals. That is emission per tonne produced. You see then on the top of the left of the slide. We set our original goals back in 2016 with a target year of 2030. And we have actually, in fact, met the original goal way ahead of schedule in 2024, and that's why we now have raised our ambition levels. What you see on the slide is, hence, the new goal to reduce our CO2 emission per tonne of stone wool, also called intensity produced by 50% in 2034. We'll come back to that on the next slide. We are on track with the remaining SDG-related goals, though we did not -- we did actually, in fact, use more water in 2025 due to using less recycled and less reused water as well as increased cleaning and maintenance activities. And now to the SBTi side, science-based targets. To the right, you see on the slide, we also updated in 2025 our scope and methodology of how to measure Scope 3 emissions. As a result of this more refined approach, we now report an increase in Scope 3 emissions, though the 2034 targets remain the same. And importantly, we are confident that we will meet that target. Then we have an extra slide on decarbonization and our commitments and ratings on Slide 13. Just to elaborate a little further on our sustainability performance last year, let me highlight a few special specific developments and then also talk about why this is important to us. On the decarbonization front, I spoke on the previous slide about having achieved the original emission intensity reduction goal ahead of schedule and thus having set an even higher goal. On other development, group management's short-term incentive are now also linked directly to the decarbonization progress. And there's more on the strong commitment front. We also increased our ambition level on the absolute emission reduction target. And we're now committing to aligning with the stricter 1.5-degree emission reduction pathway from the previous well below 2-degree pathway. We'll submit -- we have submitted the updated plan for the science-based target validation during this year. And just to remind, the well below 2 degrees reduction plan was also validated by SBTi. Further, we will also submit a net zero by 2050 commitment for SBTi validation for the first time, and this will also happen this year. A little bit about ratings. And we come to our improved ratings, and we're very pleased to have achieved A- rating from CDP on both areas where we report, and this is climate change and water security. This rating improvement reflects both stronger operational performance as well as transparency and better transparency in our reporting. So all in all, we're very pleased to get this additional recognition for our efforts. And just to sum it up, we continue to making substantial sustainability investments, both because it's good for the climate and, importantly, because it is being very good for our business. Investing in electrification in new binders and other efficiencies makes us stronger and more competitive in the market. And very critically, there's a direct correlation between our decarbonization efforts and better environmental performance declarations on our products, the so-called EPDs. So yes, it's very much about competitiveness and about business value as it is about doing the right thing for the climate. And this is why our sustainability investments remain a very high priority for us. That was for 2025 and a little bit already on '26 on sustainability, but let's look at the outlook for '26 on Page #15. And just to state the obvious, this outlook is excluding the Russian business. In 2026, we see a slight positive outlook, but with regional differences. Construction activity in Europe is still expected to be relatively low, and we expect to see continued pressures in parts of Eastern Europe and Canada. On the other hand, the United States continue to offer solid long-term growth potentials, and we see selective opportunities driven by EU renovation and demand for noncombustible insulation. Across the business, markets are generally stable to flat with pockets of growth, and we expect prices increases in line with inflation to support ongoing investments in capacity, sustainability and market expansion. With this in mind and recognizing that it's still early in the construction season, we look out for 2026 revenue to be between 2% to 4% growth in local currencies compared to 2025 revenue of EUR 3.66 billion, excluding Russia. Excluding Russia-related matters, the group EBIT margin for 2025 was 14%, with most businesses performing well despite the challenging conditions. In 2026, we expect sales prices to balance input cost and inflation while increasing spending on capacity expansion, electrification and sales and marketing, and that will raise the cost base, resulting in an expected EBIT margin between 13% and 14%. Lastly, our investment levels, major 2026 investments will include capacity expansion in India, Romania and the United States. These are ongoing projects, then also acquisition of land for further manufacturing sites and, importantly, the restart of the French factory project following clarification of the building license. We're also pursuing large factory conversions to electric melting and expect sustainability investments to remain relatively high. In total, investments are expected to be around EUR 650 million in 2026, excluding acquisitions. This concludes the normal set of slides. And then we have prepared one extra slide -- 2 actually that Kim will make a few comments on in order to help you with transparency on the Russian situation.

Yes. Thank you very much, Jes. And if I go to Slide #16, which is sort of the traditional slide with quarterly results and full year results, you can see that we have, for your benefit, added in a line with EBIT before value adjustments of the Russian business. And if you go to Slide 17, we have prepared what we will consider as a fair comparison for '26, the 2025 numbers, excluding Russian-related matters. What does that mean? That means we have taken the 2025 result and excluded the financial performance of our subsidiaries in Russia and the donations for the Ukraine reconstruction fund and the reversal of that liability we had in the parent company. So I hope you will find this useful in your analysis of both '25 and 2026. Thank you very much.

[Operator Instructions]

[Operator Instructions] We take the first question from the line of Ben Rada Martin from Goldman Sachs.

I just had 2, please. My first is on the 2026 margins. You highlighted, I guess, some of the investments you're making on the cost side this year, speaking about new capacity, electrification, sales and marketing. What kind of investment would that drive in terms of basis points in your margin this year? I'm just interested in, I guess, bridging the gap between the 14% margin you did ex Russia and donations in 2025 and the 13% to 14% you're guiding this year with a reasonable backdrop in terms of organic growth. And then the second one would just be on the CapEx envelope for this year as well. You mentioned that a portion of it will be tied to new land acquisitions. Can you maybe talk about the regions that you're interested in looking at? And any geographies in particular that you have kind of earmarked for future factories?

To the first, it's a plethora of activities that drive extra cost. But mainly, it is additional engineers for our many factory builds and conversions and that drives cost in the start. But in addition to that, we're also spending significant resource on digitalization of the company, which is very much around our productivity measures. We have a whole program called Factory of the Future that requires more digitalization. And then last but not least, very important efforts in sales and marketing, also very much driven about modern sales tools. So those are the big categories. I can't give you the -- I won't give you the exact numbers. When it comes to additional capacity expansion, as you know, we already have announced 7 factories right now, 5 in Europe, 1 in India and 1 in North America. The next areas we are looking at is additional capacity in India, where I mentioned before, we are in a sold-out situation. And we are looking also for the next factory in the U.S. simply from the perspective that there's so much market to convert from competing insulation products to stone wool.

We take the next question from the line of Anders Christian Preetzmann from Danske Bank.

Just going back to the CapEx here. I mean you previously communicated that CapEx going forward would be in the range of around 13% to 14% of sales. But with your new guidance on EUR 650 million for '26, that's quite above that range, even including the Russian business. So is this level of CapEx representative for the rate going forward into '27 as well? Or should we expect then a lower or even more elevated CapEx for 2027? That's my first question. And my second question is, in addition to the elevated CapEx level, can you please share some thoughts on your capital distribution policy? Would you perhaps consider adjusting your capital structure to allow for, say, a new share buyback program? Or are you contempt right now with the current payout levels?

Yes. Thank you very much, Anders. On the CapEx, it's true that the original guidance was a higher CapEx rate to net sales. That, of course, was at the time when we also had the Russian business inside. I think it's fair to say that with the programs that we have started up now, this is -- this will also, you can say, carry forward into the years beyond. As you know, we are opening up the first of the 7 factories that we have lined up here in '26. That's the one in India that has the least CapEx cost. The next one is in Romania in 2027 and followed by both the TI installation and the U.S. factory in 2028. And the ones we are talking about is coming after that. So there will be sort of a continued long-term plan of investments. We have not yet guided on CapEx levels after 2026, but it will be at a higher level than in the past. On the capital distribution structure, there is no plans. We will continue to adhere to our dividend policies of paying at least 1/3 of net profit. And we will -- I know the Board will use the share buyback as an ad hoc tool to channel excess cash back to shareholders when you can say they feel the time is right for this.

The next question comes from the line of Anna Schumacher from BNP Paribas.

I have a couple on the CapEx. So could you provide a bit more of a specific breakdown of the EUR 630 million investment? For example, how is it split between growth, maintenance and decarbonization and which one is driving the large [indiscernible]? Secondly, as a link, there's been news this week suggesting that the EU could loosen some regulation surrounding ETS [ and possibly slow ] reduction in free allowances. How could this change regulation impact you? And would it make you reconsider the cadence or size of your decarbonization investments in the coming years?

Anna, we had a little bit of hard time hearing you acoustically. I think we got the first question. Do you mind repeating the second one?

Yes, sorry. So the second question was that there's been some news this week suggesting that EU could loosen some regulations surrounding ETS and possibly slow the reduction in free allowances. How would this change in regulation impact you? And would it make you reconsider the cadence or of your decarbonization investment in the coming years?

Yes. Let me try to give you an answer on this one here. On the breakup of the CapEx amount of EUR 650 million, most of the increase will be in what we call capacity investments, given the many newbuild days. We have continued investment in sustainability, and we will invest at least EUR 100 million in that annually for quite a number of years. And then we have our normal maintenance level. So -- but most of the increase will be capacity related. On the ETS scheme, as you know, we have allowances on our balance sheet that can cover us for some years. And we are following this closely, and I think it makes good sense for EU to try to extend some of these periods because there are so many constraints in converting. I think our conversion is not so much driven by this ETS scheme, rather than it's driven by other good business reasons and our sustainability commitments.

We take the next question from the line of Chase Coughlan from Van Lanschot Kempen.

Just a question regarding the electric furnaces. You mentioned that, of course, there's a business element here, and I think you can make your products more competitive. But just from an economic standpoint and a margin standpoint, could you give any more details around the comparison and OpEx costs between the natural gas furnace and electric furnace in terms of energy? Or is there a difference in labor standpoint just for sort of my understanding?

Yes. But there's several elements to it. But the installations we have done so far are in themselves good business cases and competitive from a manufacturing perspective from that. I missed your question about the labor. There's not a big labor difference between the different technologies to be noted if you thought there was a different structure on that. So I would say they are very competitive. And we also, of course, select conversions where we see that it makes sense from a financial perspective. It does influence our decision which factory we convert first if we have access to the grid, what the infrastructure costs are to get access to the grid and of course, also keep an eye on the electricity prices in the area. So -- and then there is the other one, which is the most important is that the demand for products with low footprints are definitely accelerating. So this is a competitiveness issue from a product stand -- point of view, the so-called EPDs, environmental performance declarations. And this is what is important to us that we are competitive with the most premier product, not only in the usual qualities, but also on the environmental footprint side.

Okay. No, that's very helpful. And then my second question, regarding, obviously, the big step-up in CapEx and now you sort of lost control of the relatively high cash-generating Russian business. How do you view sort of your debt profile at the moment? How much can you draw down, let's say, -- do you still feel comfortable within the 1x covenant, especially given you have this large expected cash out associated with CapEx this year?

Yes. Chase, it's Kim here. We are still quite confident that we can -- and there is no plan to do that to keep within that leverage of 1x EBITDA. And that's still the plan. We -- as you know, we are even -- outside of the Russian business, we are quite rich in cash generation and the plans that we have allows us to keep within that coverage.

The next question comes from the line of Alexander Craeymeersch from Kepler Cheuvreux.

So on 2026 outlook, I just want to come back on that comment on increasing sales and marketing as a percentage of sales in 2026. I'm just wondering like why in a year where we expect volume growth, why don't you expect some operating leverage? Second question would be on -- you mentioned in the annual report that you see increased competition for Rockpanel. I'm just wondering whether this is increased competition coming from peer-based cores or stone wool cores. If you could just highlight that? And then the third question is just to double check something. The Russian activity was 100% insulation activity, correct? So those are the 3 questions.

I think there was 3 questions. I just starting of writing down while you were talking, sorry. So I might return to your third question. So operating leverage, yes, I mean, the growth is still moderate out there. And a lot of our investments, as you know, are longer term. It takes us 4 to 5 years to build a factory. So you do encounter not only CapEx but also cost before you have a factory not just up and running but at a capacity that contributes positively. So it takes more than that to create operating leverage in the short run. But we are, as you know, both investing in capacity and in sales capabilities and digitalization, as I mentioned before. So -- but it is all about being more -- having higher productivity and competitiveness. The Rockpanel question, sorry, you were a little bit hard to hear. Did you ask about which specific competitors we encounter or -- not totally sure.

Yes, where are you seeing the increased competition from? Is it from peer-based? Is it stone wool cores or something else?

The increased competition we're seeing is not so much on the panel side actually, even though there are new entrants, for instance, in Europe. It is more on the Rockfon side of the systems business where there's been increased competitiveness. Not so many offices being renovated as we would like to see. And that, of course, just increases the pressure in the market. Notable also Knauf has opened a factory, and they are, of course, also trying to gain some share in this market.

Okay. And then the last one was just to confirm something that the Russian activity was 100% insulation segment, correct?

Yes. That was only insulation, yes.

The next question comes from the line of Zaim Beekawa from JPMorgan.

The first one is just on the margin guide of 13% to 14%. Can you just sort of depict what gets us to the top end versus the bottom? And then secondly, in the U.S., where demand is going to exceed capacity, what do you think that means for pricing in the region? Could this be above the drumbeat 1% to 3% and actually more high single digit? And actually, if I can sneak one more in, is just on the hedging actions you've taken for 2026 on the energy front.

It's super early in the year to become more precise on the margin, so I won't do that. U.S. pricing, we have plans for how to handle the situations where we could be in a sold-out situation. We have capacity available in other places that we can supply into the market and that we will do tactically also just to keep momentum and serve our customers. How the pricing exactly looks going forward, I don't know yet. But of course, you can just study the price points in the U.S., building materials industry in general are very robust and has also been a market that has been, let me call it, more rational about price increases than, for instance, the Europe market that is more fragmented and sporadic in its pricing. That's as close as I can get to.

And on the energy hedging for 2026, I can inform you that we have covered about 75% of the gas and electricity for the first 2 quarters and 50% for the third quarter. And then as you know, we have this quarterly price setting for foundry coke. That means we have fixed the prices for quarter 1.

Sorry, can I confirm that was 75% for Q1, Q2?

Yes.

We take the next question from the line of Pujarini Ghosh from Bernstein.

So my first question is a little bit looking into the P&L of Russia. So previously, you had announced it was around EUR 78 million for 2025. And in today's presentation, thanks for the details, we see that your group net income was EUR 437 million for 2025 and, excluding Russia, it's EUR 357 million. So on the net income line, the delta seems to be around [ EUR 81 million ]. So please could you explain a little bit on why the impact on the net income line could be more than the EBIT? I mean maybe we're getting -- we're missing something here. So that's the first question. And the second question is on your pricing increase. So you just announced or highlighted that for 2026, you expect pricing to be in line with inflation. So how does that compare to the 1% to 3% drumbeat pricing increase that you normally would adhere to?

Yes, I'll take the first one. The [ EUR 78 million ] is the result for the EBIT for the full year. And as you know, in Russia, we had quite a large amount of cash sitting there on the banks, and there's quite a high interest rate that you earn on that cash. So that's the reason for that the delta on the net income is higher.

And on the pricing side, I think it fits quite well with our usual drumbeat to cover inflation with price increases in the range of 1% to 3%. Price increases, however, are very different from market to market. What we're talking about here is an average for the world. It varies greatly. And we are sophisticated enough to handle pricing, of course, also by market and competitive situation.

Could you explain a bit more like which markets could potentially see higher pricing?

No, we don't give that kind of data point.

We take the next question from the line of Kristian Tornoe from SEB.

Two questions from my side. First one on the CapEx. I appreciate the split into the 3 buckets, sustainability, maintenance and capacity. Could you talk a bit about your return requirements for these 3 kinds of investments? I mean, what return on invested capital are you assuming for the 3 various kinds of investments? And then my second question is on the guidance, you can say, on this deliberate choice to increase your cost base to capture the potential of renovation activity in Europe. So I'm just curious on your visibility on this pickup in demand. Has anything changed? Do you think you have better visibility now than you had 12 months ago? If you could just expand a bit on that one as well.

Yes. Thank you, Kristian. For the categories of the CapEx amount, we have sort of a general rule of thumb on the capacity-related investments, we have sort of a threshold of 15% return on invested capital pretax. On the sustainability investments, we allow up to 8 years of payback. And then maintenance is typically a shorter payback period, much shorter payback period than that. So that's sort of our general rule.

And I will comment on the investments and the renovation wave that is mainly in Europe. I think it's super important to say that by far, most of our investments and our activities are not driven only by the logic of the renovation wave. We're fairly conservative in our expectations of when what will come. So the factories that we have decided, for instance, in Europe are underlying increase in capacity demand and not yet by the renovation wave. The same, of course, for Asia and for the U.S. When it comes to the renovation wave, we have, of course, also noted, not surprisingly that the political system in Brussels and also particularly in the local countries is taking the time. It takes, so to say. However, we are following them closely. And it is in May that the EPBD, the transposition of the rule sets has to be effectuated in the countries. And we see the first countries being in place and ready. But we must say we're also conservative and don't expect much out of those, you can say, regulatory-driven growth pockets in 2026. So we have -- our plans are not based on that, that will materialize in a great deal.

The next question comes from the line of Daniel Khajenouri from Morgan Stanley.

One question from me. North America presents a great opportunity. Could you walk us through how the economics will stack on the assets? And what sort of margins and return on capital you expect? And how your go-to-market strategy across distributors and large contractors? I assume the latter is direct.

We had a little bit of hard time hearing you acoustically, but I understood you would like to know a little bit more about the opportunities in the U.S. and how we go to market. I think I also heard you asking for specific numbers. The specific numbers, we don't disclose on the U.S. level other than the ones we showed on the slide. But the opportunity in the U.S. is converting the categories from glass and foam into stone. So we are not depending on, you could say, the activity level in construction industry in the U.S. very much because we come from a very low level of market share, a couple of percentage points, where we, in most other markets, including Canada, have significantly higher market share with stone wool. So it is a true conversion of categories from those 2 I mentioned into stone wool and appreciation by customers that the qualities of stone wool, and I'm not going to list them all here today, but particularly the fire capabilities and noncombustibility of stone wool is increasingly appreciated in the U.S. So it is really a strategy of conversion. It's a strategy of expansion, and that includes some of the elements you mentioned. It's about setting up the right distribution in wholesale and in retail, I should note where we are absolutely present in the big box, namely Lowe's and Home Depot. You will find us in most of their addresses, but setting up the wholesale distribution channels also in States where we are not present today. And that's why we have quite a lot of capacity opportunity and growth opportunity ahead of us.

The next question comes from the line of Allison Sun from Bank of America.

I have 2 questions. So first is on the market outlook. I think you mentioned that Canada is probably still expected to be weak throughout '26. And Eastern Europe, you're expecting sales to decline by single-digit number. I mean if you could tell us it's high or low single-digit number would be great. But is it fair to say you are mostly expecting the Western Europe to recover and plus a solid market growth in the U.S. to drive up the sales. Is that a fair comment? That's the first question. I will ask the second question after this one.

Yes. Now you almost took me around the world. That was -- maybe I need to comment on, but let me try to take it from the West. We do see that Canada is somewhat stabilizing right now, but it's an industry -- sorry, construction industry area that is really hard hit and heavily influenced by the ongoing tariff and just in general political environment with the U.S. Canada is like a huge geography. So we have territories in Canada that are up. So you can see activity going up in Quebec. But the very important Ontario area that has driven growth and investment, namely in automotive and data centers, is down. So it's a nuanced picture. It has stabilized, but we don't see a lot of upside in the year. If I go to Europe, again, also, I think I said it also in the last call, the picture of having a Southern Europe in good shape with growth and development, namely countries like Spain, Italy, all the way over to Romania with strong growth rates, strong activity levels, developing nicely. And then the 2 big markets, France and Germany, where we had declined last year, also being somewhat lethargic, still struggling with getting some of the programs that they have announced, getting them activated. France just announced a role of initiatives that should play favorable into this year. And Germany, you have heard about the funds that they have at least announced now more than a year ago, but we're still waiting to see them in the market. So it is also a very nuanced picture in Europe.

Okay. My second question is a bit nuanced. I think the bar fire that happened in New Year, I saw there are some news with the photos that saying the ROCKWOOL products are potentially involved. I mean I don't know if you have any comment or color you can add because we should think ROCKWOOL's products is noncombustible.

We know very little of what has happened. We have, of course, also registered that there are some pictures that I believe are all the way back from 2015 circulating on the Internet where our brand is on the pictures. Those are from 2015. We have not been contacted by the authorities yet. And I don't know more than what you just said about this terrible tragedy at this point in time.

We take the next question from the line of Julian Radlinger from UBS.

So first of all, getting back to the French tax incentives that you just mentioned. I'd love your thoughts on what you think the effect of that could be on new build and/or on renovation. I think a lot of people are trying to figure out whether this could be something that really gets demand going, and I'm sure you guys have looked at that more closely. And then my second question is talking about the U.K. market specifically. So within Europe, it seems like that's the market that will see some of the most capacity additions in '26 and '27, specifically from your competitors and then you're adding more capacity yourself, I think, in '28 or '29. Is there a risk at all of maybe some temporary overcapacity at all in that market just because of how much capacity is coming in there in the next few years?

Yes. Two a little bit speculative questions and also answered. But France, of course, we are also trying to understand exactly what this will mean to the market and to us, similar to other political statements. There can be a difference between what is stated and the effect it takes out in the market. However, France has been quite effective and good at historically we have seen working with the so-called white certificates, fairly executable programs, not too bureaucratic. And I must say we see some positives in these new programs, but we don't have enough detail yet to actually trying to convert that into, you can say, real growth expectations. But of course, it's positive that they're leaning into it and that they are setting up these programs that they have had successful in the past. Regarding capacity, we are not -- of course, we monitor that. I would say many of the things that has -- that you mentioned have been announced, but where we don't have -- we haven't seen actually a buildup of capacity yet. And as you also know, our products don't travel very far. So it is very, very local whether or not there is a surplus or lack of capacity. So you really have to dissect it by country and most often also by product category. But we're sticking to our plans. We don't see anything that will dramatically change the trajectory that we are on right now.

We take the next question from the line of Isaac Ocio from On Field Investment Research.

First of all, regarding your 2026 EBIT margin guidance, are there any material one-off items we should be thinking about? And then second question. So in Q3, you had flagged the incident in Switzerland and reduced efficiencies across some factories. Have you identified the underlying root causes? Could you maybe describe them? And what concrete measures are you putting in place to prevent similar disruptions from going forward?

Let me comment on the incident in the factory. We know very, very well what went wrong. And I can narrow it down to a particular valve that failed, a mechanical installation that regulates the flow of the lava, the melt, if you've seen pictures of our production. It was a mechanical error, and the redundant measures were not strong enough to take over. So it's been a fairly, you can say, very specific issue and an issue that has been easy to correct from an engineering perspective. And we have, of course, gone back in our own footprint to ensure that the proper dimensions have been upgraded and that redundancy measures are in place. There was no big need to, for instance, change standard operating procedures or this like. But that was the driver of it.

Yes. And just to come back on the margin outlook, we do not -- have not included any one-off, i.e., that we have not, for instance, included or forecasted any donation for the Ukraine reconstruction fund.

We take the next question from the line of Pierre Rousseau from Barclays.

Maybe just a quick follow-up on planned capacity additions for the other European factories, so there's 4 remaining, excluding Romania. Are you able to provide a slightly more precise timeline at this stage and in particular, for the French plant, which was permitted end of last year? And then second quick question would be on labor inflation into 2026. What are your expectations there, please?

Yes. Like Kim said before, what we can share with you is that the next factory opening will be next summer in India -- sorry, this summer in India, in Chennai. And then 12 months later, it will be the Romanian factory where we have -- adding a line to our existing facilities. Those are the ones we can give you specific dates on. Will you take the labor inflation? I can also do it. Labor inflation on a group level, we see around 3%.

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to the management for their closing comments.

From Jes Hansen and I, Kim Andersen, thank you for joining today's earnings call. We would like to thank you for all your 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 feel free to reach out to me. You may find ROCKWOOL contact details in our Investors section on our corporate website. Thank you very much. Have a very nice day.