Rockwool A/S ($ROCKB)

Hello, and welcome to ROCKWELL A/S' conference call regarding the results for the first quarter of 2026. My name is Kim Junge Andersen, I'm the CFO of ROCKWELL 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 our presentation and give you an update of the results for the first quarter of 2026. Afterwards, we will 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 the forward-looking statement. Please be aware that this presentation contains uncertainties. Now we can go to the next slide, which is Slide #3. Jes, I will now hand over the word to you.

Thank you, Kim. Also welcome from my side. And as Kim said, I will start on Slide #3, where we have our key numbers. The ROCKWELL Group delivered resilient performance in Q1 despite a challenging operating environment with revenue growth of 2%, primarily driven by Eastern Europe, the United States and Southern Europe. The EBIT margin, as you can see, reached 13.2%. What we believe is a satisfactory result, though 2.2 percentage points below the record high level of last year. Weak construction market, particularly in Canada and United Kingdom pressured the margin as did higher logistic costs and an increased cost base. I turn to Page #4. Let's focus on the revenue in Q1. And where, overall, the construction market continued to be affected by the geopolitical turbulence and macroeconomic uncertainty. Additionally, the first two months of the year were impacted by adverse weather across Europe and North America. However, volume demand recovered from March and onwards. We successfully restarted the Swiss factory in Flumroc, in Flums, the Flumroc factory during the quarter, but the production stop did have an impact on performance in the quarter. Additionally, the conversion to electric melting and upgrades to one of our production lines in our [indiscernible] factory temporarily reduced output. The growth was driven by higher volumes and a minor increase in overall sales prices. Page #5, where you see the revenue by business segments. Insulation revenue grew 2% in local currency, with solid growth in the United States and key markets across Eastern and Southern Europe. That growth was partly offset by a decline in United Kingdom, Germany and Switzerland. In our Systems segment, revenue grew 4% in local currency. Rockfon Europe Asia delivered solid growth across key markets [indiscernible] achieved growth mainly in Europe, while our Rockpanel business had a stable quarter. Page #6, where we look at the regional revenue in the quarter. In the United States, we sustained the growth momentum, while Canadian revenue declined in a very challenging market, characterized by weak residential demand and ongoing trade uncertainties. In Western Europe, revenue declined 1%, as solid growth in Southern Europe was offset by market-driven declines in the U.K. and the delay in construction activities due to the hard winter in January and February. Eastern Europe delivered strong 15% revenue growth, driven by solid growth in Romania and Hungary while Poland increased slightly in the quarter. In Asia, revenue grew more than 7% with decent growth in several of our markets there. Page #7, where we look at the profitability in the quarter. Although the EBIT margin was down 2.2 percentage points, we consider this a good result given the challenging market conditions and in comparison to a record high profit level last year. Margins in the quarter were impacted by several factors. First, a very weak construction market in Canada and United Kingdom. Second, higher logistic costs and a higher cost base. Third, additional costs related to the production incidents in Switzerland and the planned production stop in the Netherlands related to the electric conversion and other upgrades of the production line there. Overall, these two challenges accounted for about 1/2 of the decline in margin. That is equivalent to approximately 1 percentage point. While production is up and running in Switzerland, we do expect the run-in costs for the new melting technology and these other upgrades in Netherlands to affect the margin for the rest of the year. Last year, first quarter included donations to the foundation for Ukraine's reconstruction of EUR 6 million out of the total donation of $13 million, while no donation was recognized in '26. On the next page, we look at the profitability by segments. First, Insulation segment. Looking at profitability by segment, the EBIT margin in Insulation, while satisfactory was down 1.7 percentage points compared to last year. The result was impacted by several factors, including the ones I just mentioned. In the Systems division segment -- sorry, the EBIT margin decreased 3.7 percentage points, driven by inflation on input costs that were not sufficiently offset by sales price increases. Additional factors include increases in bad debt provisions as well as increased scale-up costs in our new business area which is part of the system segment. These new businesses mainly consist of our water management system and our prefab construction business. Let's look at our investments in Q1. Our biggest investment in Q1 related to the construction of new factories in the United States and India and a new technical insulation production line in the United States. And the production expansion in Romania as well as a large logistic automation project in Germany. The new factory in India is expected to come online during this summer. The sustainability investments are mainly related to electric conversions in the Netherlands and in France. On May 5, we signed an agreement to acquire Ravago's Stone wool factory in Northeastern Hungary with a capacity to 40 million -- sorry, 40-kilo tons. The acquisition will support our long-term priority to meet regional demand. The transaction is expected to close in Q4 '26, of course, subject to customary closing conditions and regulatory approvals. The acquisition is not expected to materially impact our 2026 financial outlook. And then we have our cash flow for the quarter. As expected, financial positions turned into net debt of EUR 306 million. That brings our leverage ratio at the end of Q1 at 0.4x, which is well within our policy of maximum ratio of 1x. At the end of Q1, we had an unused credit facility of EUR 400 million. Cash usage for working capital during the quarter was unchanged compared to Q1 last year. The negative development in working capital ratio was mainly due to the planned stock build and a higher-than-usual seasonal increase in trade receivables due to the revenue uptake towards the end of the quarter. Free cash flow decreased EUR 68 million compared to the same quarter last year, mainly from higher investments and less cash from operations. And last but not least, to our outlook on Page 12. The revenue, as previously already announced, we are now expecting revenue growth to land between 3% and 6% in local currencies. And the growth outlook is based on the increased activity we saw in March and thereafter as well as sales price increases in the range of 6% to 8% which will mainly take effect from the midyear. We continue to closely monitor, of course, the ongoing geopolitical turbulence and macroeconomic uncertainties around us. The EBIT group margin for 2026 is still expected to be between 13% and 14% as the announced sales price increases are expected to offset input costs and logistic inflation whereby maintaining profit margins. And investments, our major investments in 2026 include capacity expansions, as already mentioned in India, Romania, United States and France, along with the acquisition of land for further manufacturing sites in several countries. Overall, our total investments are expected to reach around EUR 700 million in 2026, excluding acquisitions. That concludes my run-through of the key data points and I hand back over to Kim.

Yes. Thank you very much. And I know the operator will invite in for questions. I just have a small request for you when -- even if we limit to two questions at a time, please allow us to answer one question at a time. Thank you very much.

[Operator Instructions] The first question is from Ben Rada Martin, Goldman Sachs.

My first question was on cost inflation. Thank you for providing some of the color in terms of the pricing changes you're looking to put into the market. I'd be interested in what you're seeing in terms of energy cost inflation and transport inflation as we go into the back half of the year. I think energy cost was maybe towards EUR 0.5 billion and similar delivery costs. That would just be my first question.

Yes, allow me to answer that one, Ben. We have seen already an increase in cost inflation, including transportation. It is so that, as you know, our -- [ any ] consumption consists of 3 main energy usage. One of them is foundry coke, which is by far the largest energy source. And then, of course, we also have electricity and then gas that we also use in the manufacturing side. Foundry coke is where we have these fixed price agreements a quarter at the time. And that has not increased significantly between quarter 1 and quarter 2. So there's not so much inflationary pressure there. Of course, on the gas and electricity, they are more, say, correlated to the general sort of energy inflation in the market. And there, we have seen increases. We have, as mentioned before, we have a coverage in place for like half of the expected consumption for the second half of the year and -- that means we have, of course, cushioned this a bit. But with that there is inflation coming in the second half, also on transportation, mainly in the North America. But we still believe that the 6% to 8% price increases should be enough to cover the inflationary impact in the second half.

Excellent. And maybe just a second one on capacity expansion outside of the ones that you're investing in now. I'm thinking some of the European facilities, U.K., Sweden, Italy, could you maybe share an update on some of the time lines for these projects? I'm interested just given, I guess, the uncertain economic backdrop in Europe, what we've seen in terms of interest rates moving higher, and I guess, some excess capacity in the market. Could some of these later facility openings be flexible in, I guess, their opening times? Or how are you seeing the time lines for some of those additional factories, particularly in Europe?

I can give you a couple of data points there. Now you spoke specifically into Europe. So let's take those. Next year, we open up Romania factory, where we are adding capacity to our existing facility in Romania. There, of course, you should also notice that the capacity we have bought in Hungary adds 40 million-kiloton that is relevant also for Romania and why we bought it. Just a small little detail, Romania could -- is better served from Hungary due to the mountain range going through Romania, but that's a small little detail. So Romania will come online next year. And then the acquisition will add another 40-kilo tons there. Then the next one coming online in Europe will be our Soissonnais factory in France in '29 is that expected to open up. And yes, that was Soissonnais. And then I don't want to give too many details on the other ones that we have announced, but where we haven't set a date yet, but after '30, it will be Italy, the one in Birmingham and in -- outside of Stockholm are the main European capacity expansions. I think it is important when we talk capacity also to talk about productivity. We are very focused on, of course, also optimizing existing footprint. We are a manufacturer that pays a great attention to productivity, the usual approaches with Lean and Kaizen and there's quite a lot more than we can pull out of our existing footprint to maximize capacity utilization, not just in Europe, but throughout the group.

Excellent. And maybe just a follow-up on that. It seems like maybe the France factory is slightly a little bit delayed versus your original plans there. Is that a conscious effort on your side or some of the progress is taking a little bit longer to move on that plant?

It's not significantly delayed. I mean you know the delay that originally was caused by getting building permits. That's what's pushed it originally, but else, the project is fairly much on time. The timing of all these factories, of course, what we're trying to hit here is this expected uptick in Europe in what we call the renovation wave. As you know, in Europe, in Brussels, the new EPBD regulations that now are falling in place. We are following very, very closely country by country and are modeling what volume uptick will take place the next few years. It is, of course, a modeling, but it is very much driven. Our logic is driven by the expected uptick due to the EPBD regulations.

The next question is from Anna Schumacher, BNP Paribas.

So the first one, could you provide a bit more detail on your volume expectations for this year and possibly by region and cadence? It's just that if I take the midpoint of your pricing this year, say, 2% for H1 and [ 7% ] for H2, that gives full year price increases of about 4.5%, which is the new midpoint of your local currency guide. So I would assume no growth. Yes, any [indiscernible] would be helpful.

Anna, we had a little bit of trouble with the sound apparently. Could you maybe just repeat the question [ short ]?

Sorry, about the sound. So could you just provide a bit more detail on your volume expectations for this year, possibly by region and cadence?

Yes. Thank you very much. I mean, we have seen, as Jes said, a volume pickup here at the beginning of the year, driven by some positive moves in some of our key markets. And we can also see that in the second quarter, we also see a higher volume growth, most likely that there are competing materials that are increasing prices faster and higher than we are. But our price increase are mainly coming around July 1. So in our forecasting assumptions, we have assumed that we will have a little bit of stagnation on volume in the second half. Still to be seen whether that will be realized, but that is at least the assumption that we have put in, in the 3% to 6% growth for the full year is that, that volume will start to be a bit stagnated compared to last year in the second half of this year. Anna, was there a second question?

So you called out quite solid growth in the U.S., both in Europe and Eastern Europe. From your comments, it sounds like it's mostly volumes. What is driving this? Is it new build, renovation, new channels? Any details would help.

Okay. We had a little bit hard time hearing you acoustically. So we just repeated it to each other here. I understood your question was targeted towards Southern and Eastern Europe, the volume pickup we've seen lately. Yes. As you know, it is very important to understand. We compete against glass and we compete against foam plastic products. And when we look at the developments in cost. We do believe that the foam plastic products are harder hit than we are on price, input cost. And we can also see out in the market or at least observed that their price points and availability are under strain. So we are winning, I believe, market shares across and that drives quite a bit of the volume growth in East Europe, where there's a lot [ per pool ] products. And in Southern Europe, it's been a growth trajectory we've been on for quite a while. I do think we should highlight again that the fire regulations in Europe, particularly also again in Eastern Europe, Romania, Poland are getting more and more attention. And when we become more competitive as a stone wool product price point-wise against the flammable products, then there's a tendency to shift over to stone wool. So that is definitely driving some of the growth.

Next question is from Zaim Beekawa, JPMorgan.

The first one is just on pricing. As you've announced 6% to 8% but given your hedging levels and also the comments that you've made on foundry coke being flat between Q1 and Q2. How much of that announcement do you actually need to be realized to protect your margins this year?

First of all, it is important to understand that input costs, of course, vary across regions. It's a different profile on input cost in North America than it is in Europe. Just as an example, we are hard to hit on transport cost in the U.S. because we have longer further transport patterns in the U.S. and the diesel price that has gone up in the U.S. hits us there. So input cost depends a lot on the regional profile, so to say. And our pricing is, of course, also adjusted to local market condition and product groups and applications. So it's not like one for all that all products, all regions, all customers get exactly the same number. But in totality, in order to balance out the inflation, it is going to be around the 7% that we need to harvest in order to balance out inflation.

Okay. And then my next question is just on some of the one-offs. I think you called out specific factors kind of the U.K., but also [ Netherlands ] how much of this would you expect to be sort of continue for the remainder of the year? And on the topic of one-offs, I think you mentioned India starting online this summer. Will there be any one-off start-up costs related to that? And is this already in guidance?

To take your last sub-question first because it's the quickest to answer. India, it is minimal what you will see affecting the numbers so it is single digit in India, but it is already in the guidance for that start-up that is well planned. The bigger issues, you could say, the bigger challenge is that also will take longer time to get resolved is the market in Canada and the market in the U.K. both are down a lot. You can just read the public market reports about construction industry in Canada. Canada is hugely affected by the trade uncertainties with the U.S. investments in commercial industrial and in residential has stalled. They're actually down quite significantly. So that I don't think will resolve quickly. I do want to note that we believe we are winning share in this suppressed market. But because the overall market is down so significant, even market share gains from our side, it does not result in growth in Canada. The U.K. is a different story, but it has been somewhat quick in decline the last 6 months now. and is caused by a couple of things. Our read on it is that the macroeconomics in the U.K. is generating a lot of uncertainty and hence, subdued willingness to invest in construction. That is one thing. The other one is that the U.K. has instilled a new process for building permitting, which we believe in the long term will benefit us a great deal because it is very much focused around fire and fire regulations but they're struggling with getting the bureaucracy of this new permitting process to get up and running. So that backlog of permitting is dramatic in the U.K. right now. So we do that results, we do see an improvement in the situation in the U.K., but else the U.K. market will also simply depend on the macros in that market.

And sorry, can I just follow up on sort of the other issues with Netherlands and Switzerland. So would that be a drag again in Q2 and beyond?

Yes, it won't change much in those 2 markets, but they're small for us. So you won't really see the material impact in the overall numbers.

The next question is from Claus Almer, Nordea.

Also a few questions from my side. As you wish, I will do them one by one. So the first question goes about this price hikes. As I understand, there is a 3 to 5 months of delay between the energy cost inflation to new and higher prices. Is there a reason for this long delay, not least as this is -- this appears to be later than your main competitors? That will be the first one.

[indiscernible], Claus, it is quite different in the various markets. There are different traditions and different laws that govern and also commercial contract that govern how you can increase prices. So some places, we can increase prices faster and some it simply takes a 3 months warning period. So yes, I don't think that's unusual.

I know it's not all -- it's not all fair question, but it's also more compared to your key peers who seems to be a little bit more aggressive or faster in implementing these price increases. Maybe they have a bigger problem than you have. That might be the reason.

There can be many reasons. That's not what we have registered in the market on our direct peers, but -- and we have also not used force majeure or instruments like that. But you could be very right that some of the foam and plastic products are in a very different situation because their input costs have gone up dramatically more as they are based on petrochemical products almost completely.

That makes sense. And then the second question, is there any of your more meaningful markets where you have decided not to raise prices?

No, there's none of those.

Next question is from Anders Christian Preetzmann.

My first one is on the recent acquisitions you've made in Hungary. I was wondering if this signals now a preference for doing acquisitions in capacity-constrained markets and whether you could maybe give us some examples of other markets where you could do similar transactions to gain volumes?

Yes, I think your observation of that it is a somewhat consolidating market is correct. But we don't have a bay strict, you can say, M&A search process. We are a little bit more opportunistic in our approach, and we'll only do it where it makes sense, obviously, which means where we need the capacity, but also where the acquisition target has a high technological level that fits into our quality levels. And that simply limits the opportunities that arise.

I thought so, too. My second question is on the data center opportunity in the U.S. I mean, yes, you've mentioned in a recent interview that the U.S. pipeline alone, that includes around 1,500 potential data center projects, which does underline a sizable medium-term opportunity for you guys. But I was wondering if you were able to quantify this a bit for us, maybe what the average ticket size is for a data center project and considering your situation in the U.S. right now, which do you even have available capacity to meet this increased demand?

At first, I have to start and say that we have not been a big player in that arena in the last few years. But the way data center is now constructed is turning in our favor and let me explain briefly why. A few years ago, the main focus was building what you call data centers, mainly data repositories. It was cloud solutions. So there was a lot of focus on bits and bytes and building that. And that had a certain building envelope that was not demanding what we can offer with our products, not to the same degree. As these investments now move over to a slightly different type of data centers, namely AI data processing, the equipment in these facilities are becoming significantly more expensive. It's basically high-end processes, as you know. And they require both more cooling and more stringent fire protection. And that is moving into our strength, the cooling insulation from our technical installation team and the fire protection. And the numbers are big. Yes, it is around 1,500 projects. They are in very different stages. Some of them are early, early planning and some of them are being implemented. But it's a big pipeline. And of course, we have organized around ourselves [indiscernible] that increasingly. Just to give you an idea, it is mainly the big 4 that we work with in this arena but we won two big projects. I don't want to mention the customer name, but that alone generated around USD 1 million in fire protection and in cooling insulation. But please don't multiply that with [ 1,500 ].

Next question is from Alexander Craeymeersch, Kepler Cheuvreux.

My first question would be on the net working capital. It was somewhat higher, I think stands at 14.2% of 12-month sales, so it's almost a percentage point higher than usual or at least than last year. So -- and in your report, you mentioned next to the seasonal development that there was planned higher inventories. I'm just wondering what you're planning for considering you mentioned that H2 sales volumes should stabilize?

Yes. Thank you, Alex. The -- when we build inventory, it is not to keep that inventory for several quarters, it's strictly to keep inventory for a few months. So the buildup of inventory at the end of quarter 1 was to cater for some maintenance shutdowns in some of the factories, amongst others in Norway. We also had a you can say the -- all the growth that we had in Q1, in fact, came in March. So there was a higher sales in March compared to March last year, and that simply [indiscernible] accounts receivable. We're typically collecting within 20 days after the month. So there was a buildup in accounts receivable. And then there was a higher inventory due to this inventory buildup to be used in the second quarter.

Okay. Now the second question I would have would be on the margin. A colleague of mine already alluded to it, but the -- basically, with the 7% price increases that are taking effect as of Q2, is it -- I guess it's reasonable in relative terms that there's going to be some dilution effect on the margin. So I'm wondering if the prices remain where they are and if volumes don't change dramatically that basically, we would end up at a 13% to 14% guidance more towards the bottom end of that range and less towards the upper end. Is that correct?

We are guiding in the range of 13% to 14%. But I think it's fair to say that what we see the volume growth we have seen here in quarter 1 and also in quarter 2, mainly within our [indiscernible] segments. And that's where we have an average selling price that is slightly lower than the -- price selling price is slightly lower than the average. So that's one element of it. I would say to quantify whether it's going to be closer to the bottom of the range or in the upper end of the range, I think I'll just wait until I see the Q2 results, and then I can guide you a slightly bit on this one here. Because it is mainly in Q2, we're going to see the bulk impact before our prices started to pick up.

The next question is from Yassine Touahri, On Field Investment Research.

Yes. So my first question would be on your CapEx program. So I understand that this year, you're probably targeting nearly EUR 0.5 billion of investment in capacity and sustainability. It's probably the largest investment that you're doing in the group history. And I understand that this is going to continue for the foreseeable future, like this EUR 0.5 billion investment there. Well, what kind of economics do you target on those investments? What kind of return? And if you can explain a little bit how does it work, the timing and the potential impact on earnings in the coming half?

I mean for sure, yes, it is clear that to build these 4 capacity expansion at the same time in parallel is a step up. Having said that, there are, of course, built in different geographies, and we see growth in all 3 geographies, Asia, Europe and North America so that we need to build capacity. I would have wished that we could have built the factory in France 2 or 3 years earlier that would have sort of smooth now the bit of CapEx impact because we haven't opened a new factory since 2021. So it would have been fantastic to have that factory in France a bit earlier. Having said that, we need the capacity and they are now coming sort of in subsequent years being -- going live into the market. Whenever you open a factory, you typically have the first 12 months of running in cost. And that is typically for the larger factories. Not the one in India, but for the 3 other ones are typically in the range of EUR 10 million to EUR 50 million as a one-off cost in the first 12 months of operating. After that, it sort of becomes normal operations. And these factories, of course, are all with the latest technologies. That means they will -- hopefully, when they are fully utilized, will be the most profitable and most effective factories we'll have in the group. How to put a number to that? We have not really done that exercise. But as I said, it is, of course, a part of the plan that they will contribute to a very good return once they're up and running. But we are in an industry where it takes 3 to 5 years to build these factories. And that means we have to be patient, shareholders have to be a bit patient because we do need that capacity to continue to grow the company and also a profitable growth.

What I'm trying to understand that when we look at, for example, the -- historically, when you -- when you were investing EUR 100 million, you were able to generate approximately EUR 100 million of sales or a bit more a bit less depending on the investments with mid-teens margin. Is it what we should expect [indiscernible] we could expect that [indiscernible] additional sales over time with the return of the margin a bit [indiscernible]?

There is no one rule of thumb. We are building in North America. It's the most expensive place in the world to build, but it's also the place where we have the highest both sales and the contribution profit per produced tonnes. So it all sort of links in. France also have a relatively high CapEx number. But again, it is also price-wise and contribution profit-wise in Europe, one of the most attractive places. Romania is a place where you can say the sales prices are lower, but the CapEx is also lower. So it all sort of ties in. And as I said, all of the factories will be more productive than any of existing ones. But I don't have sort of a one number to give you that if we spend.

[indiscernible] which is. Yes. But I understand that when we look at this number, which is quite high with EUR 500 million of addition of CapEx on top of the maintenance. And I think a lot of [indiscernible] try to understand what returns do you target on those investments. Do you have a minimum number that you're targeting?

All of them are living up to sort of our internal sort of threshold, which we have said before that we have sort of a treasury around 15% return on invested capital. And that they are sort of all of them living up to that. But as I said, it's very different market to market.

And the 15% is before tax?

Yes, that's before tax.

The next question is from Allison Sun, Bank of America.

The first question, I just want to confirm, Kim, you mentioned that the Swiss bond and the Netherlands electrical conversion as 1 percentage point on EBIT margin in Q1. Is that correct? And should we expect some margin recovery in Q2 if the operations normalize it?

Yes, the Swiss one is not the conversion. That was the factory breakdown in the autumn, that's stretched into the beginning of Q1. That factory is up and running now. So that impact is not going to continue into Q2, whereas the one in [ Romania ] is sort of a bigger conversion we are doing on a major line down there, and that will impact also the result in Q2.

Okay. And my second question is maybe more specific on the return on CapEx in this Norway front where you have EUR 15 million added. What kind of [indiscernible] and what is time line should we be expecting? Is this going to still be at 15% as you just mentioned?

No. The investment we are doing in Norway, I think I alluded to some way, it's just a warehousing that we have decided to acquire a land and construct a warehouse instead of renting several warehouses in the area. So that is not a factory per se. It's just a warehousing project.

Next question is from Pujarini Ghosh, Bernstein.

I have just one. So on your recent acquisition, could you give us some color into the transaction value, how much sales you expect from the plant once it's fully consolidated. So we have some numbers around it?

Yes. I mean, as I said, the plant has this capacity of 40,000 tonnes and the acquisition prices will be revealed in the annual report anyway is sort of in the mid-EUR 40 million. It will not have a substantial impact in the financial results for this year either on sales or on earnings. As I said, there is a regulatory sort of period down until we can start to consolidate this into the group.

Yes. So you mentioned that this year, it's not going to have so much of an impact. But once it's fully consolidated, do you have any expectation of how much sales it could generate?

Well we will not reveal that. So we do have an expectation, yes. But -- so it will be blended into the entire group once we release the 2027 numbers.

It is a running business.

Next question is from Julian Radlinger, UBS.

Two questions from me. They're both on [ Q2 ]. So the first question is, do you -- and I think this has been asked a few times in one way or another, but can you talk more specifically about the margin impact you expect for Q2 just from the fact that you're not increasing prices yet and you may have some of that input cost inflation? And is there any way for us to just understand if you isolate that price versus cost headwind, is that meaningful at all? How should we think about that?

Julian, we will not do an outlook quarter-by-quarter. So you just have to be a bit patient with us. But as I said, my -- take it at least in the forecast assumption is that we will have, you can say, an impact from the higher input cost in Q2, and then we will recover margins gradually in Q3 and Q4. So the full year that we have you can say, the same expectation for margins on EBIT for the full year. That means we will most likely do a bit better in the second half compared to the previous outlook.

Understood. And then switching to the top line. So the market challenges in the U.K. and Canada are very clear. But Canada specifically, declined quite meaningfully last year in Q2. I remember this well, I think it was one of the reasons for your profit warning of the slide. So my question is, with Eastern Europe accelerating so meaningfully like we've already seen and the base effect in North America becoming meaningfully easier for Canada and the U.S. still doing well anyway, is it fair to think that volume growth in Q2 could be well ahead of Q1?

No, as Kim said before, we don't think Q2 will be way ahead of Q1 on the volume side. We don't see that. So no to that.

Do you follow my reasoning though, with the base effect being significantly easier in North America? Is there something I'm missing?

Yes, but that's also based on easier comparables in the latter half of last year than I agree.

The next question is from Chase Coughlan, Van Lanschot Kempen.

I also just have two. Firstly, on the systems margin, it's obviously still under quite some pressure and you explained that there was some inability to pass through prices in time to offset rising costs, bad debt provisions and so on and so forth. Could you explain a little bit about your expectations for the rest of the year? Are a lot of those problems, primarily pricing, going to be recovered throughout the year? Or how should I think about the phasing of that divisional margin for the remaining quarters?

Yes, I can give you some insights to that. First of all, the bad debt, of course, we're still working on getting secured. And then we see do expect an improvement in the profitability in the Systems division as our measures take effect in those markets. Some of them are in systems, as you know, more project-based businesses, and it takes a little bit longer to flush it through depending on how the projects are set up. But we do expect an improvement in that area.

Okay. Perfect. And my second question then, I recognize you just mentioned that you don't necessarily expect volumes in the second quarter to be much above the first quarter. But something that's been, I guess, spoken a lot about sort of across the entire building material sector, this idea of pre-buying in the second quarter ahead of price increases. Is that not something you think could potentially impact volumes going into the second half, I guess?

Yes. Chase. I mean the -- we didn't comment on the second quarter. I did comment on this. I think the volume in the second quarter, for sure, will be positive. It's the volume in the second half that in our assumption that we have given you [indiscernible] there, we have assumed that volume will be [indiscernible] compared to last year where this is going to be the case, we don't have an order pipeline, as you know, more than 2 months out. So we are still sort of a bit uncertain how the autumn season is going to pan out in this uncertain times. And the -- as you know, there might be a little bit of prebuying here in quarter 2. But our distributors similar to us we cannot prebuy a lot of physical products because it simply take up so much space. Do you typically see if they buy forward a single day, it's like a 5% growth in a month, but that small is it. But I don't think a lot of prebuying will be -- will take place simply because the physical constraints that our customers will have on their own storage space.

The final question is from Zaim Beekawa, JPMorgan.

I just had a quick follow-up with regards to Germany. I think you called out that in the decline in Q1. Was that solely due to weather and so were the trends in April also good?

It was a significant impact not only in Germany, that the weather was so bad. So all outdoor work, whether or not roofing or you can say, facades were at a very, very low level in Northern Europe. And yes, the improvement has continued.

This concludes our Q&A session. I would like to turn the conference back over to the management for any closing remarks.

Thank you very much. Yes, and I thank you for today's earnings call and for all your very good questions. We appreciate your interest in ROCKWOOL. If you have further questions, please feel free to reach out to me. You may find the ROCKWOOL contact details in the Investor section in our corporate website. Have a very nice day. Thank you.