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

Good day, everyone, and welcome to ROCKWOOL A/S's Conference Call regarding the results for the first half of 2026. 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 our presentation and give you an update on the results for the first half and second 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.

Also welcome and good morning from my side. My name is Jes Munk Hansen. I'm the CEO of ROCKWOOL A/S. I'll start on Page 3. And as you have seen, the group delivered revenue growth of 6% in the first half year. Importantly, this was driven by volume. The EBIT margin reached 13.1%, a good result despite inflation on energy and mainly transportation prices, persistent market challenges in a few countries as well as higher depreciation from investments. Free cash flow was impacted by the larger ongoing capacity and decarbonization projects. Page 4. To the quarter, the group delivered a strong 10% revenue growth and reached a record high quarterly revenue of just north of EUR 1 billion in Q2 2026, driven by volume growth across regions. EBIT margin was 12.9%, a good result considering the circumstances. And cash flow from operations was good. Investments around EUR 200 million in the quarter led to a free cash flow of negative EUR 32 million. I'll just jump directly to Slide 6, just jumping the half year detail. But on Q2, I think we should spend more time on that. The revenue from the very strong 10% growth. And the growth was mainly driven by significantly higher volumes, partially from market share gains where we benefited from favorable market dynamics with a narrowing price gap to competing combustible insulation materials. Somewhat more broadly and less directly related to the quarterly results, we do observe in the market that higher oil and gas prices are driving a greater interest in energy efficiency in the build environment. So while we are affected on the cost side, of course, we also expect to benefit from the greater focus on energy efficiency that results from the higher energy prices in the market. At the same time, the tragic wildfires in South Europe and in North America over the summer are generating more awareness about the importance of noncombustible materials such as stone wool. This should too become visible in higher demands over the next period. Okay. Let's get back to the report. In the quarter, we saw prebuying activity ahead of the announced price increases, not surprisingly, which mostly took effect from the price increases from July 1. We estimate that this prebuying contributed to around 1 to 2 percentage points of the second quarter's growth. However, sales price increases were also realized, especially in the latter part of the quarter and accounted for 1 to 2 percentage points of the growth, partially offset by negative product and country mix. I'll also skip Page 7, which is just a summary of the half year revenue and go to the second quarter revenue on the segment level. And the Insulation segment revenue grew 10% in the quarter with strong growth in the United States and across Europe. The revenue in Canada, United Kingdom and Switzerland continued to decline, though the rate of decline moderated in U.K. and Switzerland compared to the first quarter of the year. And in our Systems segment, revenue grew 9% with a good growth across the business. Slide 9, where we take a look at the geographies. If we start from the left, from the west side of the map, United States continued to perform well with momentum accelerating into double-digit growth in the second quarter. And it's also worth noting that stone wool is growing as a category in the United States and that ROCKWOOL is gaining market share in the total insulation market. And this is, of course, in a soft overall market. Here, the growth is also driven by greater focus on noncombustible insulation solutions in a row of segments, including the Facade segments. Revenue in Canada declined in a challenging market as the Canadian economy has contracted now for 2 consecutive quarters in a row. West Europe showed improvement compared to previous quarters and key markets for us like Germany and France gained momentum, which was partially offset by the challenges I mentioned in the United Kingdom and Switzerland. And Eastern Europe delivered a staggering 31% revenue growth, reflecting double-digit growth across the entire region. And in Asia, we grew 17% with double-digit growth in all major markets, except China, where revenue remained flat year-over-year. To Slide 10 on our profit. The quarterly profit was impacted by rising oil and gas prices. However, this also creates opportunity for us as elevated and fluctuating energy costs drive a much greater focus on energy efficiency in building, strengthening the overall demand for our insulation solutions. The EBITDA in absolute figures was up 6%, which we considered a good result. Let me note that Q2 in 2026 benefited from a onetime EUR 7 million gain related to a settled claim against the former transport supplier in the U.K. That said, margins in the quarter were impacted by several factors such as the weak construction market in Canada and the United Kingdom, as I mentioned. And then importantly, higher logistic cost and an expanded cost base, especially related to energy and oil-based raw material. And announced sales prices increased since first took effect late in the second quarter. We believe we are good at addressing challenges like these. Among other things, during the quarter, we also took the opportunity to refine our marketing and branding. And I hope you have noticed our emphasis is on core value drivers like energy efficiency and fire safety. We also redirected the product flows and resources from softer markets into high-demand regions and adjusted our capacity expansion strategy based on long-term market condition expectations. The EBIT in absolute figures was up 3%, and the EBIT margin ended at 12.9% in the quarter. And EBIT was impacted by higher depreciation related to investments and a one-off EUR 9 million write-off on some reprioritization of our capacity investment base. And last year, Q2 included donations to the Foundation for Ukrainian Reconstruction of EUR 7.4 million out of the total EUR 13 million donated. And this year, there was no donations recognized. Let's look at the segment on Page 11, profitability by segment. On the left, you see our Insulation segment. And looking at profitability, the EBIT margin insulation was good and landed just short of 12%. The result mainly reflects timing lags between inflation and price increases, and costs from electric conversions shutdown in Netherlands and the EUR 9 million write-downs I just mentioned in reprioritization of capacity expansion. And this was, as mentioned, partially offset by EUR 6 million gain from the settled transport supplier claim. I deliberately said EUR 6 million because the other 1 million you can find in the Systems division. The Systems segment EBIT margin was 12.6%, and this is a good result considering input cost inflation and lower performance in our Grodan business in North America. And here, as just alluded to, the 12.6% margin included a EUR 6 million out of the total EUR 7 million claim gained from the supplier settlement. Page 12 shows our investment in new capacity and decarbonization. And our major investments in Q2 were related to the new factory constructed importantly in the United States and India. If I can just stop up a second and say, I just a few hours ago, saw pictures of the first commercial wool coming off our factory in India. And investments in the new technical insulation production line in the United States and production expansions in Romania and our logistic automation projects in Germany. I just said that the Indian factory has gone online, and this will, of course, support the growing demand for stone wool in that particular market where we see high growth rates. The sustainability investments mainly consisted of electric conversions in the Netherlands and in France. As part of our electrification strategy and to strengthen our in-house technical capabilities, we acquired the remaining stakes in the Swedish company, ScanArc Plasma Technologies back in June 2026, a critical technology in our so-called Jeti conversion activities. Page 13, where we look at our cash flow. And operating cash flow improved by EUR 31 million compared to Q2 last year, demonstrating underlying good cash generation. And the net working capital at end of the half year 2026 increased as per the usual seasonal compared to year-end 2025, and the increase related partially to higher trade receivables from the increased quarterly sales and partially offset by higher trade payables. Cash flow ended at minus EUR 32 million, reflecting the ongoing large capacity investments. And our net debt position increased to now EUR 461 million at the end of the quarter. And that brings our leverage ratio to 0.6, which is still within our policy of a leverage ratio below 1. A few comments to our sustainability and safety. You can see on Page 14, just briefly a few comments. Safety remains our top priority in ROCKWOOL with the aim, of course, of a 0 fatality and 0 serious incidents. That's almost logical that it should be 0. And -- but we recorded 2 serious incidents in the first half of '26. But besides -- despite these incidents, the overall lost time incidents frequency rate improved significantly now at 1.6, and that is almost a 40% improvement compared to last half in 2025 -- sorry, first half in 2025, which to us demonstrates that our efforts are working. The CO2 emission, just very briefly on that. You can see on the slide that our Scope 1 and 2 CO2 emission intensity shows a 25% reduction compared to the baseline of 2019. Nonetheless, the Scope 1 and 2 greenhouse gas emissions increased by 1%, reflecting the higher production volumes. But the intensity, as mentioned, is down significantly. In 2025, we adopted new targets for renewable energy. And now we aim to reach 40% renewable on our energy consumption by 2034. And in Q2 2026, we reached 22%, showing a solid progression on that target as well. Also I won't comment on the other targets, you can see that we are pretty much on target in general. Then I jump all the way to Slide 16. Importantly, our outlook for the remaining of the year. As you noticed yesterday, we made upward adjustments to our outlook. And after a record high Q2 revenue driven by volume, we expect the broad-based momentum to continue through the second half of 2026, and the revenue growth will be driven by both volume and now also sales price increases, which we introduced to compensate for inflation on energy, raw materials and transport. However, we expect the growth to be partially constrained by sourcing limitations such as in the North American arena. We therefore forecast full year revenue growth of 5% to 7% in local currencies. And EBIT, we maintain our expectation for the full year EBIT margin in the range of 13% to 14%. And while sales price increases will support this margin, the benefit will partially be offset by North American sourcing constraints and elevated maintenance costs and less favorable product and country mix. Last but not least, our investments, our projects are largely on track. And we do have some timing on our CapEx. So significant supplier contracts were being finalized and are being finalized in 2026. And this timing of down payments are expected to drive our investment outlook to around EUR 750 million for the year. These were the initial slides, and I hand over now to questions.

[Operator Instructions] First question is from Pujarini Ghosh, Bernstein.

So if we talk about your guidance, you have now raised the local currency growth guidance already twice this year. So could you explain the changes in your assumptions on pricing and volumes, which has led to this latest upgrade? And how much price and volumes are being baked into the full year guidance of 5% to 7% overall? On the other hand, you have not taken up your margin guidance, and you did mention it's possibly because costs are also rising in line with the pricing. But could you just explain a little bit more why the margin expectation is also not rising in line with the top line guidance? Or are you being a bit cautious as of now? So those are my questions.

Yes. The market has been developing in the last 6 months, and that's why we have made this progressive lift in our outlook. I think we have told a few in previous calls that we don't have like outlook and cannot see developments 6 or 12 months into the future. So we can only, of course, adjust as we see the market develop. It has been very favorable the last quarter, as I just reported, mainly on volume. But now for the next half year, we do see a little bit less volume and more price that we have of timing differences. It's at the half year that the price comes in. Will you comment on the specific numbers that you see, Kim?

Yes, I can do that. I mean what we see is previously, we had expected a 0% volume growth in the second half of the year. We now expect to reach 1% to 2% volume growth. And then on top of that comes then the impact from the pricing. We do see a slower Q3 in France and Germany, some of the bigger markets. So we're ending up at this 6% growth also for, you can say, for the first half and then hopefully, between the 5% and 7% in the second half.

Did we answer your question?

And on the margin guidance?

The margin guidance is just unchanged. The whole purpose with us doing the sales price increase on July 1 was to defend the full-year EBIT margin. And I think that is still the expectation that we are able to do this. So there is no change, particularly to the dynamics between the -- in the full-year guidance for the EBIT margin compared to what we did in May.

Next question is from Anders Christian Preetzmann, Danske Bank.

I would like to ask about the U.S. sourcing constraints that you mentioned. My first question is, how much of the U.S. demand do you expect to be met by European imports through H2 '26 and into '27, maybe expressed as a share of the expected U.S. volumes? And then my follow-up question to that is, should we maybe be viewing shipping volumes from Europe into the U.S. as maybe a permanent way to capture an additional U.S. demand? Or is this strictly a bridge until the new plant opens in 2028? Or in other words, should we expect it to keep importing into the U.S. for as long as demand exceeds the U.S. supply, which I suspect could go on for many years? Or would you rather read on the margin expansion potential for the group?

Yes, I can answer that. For the foreseeable future, there's still limited what we need to import from Europe to the U.S. market. But the aim is overall to keep growth and momentum developing in the U.S. to prepare for when our very large factory in the U.S. opens, our new factory that we're investing in and building right now in the U.S. So we get, you can say, a high utilization rate when it opens in approximately 2 years from now. So it is what you call a bridge and its financial beneficial, not only because it generates business in the short term. But as I said, then we can start the factory with a high utilization when it comes online. It is also -- but this becomes very detailed, some product categories that are beneficial to import. It has to do with weight and volume and what is meaningful to import. And so some products are not affected at all and some are affected more because available capacity and/or simple practicalities around shipping logistics. But yes, you can consider that bridge. But here for the foreseeable future, it is limited. We just wanted to share with you that we can satisfy the growth and the demand in the U.S. market with capacities from Europe that is doable and also sustainable for the period we need to.

Obviously, Anders, these imports, of course, comes at a lower margin, but we always have this hurdle rate to say it has to be cash positive import. But it is -- in the short time, of course, the imported part will have a lower margin compared to the locally produced products.

Next question is from Zaim Beekawa, JPMorgan.

The first is just on CapEx. I think you've increased from EUR 700 million to EUR 750 million largely due to timing, but then we also increased from EUR 650 million at Q1 due to warehouse investment. So how should we be thinking about CapEx next year? Should this be more around the EUR 600 million mark? And then secondly, on price and costs, can you comment on your hedging position for the remainder of the year and if you see a risk of supply of natural gas or you have enough security there? And then on price, do you still think that the 6% to 8% from July 1 is enough to compensate some of the recent sort of price cost inflation? Or do recent developments need higher pricing?

Yes. Zaim, Kim here. The only sort of major -- not major, the only CapEx that is going out this year, of course, is the factory in India. The other 3 main factories of Insulation capacity and also the Technical Insulation project in U.S. will continue into next year. So I expect to have also an elevated CapEx next year. We have not yet detailed out again the timing of the contracts when payments are falling due. But in '27, as you know, we will have the Romanian factory opening up in the middle of the year. So in '28, hopefully, that CapEx will be gone as well. But next year will be elevated as well. We haven't yet made the exact number, but we expect it to remain about the same level. Second question about the hedging. We have covered. We're now up to 75% of the Q4 electricity and gas. As you know, we cannot cover forward foundry coke, but there has not been a big price development in that particular energy source. And then for the first 2 quarters next year, we also started to cover of this. But we are still in a period where we have to determine the pricing drumbeat plan for '27 that has not yet and does not yet have to be decided, but we need to decide that here in the autumn before we start negotiating with our customers.

Next question is from Kristian Tornøe.

Two questions. First one is on guidance. So to the previous question on why you've been raising growth guidance, but not margin guidance, you primarily referred to the price increases you've done to safeguard EBIT margin. But in my view, that was more the explanation behind the change you did back in May. So my question is, has anything changed in your assumption on pricing and input cost since May? And therefore, why is this additional 1 to 2 percentage points, would you raise your growth guidance now just not yielding an increase to the margin guidance?

Yes, Kim, here. I mean the full-year guidance, as I said, we will maintain. And of course, it would have been nice to see an impact from that higher sales growth that we are having. There is a little bit of a negative product mix or less favorable product mix in the top line that means that it doesn't in itself lift the margin. And then as I said, we also have a continued sort of higher maintenance spend in some of the factories, mainly in Wyoming and also in the U.S. So it's just a fact of those things coming in that we are seeing. We have -- I think the inflationary impact, both on first half, but also on the second half is mainly on the logistic cost. And as I said, we are simply just transporting more goods around, and that has become more expensive to use this transport. So we also have just a slight sort of increased or assumed increased logistic cost for the second half compared to the first half.

Okay. Understood. And then my second question goes to the sourcing limitations in the U.S. Now you, in the previous question, spoke about imports, but just to clarify exactly what do you mean by these sourcing limitations?

We have -- there's a row of operational things, but one of them is maintenance. You have to do maintenance on our factories in certain periods, upgrade. By the way, also, we want to expand how much capacity we can drive out of each factory. It's Lean & Kaizen activities. And that means that you have to take the factory out of the loop for a while. And so there are some effects there. But it is also the growth, and that's, of course, also why we are building more factory capacity, both in technical insulation and in general insulation materials. So I think it's a very good solution we have found in selecting products that can be imported from Europe. By the way, we're not hit on tariffs on that. So we can actually import from Europe and satisfy that demand until our large jumbo lines go online in approximately 2 years from now.

Next question is from Daniel Khajenouri, Morgan Stanley.

Just a follow-up on the guidance, top line guidance. And if I missed it, apologies. But you delivered 6% local currency growth in H1, mainly volumes, while 6% to 8% price increases are rolling through from the beginning of Q2 and the new guidance is 5% to 7% local currency for the full year. So this begs the question on price realization and volume trends into H2. My understanding is you're seeing good price realization, but so far disappointing volumes. Is that the correct read into the earlier answer?

Yes, that is -- Daniel, that is correct. And we do see a good price realization. Right now, as we move into Q3, it stands around the 6%, which is within the framework that we have -- that we talked about. And we are pushing hopefully a little bit more in -- up to the autumn season. We had also anticipated that the volume will go down. We had quite a good run on both in France and Germany and also in Poland, other Eastern European countries. And we had already foreseen that, that will sort of taper down a bit in the second half. And that's why previously forecast was a 0% volume for the second half. Now we're adjusting that slightly upwards to 1% to 2% volume growth. But that is a distinct difference compared to the first half that was mainly volume driven and very limited price driven.

Okay. That's very useful. And just a follow-up on the CapEx, maybe I'll get back in the queue. You gave an idea for 2027, which is very useful. But given the schedule of FID-ed assets being built globally, from 2027 onwards, should we expect this to stay at elevated CapEx levels? Or should we expect that to start to slowly come down towards 2030?

Yes. Thanks, Daniel. I mean, we have right now sort of 4 large capacity investments ongoing. One of them in India, opening this year. One is in Romania opening in '27 and then one in France to be opened in '28 and one in the U.S. to be opened in '28. We have not yet announced any further capacity expansion plans. But that means once we sort of get those online, the best guess right now is that the CapEx amount will go down as we open up these factories. To what level then it will be in '29, once we have opened all the 4 factories, I think we will have to revert to that. That is so far out in the future that we are not yet even internally decided if there's room for further CapEx expansion. But there's nothing planned and announced at this time after 2028.

Next question is from Claus Almer, Nordea.

Also a few questions from my side. The first question goes to guidance. If you look at the CapEx guidance, the extra EUR 50 million you are increasing your guidance with, should we think about this as less EUR 50 million next year, given this timing of the milestones? That will be the first one.

Yes, Claus, you can think like that. It is a timing difference of down payments.

Okay. Very helpful. Then about the P&L guidance. As you said, you're going to raise your price so far by 6%, and you would get an additional maybe 1% in addition. When you look at Q2, limited ASP impact, as you said, so key driver was volume. When I look at your gross margin, it seems to be down by 2 or 3 percentage points year-over-year, given, I guess, energy cost. Is it fair to assume if you had introduced your price increases earlier and thereby being able to fully offset the energy cost, then your EBIT margin in the quarter would have been like 2 or 3 percentage higher than reported?

I mean, obviously, in -- as you know, in my perfect excel, I live in, I could easily have put prices up in the second quarter. But in real life, we could not -- we have contractual obligations with customers, and we didn't judge this exercise to be a force majeure. So we had to adhere to the notice periods that contractually we have with many of our key customers. And that is typically 8 to 12 weeks. i.e., it takes 2 or 3 months in order to effectively get pricing into the market. On the supplier side, we got hit immediately with the higher transport cost. So that just hits us immediately. And yes, that is just a timing difference. As I said, the plan has always been to maintain the full-year EBIT margin, 13% to 14%, knowing that we have a number of sort of one-off this year that disturbs the picture a bit, but that is included in the 13% to 14% EBIT margin guidance.

Sure. So what I'm trying to figure out what is the underlying everything has been introduced and implemented price increases. So as I understand your reply is that when you look at Q3, everything equal, then probably the gross margin, EBIT margin should be 2, 3 percentage points better than we saw in Q2. Is that a fair way...

Moving upwards, definitely. I'm not sure we can know everything because I also know of some of the things that we are looking at in terms of these maintenance costs. But everything equal, yes, it should move upwards by a few percentage points.

Next question is from Julian Radlinger, UBS.

So I have a couple. The first one is the easier one. Sorry to come back on the guidance. I still don't understand something here. So you did 6% -- 6.3% local currency growth in H1. You're guiding 6% at the midpoint for the full year, so basically 6% in H2 as well. And now you've got price, which is at least 6% you're saying in H2, but you're also saying 1% to 2% volume on top. That gets me to 7% to 8%. What am I missing here?

You're missing a little bit of negative product and country mix. That's it, Julian. There is -- some of these growth are coming in markets where the average selling price are just lower than the average. So that's really just the gist of it. There's nothing really strange to this. And this is just both the product and the country mix. On the product side, it's mainly because we're selling a lot more flat roof insulation also in the second half, and that has a lower average cost than our normal insulation.

Okay. Okay. Understood. My other question is a bit of a bigger picture one. So I want to get back to this CapEx increase. So look, you've been open about the capacity expansion in the coming years. You've made it clear CapEx is going up because of that and it's temporary. But now you've increased it twice this year, and you've not really indicated whether next year is going to be up or not. I know you just said it will be on a -- it might be on a similar level, but nonetheless. So you haven't really helped investors understand how to think about the returns on that CapEx, aside from, of course, saying the incremental ROIC will meet your own hurdle rates. The stock is now down 10% in 2 days or since yesterday, and I think that's actually largely because of that. And so assuming you won't provide more help on those fronts in today's call, which is, of course, not the right forum necessarily. Is this a concern to you? Is there -- are there any plans that you have to provide some numbers and some visibility on this CapEx over the next few years? And more specifically, the returns over the next few years from when you open these plants in the form of an Analyst Day or just something to give investors a bit of a toolbox to get more comfortable around this and get more comfortable about buying into this. Big question. Sorry.

Kim and I are looking at each other and nodding and saying yes. Fair question, fair comment and definitely also something we have discussed here. And without promising too much, let me start somewhere else. Again, there are 4 factories announced, like Kim just alluded to. They will be completed over the next 2 years. So yes, CapEx will be elevated and then come down as these 4 major footprint projects are getting finalized. We have realized that it would be good for the investor community and in general to give some more granularity on not just on a macro level, but also opening up a little bit for the individual projects of what that means on return on invested capital as the capital flows out in establishing this capacity, but also when you can say the volumes and the capital starts flowing the other way. So it's a little bit premature to promise you the exact date when we come back to it. But if I can just park it here and say that we want to give you some more insight to it, and we're right now discussing what should be the form and format to open up -- to give you that insight into the capital movements.